With the Australian dollar continuing its recent run of strengthening against the US and HK Dollars, it brings into discussion the merits of using dormant equity when buying property in Australia.
This is because the net value of your earnings and savings that are paid in HK dollars are now worth less than before in Australian Dollar terms, due to the A$ strengthening in the currency markets.
Whether this is a short or long term trend is open to much debate and the factors influencing the movement are well documented and include, the state of the US Economy, current oil prices, issues surrounding Iraq and other global influences.
All this would not normally be a concern for expats if they intend to keep funds in Hong Kong or US Dollars, however if there is a need to send money home then reality bites hard.
One of the largest single uses for Australian dollars for many expatriates is when they acquire an Australian investment property and need to supply the required deposit. This is less palatable now with the exchange perhaps at less favourable levels than before.
One option to consider is perhaps to use any existing equity in Australian property that you may already hold.
Many people do not fully understand that they can utilize the surplus equity in their existing property holdings in order to assist with new purchases. This can occur because the banks will lend based on your combined portfolio rather than just on an individual property basis.
Where this becomes beneficial, is that it means that you can keep your US or HK Dollars overseas and wait until the currency may become more favourable, whilst at the same time proceed wit the desired purchase.
At a time when the Australian property markets are showing good signs of moving into the next growth phases, particularly on the Eastern seaboard, then this allows you to enter the market at an advantageous time.
This may be more beneficial than waiting for the currency to improve, as the property prices may well have lifted by more than the positive movement in the currency.
In short, you get to have your cake and eat it too, as when the currency does improve, you will have more Australian dollars on the conversion to reduce you loan at that later stage.
It is surprisingly easy to arrange for Equity Release on your current property holdings and many expatriates are not fully aware how much buying power lays dormant and at their disposal.
For example, if you had bought a property in Australia a few years ago for A$500,000 with a loan of A$400,000, over the years the property may have grown to a current value of say A$750,000.
Surprisingly, in this situation you could use this new value to acquire another property to the value of between A$800,000 to $1,000,000 without having to put any cash towards the deposit. This would mean that there is no need to convert any offshore funds held to proceed with the purchase.
This can be a very effective way to ensure you profit from the upside on offer in the property market without the risk of currency losses on your hard earned savings.
To arrange a full review of your finance options, email our Finance member Specialist Mortgage at helen@smats.net.
