Overseas Property: Where Your Dollar Goes Farther

Now could be a prime time for U.S. investors to buy real estate in Latin America's leading markets, according to Forbes.Over the past several years the U.S. dollar has been increasing in buying power, and last year saw especially staggering gains against foreign currencies. Colombia saw a seven percent increase in 2020 and is up 51 percent since 2015.In Brazil, the buying power for the greenback rose 32 percent last year with a total increase of 101 percent since 2015. In Mexico, U.S. dollar buying power increased seven percent in 2020 and is up 40 percent since 2015.As of early April, the U.S. dollar was valued at $3,650.9 Colombian pesos; $5.62 Brazilian reals; and $20.19 Mexican pesos. This represents an undeniable opportunity to buy foreign property at a discount if you're holding US dollars.

Colombia

BizLatinHub, based in Bogota, says Colombia is ripe for investment. “Colombia is one of the greatest producers of Arabica coffee beans in the world. Colombia remains one of the most popular regions in Latin America regarding investment, with the nation seeing steady economic growth and development over the past decade,” they wrote.But Colombia is about more than coffee. In fact, as coffee prices have dropped worldwide, many producers are switching to other permanent crops like citrus, avocado, and mango.

Colombia's Avocado Exports

It makes sense. The Andes mountain range crosses much of the country, creating altitude conditions that are perfect for many crop types, especially tree crops. And the country's proximity to the coast creates ideal levels of rainfall, with a healthy balance of sunlight.Not only that, but the country is rapidly improving its ability to access markets. With both Atlantic and Pacific ports, Colombia can easily reach markets in Europe, North America, and Asia. Ongoing infrastructure projects in the country are only increasing its logistical capacity.On the investment side, Colombia’s monetary climate is inviting territory, where full foreign ownership, relatively inexpensive operating costs, and limited controls on capital create a welcoming environment.Which, of course, leads us back to the exchange rate. As a heavily oil-dependent currency, the Colombian peso took a major hit during the oil glut of last year, skyrocketing to over 4,200 COP to the dollar. With oil prices on the rise, Colombia's currency will recover some of that lost value - but investors buying in dollars can still realize massive upside potential.

The government of president Ivan Duque has made attracting foreign capital a top priority, and has eased up many of the restrictions on purchases by foreigners, especially of land. Duque, who spent much of his career at the International Development Bank in Washington, fully understands the role that foreign investment can play in emerging economies.Look for Colombia's agriculture boom to really kick into high gear in 2021, creating outsized returns for those who got in early.

Brazil

For the past decade, Brazil has continued to grow and develop as one of the world’s leading agricultural markets. The country is a leader in the export of coffee, sugar, and soybeans. The massive nation is the second-largest food producer in the world.Since 2006, Brazil’s agricultural industry has ramped up production by 156 percent and now delivers 19 percent of the country’s GDP. Of the nation’s roughly 600 million acres of land in the farming regions, only 170 million acres are currently in cultivation.With major crops such as sugar, coffee, orange juice, and soybeans driving the sector, a third of the nation’s employment comes from agriculture and 44 percent of the country’s exports come from the agricultural sector.

Brazil's GDP from Agriculture

Of course, this all comes with a caveat: the international pressure for Brazilian president Jair Bolsonaro to act on the ongoing destruction of the Amazon is mounting, putting pressure on an agriculture industry that relies heavily on slash-and-burn deforestation and other damaging practices.With environmental impact becoming an increasingly important topic in global agriculture markets, especially developed countries in North America and Europe, the Brazilian government's callous disregard for the environment could hurt its ag industry in the long run.Not only that, but Brazil's focus on grains such as soybeans have run it up against the world's largest agriculture producer - the United States. Given the competition in the row crop sector and the range of government subsidies the US offers to producers, competing in that market might not be the best choice.

Brazilian Soybean Production

Nonetheless, your dollar will still get you a long way in Brazil, where the Real is still highly undervalued against the USD. Naturally, this favors real assets, unless you want to play the money markets. But not everyone is cut out for the Forex game.As one of Latin America's preeminent emerging markets, Brazil can be an attractive locale for those looking to diversify geographically. But the country has serious problems with environmental responsibility, among other things.

Mexico

Sharing a border with the U.S., Mexico is the top foreign destination for American expats, home to almost 2 million former U.S. residents.When making a land purchase, depending on the region, some real estate purchases can be transacted in either Mexican pesos or U.S. dollars. This makes Mexico a top choice for Americans looking to buy foreign property.But the assumption that Mexico will continue to be stable just because it happens to be south of America might not be as sound as was once believed.

Mexico's GDP from Agriculture

Mexico has been continually ravaged by cartel violence, and while regional competitors like Colombia have largely been able to control the situation, Mexico's problem is as bad as it has ever been.In this regard, being south of the US might not be such a good thing. The recent surge in illegal immigration has only emboldened the cartel, who now feel they can bring over greater amounts of people and drugs.But regardless of crime, Mexico has solidified its agricultural production in some sectors. The country provides a large amount of the world's avocados in addition to sugarcane, wheat, and corn. Regions exist where the supply chain is formalized and market access is secure.Being closely linked to its developed neighbor, the Mexican peso has experienced somewhat less volatility than other countries. This is a blessing and a curse - although the currency is more stable, assets don't come at such a discount.

America’s southern neighbor, Mexico’s fortunes will continually be linked to their neighbors to the north.

Buying Foreign Property

In an environment where the dollar is strong against foreign currencies, buying property in emerging markets can be an excellent choice. But there is a universe of considerations when making a decision about buying foreign property.It's worth taking a look at many different types of property and many different locations. If you need some guidance, take a look at Farmland 101, our exclusive guide. Whether you're looking at conventional real estate or alternatives such as farmland, diving into emerging markets with USD purchasing power can yield handsome value.