The U.S. dollar is flying at an all-time high. Right now they will buy more of almost anything priced in foreign currencies — at least until those prices rise. The question on everyone’s mind is … what should I buy with my dollars to take advantage of this (impermanent) situation? It’ll be too late after the dollar crashes … as it must eventually.
You can go big or small with the strong dollar. In my case, I’m taking the opportunity to do some renovations to my house in Cape Town, South Africa. After all, the rand has lost 90% of its value against the dollar in the last two years. Eventually, local prices will catch up, but right now, I can have my roof replaced and my shower re-tiled for a fraction of what it cost a year ago … and what it will probably cost a year from now.
But what if I’d wanted to go big? What would I be buying to take advantage of the strong dollar? I’d buy some dirt … South American dirt, that is.
It’s no secret that like all of us at The Sovereign Investor, I’m a big fan of Uruguay. I was there just a few weeks ago, hosting our Offshore Investor Summit in Punta del Este, just down the coast from the capital, Montevideo. It’s beautiful country, with plenty of space for immigrants and investors, who are welcomed with open arms. You can arrive anytime, apply for residence and stay as long as you like while you wait for your cedula de identidad (ID card).
Uruguay’s banking system is safe and extraordinarily flexible. You can open and maintain accounts in the local currency, the Uruguayan peso (UYU), or in U.S. dollars or euros. One reason for this flexibility is so that you can use the dollar or euro to transact — for example, when buying property.
Uruguayan property, including farmland, is plentiful and relatively inexpensive. The country has far more land than its residents “need,” and foreigners have long been able to buy residential or commercial property, including farmland, without restriction. Uruguayan farmland is considered amongst the world’s best and is particularly well-suited to livestock, which can subsist almost entirely on the land’s abundant and well-watered grass, requiring no additional feed grain.
The Dollar Opportunity
Now, one of Uruguay’s big neighbors happens to be Argentina, a chronically unstable and insolvent country just across the Plate River. Argentines have traditionally sought safe haven in Uruguay, and in Uruguayan property in particular. The majority of foreign-owned properties in places like Punta del Este belong to Argentines. For this reason, local property prices tend to reflect the ups and downs of the Argentine economy (and to a lesser extent, the Brazilian economy). When Argentina’s not doing well — as is the case right now, under the threat of another debt default — prices are a bit soft.
Even though the dollar is used in Uruguay, property prices tend to be set in the local currency, the peso. In the last two years — especially since mid-2014 — the dollar has gained almost 40% against the peso. That means peso-priced property is cheaper in dollar terms.
The combined impact of reduced demand from Argentines and the relative strength of the dollar has made Uruguayan property, both residential and farmland, especially attractive to U.S. buyers at the moment. Viable cattle farms can be bought (without livestock) for around $250,000. Residential flats, which can pay for themselves via rental during the summer holiday period, are going for as little as $100,000.
Given that the long-term real returns to Uruguayan property investment range up to 8 to 9% per annum, this is an offshore investment goldmine.
Act Fast … These Prices Can’t Last!
My colleague Jeff Opdyke wisely tells people that the best way to approach the current period of dollar strength is to buy offshore non-dollar priced stocks and other investment vehicles that reflect strong fundamental values. That way, even when (not if) the dollar collapses, you’ll see real returns as values rise and foreign currencies strengthen.
But timing is everything. Right now, the strong dollar makes investments in things like Uruguayan property as cheap in dollar terms as they are likely ever to be. Once the dollar turns, the ship will have sailed.
In other words, if there was ever a time to heed the old advertising saw “don’t delay, buy today,” it’s right now.
Offshore and Asset Protection Editor