Analysts forecast that falling borrowing costs may help to revive real estate demand over the next twelve months.
The US Federal Reserve looks set to begin cutting interest rates from March, with the South African Reserve Bank (SARB) likely to be close behind, after inflation returned to its 3-6% target range in the second half of 2023.
On the other hand, some experts warn that activity in the property market may remain subdued as households will remain strapped for cash in 2024 and the economic disruption caused by South Africa’s load shedding woes causes banks to be more cautious in extending credit.
Meanwhile, those planning to transfer money to or from South Africa in order to purchase a property or repatriate the proceeds of a sale, will also face the challenges posed by exchange rate volatility.
Exchange rate volatility
Exchange rates are notoriously volatile, with currencies constantly fluctuating in response to economic data, geopolitics, and other social and environmental factors.
The rand is particularly susceptible to large swings in value and is considered one of the world’s most volatile currencies. The past year has seen ZAR exchange rates rocked by external geopolitical uncertainty, South Africa’s energy crisis, and soaring interest rates.
During 2023, USD/ZAR traded between a high of R19.80 and low of R16.72 18.47 – a difference of over 18%. Meanwhile, GBP/ZAR stuck a high of R24.58 and low of R20.36 and EUR/ZAR traded between R21.23 and R17.91.
If you need to transfer funds abroad, these large swings in exchange rates can have a significant impact on the amount of money you receive.
Protecting against volatility
Fortunately, there are ways to protect your transfers against volatility in the currency market. When you work with a currency specialist, you’ll have access to a range of tools and services to help you navigate the ups and downs of the market.
Some FX providers, such as Currencies Direct, even offer specialist guidance and personalised support at no extra charge. You’ll have a dedicated currency expert who will learn your needs, help you understand your options, and give you regular market updates and insights.
But how can this work in practice?
Sarah's return to South Africa – A case study in navigating currency volatility
In 2023, after a decade spent living and working in the United States, Sarah made the decision to leave the bustling streets of New York and return to the vibrant landscapes of South Africa.
Background
Motivated by a deep connection to her roots and a desire to contribute to the South African community, Sarah made the decision to return to her homeland, with her sights set on purchasing a home near her family in Gqeberha and exploring potential business ventures.
Little did she know, this decision would lead her to confront the rollercoaster of currency volatility in a familiar yet changed land.
Challenges
Sarah has previously been stung by the transfer fees and uncompetitive exchange rates she received when she transferred money to the US a decade ago and she was eager to avoid this when repatriating the proceeds from the sale of her flat in New York.
Sarah was also concerned about how the volatility of South African rand might impact her budget and sought a transfer option which would help limit her exposure to any unfavourable movement in the USD/ZAR exchange rate.
Solution
Recognising the importance of local expertise, Sarah opted to move her money with Currencies Direct. As their insights into local market dynamics and regulatory landscape proved invaluable in making informed decisions.
Sarah’s dedicated account manager was able to talk her through her currency options and worked with her to find the perfect transfer solution for her situation.
As the USD/ZAR exchange rate was strong when she began the purchase process, Sarah opted to use a Forward Contract to lock in the rate. While she would have missed out if the exchange rate continued to rise, she was content knowing that her transfer would be protected from any negative market movements for up to a year.
Impact
When she was ready to complete on the property a couple of months later, the USD/ZAR exchange rate had fallen by 11% from R19.8017 to R17.6131. Had Sarah not taken out the forward contract the value of her $400,000 transfer would have been R875,440 less.
Sarah was able to use some of the money she’d saved towards furnishing and decorating her new property.
Speaking to a currency specialist
If you plan to transfer funds overseas, it’s best to talk to a specialist as soon as possible. By giving yourself plenty of time to prepare you’ll be able to fully explore your options and benefit from expert insights, potentially getting you more money from your transfer.
Different currency providers offer different services and exchange rates, with some also charging transfer fees. Currencies Direct is our preferred provider, but be sure to look around and see what’s best for you.
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