Navigating currency volatility when buying and selling property in South Africa

While the South African property market certainly faces challenges, analysts are cautiously optimistic for 2023. Underlying resilience, growth in some key areas, and a surge in ‘semigration’ are all keeping the market moving.

Many forecasters expect demand to remain strong for holiday homes, lifestyle destinations (particularly by the coast), and properties that offer some kind of energy self-sufficiency, like solar panels.

For savvy buyers and sellers, there are opportunities to be had. But if you’re going to be sending money overseas, either to purchase a property or repatriate the proceeds of a sale, you’ll also need to consider movements in the currency markets.

Exchange rate volatility

Exchange rates are notoriously volatile, with currencies constantly fluctuating in response to economic data, political events, and other social and environmental factors. The huge global disruption of the last few years, sparked by the Covid pandemic, has caused even more uncertainty in foreign exchange markets.

The rand is particularly susceptible to big swings in value, and is considered one of the most volatile currencies. The past year has seen ZAR exchange rates rocked by political turbulence, South Africa’s energy crisis, and soaring interest rates.

Over the last 12 months, USD/ZAR moved between lows of 14.49 and highs of 18.47 – a change of 27.5%. Meanwhile, GBP/ZAR moved between 18.88 and 22.33 and EUR/ZAR traded between 15.72 and 19.63.

The outlook remains uncertain, as economies around the world continue to contend with persistent inflation and heightened geopolitical tensions.

How this can impact you

If you need to transfer funds abroad, these big swings in exchange rates can have a significant impact on the amount of money you receive.

Even a seemingly small difference in the rate can have a noticeable effect on your currency transfers. When moving large amounts of money – such as for a property purchase – this discrepancy becomes even more noticeable.

What’s more, property sales can often take months to complete, and the exchange rate could change considerably in that time.

This can make it incredibly difficult to budget, and you could end up getting significantly less money from your transfer if the currency market moves against you.

For instance, from the beginning of November 2022 to early January 2023, USD/ZAR fell from 18.40 to 16.88. If you were purchasing a property for R8m, that change in the exchange rate would amount to a $39,000 difference on the amount of money you would need to transfer – a huge change in two months!

Market volatility isn’t the only thing to consider. Different providers will offer different exchange rates, with specialist currency brokers often boasting the most competitive service.

Protecting against volatility

Fortunately, there are ways to protect your transfers against currency volatility. 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.

Key services offered by currency brokers include:

Forward contracts
With a forward contract you can fix an exchange rate up to a year in advance. This way, you can budget effectively knowing exactly how much money you’ll receive when you make the transfer.

Although you won’t benefit if the exchange rate gets stronger, your money will be protected if the rate weakens.

Limit and stop loss orders
Use a limit order to target a rate above the current one. If the market moves to that level, it will automatically trigger your transfer.

You can also set a stop loss order to protect against unfavourable movements. Set a worst-case exchange rate and your transaction will go ahead if the market drops to this level, preventing further losses.

Market updates
As currency markets are always in flux, it’s hard to keep track of exchange rate movements and choose the right time to make a transfer.

That’s where market updates come in handy. Some specialist providers will send you alerts and daily analyses, straight to your inbox. This way, it’s easy to follow the latest market movements and make an informed decision on your transfers.

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.