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The shekel and the overseas investor: currency as a second engine
A shekel property gives a dollar or euro investor two exposures at once, the building and the currency. How that works, in both directions.
About 2 min read
An Israeli apartment is priced, rented and eventually sold in shekels. If your own money is in dollars, euros or pounds, owning one means holding two things at once: the property, and the shekel itself. Your result in your home currency is the property's result combined with whatever the exchange rate did over the same years.
How the two engines combine
Suppose the property's value and rent produce a gain in shekels. If the shekel also strengthened against your currency during the hold, that gain is larger once converted back. If the shekel weakened, part or all of it disappears in conversion. The same arithmetic applies to every rent payment you convert along the way.
Why many investors see the shekel as a tailwind
The shekel has been supported by structural factors: a large technology export sector, a persistent current-account surplus, substantial foreign-currency reserves at the Bank of Israel, and steady inflows of foreign investment. Over much of the past two decades those factors coincided with a stronger shekel against the US dollar. That history is the case for holding shekel assets inside a dollar-based portfolio.
Why it is not a hedge you can count on
Exchange rates also respond to interest-rate differences, security events, global risk appetite and central-bank action; the Bank of Israel has at times bought foreign currency specifically to slow the shekel's rise. Sharp weakening has happened, sometimes quickly. Currency exposure adds a second source of return and a second source of risk. It removes neither.
What to ask about any shekel asset
- At what rate, at what cost, and when will my money be converted into shekels?
- Are rent and sale proceeds paid in shekels, and who converts them back?
- What would my result be if the shekel weakened as much as it has strengthened in a good period?
- Does my home country tax a currency gain separately from the property gain?
Past currency moves are not a forecast, and nothing here is a view on where the exchange rate will go.