Real Estate & Economic News in All from Propertyshowrooms.com

Turkish Property has Benefited from the Crash

Fri, 29 Oct 2010 00:00:00 GMT

Turkish property was getting popular during the overseas property boom, but it was struggling amidst the competition. In this, the crash has actually benefited Turkey, allowing the rewards of its years of reform to shine through by knocking out its European competition.

The European landscape has changed a great deal since the credit crunch started. All of Europe’s established markets are experiencing sluggish growth, especially when compared to the emerging markets within Europe, and especially when compared to Turkey.

The main problem is liquidity, almost all banks in established markets have gotten bombarded with defaults and even now many European banks, including banks in Germany and France are thought to be concealing the true level of toxic loans on their books.

Within these established markets, many of them are caught up in the sovereign debt crisis, which is making them an investment no no.

Greece, Spain, Portugal and Italy were all competing for the attention and Euros of overseas property buyers. Now, they have massive budget deficits of up to and over 10% (13.6% of GDP, 9.49%, 9.6%, and 9.3% respectively as of 2009 estimates), and are facing the necessity of imposing harsh austerity measures on their respective populations.

In order to do this, Greece, which is the most in trouble has had to increase taxes on property severely. This has put buyers off even more and increased supply by making many owners want to sell up.

Portugal should also consider raising property taxes says the Organisation for Economic Cooperation and Development.

The ratings agencies have penalised Greece and Portugal heavily for the state of their economies; they have been downgraded several times.

Meanwhile Turkey is in much better shape:

Because of the reforms made to the Turkish banking system in the wake of the 2001 economic crisis; reforms specifically aimed at making the banks more resilient to economic crises, the Turkish banking system was less exposed to the effects of the global financial crisis.

So while liquidity is constrained in most countries in Europe and around the world, liquidity is high in Turkey, and lending is loose, especially compared to the tightened credit in the UK, Europe, the US and those countries worst affected by the global downturn.

On top of that years of reforms are paying off, especially those since 2002:

Since coming to power in 2002, Erdogan’s AK party has intensified Turkish reform, including major anti-corruption laws, which included several pro-EU reforms like giving EU courts supremacy in Turkey. The main thing now making property in Turkey more popular though, is the way Erdogan has turned the Turkish economy from an unstable mess with high inflation, to a solid, stable economy with strong growth, high liquidity and a strong fiscal base.

When the AK party took power in 2002, the country was in an economic mess, following the Turkish economic crisis of 2001. Since then the party has completely turned the economy around, including:

Reducing Turkey’s debt to the International Monetary Fund from $23.5 billion to $7 billion

Increasing Central Bank reserves from $26.5 billion to $72.5 billion

Reducing public debt from 74% of GDP to 39% of GDP

Reducing inflation from 34.9% to 5.7% the lowest level in 39 years.

Because of this, the low interest rates in Turkey are not just a knee jerk reaction to the financial crisis, but wise fiscal management of a low inflation environment. This tightening and reform by the AK party has paved the way for Turkey’s current fiscal landscape and strong growth.

The Turkish budget deficit stood at around 5% in 2009 and is thought to have fallen this year. Meanwhile gross domestic product grew 11.7% y-o-y in Q1 2010, and 10.3% y-o-y Q2 2010. This took overall growth to 11% for the first half of 2010. Turkey is one of the few countries in the world to have had its debt upgraded by the ratings agencies since the downturn began.

The strengths of Turkey are standing out against such a dire economic backdrop.

Article written by Aydin Cakir – Director of New Home in Turkey. Antalya property agency offering properties accross Turkey.

Parts wants to bring in Russian tourists with tax-free shopping

Fri, 27 Mar 2009 00:00:00 GMT

Tax free limit, which was applied at the beginning o the year, increased tourists’ interest so remarkably that Juhan Parts, the Minister of Economic Affairs and Communication thinks that the limit could be lowered more, Eesti Päevaleht reports..

Global M & A volume reaches $3-trillion mark

Tue, 21 Oct 2008 00:00:00 GMT

Though the global M & A volume has reached a whopping $3 trillion mark, it represents a decline of 22 per cent from its year ago period, as all regions except Latin America reported decreasing M & A volume, according to data compiled by deal tracking firm Dealogic...

Asian stocks, ASX fall as US Senate approves bailout

Thu, 2 Oct 2008 00:00:00 GMT

In response to the US Senate passing the financial bailout bill, the ASX and Asian markets have fallen...

Market closes down 1.4pc on global fears

Tue, 16 Sep 2008 00:00:00 GMT

The share market has fallen for a second day in a row with investors fearing more upheaval in the US financial sector...

World shares fall amid US turmoil

Mon, 15 Sep 2008 00:00:00 GMT

Share prices in Europe and Asia fall sharply in the midst of the financial turmoil in the US over the fate of Lehman Brothers...

UAE economy set to keep growing

Thu, 11 Sep 2008 00:00:00 GMT

The economy in the United Arab Emirates (UAE) has been tipped to keep growing this year by Merrill Lynch.

According to the organisation, factors such as strong oil prices and a boom in the construction sector are likely to lead to an increase comparable to that in 2007.

Estimates suggest that the UAE's economy will expand by approximately 7.2 per cent this year - down from 7.4 per cent in 2007.

Merrill Lynch believes this could herald the start of a slight drop-off in economic growth as Dubai's economy is close to becoming "overheated".

The organisation said the government is keen to ease pressure on the real estate sector in particular in order to curb inflation fears.

This comes after the UAE was recommended to foreign property buyers by Jo Sinnott, host of Real Estate TV's Next Big Thing Series.

Speaking to Property Wire, she said areas such as Dubai and Ras Al Khaimah offer various opportunities to investors.

Visit our off-plan property United Arab Emirates page

Asian markets down, KLCI dragged by plantations

Wed, 10 Sep 2008 00:00:00 GMT

Asian markets got off on a weak start on Wednesday as sentiment took a blow from the sharp overnight fall on Wall Street even though oil continued to ease to US$102.23 per barrel...

Rights Issue to Spur ABCH Growth

Mon, 8 Sep 2008 00:00:00 GMT

Emerging banking giant, ABC Holdings, is set to transform itself into a true pan-African bank following the tabling of its US$150 million rights issue towards opening subsidiaries in new markets as well as the retail expansion...

ECB Must End Euro's Wild Rise

Mon, 8 Sep 2008 00:00:00 GMT

The downturn of economic activity in the eurozone has come as a surprise to many observers. The credit crisis appeared to be less severe in the eurozone than in the US and, apart from Spain and Ireland, none of the eurozone member countries experienced serious problems in the housing market. Yet the eurozone now comes close to a full-fledged recession. What happened to cause such a rapid and intense deterioration in the eurozone business cycle? The key to answering this question is the exchange rate of the euro.

From the start of 2007 until July 2008 the euro appreciated by about 14 per cent on average against its main trading partners. This exchange rate shock came on top of a protracted appreciation in the preceding five years. The second shock hitting the eurozone was the doubling of crude oil prices since early 2007.

The effect of the exchange rate shock on the profitability of the eurozone companies that compete internationally has been of the same order of magnitude as the oil price shock. Take an average eurozone exporting company selling a product worth €100 ($144, £81). Energy costs prior to the oil price shock represented €10. Now comes the doubling of oil prices leading to a doubling of the energy costs to €20. This would squeeze profits by the same amount, unless the company could raise its price in foreign markets. But let us assume the exporting firm "priced to market" so as not to lose market share.

Now let us look at the implication of the appreciation of the euro during the same period. Our prototype exporting company has experienced a drop in revenues of 14 per cent; that is, the euro value of its export dropped from €100 to €88. This squeezed profits even more than the doubling of the oil price. Our company recuperated part of the revenue loss because the euro appreciation led to a drop in the euro price of oil, reducing the energy cost. But this effect was small given that the energy costs are a relatively small fraction of the total value of the product.

There are many other effects of these two shocks, but they all point to the same conclusion. Since the start of 2007 the export sector in the eurozone has been hit by a twin shock - an oil price shock and an exchange rate shock - of approximately equal magnitudes. These two shocks squeezed profits of exporting firms twice.

The opposite has happened in the US since the start of 2007. The effect of the oil price shock on export companies' profitability was fully compensated by the depreciation of the dollar, which on average amounted to 11 per cent against the big trading partners. Thus the dollar depreciation allowed the US export companies to offset the profit squeeze resulting from higher oil prices. No wonder that the US export sector is booming and the exports of the eurozone countries are stalling.

The oil price shock was an event that eurozone policymakers could not influence. The same cannot be said of the exchange rate shock. This occurred because the eurozone monetary authority, the European Central Bank, allowed it to happen. The simple fact is that the ECB neglected the exchange rate. The ECB was influenced by a theory that says that exchange markets are efficient and that therefore the exchange rate always reflects economic fundamentals. In this view it is both undesirable and futile to fight market forces, which are always right. In addition, the ECB managed to sell a minimalist interpretation of its mandate. In this view, the ECB is responsible only for price stability. Only if exchange rate movements threaten price stability are they worth looking into.

Since 2001, the euro has more than doubled in value against the dollar. This appreciation can be interpreted only as a bubble driven by speculation gone wild. During the whole period of massive euro appreciation, the ECB stood by and watched approvingly. It did not threaten price stability so there was no reason to do anything.

This neglect harms the competitiveness of the eurozone export sector and is an important cause of the slowdown in economic activity. The ECB has abdicated its responsibility to intervene in the foreign exchange market and to oppose exchange rate developments that are out of touch with economic forces. It is time to revise this minimalist view of its responsibilities. One way the ECB could do this today is by giving a forceful signal (including intervention) aimed at reinforcing the recent small downward correction in the value of the euro.

Story from FT.com

Eurozone economy shrinks by 0.2%

Wed, 3 Sep 2008 00:00:00 GMT

Lower private spending and investment prompted the eurozone to contract in the second quarter, data shows...

Eurozone edges towards recession

Fri, 15 Aug 2008 00:00:00 GMT

The eurozone moved closer to recession yesterday after it emerged that the economy contracted in the second quarter for the first time since the euro’s launch...

Recession Fears Grow In Eurozone

Thu, 14 Aug 2008 00:00:00 GMT

The eurozone economy has shrunk for the first time since records began 13 years ago...

Expats need to be financially prepared-080808

Fri, 8 Aug 2008 00:00:00 GMT

People who are planning to relocate to another country have been advised to make sure they are financially prepared for such a move.

According to Shelter Offshore, many prospective expatriates are unable to fulfil their ambitions because they have not got enough money.

Therefore, the website has encouraged those who wish to live abroad to plan their finances early.

In addition, it has also suggested that people make sure they have some means of generating an income while overseas.

Shelter Offshore commented: "If you can't afford to live there without financial problems then paradise will be a fog behind the nagging worries about bills and how you're going to manage."

The online portal added that people who address this issue before moving stand a much better chance of improving their quality of life in the long run.

According to Jill Rutter of the Institute for Public Policy Research, Britons are increasingly moving abroad because they are more affluent than in the past.

She told the Guardian that a record number of people are choosing to relocate overseas each year.

US house figures in surprise rise

Thu, 7 Aug 2008 00:00:00 GMT

The US sees an unexpected increase in agreements to buy homes in June, according to a real estate organisation...

Eurozone rates on hold at 4.25%

Thu, 7 Aug 2008 00:00:00 GMT

The European Central Bank maintains eurozone interest rates at 4.25% after its latest meeting...

French firms partner with finance specialists to add value (01 August 2008)

Tue, 5 Aug 2008 00:00:00 GMT

Strong Euro creates high demand for mortgage and FX services say agents...

Credit crunch savages CBRE and JLL’s second quarter figures

Wed, 30 Jul 2008 00:00:00 GMT

The world’s two largest property services firms suffered severe profit falls in the second quarter after fees from transactions were ravaged by the credit crunch...

Eurogroup Must Shed Complacency

Tue, 29 Jul 2008 00:00:00 GMT

Two aspects of the eurozone economy are often mixed up. One is its overall performance. The other is the divergences that at any time exist within the single currency area. The Spanish economy may be about to fall off a cliff. But Spain accounts for only 11.8 per cent of the eurozone's gross domestic product. If you look at the eurozone from a great height, a meltdown of the Spanish economy looks like a minor regional wildfire.

Overall, the eurozone economy is in reasonable shape. The latest indicators point towards a slowing in economic growth but not a recession. The European Central Bank is probably a touch too optimistic, as its own forecast has not yet fully taken account of the seriousness of the US downturn. But there are some reasons for guarded optimism. Most of the eurozone does not have a house price problem. Corporate and personal balance sheets are in good shape and credit to the private sector continues to grow at double-digit rates. This does not usually happen when you are about to hit a deflationary slump.

But what about intra-eurozone divergences? I was struck the other day by a statistic from the ECB that shows Spain losing competitiveness relative to Germany, even now. We knew this happened during the years of high economic growth in Spain and low growth in Germany. But the trend continued even when the relative positions of the two countries were reversing. One explanation is that Spanish wages are directly linked to inflation, while German real wages are still declining.

Worse, Spain's slippage comes amid the prospect of a serious downturn in its economy. Last week's collapse of Martinsa-Fadesa, a large property developer, has been a reminder, if any were needed, of the massive scale of the Spanish property crash. Serious financial and economic distress is almost inevitable. Do not be fooled by the fact that Spanish banks had virtually no exposure to US subprime mortgages. Being exposed to Spanish mortgages is probably worse.

Spain is in a more delicate position than the US or the UK because, as a member of a monetary union, the country has fewer macroeconomic adjustment tools at its disposal. The dollar and the pound have devalued in real effective terms, while Spain has one of the hardest currencies in the world. Spanish interest rates have gone up while US rates have gone down.

The good news is that Spain has some room for manoeuvre in fiscal policy, given its low debt-to-GDP ratio. But the whole structural and legal setup of the eurozone requires that, in any adjustment, most of the heavy lifting is done via the real economy. Spain is thus in danger of entering a decade of misery, with falling real wages.

The problem is that even if Spain were to try to pull itself up through competitive adjustment, it is not at all clear that this would work. I am not even sure whether it works all that well for Germany in the long run, but that is another story. Some degree of competitive adjustment is probably needed but the huge scale of the shock that is unfolding in Spain will almost certainly require a macroeconomic response that Spain cannot deliver on its own.

Yet the eurozone's system of economic governance is not designed to produce this type of response. There are no cyclical transfer schemes, only structural funds. No common rules exist on bank bail-outs. Small-minded national banking regulators even refuse to countenance the very obvious necessity of a central banking regulator for cross-border banks. The eurozone does not even have single representation at the International Monetary Fund. The economic shocks to be experienced by Spain, and by Ireland, will seriously test the eurozone's see-no-evil-hear-no-evil approach to economic governance.

I have long thought that the only way the current set-up will be changed is not through debate about future eventualities but as a result of being plunged into crisis. Eurozone finance ministers – the so-called eurogroup – are a complacent bunch. They never do anything until it is absolutely necessary. But they will act eventually. I am relatively optimistic that they will always be able to ward off the worst-case scenario, one that still excites some commentators: the threat of a eurozone break-up.

So what actions would be needed? In the very short run, a transfer mechanism to provide help for countries in severe distress. Of course, any transfers would have to come with IMF-style conditions attached. As a price for an increase in intra-eurozone solidarity, the other member states would almost certainly demand that the beneficiaries end the silly policies that got them into the mess in the first place. Spain, for example, should end the automatic link between inflation and wages. It should also end the monopoly of the one-month euro interbank offered rate mortgage, which has had a hugely pro-cyclical effect on mortgage lending and the housing market.

The one institution that cannot help Spain is the ECB. Its role is to run an optimal policy for the eurozone as a whole. Dealing with this hugely asymmetric shock is primarily a matter for politicians, not central bankers. Anybody who claims to be serious about economic policy co-ordination, such as President Nicolas Sarkozy of France or the European parliament's economic and monetary affairs committee, should therefore stop bashing the ECB for a few months and focus attention on the storm that is building up on the eurozone's western front.

Full story from FT.com

Bid to salvage world trade talks

Tue, 29 Jul 2008 00:00:00 GMT

Talks to try to rescue a world trade deal go into a ninth day after delegates fail to resolve differences over market access...

Mazaya Real Estate Index Invests AED5 million to develop index

Wed, 23 Jul 2008 00:00:00 GMT

Mazaya Real Estate Index recently announced that substantial progress has been made in the preparations for the launch of several sub-indices, which will be established in order to monitor and study trends and developments in booming real estate sectors across the GCC...

Tax advice for beating the credit crunch using your home

Mon, 21 Jul 2008 00:00:00 GMT

Homeowners looking for a way to protect themselves from the credit crunch can use their property to their advantage, new advice suggests. Tax relief on mortgage interest and entering the holiday lettings market are among the suggestions from The Times.

There are some practical ways of making your finances tax-efficient and reducing the impact of record inflation. Advice from the paper includes:

Entering the holiday lettings market. Use your second home to your financial advantage and set it up for "furnished holiday letting". This is an ideal solution for those who don't want to sell their property in the current market. The property must be available to let for at least 140 days in the year and let for a minimum of 70. Holiday homes benefit from favourable Capital Gains Tax (CGT) and Inheritance Tax (IHT) treatment.
Avoid Capital Gains Tax on your second home. Profits made on the sale of your holiday home or buy-to-let property are subject to CGT at 18 per cent, although profits made on your main residence are free of tax. There are ways you can help yourself. If you lodge a "principle private residence" (PPR) with the taxman within two years of purchasing a second home, you can vary this choice in the future in favour of another property. This means that if you make a healthy profit from selling your holiday home you can vary your PPR from your main residence to your second home , and then change it back again immediately once the sale has been completed.
Getting tax relief on your mortgage interest. This is particularly effective if you run your own business. If you have a mortgage, your spouse can sell you shares equal to this amount in your private family company. You can take out a loan to cover this cost and use the proceeds from the share sale to clear your mortgage. Because you have borrowed money for acquiring shares in a private family firm, the full amount of interest on the borrowing qualifies for tax relief at your highest marginal rate. This means interest payments can be set against your other income, which could make you big savings. There is no CGT to pay on share disposals between husband and wife.

This story was brought to you by holidaylettings.co.uk, the UK's No.1 holiday home website.

Eurozone inflation at record 4%

Wed, 16 Jul 2008 00:00:00 GMT

Inflation in the euro area rose to 4% in June as food and fuel costs continue to accelerate, official figures show...

Time of cheap flights is over

Mon, 14 Jul 2008 00:00:00 GMT

Increasing air traffic fuel prices threatens with a bankruptcy wave in the air traffic industry and tangible rise in prices for long haul flights...

Airbus US Plane Deal In Danger?

Thu, 10 Jul 2008 00:00:00 GMT

European planemaker Airbus could lose out on a huge, £17bn, US Air Force contract after all...

Expert Tax Advice From Milestone International Tax consultants Ltd - July 2008

Wed, 9 Jul 2008 00:00:00 GMT

Financial expert Binne Vries from Milestone International Tax consultants Ltd gives his personal opinion on the latest tax schemes:

Tax Tip

Treaty Shopping and Beneficial Ownership - The Canadian view

Multinational groups with cross border activities often use intermediary holding companies that own local subsidiaries to conduct local activities. The location of the intermediary holding company may produce a tax advantage through reducing withholding taxes on distributions by the local subsidiary via the intermediary holding company to the ultimate owner or parent company. However, in virtually all double tax treaties, the benefits of the reduced withholding tax rates are only granted if the recipient of the dividend income is the 'Beneficial Owner' of the dividend. In situations where an intermediary holding company is used, tax authorities sometimes claim that the structure is used only to obtain a tax benefit and that it cannot be considered to be the Beneficial Owner.

The term Beneficial Owner is not defined in the tax treaties and, to further complicate matters, States applying tax treaties give different meanings to the term. The Commentary to the OECD Model Conventions provide that a conduit company cannot normally be regarded as the beneficial owner if it has, as a practical matter, very narrow powers that render it a mere fiduciary or administrator acting on account of the interested parties. Some of our readers may remember the UK Indofood case where the Civil Court in the UK decided that a Dutch intermediary company receiving interest from a UK resident could not be regarded as the Beneficial Owner. An important factor in this case was that the Dutch company never received the interest: the debtor of the interest paid the interest due directly to the beneficial owner. As a result of the decision, HMRC was entitled to ignore the reduced withholding tax rate under the relevant tax treaty. Although this decision is considered to be controversial, HMRC announced that they would follow the decision and have since published guidelines on the 'International meaning of the term Beneficial Owner'.

The issue was more recently tested in a Canadian case (Prévost Car Inc v HM The Queen). In this case, the Tax Court of Canada was asked to consider the meaning of Beneficial Owner in the Canada-Netherlands tax treaty. Volvo of Sweden and Henlys of the UK owned, via a Dutch intermediary JV company (Prevost Holding BV), a Canadian subsidiary (Prevost Car Inc). Revenue Canada argued that the Dutch company was not the beneficial owner but was merely a conduit (effectively agent or nominee) for the shareholders of the Dutch company. Revenue Canada based their arguments on the fact that there was a shareholders’ agreement which provided for required distributions from the company and the fact that there was no real substance in the Dutch company.

In rejecting Revenue Canada’s assertions, the Tax Court determined that the Dutch company was indeed the beneficial owner of the relevant dividends, since it was the person who received the dividends for its own use and enjoyment. The shareholders’ agreement governed the relationship between the shareholders only, not the relationship between the Dutch company and the shareholders. The Dutch holding company was not party to the shareholders agreement and neither Henlys nor Volvo could take action against the Dutch company for failure to follow the dividend policy described in the shareholders agreement. Financial statements of the Dutch company show that it owned the relevant assets and had liabilities, and it was a requirement, if dividends were to be declared to the shareholders, that the directors had to declare such dividends and the shareholders subsequently to approve them. Until such time as dividends were declared, the dividends receivable were an asset of the Dutch company and were available to any creditors.

These two apparent contradictory decisions (the UK and the Canadian perspective) will not resolve the different interpretations of the term Beneficial Owner used in double tax treaties. They do, however, provide interesting guidelines and it would seem that it is still possible to use an intermediary conduit company located in a jurisdiction that has the most favourable tax treaty in respect of withholding taxes on dividend, interest or royalty income. This of course is on the proviso that beneficial ownership will only be satisfied where the intermediary company legally (Prevost) and practically (Indofood) is the owner of the income. Naturally, one can expect HMRC to adhere to its published guidelines and will continue to challenge conduit situations irrespective of the legal and practical circumstances. Readers who would like to know what solutions may be available in this regard should contact binne@milestonetax.com.

European Union / Belgium

A recent ECJ ruling on Belgian participation exemption may lead to a change in law

A Belgian court in Belgische Staat v NV Cobelfret (C-138/07) recently held that the distributed profits of a member state subsidiary to its parent in another member state are indirectly taxed because the 95% deduction cannot be fully used in a loss situation. The Court observed that the offset of the losses from the distributed profits of the subsidiary company reduced the loss carry forward possibilities. On 27 February 2007, the Court requested a preliminary ruling from the ECJ as to whether this was compatible with the Art 4(2) EU Parent / Subsidiary Directive (the “Directive”).

The ECJ held that the current Belgian domestic rule that governs the tax treatment of dividends received by a parent company from its subsidiary situated in another member state is incompatible with Art. 4 of the Directive.

The background to the issue is as follows: Article 4 of the Directive provides that if a parent company has a participation of at least 15% in its subsidiary situated in another member state and receives distributed profits, the parent company member state must not tax those profits or must give a tax credit for the corporation tax paid by the subsidiary on such profits. However, Article 4(2) of the Directive allows member states to disallow a fixed amount of management expenses related to the distribution of up to 5% of the total amount of profits distributed.

Belgian domestic law allows for a 95% exemption of profits received provided the parent company holds at least 10% of the capital of its subsidiary and the subsidiary is subject to tax at a minimum rate of 15%. Dividends received are included in the company’s taxable profits which are then adjusted. The deduction of the exempt inter-company dividends can only be made after all other deductions, including loss deductions.

This means that the parent company can only deduct 95% of the qualifying dividends received if there are any remaining taxable profits. Therefore should the parent company have losses, the 95% deduction cannot be fully used, nor can it be carried forward against future profits. The deduction is also not available if the parent company’s profits are lower than that of its subsidiary. Further, the profits received from the subsidiary must be offset against the losses of the parent company before the parent company can carry forward its losses.

The Belgian Revenue authorities have not yet responded to the ECJ decision.

France / Luxembourg

Double CGT exemption

We reported in previous ITNs that the double CGT exemption that was achievable under the old France / Luxembourg 1958 treaty was no longer effective as the treaty is in the process of being renegotiated.

However, the new treaty, which is applicable from 1 January 2008 only abolishes the double CGT exemption on direct ownership (or ownership through a transparent French entity) of French real estate. The following are possible structures to use for French real estate going forward:

Luxembourg company owns a French company owning French real estate: the gain on sale of the shares of the French company is, not taxable in France, and the gain may be exempt in Luxembourg under the participation exemption, provided the relevant conditions are met; or
Luxembourg company owns a French SCI owning French real estate: a French SCI can elect to be a civil or commercial entity. If the French SCI elects to be subject to corporate tax, any gain on disposal of the SCI shares will be taxable in France. If, however, the French SCI is subject to corporate tax by virtue of its trading activities, the gain will be taxable in Luxembourg only and may be exempt under the Luxembourg participation exemption.

Other planning opportunities do exist but care must be taken due to the complexity of French tax law.

Liechtenstein

Tax reform planned

The Liechtenstein government has published the outline and draft discussion points for a tax reform. A draft final report should be published by the end of 2008. The most notable points of the proposal are:

Abolition of capital tax;
Abolition of inheritance and gift tax; and
The taxation of asset management structures, such as foundations, establishments and trusts is to be reviewed.

Luxembourg

International tax competitiveness increased

The Luxembourg corporate tax rate is set to be reduced from 29.63% to 25.5% by 2010, with an initial reduction being made on 1 January 2009.

Capital duty, currently levied at 0.5% on capital contributions to companies and partnerships, will be abolished from 1 January 2009. One less thing to consider in international structuring!

Luxembourg continues to take positive steps to enhance its competitiveness. However, we would also like to see the abolition of net wealth tax. This is unattractive to foreign investors and often causes problems in structuring inbound investments.

Moldova / Cyprus

First time treaty

A first-time income tax treaty has been signed between Cyprus and Moldova, although it has not yet been ratified. The treaty has been concluded in Moldovan, Greek and English and is based on the OECD Model Convention.

Rates of withholding tax may be reduced under the treaty as follows:

Dividends: 10% generally, 5% if the beneficial owner is a company (other than a partnership) holding at least 25% of the capital of the company distributing the dividend.

Interest: 5%

Royalties: 5%

The permanent establishment article deviates from the OECD Model Convention, in that, a construction PE will only exist if a building site, a construction, assembly or installation project or supervisory activities in connection therewith, lasts longer than 9 months (compared to 6 months in the Model Convention).

This first-time treaty may be interesting for structuring investment into Moldova or possibly for the development of Moldovan real estate. Cyprus is a good holding company jurisdiction. It does not tax capital gains and has a corporate income tax rate of 10%, although there are unusual anti-abuse provisions to be aware of such as the ‘special defence contribution’, as discussed in earlier ITNs. If you would like advice on structuring investments in Moldova or other Eastern European jurisdictions please contact the tax team who have a wealth of experience in this area.

Ukraine / Cyprus

Update on applicability of Cyprus / Old Soviet Union Treaty to Ukraine

We have mentioned in previous ITNs that Cyprus / Ukraine have concluded and signed a new treaty, but not yet ratified it. It can sometimes take years before a treaty is ratified and will not be applicable until it is in force.

Currently the Cyprus / Soviet Union treaty is applied as between Ukraine and Cyprus. The new Cyprus / Ukraine treaty is not as beneficial as the Cyprus / Soviet Union treaty, for this reason it seems as though Cyprus has dragged its heals, first in the signing of the treaty and now in ratifying it. As such, the Cabinet Ministers of Ukraine have submitted a draft law to Parliament denouncing the old treaty. How long it will take for the denunciation to be approved is not known, particularly if it is correct that a number of members of the Ukrainian parliament have an interest in keeping the old Soviet treaty applicable!

Whatever happens we have solutions for exiting Ukrainian investments once the new treaty comes into force so do contact us if you have a query in this regard.

Trichet voices inflation concerns

Wed, 9 Jul 2008 00:00:00 GMT

The European Central Bank president says eurozone inflation is at a "worrying" level...

Budget airlines transport more passengers-090708

Wed, 9 Jul 2008 00:00:00 GMT

Two leading budget airlines have reported that passenger numbers have grown in the last 12 months.

According to Ryanair, 5.17 million people boarded its services in June 2008 - up from 4.35 million a year earlier.

This is an increase of nearly one-fifth, illustrating the continuing desire for affordable flights to foreign destinations among overseas leisure travellers.

The trend was reinforced by rival carrier easyJet, which has also seen passenger numbers go up by a similar amount during this period.

Figures showed that 4.1 million people booked passage with the low-cost airline in June 2008 - up from 3.4 million 12 months earlier.

This comes after Vision/Totem revealed that the number of people taking holidays abroad is set to go up to 1.1 billion within 2 years.

TravelMole reports that the organisation believes consumers will continue going overseas, despite rising fuel prices and environmental concerns.

$33 bn Middle East seaport expansion under way

Mon, 7 Jul 2008 00:00:00 GMT

Massive economic growth is driving major seaport expansion in the Middle East worth in excess of $33 billion to handle record volumes of containers and bulk cargoes, say leading maritime industry observers...

Economy looms as key issue for G8

Sun, 6 Jul 2008 00:00:00 GMT

Leaders gather for a key G8 summit in Japan expected to focus on rising global food and fuel prices and climate change...

Recession in Asia is 'unlikely'

Fri, 4 Jul 2008 00:00:00 GMT

Growth in Asia may slow this year, but a recession is unlikely, the head of the Asian Development Bank says...

Property boss buys into Woolies

Tue, 1 Jul 2008 00:00:00 GMT

Ardeshir Naghshineh, the Iranian founder and owner of Targetfollow, a Norfolk-based commercial property group, disclosed a 3% stake in Woolworths yesterday. The tycoon’s motives for buying into Woolworths remain unclear.

Barratt close to rescue funding

Tue, 1 Jul 2008 00:00:00 GMT

Struggling housebuilder Barratt Developments is close to securing a rescue refinancing with lenders that will relax its banking covenants and help it ride out the property downturn.

Slowdown Squeezes Vegas Casinos

Tue, 1 Jul 2008 00:00:00 GMT

The gambling slowdown that began early this year is taking a serious toll on Las Vegas. Casinos are being pinched by less access to cash as they grapple with predownturn expansion plans and billions of dollars of debt.

Grainger shares soar on Regis takeover talk

Mon, 30 Jun 2008 00:00:00 GMT

Shares in residential property company Grainger surged more than 15% this morning on talk of a takeover bid.

Overseas property proves sound

Mon, 30 Jun 2008 00:00:00 GMT

New Star International Property fund has done well due to geographical diversification

Escalating inflation seen as threat to booming property markets in Asia

Fri, 27 Jun 2008 00:00:00 GMT

Asia is showing signs of its property boom coming to an end according to financial experts...

Currency Market Commentary - Summary of March 2008

Sat, 1 Mar 2008 00:00:00 GMT

GBP/EUR

Key data out this month:

From the UK:

Mortgages Approval
Business Investment figures
Nationwide House Prices
Consumer Confidence
Bank of England's Credit Conditions Survey

From the E.U:

German IFO business index at 104.8 (104.1 previously)
26th of March EUR ECB'S Trichet Attends EU Parliament Debate
Euro-zone trade balance

Impact of data in the market place:

We saw the Euro exchange rate remain strong against other major currencies as data from the IFO business climate index showed a rise in German business sentiment. This was measured by the IFO business index, and figures rose from 104.1 in February to 104.8 in March, being the third consecutive monthly rise in the data and a surprise to many who were expecting a slight fall.

This news was described by analysts as another indication that the Eurozone economy is continuing to resist following in the woeful footsteps of the US economy. So far the ECB has refused to follow in the footsteps of the Federal Reserve in slashing interest rates in the face of the credit crisis and it appears that there is little chance of any interest rate cuts facing the Eurozone in the near future.

The ECB continued to take a tough stance on policy with President Trichet continuing to concentrate on the inflation risks. In particular, there is a strong determination to minimise the risk of secondary pressures from the high level of energy prices.

Markets responded by moving to lessen expectations for interest rate cuts later this year with futures markets cutting the chance of any rate cut to around 50%. There were further stresses within the money markets and the ECB added additional liquidity to help ease the tensions.
There were reports of European irritation over the US Administration's dollar policy, but comments in public by European officials were still relatively restrained. French president Sarkozy was more vocal in the opposition to Euro strength.

Jean-Claude Trichet has continued to focus emphasis that the main goal of the ECB at the present time is to control Eurozone inflation which is predicted to remain significantly above 2% throughout most of 2008. This leading to an indication that conversely to cutting interest rates, there is a much greater chance that there will be a rise in the Eurozone interest rates in order to control inflationary pressures.

A strengthening Euro exchange rate quite simply makes buying Euros more expensive, the stronger a currency, the less of it you get for your money. The fact that the ECB are likely to increase interest rates in an attempt to control inflation means that the strength of the Euro currency is only likely to become greater, making buying Euros continually more expensive.

The strength of the Euro and the weakness of the Pound has caused the GBP/EUR exchange rate to fall continually over recent months finding little resistance. The fact that for reasons explained above the Euro is likely to strengthen will only mean that contrary to the opinion of hopefuls looking to buy Euros with their Sterling, the GBP/EUR exchange rate will continue to fall. Just because the rate has come down, doesn't mean it has to go back up!

Central bank rates:

UK: (MPC) 5.25%

EU: (ECB) 4.00%

High & Low of the month:

High: 1.3161 (10/03/08)

Low: 1.2524 (31/03/08)

Difference of cost on a £200k property:

High: 263,220 euros

Low: 250,480 euros

A difference of 12,740 Euros

GBP/USD

Key data out this month:

From the UK:

CIPS Services PMI for February. Previous 52.5 index Actual 52.1
BOE Leaves interest rates unchanged at 5.25%
UK Trade Balance for January. Previous £-7.6bn Actual -£7.5bn

From the US:

Non-farms Payroll in March fell dramatically to -17k, was predicted to come out at 70k
US Trade Balance for January. Previous $-58.8bn Actual -$61.1B and came out -$58.8B
Housing starts for January, previously 1004K, came out higher than expected 1012k
FOMC lowers interest rates by 0.75% to 2.25%
CPI for January Previous 0.4%m/m, came out flat
Consumer Confidence came out lower than expected at 75, forecasted at 82

Impact of data in the market place:

The Bank of England elected to keep rates on hold at 5.25% during their meeting last month as risks to the economy remain finely balanced. The release of the minutes from the meeting revealed a 7-2 in favour of no change with the two dissenters both voting for a 25bps cut. The overall tone of the minutes suggested that the committee remain concerned about the outlook for the UK economy and that further rate cuts remain likely in the months ahead.

UK House prices fell for the fifth consecutive month according to the Nationwide building society which again weighed heavily on the Pound. The survey indicated that prices fell 0.6%m/m in March, bringing the annual rate of inflation to 1.1% y/y; the slowest rate of growth in 12 years.
Further evidence of the credit crisis taking its toll on the UK housing market was seen when First Direct closed its doors to new customers. Other lenders also began reducing their offerings with reports suggesting that the number of products available has fallen by half compared to twelve months ago.

In the US, data releases continue to paint a mixed picture of the economy with many commentators talking of the possibility of a recession. The employment report showed that the number of new jobs created fell to a negative 17k jobs whist the unemployment rate remained steady at 4.8%. The news kept the Dollar on the back foot against all its major counterparts.

At the FOMC meeting, the Fed again cut interest rates, this time by 0.75% to 2.25%. Since September ’07 the Fed have cut by a total of 3.0% from 5.25% to 2.25% in an attempt to shore up the economy and prevent a recession.

Central bank rates:

UK: (BOE) 5.25%

US: (FED) 2.25%

Difference of cost on a $200k property:

High = £101,421.42

Low = £98,057.00

EUR/USD

Key data out this month:

From the EU:

Euro-zone gross domestic product released in line with expectations at 0.4% QoQ and 2.2% YoY.
ECB interest rates decision. Interest rates held at 4% as expected.
German ZEW economic sentiment survey more positive than expected at -32.0 compared to expectations of – 40.
Euro zone Consumer Price Index (CPI) released at 0.3% MoM and 3.3% Yr on Yr.

From the U.S:

US Non-farms weaker than expected at -22k.
US unemployment rate at 4.9%.
US Trade Balance shows further deficit from a previous $-57.9billion to $-58.2billion.
US Consumer Price Inflation released at 4% in comparison to a previous 4.3%.
FOMC interest rate decisions released showing a further interest rate cut of 0.75%.
New Home Sales fall again to -1.8% MoM.

Impact of data in the market place:

Data being released from the Eurozone remains robust as the European economy continues to be resistant to the pressures created in financial markets by the credit crunch. The ECB still have had no cause to amend interest rates since June 2007 and many commentators expect their rates to remain steady in the months ahead.

Although there are some clear inflationary pressures within the Eurozone the outlook in comparison to the US markets is much more bullish with further potential for growth.

US Non-farms payroll figures show that for 2 months in a row the US economy has lost jobs. This in turn puts pressure on the FED to cut interest rates to ease the pressure currently within the market.

Inflationary pressures however, are a concern. With CPI registering at a high 3.3% this is a full 1.3% above the European Central Banks official target of 2% inflation. Technically above target inflation rates should call the ECB to action to raise interest rates and tighten monetary policy going forward. In contrast price growth in the US slowed to 4% compared to a previous 4.3% in Jan, this is the slowest rate of expansion in four months. Looking in to this in further detail it can be seen that cooling energy prices have helped to curb the impact of increasing food costs.

The FEDs most recent cut to interest rates now leaves the US Dollar as the second lowest yielding currency in the developed world. Since the last meeting of the FED the credit crisis has continued to rampage the US economy. The US dollar has fallen to record lows with the fear of risk having severe implications on liquidity in the market.

Central bank rates:

US Federal Reserve; 2.25%

Bank of England; 5.25% (next meeting 10th April)

High & Low of the month:

High: 1.5904 17/03/08

Low: 1.5145 03/03/08

Difference of cost on a €250k property:

$7,880.41

GBP/AED

The AED is pegged to the USD dollar, averaging around 7.35 this month although as already mentioned it is an extremely volatile time at the moment, thus having an impact on the GBPAED.

Difference of cost on an AED 200k property:

High = £27,662

Low = £26,702

GBP/CAD

Key data out this month:

March 4th BoC Interest Rate Announcement

March 7th Unemployment Rate for February

Impact of data in the market place:

Despite seeing interest rates cut to 3.50% at the start of the month the Canadian Dollar has remained strongly underpinned by record highs in oil prices earlier in the month, reaching above $110 a barrel. This was the third rate reduction in three months and furthermore, authorities signalled that more rate cuts were likely as they struggle to keep the economy growing amid lower export demand from the US. Some relief came for Canadian migrants (and fuel prices!) when oil prices tumbled towards the end of the month in a pre Easter sell off, moving the GBPCAD rate above the 2.00 level. The Canadian Dollar failed to capitalise on the resurgent oil prices at the end of the month, weakening further against sterling. However, we could see a re test of the record highs soon with supply worries in Iraq.

The unemployment number remained steady despite possible expectations of an increase in unemployment levels plus new house prices continued to rise, in contrast to the trend that we are seeing south of the border of falling prices in the USA. There are concerns over slowing in growth; GDP rose only 0.8% which is the weakest performance in more than 4 years and due to a drop in exports. It will be important for those needing to purchase the Canadian Dollar over the coming year to consider how they will be affected by developments in the US. For example, the downturn in the US housing sector is hitting timber exports plus, the weakness of the US car industry (with which Canada is closely linked) will also dampen the demand for Canadian exports. The US accounts for the more than three quarters of Canada’s exports so the slowdown in the US is certain to have an impact on Canadian exports and their economy. With this in mind, clients should certainly prepare for further volatility.

Central bank rates:

Bank of England: 5.25% Interest Base Rate (Next meeting April 10th)

Bank of Canada: 3.50% Interest base Rate (Next meeting April 22nd)

High & Low of the month:

High: 1.9517

Low: 2.0608

Difference of cost on a $200k property:

CAD$ 5,425.08

GBP/AUD

Where is it going? The Aussie Dollar Update for March

It’s been another testing month for Sterling. Although interest rates were kept the same at 5.25%, the Bank of England minutes kept outlook lower with future cuts possible. House prices are again showing signs of more slowdowns with the RICS house price balance dropping for the seventh month in succession signaling more than half a year of negative market sentiment.

Australia is still booming, and the continued strong employment growth has eased concerns that recent interest rate hikes (to 7.25%) are harming the economy. But despite this continuing strength, prolonged global equity declines prompted renewed risk aversion this month, with speculators withdrawing their funds from commodities such as gold and minerals (key exports), resulting in the $AUD going above $2.20 for the first time since the beginning of February. This was an improvement of over 10 cents from the lows at the start of the month, giving migrants some long awaited good news!

So does this mean that the downward trend has now stopped? Not necessarily, as it could just be a corrective adjustment and we have already dropped back to around the $2.17 levels, but it is very hard to tell where it is going from here. There is still so much doubt in the market which is causing the volatility we are seeing, and the market has been moving as much as 4 to 5 cents a day, so many sleepless nights watching the computer screens no doubt!

The RBA did leave their rates on hold in their decision on April 1st in a widely expected move, and this could signal the tightening global credit conditions have started to filter through to Australia. However, as stated, the moves we have seen have largely been as a result of cautious speculators taking their profits and just biding their time, waiting to see what happens. Should risk appetite return, then we could easily see a continuation of the Aussie Dollar strength that has seen the rates drop so dramatically over the last 18 months.

You need to make a decision when to buy, and what your budgeted rate is. Many people will be renting for 6-12 months and feel they have time to watch the markets and hope they improve. HiFX have a fully regulated Australian office that can help you monitor the markets and work with you to achieve an agreeable rate, if this is a strategy that you wish to adopt.

Bear in mind, however, that there is no guarantee that your target rate will be hit. How much can you afford to gamble? If the rates were $2.00 in 12 months time then how does that affect your new life in Oz? Those who adopted a similar strategy this time last year and decided to gamble on the market have seen a significant drop in the rates and thus the amount of dollars they have to purchase a house and start their new life with.

There are different ways to buy currency when you are moving your funds abroad and many different things to consider, so you should start thinking about your options and watching the rates of exchange as early as possible. Even if you are not leaving for another 6-12 months, or will not be moving money over just yet, the more information you get at this stage the easier your decision about when to buy will be.

HiFX have a bespoke team who will happily talk you through your options in more detail and discuss a best fit strategy with you. For a free, no obligation consultation please call the Migration Team on + 44 (0)1753 859159 or email migration@hifx.co.uk.

GBP/NZD

Another Volatile Month for £ vs $NZD; What is happening with the Exchange Rate?

It’s been another testing month for Sterling. Although interest rates were kept the same at 5.25%, the Bank of England minutes kept outlook lower with future cuts possible. House prices are again showing signs of more slowdowns with the RICS house price balance dropping for the seventh month in succession signalling more than half a year of negative market sentiment.

There was, however, better news for those moving to New Zealand as the Dollar weakened against Sterling following sharp falls in commodity prices across the board. The aftermath of the Bear Sterns collapse in the US also aided the Pounds rally, bringing about renewed risk aversion and hence the unwinding of the carry trade, something New Zealand is particularly vulnerable to due to its 8.25% interest rates, the highest in the industrialised world.

This resulted in the Dollar losing over 10 cents against the Pound, going over $2.55 for the first time since January. The question on everyone’s lips is will this last? Have we seen a reversal in the overall downward trend of the last 12 months? It seems to be stuck in a range at the moment, between $2.45 and £2.55, but current market conditions makes it very difficult to predict where it will go from here.

Should the tightening global credit conditions filter through to New Zealand then that could have an adverse affect on their economy and as such the performance of the $NZD. There was some mixed data out of New Zealand in March, with encouraging growth figures and strong consumption and business investment, but less positive news from the NBNZ’s business confidence survey. However, the correlation between the strength of the currency and the carry trade is what has really been driving the market of late. Should risk appetite return, we could easily see the dollar strengthen again.

If you look at just the first 3 months of this year, there has already been a 20 cent difference between the high and the low, or $40,000 if you were moving £200,000 across! You need to make a decision when to buy, and what your budgeted rate is. Many people will be renting for 6-12 months and feel they have time to watch the markets and hope they improve. HiFX have an office in Auckland that can help you monitor the markets and work with you to achieve an agreeable rate, if this is a strategy that you wish to adopt.

Bear in mind, however, that there is no guarantee that your target rate will be hit. How much can you afford to gamble? If the rates were $2.20 in 12 months time then how does that affect your new life in NZ? Those who adopted a similar strategy this time last year and decided to gamble on the market have seen a significant drop in the rates and thus the amount of dollars they have to purchase a house and start their new life with.

There are many strategies available to minimise your risk when transferring funds, all of which will be explained clearly by your personalised dealer should you open a trading facility with HIFX. To discuss your requirements in more detail and for a free currency consultation please contact HiFX plc on 01753 859 159 or email info@hifx.co.uk.

Currency Market Commentary - Summary of January 2008

Tue, 1 Jan 2008 00:00:00 GMT

GBP/EUR

Key data out this month:

From the UK:

RICS House Prices for December. Previous -40.6 index

Nationwide Consumer Confidence

BoE MPC Interest Rate Announcement

Consumer Price Index

From the EU:

ECB Announces Interest Rates

Trichet speaks at ECB Monthly News Conf

Germany Unemployment Change

German Consumer Price Index

Impact of data in the market place:

January saw Sterling fall to an 11-year low against the Euro; with the value of €1 breaching 75 pence before retracing slightly lower to current levels, although Both the ECB and BoE declined to join the Fed in an emergency interest rate cut and the BoE made it clear from Governor’s King’s speech and from this months meeting minutes that drastic interest rate cuts would not be forthcoming in the face of higher inflation in the economy.

We still expect some rate cuts to materialise in the coming months and the UK economy still has a vulnerable feel for at least the first quarter of 2008, thus leaving GBP/EUR at risk of possible further falls.

UK Consumer confidence declined in December to the lowest in 10 months and retail sales slowed at its weakest rate in 12 month. Rising fuel bills and the lingering credit squeeze left consumers with lower disposable incomes, therefore leading to a sharp downturn in consumer spending.

Also house prices were confirmed to be falling at their fastest rate since the early 1990’s according to the latest RICS report. Nationwide house prices fell for a third consecutive month in January and Rightmove house prices fell to their lowest levels since December 2005.

Central bank rates:

UK (MPC) 5.50%

EU (ECB) 4.00%

High & Low of the month:

High: 1.3614

Low: 1.3130

Difference of cost on a €200k property:

High = £146,907.60

Low = £152,322.92

GBP/USD

Key data out this month:

From the UK:

Nationwide house Prices for January

BBA Mortgage Approvals for December

PPI input &output for December

RICS House Prices for December

Retail sales for December

From the US:

Interest rate cut

Consumer credit for November

Retail sales for December

University of Michigan Consumer Sentiment Survey for January

Existing Home & New homes sales for December

Consumer confidence for January

Impact of data in the market place:

The US Dollar’s structural weakness over 2007 saw significant depreciation against Sterling and most notably the Euro, even more when the US Federal Reserve made a surprising, announcement of an emergency rate cut on the 22nd. The Fed cut by 0.75% from 4.25% down to 3.5%, the first emergency reduction since 9/11. And on the 31st of January, the US Federal Reserve decided to cut the Fed Funds rate by a further 0.5% to 3.0%. Since September the rate has been slashed by a massive 2.25%.

The key weaknesses of the US economy persist, with risks to economic growth firmly to the downside.

The committee took action after Asian and European stock markets tumbled citing concerns about a weakening economy and turmoil in the financial markets, all adding to signs of a US recession. While the initial reaction was relatively muted, the Dollar weakened against the Euro and Sterling, while the trend continued throughout the end of the month.

Central bank rates:

UK: (MPC) 5.50%

US: (FED) 3.00%

High & Low of the month:

High: 1.9957

Low: 1.9335

Difference of cost on a £200k property:

High: $399 140

Low: $386 700

EUR/USD

Key data out this month:

US Pending home Sales for November. Previous 3.7%. Actual -2.6%

EU ECB Interest Rate Announcement

US FOMC Interest Rate Announcement

Impact of data in the market place:

The upward trend of EUR/USD shows little sign of breaking as the US economy continues to remain under pressure moving into 2008. The minutes from the Fed’s December interest rate meeting indicated that further rate cuts would be necessary in 2008 due to the increasing difficulties in the credit markets and further economic slowdown. This highlighted the effects of the credit squeeze had spilled over to consumer spending – a key driver of growth for the US economy. However, the Fed faced the predicament that lowering borrowing costs will fuel inflationary pressures. Ben Bernanke, the chairman of the US Federal Reserve, had signaled at the beginning of the month that the Fed was ready to take aggressive action to fend off recession; this resulted in 2 interest rate cuts (one being an “Emergency rate cut”) from 4.25% to 3% in the space of 7 days. This emergency rate cut was the first since 9/11 and the largest cut in rates for 26 years. It will be a waiting game to see whether this drastic rate cut has the desired effect of reversing the slowdown. Furthermore, the sub prime mortgage lending problem that originated in the US remains an issue in the economy, as the housing sector shows little sign of a turn around.

The European Central Bank decided to keep interest rates on hold this month. The Euro is being supported largely by weaker data from the US and UK, rather than key data from the Eurozone. Whilst all three economies begin to suffer the effects of slowing growth the Eurozone seems to be a lot more concerned with Inflationary pressures and has not ruled out a rate hike in 2008. We can expect continued Euro strength and a continued EUR/USD uptrend going forward the HICP (measure of inflation in the Eurozone) came out higher than expected at 3.2% (targeted at 2.0%) highlighting that the ECB will certainly not be cutting interest rates in the near future

Central bank rates:

US: 3.00% Interest Base Rate

EU: 4.00% Interest base Rate

High & Low of the month:

High: 1.4922

Low: 1.4364

Difference of cost on a $200k property:

€5,206.95

GBP/AED

Key data out this month:

Finance ministers from the six-nation GCC (Bahrain, Kuwait, Oman, Saudi Arabia and the United Arab Emirates) dismissed the abandonment or movement of their pegs to the declining US dollar.

Impact of data in the market place:

After all of the recent volatility experienced due to the market expectations of a decision to unpeg, the market has once again begun to settle. AED remains pegged to the USD at a rate of 3.67 and therefore the movements in the currency mirror that of GBP/USD.

High & Low of the month:

High: 7.33

Low: 7.10

Difference of cost on a £200k property:

High: 1466000 AED

Low: 1420000 AED

GBP/CAD

Key data out this month:

Canada

Gross Domestic Product (Month of Month (MoM)) Nov.Forecast 0.1% Actual 0.1%
Consumer Price Index. Both figures were in-line with expectations – MoM 0.1% and Year on Year (YoY) 2.4%.
Interest rate announcement. 0.25% basis point cut to 4.00%.
Retail Sales. Expected at 0.3% came out at 0.7%.
Housing Starts. Forecast at 221k actual 187.5k

UK

Retail Sales. Forecast for 0.2%, actual -0.4%.
Consumer Price Index came out at 2.1% - expected at 2%.
Bank of England Interest Rate Announcement. Rates held at 5.5%.
Bank of England minutes released showing 8:1 vote to keep rates steady.

Impact of data in the market place:

A very choppy month for GBP/CAD with some big movements on the back of data releases. The Bank of Canada’s move to cut rates by a quarter of a percent may help to preserve the longest economic expansion since World War II even as the U.S, Canada’s largest trading partner, slumps on the back of the credit crisis. 30% of economic output in Canada is covered by exports such as lumber and cars – approximately 80% of these sales are to U.S customers. High Retail Sales figures were boosted by strong fuel prices and the general outlook among consumers remain positive.

The Bank of England minutes showed an unsurprising 8-1 vote in favour of a hold. Whilst uber-dove David Blanchflower sited a “greater risk of a sharp slowdown” for his vote in favour of a cut, the minutes showed that the Bank of England is becoming concerned about inflation amidst rocketing energy and food costs.UK consumer price inflation was released above the Bank of England’s target (2%) for the third consecutive month with the biggest upward effect coming from food prices.

Market conditions have been volatile based on the stark contrast between the UK and Canada’s current economic conditions and room for economic growth. This in turn creates a lot of uncertainty in those who need to trade Canadian Dollars. The positive side of this for clients wishing to migrate to Canada is that the economic conditions out there are remaining strong despite the general negative outlook across most of the developed world at present. However, with such large movements being seen it is important to remember the impact that currency fluctuations can have when converting funds. As seen below clients transferring 250,000CAD will have seen a difference of over £6000 in one month.

Central bank rates:

Bank of Canada: 4.00%

Bank of England: 5.50%

High & Low of the month:

High: 17/01/08 - 2.0351

Low: 04/01/08 - 1.9394

Difference of cost on a 250kCAD property:

£6,061.76

GBP/AUD

A choppy start to 2008 as the $AUD shows more volatility:

The New Year started where 2007 left off; more volatility in an increasingly uncertain market, making it even harder to guesstimate where the rates are going! Starting 2008 at around the 2.28 levels, the dollar continued to benefit from a weaker pound and the rates fell to just under $2.17, levels not seen for over 10 years! Only a year ago it was trading at over $2.50 to the pound, but ignoring an uncharacteristic move in August, it has been on a progressive march downwards ever since.

There was more strong data out from Australia, with low unemployment, strong CPI inflationary data and very bullish housing and retail figures. We did see a brief correction in this downward movement, as investors took some of their profits from the so called “carry trades” and this pushed the rates back up to around the 2.28 levels again. However, these gains were short lived and, as expected, the dollar strengthened in the last week of January, finishing the month at around 2.18 – 2.19.

So how low can it go? Difficult to say given the current conditions, an answer that I appreciate has been given for the last few months. The UK are looking at a possible rate cut in February, down to 5.25%, in a bid to calm fears that the UK will follow the plight of the US. The RBA, however, may need to raise their interest rates in an effort to contain inflationary pressures and control their booming economy. This may well be a continuing trend until they can see domestic demand starting to suffer under the weight of a creaking global economy.

The moves we are seeing illustrate just how much the markets can react and what a risky business buying and selling currency can be without the proper planning. It can be such a difficult decision deciding when to buy your currency, and whether to leave it in the UK hoping that the rate will improve, especially when it is your life savings.

There are, however, ways in which to considerably reduce this risk:

The key is to address your exposure from the outset and get a strategy in place that suits you. One popular option is what is known as a forward contract, or ‘buy now pay later’ method, whereby you can lock into a rate of exchange with just a 10% deposit, for delivery up to 2 years in the future. If you had locked in at the beginning of January 07, you would have achieved around the 2.50 mark. In ’08 that figure would have been about 2.27, a massive 23 cent difference, or $56,000 on £200,000! Put into perspective, that is your new house furnishings or even a very nice new car. Even if you take the difference in January of 11 cents, that would be a potential saving, or loss, of $22,000 on that £200,000….in just one month!

The forward contract holds many benefits; you do not need all of your funds available (the majority of peoples funds are tied up in property for example), it gives you peace of mind knowing you have secured a rate and know what you are going to achieve, and it is flexible and can accommodate changes in the time scale originally agreed due to house sales falling through, etcetera.

Of course, it is always tempting to wait for a better rate and only you can decide how much of your wealth you want to expose to risk (you may decide to fix an exchange rate for half or all of your assets). For those of you willing to take a bit of a gamble, you can take out a “market order” or target rate, which is where you set a level at which you want to buy your currency. If and when this level is reached, the money is bought, but obviously it holds the risk that your target won’t be achieved so you will simply have to buy at the prevailing rate on the day.

Some people may not have the money available to them for a forward contract. The UK housing market is currently experiencing a slow down, with houses taking longer to sell, so many people will leave the majority of their funds in the UK. HiFX have an office in Sydney, which is fully ASIC regulated, and an account can be set up with them before you leave the UK, making the transition as smooth as possible
For those of you who are leaving for Australia over the coming months, forward planning is of the utmost importance and could save you thousands of pounds to start your new life. For a free, no obligation consultation about your situation and the options available please contact the migration team at HiFX on +44 (0) 1753 859159, or email migration@hifx.co.uk.

GBP/NZD

$NZD Continues to Strengthen in an Uncertain and Volatile Market:

As we moved into 2008 the $NZD was still experiencing the volatility it suffered throughout 2007 in an increasingly uncertain market. It moved over 16 cents in January, closing at just over the $2.50 levels. Ignoring the blip caused by the sub prime crisis in America in August, the Dollar has been strengthening against the Pound since midway through 2006, where it reached a peak of 3.06.

One of the determining factors of this continued strength has been the large interest rate differential, with NZ rates being at 8.25%. This makes it very attractive for investors who are seeking high returns on their funds, and lends itself to what is known as the “carry trade”, where people borrow in a low yielding currency and invest in one such as the New Zealand Dollar which offers such lucrative returns. Despite deteriorating global growth and market turbulence, the RBNZ kept their rates at 8.25% this month, citing high inflationary figures and an unchanged outlook for the NZ economy from previous months.

The question is, of course, how much lower can it go? Unfortunately this is very difficult to say given the current conditions, an answer that I appreciate has been given for the last few months. The UK are looking at a possible rate cut in February, down to 5.25%, in a bid to calm fears that the UK will follow the plight of the US. The RBNZ’s stance will depend mostly on how the impending US-led global slowdown affects commodity prices, and therefore inflation and growth in New Zealand. In 2005, the rates dropped to just over 2.41, and that was when the Pound was a lot stronger than it is now. In 1996, the rate was just under 2.17!

The moves we are seeing illustrate just how the markets can react and what a risky business buying and selling currency can be without the proper planning. It can be such a difficult decision deciding when to buy your currency, and whether to leave it in the UK hoping that the rate will improve, especially when it is your life savings.

There are, however, ways in which to considerably reduce this risk:

The key is to address your exposure from the outset and get a strategy in place that suits you. One popular option is what is known as a forward contract, or ‘buy now pay later’ method, whereby you can lock into a rate of exchange with just a 10% deposit, for delivery up to 2 years in the future. If you had locked in at the end of January 07, you would have achieved over 2.90. In ’08 that figure would have been about 2.45, a massive 45 cent difference, or $90,000 on £200,000! Even if you take the difference in January of 16 cents, that would be a potential saving, or loss, of $32,000 on that £200,000….in just one month! Imagine how that could change the start of your new life?

For those of you who are leaving for New Zealand over the coming months, forward planning is of the utmost importance and could save you thousands of pounds to start your new life. For a free, no obligation consultation about your situation and the options available please contact the migration team at HiFX on +44 (0) 1753 859159, or email migration@hifx.co.uk.