In the last week, the Australian dollar has seen considerable volatility, with a standard deviation of 1.53% with respect to the US dollar, whereas the Chinese renminbi has been relatively stable with a standard deviation of 0.24%. With Australian capital coming back to the market and Chinese investors continuing with their offshore push, what do these currency fluctuations mean for real estate investors?

What matters to investors diversifying into real estate outside their home markets, is the combination of currencies and total returns from property. For example, for a UK Pound investor who buys into the Singapore market, what is his return once the round trip is made from Pounds into Singapore Dollar real estate and then back into Pounds?

Currencies had a big impact on real estate returns in 2014, with foreign exchange gains or losses significantly increasing or decreasing investors’ returns in Prime, Grade A office markets respectively. We have calculated total returns for office markets in ten cities in Asia Pacific in eight currencies – US dollars, Euro, Pound Sterling, Australian dollar, Singapore dollar, Japanese yen, Renminbi and South Korean won – and compared them against the returns a local currency investor would have got.

Local real estate investors in all markets would have seen positive returns. Tokyo saw the highest local total one-year returns of 23% in 2014. In keeping with the strong currency depreciation, Euro and Yen investors had high returns in all Asian markets, particularly in Australia, China, India and Korea. Across all the cities and currencies we looked at, the biggest overall total return was from Yen investors in Shanghai and Seoul prime offices, who had a 26% return on their real estate investment.

Given the relatively strong and stable currency, RMB investors would have been best off investing locally in 2014; they faced currency exchange losses and had lower returns than the local property returns in some key Asian markets such as Singapore, Seoul, Tokyo and Mumbai.

RMB investors one year holding period return 2012 – 2014

Source: JLL Research

Looking ahead at the rest of 2015, market commenters in foreign exchange are predicting a 3% depreciation in Asian currencies, with expectations of depreciation even higher if the tightening of US monetary policy leads to larger outflows from the Asia Pacific region. The Fed’s impending decision on raising interest rates and its impact on the strength of the US dollar is likely to have a significant impact on the real estate investment markets.

For more details, please see the full report.

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