April 7, 2011
Prior to the recession, we had fairly fixed ideas on where various currencies were positioned within our world. The level of currency movement since 2008 has been astonishing and we expect this to continue.
As the stock of yachts is international, we are handling a lot of transactions where the pricing is critical and the seller is not prepared to accept an offer in a currency that he does not know or is not one that he can use, as the currency market is so volatile. Therefore buyers are increasingly faced with the reality that to get the yacht that they want at a good price, they have to take on responsibility for the currency movement and pay in the seller’s choice of currency.
This is not as frightening as it appears. At Berthon we are able to buy currency direct through the dealing room at our Bank or to buy currency forward should you wish. We often offer better rates than high street banks will and we make no extra charges for the service if you are buying a yacht from us.
Whilst the most sensible approach is to pay the deposit in your own currency and make the change into the currency of the contract at acceptance of the yacht after sea trial and survey, if there is some doubt; however, be careful not to fall foul of volatility and lose the deal for the sake of trying too hard to make an extra cent or two. Currencies are something that many of our clients have to deal with in the course of business every day; to others it can be a concern. It is important that all the funds are available at the point of acceptance, as when the currency is bought – it needs to be paid for immediately so we will need your funds with us in our client account.
When purchasing new yachts from overseas where the distributor is selling in your own currency, please be aware that there is an element of risk for the distributor as the currency is a moveable feast. The only way that they can protect themselves against this is to forward buy the currency needed, but of course once they have done this, if the rate moves in favour of your currency they cannot give you the benefit of this as it is too late. Therefore, please bear in mind that there is a price to pay for not having to worry about this aspect of your purchase and don’t imagine that the distributor is making a massive gain on currency when you are buying from them in your local denomination!
The graph below shows 4 currencies that are particularly close to our hearts at Berthon – £Sterling, US$, Norwegian Krona and the € Euro and their level of movement since January 2008. The euro is the currency against which the other 3 are compared. Here you can see the downward shift of the US$ against the euro and then its recovery. The £ has been very weak and the Norwegian Krona remained pretty stable and strong against all currencies. We expect to see continued volatility between these 3 currencies but we cannot see the euro staying this strong for long.
Because our industry is so web-led, yacht prices across the board are being influenced by currency 24/7 and this is something that we have become accustomed to dealing with. As time goes on, where there is a lot of currency movement, those zones where currency is weaker are quickly reacting to this and taking the opportunity to raise prices to normalize the market. The problem with this is that unless the downward currency shift is permanent, if prices are not quickly dropped, the home market stalls because of increased price so that purchasers in this zone go aboard to buy and the foreign strong currency buyers no longer find the pricing attractive. If you are considering playing the currency game with the price of your yacht, it is important to watch the long term trend and also remember that a modest discount for an overseas buyer from you, is unlikely to excite him over buying in his domestic market with the ancillary inconvenience, traveling, delivery and maybe local taxes to pay on repatriation to his zone. It has to make serious financial sense for him to take the trouble.
In conclusion, we do not recommend that yacht owners play the currency game; price in a currency with which you are comfortable and which is useful to you. If a strong currency buyer gets a great deal – that’s fine provided that you are happy with your side of the bargain. Pricing to match higher priced yachts will surely leave yours waiting to be the last sold and by then, depreciation will be taking its toll, or the buoyant market may have moved to another sector or type of yacht. Currency is not the way to increase the value of your asset. Buyers are still relatively thin on the ground and should be encouraged to purchase at fair market value in your currency rather than focus being put on the good value that they are receiving in theirs.