Hazards in Country Risk

Note: Natural risk is frequently local rather than national

Examples:

• Seismic Events

• Droughts

• Flooding

• Fire (forest fires)

• Storm

• Health Crisis (epidemics)

• Local impact of global warming

• Economic spillover effects of these events

Government Policy risks are negative impacts of local government actions on foreign direct invested property owners.

• Changes in the tax system

• changed in thr legal regime and enforcement or lack thereof

• expropriation / nationalization or inability or unwillingness to provide public services

• barriers to capital flow

• corruption and bureaucracy

• interference in negotiations or existing contracts

are caused by collective actions from non-governmental organizations.

Internal Origins

• unions, religious or nationalist groups raise issues with foreign property owners operating in the host country.

External Origins

• social advocacy, human rights or environmental groups outside the host country try to influence the behaviour of a foreign property owner in the host country.

… are systematic risk components that are caused by changes in the overall economic situation of a country.

• Macroeconomic country risks are beyond thr control of individual assets but influenced by the nation state the property is located in.

• Macro risks affect the investor because they have an impact on rents, occupancy, bankruptcies of business partners, cost of operations, future sales prices and currency exchange rates.

• Business cycle risk

• Sovereign risk

• Local interest rate risk

• Asset price risks

• Exchange rate risk

• Transfer risk

• Overall Macro development: GDP, public budgets and national income

• Development of income and purchasing power: disposable income, savings, government subsidies, tax burdens

• Prices: consumer, construction, land

• Labor markets: labor force, construction sector employment

• Development of the external balance and external indebtness: trade, capital flows, liabilities

the price of one currency in units of another currency.

Price notation: how many euros per unit of foreign exchange

Quantity notation: how many units of the foreign currency per euro

The exchange rate risk

… is the possibility of an unexpected change in the exchange rate between the home currency of the investor, and the currency in the host country of the investment location.

Translation exposure

Transaction exposure

Operational exposure

the risk that a company’s equities, assets, liabilities or income will change in value as a result of exchnage rate changes.

Impact on the cash flow, resulting from outstanding contractual financial obligations entered into before, but settled after the change in exchange rate

measures the change in the present value of future cash flows from unexpected changes in the exchange rate. The effect can be through changes in sales volumes, prices and costs.

is the danger that you are unable to receive payments in your home or another hard currency, because the government of the host country denies private access to foreign exchange or prohibits the transfer of funds abroad.

• Structural Risks

• Financial Sector Risks

• Residential sector risks

• Retail sector risks

• Office Sector risks

• Industrial sector risks