Currency Risk in Cross-Border Property: Hedging Costs

Revision note, 27 September 2026#

This article was corrected on 27 September 2026. A check of its figures and attributions against the cited sources found errors, which have been corrected in the text. The full list, with what the article said and what it says now, is in the corrections section at the end.

Two trades, not one#

A resort acquisition priced in a currency other than the principal's own is two trades bound into one instrument. The first is the real estate position: location, yield, exit liquidity. The second is a currency position, opened the day the letter of intent is signed and closed only at exit, sometimes years later. Underwriting typically treats the first with rigor and the second as an afterthought, a spot rate glanced at on the day of the wire transfer, then forgotten until it reappears, uninvited, at sale.

That omission is not a rounding error. The US Dollar Index fell 10.8% in the first half of 2025, its worst first-half performance since 1973, as tracked by Bloomberg. A euro-based allocator who acquired a dollar-priced asset in January 2025 and marked it in euros six months later was carrying a currency loss of broadly that order on the whole position, before the property itself had moved at all.

The currency is not one risk. It is three, and each behaves differently. A freely floating pair such as EUR/USD is priced continuously in a market the Bank for International Settlements measured at $9.6 trillion of turnover a day in April 2025, moving on interest-rate differentials and risk sentiment. A managed float such as the Indonesian rupiah moves within limits its central bank actively defends. A hard peg such as the UAE dirham does not move against the dollar at all, by policy, until, in the tail case, it does. Each regime is hedged differently, and each leaves a different residual.

The plumbing behind the price#

Before pricing a hedge, it helps to know the market it will be executed in. Global foreign exchange turnover reached $9.6 trillion a day in April 2025, according to the Bank for International Settlements Triennial Survey, up 28% from $7.5 trillion in April 2022. The US dollar sat on one side of 89.2% of all trades. That depth is why a EUR/USD forward can be priced and executed in seconds at a tight spread, and why a rupiah hedge, traded in a fraction of that volume, cannot.

Liquidity is not evenly distributed, and the gap is the first thing that separates the three regimes in this note. FX swaps, the instrument dealers use to fund and hedge positions across currencies, turned over $4 trillion a day in April 2025, 42% of the total and more than the 31% share of outright spot trading. The mechanics of hedging a resort purchase run through the same swap and forward market that banks use to manage their own books, at whatever scale the underlying currency pair supports.

The peg: AED#

The UAE dirham has been fixed to the US dollar at 3.6725 since November 1997, one of the more durable pegs in the world. The Central Bank of the UAE maintains it through automatic intervention, purchasing dollar inflows and supplying dollars against outflows to hold the rate. For a principal acquiring dirham-priced property in Ras Al Khaimah or elsewhere in the Emirates, this removes the AED leg of the trade entirely. There is, in effect, no AED/USD position to hedge.

What remains is not zero risk; it is relabelled risk. A euro-based buyer of a dirham asset is not running a euro-versus-dirham exposure in any floating sense. They are running euro-versus-dollar exposure, because the dirham leg tracks the dollar by policy. The hedge, if one is taken, is priced and executed on EUR/USD, exactly as if the asset were dollar-denominated, because for currency purposes it is.

The peg itself carries a residual the AED/USD spot rate cannot show. A fixed rate held for close to three decades is not a law of physics; it is a policy commitment, backed by reserves and defended by intervention. Victaura Research assumption: the probability of a change is low, but a low probability is not the same as none, and a principal underwriting a multi-year hold should name it as a tail rather than assume it away.

The managed float: IDR#

The Indonesian rupiah sits at the opposite end of the spectrum from the dirham: it floats, but not freely. The rupiah closed 2023 near 15,397 to the dollar and 2024 near 16,095, a measured depreciation of roughly 4.3% over the year (the dollar gained about 4.5% against the rupiah), tracked by FocusEconomics against Bank Indonesia data. By 21 April 2025 it had lost about 4% year to date, closing at 16,805, Bloomberg reported. The slide continued into 2026: the rupiah reached a record low of 18,247 per dollar on 8 June 2026 and traded in an 18,100 to 18,200 range in late July 2026 (FXStreet, 31 July 2026).

Bank Indonesia does not let this happen passively. The central bank intervenes in the spot market, the onshore domestic NDF market and the offshore NDF market to slow the pace of depreciation, alongside conventional rate policy. After cutting the BI-Rate to 4.75% in September 2025, it raised it to 5.25% in May 2026 and to 5.75% in June 2026 to support the rupiah, and held it at 5.75% on 23 September 2026 (Bloomberg; FXStreet; Trading Economics). For a principal buying rupiah-denominated property, the exchange rate reflects both market forces and a visible, if partial, policy floor.

The practical hedging instrument for an offshore buyer is the non-deliverable forward, not a standard forward contract. Because the rupiah is subject to capital-account restrictions, an NDF settles in cash against a reference rate rather than through physical delivery of rupiah, and it is priced offshore, sometimes at a different level than the onshore market. That offshore-onshore gap is itself a cost and a risk a EUR/USD hedge does not carry.

What a forward hedge actually costs#

A currency forward is not insurance in the ordinary sense; it is a locked-in exchange rate, priced off the interest-rate gap between the two currencies. The mechanism is covered interest rate parity: the forward rate must offset the interest differential, or an arbitrage would exist. When the currency being hedged into carries a lower interest rate than the one being hedged out of, the hedge costs money every year it is held; when the relationship reverses, the hedge can pay the holder instead.

In practice the theoretical price and the market price diverge, and that gap is called the cross-currency basis. It reflects dealer balance-sheet costs and the supply and demand for currency swaps rather than pure arbitrage, and the Bank for International Settlements has documented its persistence as a structural feature of the post-2008 market, not a temporary anomaly. A hedge, in other words, costs slightly more than the textbook rate differential implies, and that premium widens with market stress.

The EUR/USD hedge cycle in 2025#

The direction of the interest-rate gap determines who pays, and in 2025 the answer was the dollar side. With US rates well above euro-area rates for most of the year, a euro-based investor hedging dollar exposure back into euros paid to do so, while a dollar-based investor hedging euro exposure back into dollars was paid, the mirror of the same differential seen from the other side.

The cost itself moved sharply over the year. ING estimated, in analysis reported by FXStreet in December 2025, that the three-month forward cost of hedging US exposure back into euros had fallen to 1.82% per annum, down from 2.45% in July 2025, as markets priced further Federal Reserve rate cuts. A euro-based principal underwriting a dollar-denominated resort deal in mid-2025 was pricing a materially different hedge cost than the same principal six months later, on the same property, the same debt, the same operating plan.

That is the number that belongs in the underwriting, not a currency forecast. A forward hedge does not require a view on where EUR/USD will trade; it requires only the willingness to pay, or the right to receive, the differential the market is already quoting. Treating the hedge cost as a line item (reviewed and re-priced as the deal moves through diligence) keeps the currency where it belongs: in the model, not in the principal's opinion of where the dollar is headed.

What history shows an unhedged position can do#

The clearest evidence that currency risk is not theoretical comes from the United Kingdom, twice. When sterling left the Exchange Rate Mechanism on Black Wednesday in September 1992 and depreciated sharply, UK property that recovered in local terms told a very different story once translated into other currencies. Over the following recovery, a GBP-denominated UK property index returned 38.23% from August 1992 to December 1995, according to MSCI research, while the same index, translated into US dollars, lost 10.79% over the identical period. The building did the work; the currency took it back and then some, for the dollar-based holder.

The 2016 Brexit referendum produced a milder version of the same pattern. From shortly before the vote in May 2016 to December 2018, the GBP-denominated MSCI UK Monthly Property Index returned a cumulative 20%. The same index, translated into euros over the same period, returned just 2.26%, not a loss, but a return reduced by nearly nine-tenths once the euro-based holder's own currency is applied. Sterling's post-referendum decline did almost all of the work of erasing the euro-denominated gain.

Neither example required the property to underperform. Both required only that the currency move against the unhedged holder. That is the mechanism this note has described throughout: a sound real estate return, translated through an unmanaged exchange rate, can arrive at the principal's own bank account looking like a mediocre one, or worse. The two trades are bound together whether or not the principal chooses to underwrite them separately.

The natural hedge: financing and horizon#

The lowest-cost hedge is often not a forward contract at all, but the choice of financing currency. Borrowing in the currency the asset is priced in means a move in the exchange rate changes the home-currency value of the debt and the asset together, so the debt-funded share of the purchase is offset and only the equity remains exposed. JLL, in a September 2024 note on dollar strength and cross-border real estate, says obtaining financing in the same currency as the property purchase should be the base case for managing that risk. Unlike a forward, it carries no rolling hedge cost.

The second lever is matching the holding horizon to the currency the capital will eventually need. A currency exposure only matters relative to the money the principal will ultimately spend. A dollar-based family that will always need dollars is not exposed by owning a dollar-linked AED asset, whatever the euro does in the interim; the same family owning a euro asset is exposed, because the destination currency of the capital, not the passport of the buyer, defines the risk.

Where a forward or NDF is still used, it should be sized to the residual, not the whole position. A principal who has already matched financing and horizon to the asset's currency needs a smaller, cheaper hedge for what remains than one who has done neither, and the covered-interest-parity cost described earlier applies to that smaller residual, not to the full purchase price.

Honestly disclosed#

This note has limits the principal should weigh before acting on any of it. The EUR/USD hedging cost cited here (1.82% per annum in December 2025) is a snapshot from a single broker's analysis and moves with every Federal Reserve and ECB decision; it is not a rate any principal should expect to still apply by the time a term sheet is signed. It should be re-quoted at the point of hedging, not assumed from this article.

The rupiah data understates the friction an actual offshore buyer would face. The 16,095, 16,805 and 18,247 figures cited are spot-market levels; the NDF rate an offshore hedger would actually receive reflects an additional offshore-onshore basis this note has not quantified, because a reliable, dated, public figure for that specific spread was not found. A principal hedging rupiah exposure should obtain a live NDF quote rather than infer a cost from the spot data here.

The Brexit and Black Wednesday comparisons are historical, not predictive. They demonstrate that currency can dominate a property return over a multi-year hold; they say nothing about the size or direction of the next such move, on any pair. Past currency episodes are evidence that the risk is real, not a basis for forecasting the next one.

A 2024 industry survey found currency risk ranks second only to transparency and market information among the obstacles real estate investors report, a sign that the friction described here is a widely shared professional concern, not a Victaura-specific framing, though Savills also finds that exchange rates feed into decisions at the margin and are far from the main factor (Savills, citing the ANREV Investment Intentions Survey, 2024).

This note also does not cover options-based hedges (collars, puts), which trade a known premium for a floor rather than a fixed forward rate, and can suit a principal who wants to keep upside if the currency moves favorably. That is a distinct structure, with its own pricing, outside the scope of what is set out here.

What this means for the underwriting#

The practical discipline is to treat the currency as a named line in the underwriting, not a spot rate noted once and forgotten. For any cross-border resort acquisition, three questions belong in the model alongside yield and exit cap rate: which regime (float, managed float or peg) does this currency sit in; what does a hedge for the relevant horizon cost today, quoted live rather than assumed; and is financing arranged in the asset's currency or the buyer's, because that choice alone can remove much of the exposure before a forward is ever priced.

None of this replaces the property thesis; it sits alongside it. A resort with a sound operating plan and a mispriced currency exposure is still a resort with a sound operating plan, but the principal's own return, in their own currency, depends on both being underwritten, not one.

Skin in the game disclosure. Victaura, through its parent Greystone B.V. (Netherlands), develops projects on Lake Como (Italy), in Nungwi, Zanzibar (Tanzania), on Gili Air and in Uluwatu, Bali (Indonesia), and holds an off-plan capital position on Al Marjan Island, Ras Al Khaimah (UAE). Readers should assume commentary may be influenced by, or benefit, these positions. This document is classified as marketing material under MiFID II Article 24(3). It is not investment advice.

Corrections, 27 September 2026#

What the article said and what it says now. The published version described the April 2022 Bank for International Settlements Triennial Survey ($7.5 trillion a day, the US dollar on 88% of trades, FX swaps at 51%) as the most recent; it now cites the April 2025 survey, which reports $9.6 trillion a day, up 28%, the dollar on 89.2% of trades and FX swaps at $4 trillion, or 42% (BIS). The published version said the rupiah traded in a 16,400 to 16,800 range by mid-2025, a range the cited Bloomberg report does not contain; it now says the rupiah closed at 16,805 on 21 April 2025 (Bloomberg) and reached a record low of 18,247 on 8 June 2026 (FXStreet, 31 July 2026). The published version said Bank Indonesia held its rate at 4.75% through 2024 and 2025; the rate was cut to 4.75% only in September 2025 (Bloomberg), was raised to 5.25% in May 2026 and 5.75% in June 2026, and was held at 5.75% on 23 September 2026 (FXStreet; Trading Economics). The published version said JLL describes local-currency financing as frequently the default recommendation with no counterparty, and that such financing cancels the exposure at the equity level; it now says JLL calls same-currency financing the base case (JLL, 25 September 2024) and that it offsets only the debt-funded share. The published version said Savills finds currency shapes the timing of decisions more than their substance; it now says Savills finds exchange rates feed into decisions at the margin and are far from the main factor (Savills). An unsourced comparison with cap-rate compression, an unsourced superlative about the FX market and an unsourced statement about the market's view of the dirham peg have been removed or restated as a Victaura Research assumption.

A further review on the same day refined some of the corrections above and fixed further points. The article described the rupiah's move from 15,397 to 16,095 per dollar between year-end 2023 and year-end 2024 as a depreciation of roughly 4.5%; that figure is the dollar's gain against the rupiah, and the article now says the rupiah depreciated by about 4.3% over the year, while the dollar gained about 4.5% (FocusEconomics, citing Bank Indonesia data).