Dollar's woes give property buyers a Manhattan bargain

Autor: Rebecca Knight - The Financial Times
November 20, 2007

Steven Toumbas, an equities investor from London, has always wanted to own a second home in the US. "America is the engine for the world," he says. "Everyone wants to have a holiday home in Florida, or an asset in New York. It's the place to be."

Mr Toumbas began looking at potential properties in New York City in mid-June 2006, but felt the timing was not quite right. The pound at that point was trading at about $1.84. "I held back because I thought there would be further dollar weakness," he said.

His patience has paid off. The pound has hit new highs against the dollar in recent months, and this week traded above $2.11 for the first time since 1981.

Within the next three to six months, he plans to close on a $1.2m (£572,000), 540 sq ft apartment in the luxury Trump Soho development in lower Manhattan. It is a calculated move, he says. "I'm going to let the subprime fall-out stabilise, let the Fed further cut interest rates, and let that further weaken the dollar. The Brits know that the pound is strong."

Mr Toumbas is part of a growing trend: foreign buyers taking advantage of the weak dollar to attain their dream US holiday home.

The pound is up against the dollar about 34 per cent from five years ago, and about 10 per cent in the past 12 months.

Meanwhile, the euro has risen 15 per cent against the dollar in the past 12 months and 47 per cent since 2002. The favourable exchange rate, coupled with house prices in the US being down about 1.5 per cent this year, has made that bungalow in southern Florida or that pied-à-terre in Las Vegas look more like a bargain.

"It's certainly a very attractive time to buy," said Lawrence Yun, chief economist at the National Association of Realtors. "Brits are able to buy at a 35 per cent discount just because of the currency, and then in some locations, home prices are down 10 per cent from a year ago. Taken
together, Brits are able to buy places at about half the price."

While precise statistics are difficult to come by, brokers and housing experts say that foreigners have boosted their purchases.

According to research published in July by the National Association of Realtors, nearly one in five realtors has sold a home to an international client in the past year. A third of such buyers are from Eur-ope, with 12 per cent of the total from the UK.

Nearly half of international buyers purchased homes strictly for vacation purposes, while 22 per cent bought mainly for investment. The bulk of foreign home sales were in Florida, California and Texas.

Hotel condominiums - typically high-rise, luxury properties in desirable holiday areas - are particularly popular with foreign investors.

"If you're buying a vacation home, now is a great time to buy in Florida because prices are off, so you're getting more for your money," says Joel Greene, president of Condo Hotel Center in Miami, Florida, which specialises in the sale of condominium hotels and private residence clubs.

Take, for instance, one five-star condo hotel on Fort Lauderdale Beach, Florida, completed in 2004. Last year, 600 sq ft studio units sold for about $625,000. The same units are now being resold for $475,000-$550,000.

Even so, there is plenty of reason to treat the market with caution. The housing downturn in the US has seen median house prices drop 4.2 per cent year-on-year to September, while the number of homes sold fell 19.1 per cent, according to the NAR.

Mr Greene acknowledges that US property should not be seen as a route to a quick return. "I don't sell it as an investment because it's not clear whether the market has bottomed out," he says.

Mr Toumbas takes a similar view, saying he is purchasing his Trump Soho unit "for the long term" and plans to rent the property out and maintain it for personal use.

"I want to invest in the States, but I wanted to make sure if there is a storm, I could weather it," he says. "I figure high-end real estate would best weather any storm."

Copyright The Financial Times Limited 2007.