Currency in Cross-Border Real Estate — A Practical Framework

A USD-based family buying a €5M finca in Mallorca is taking two distinct trades. They are taking a position in Mallorcan real estate, and they are taking a long EUR / short USD position of approximately €5M. Both should be conscious. Both should be priced. Most foreign buyers think carefully about the first and never frame the second — and then describe the FX move over the hold period as luck, in either direction.

This essay sets out the framework Shibui uses with clients to think about currency as a deliberate, sized exposure rather than an accident of where the house happens to be.

The currency exposure is real, and it is large

Currency moves between major pairs of 15% to 25% over a 5-to-7-year hold are normal, not exceptional. EUR/USD has traded between roughly 0.96 and 1.23 in the last five years alone; USD/JPY between 105 and 161. On a €5M property, a 15% adverse FX move is a $750k swing — comparable to the entire transaction cost stack and capable of overwhelming several years of property appreciation.

The two practical ways to manage currency exposure

We almost always recommend one or both of the following before any thought of a derivatives hedge:

• Borrow in the local currency — finance the EUR property with EUR debt. The mortgage hedges the currency exposure on the financed portion; only the equity is exposed. This is the single cleanest hedge available to most cross-border investors and it pays itself in interest deductibility in most jurisdictions.
• Match liabilities to assets at the household level — if the family has ongoing EUR expenses (school in Switzerland, time in Mallorca, EUR salary), the EUR asset is partially self-hedged by the family's EUR consumption stream. A diversified Swiss-resident family with EUR school fees, EUR property maintenance, and EUR holiday spend is structurally short EUR liabilities; adding a EUR asset is partial natural hedge.

What we almost never recommend is a derivatives hedge on the full property value. The hold horizon is too long, the roll costs are real, the FX forward curve beyond 12–18 months is thin or expensive at the family-private scale, and the family's true marginal exposure is rarely the gross asset value once household self-hedging is properly accounted for.

The 30-30-30 frame — a starting point, not a recommendation

For a globally mobile family with no overwhelming weighting toward a single jurisdiction, a rough default we discuss is a balanced 30-30-30 exposure across USD, EUR, and JPY — with the remaining 10% in the family's home currency or in liquid working balances. This is not a recommendation; it is a starting point for the conversation. Most families end up with more weighting toward whichever currency funds their largest ongoing expenses, whichever currency their primary residence sits in, and whichever currency their next generation is most likely to live in.

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