Mr A and Mr B were given a cash inheritance of N60 million each after the death of their rich grandfather in Year 2000. This was during the Obasanjo years when the Fx rate was about N120/$. The inheritance was worth about $500,000 - cool money!

Mr A, an entrepreneurial minded person, bought a very big house in VGC with the N60 million. The house has valid legal title and has obtained the “Governor’s Consent” on the Deed of Sublease.

The property earns N2M annually in cash from the house rent. This means he has made another N40M (N2M x 20 years) while also still owning his house. He saved his N60M rent income in Standard Chartered Bank.

Mr B, a career engineer with strong finance knowledge, went to EKO hotel to convert the money to dollars. He deposited the $500,000 into his bank account in Sterling Bank, the “1-Customer” bank.

Due to their interest to jointly apply for a bank loan, the two brothers invited to prepare a special statement of their net worth in NAIRA (and a separate one in dollars), based only on their real estate properties and bank balances.

Mr A‘s property at VGC has been valued at N80M based on a recent property valuation exercise that was done by Jeunkoku Olorinla & Co, a firm of Estate surveyors and valuers.

Although Mr A made a gain of N40M on his inheritance amount of N60M (worth about $500,000 when he collected his inheritance), the foreign exchange devaluation (from N120/$ to N360/$) has decreased the value of his VGC property down to $222,222

It would have been worse for Mr A if not for the property value appreciation during the 20-year period that has been recognised. But why?

However, Mr B was able to hedge the Fx risk by holding a US$ denominated asset whereas Mr A’s property was held in a property market that is Naira based and valued (even if he had used US$ to settle the payment for the property in VGC).

The takeaway is that HNIs in countries with currencies that are highly volatile (like Nigeria) must seek to balance their asset portfolio with a good currency spread to hedge against FX risks, in order to preserve value in their asset portfolio

SyberKate:
Mr A and Mr B were given a cash inheritance of N60 million each after the death of their rich grandfather in Year 2000. This was during the Obasanjo years when the Fx rate was about N120/$. The inheritance was worth about $500,000 - cool money!

Mr A, an entrepreneurial minded person, bought a very big house in VGC with the N60 million. The house has valid legal title and has obtained the “Governor’s Consent” on the Deed of Sublease.

The property earns N2M annually in cash from the house rent. This means he has made another N40M (N2M x 20 years) while also still owning his house. He saved his N60M rent income in Standard Chartered Bank.

Mr B, a career engineer with strong finance knowledge, went to EKO hotel to convert the money to dollars. He deposited the $500,000 into his bank account in Sterling Bank, the “1-Customer” bank.

Due to their interest to jointly apply for a bank loan, the two brothers invited to prepare a special statement of their net worth in NAIRA (and a separate one in dollars), based only on their real estate properties and bank balances.

Mr A‘s property at VGC has been valued at N80M based on a recent property valuation exercise that was done by Jeunkoku Olorinla & Co, a firm of Estate surveyors and valuers.

Although Mr A made a gain of N40M on his inheritance amount of N60M (worth about $500,000 when he collected his inheritance), the foreign exchange devaluation (from N120/$ to N360/$) has decreased the value of his VGC property down to $222,222

It would have been worse for Mr A if not for the property value appreciation during the 20-year period that has been recognised. But why?

However, Mr B was able to hedge the Fx risk by holding a US$ denominated asset whereas Mr A’s property was held in a property market that is Naira based and valued (even if he had used US$ to settle the payment for the property in VGC).

The takeaway is that HNIs in countries with currencies that are highly volatile (like Nigeria) must seek to balance their asset portfolio with a good currency spread to hedge against FX risks, in order to preserve value in their asset portfolio

The issue is not the turn over at the end of the day, its a problem of ability to forecast, predict and faith in a particular currency pair appreciating against the other.

For real estate that is a tangible asset you can hold unto.

SyberKate:
Mr A and Mr B were given a cash inheritance of N60 million each after the death of their rich grandfather in Year 2000. This was during the Obasanjo years when the Fx rate was about N120/$. The inheritance was worth about $500,000 - cool money!

Mr A, an entrepreneurial minded person, bought a very big house in VGC with the N60 million. The house has valid legal title and has obtained the “Governor’s Consent” on the Deed of Sublease.

The property earns N2M annually in cash from the house rent. This means he has made another N40M (N2M x 20 years) while also still owning his house. He saved his N60M rent income in Standard Chartered Bank.

Mr B, a career engineer with strong finance knowledge, went to EKO hotel to convert the money to dollars. He deposited the $500,000 into his bank account in Sterling Bank, the “1-Customer” bank.

Due to their interest to jointly apply for a bank loan, the two brothers invited to prepare a special statement of their net worth in NAIRA (and a separate one in dollars), based only on their real estate properties and bank balances.

Mr A‘s property at VGC has been valued at N80M based on a recent property valuation exercise that was done by Jeunkoku Olorinla & Co, a firm of Estate surveyors and valuers.

Although Mr A made a gain of N40M on his inheritance amount of N60M (worth about $500,000 when he collected his inheritance), the foreign exchange devaluation (from N120/$ to N360/$) has decreased the value of his VGC property down to $222,222

It would have been worse for Mr A if not for the property value appreciation during the 20-year period that has been recognised. But why?

However, Mr B was able to hedge the Fx risk by holding a US$ denominated asset whereas Mr A’s property was held in a property market that is Naira based and valued (even if he had used US$ to settle the payment for the property in VGC).

The takeaway is that HNIs in countries with currencies that are highly volatile (like Nigeria) must seek to balance their asset portfolio with a good currency spread to hedge against FX risks, in order to preserve value in their asset portfolio

Yup...

Medium-term to long-term investment by High-Networth Individuals in a basket of currencies and/or diversification in USD-denominated asset portfolios is the key here.

This is an interesting study case.
However you could have done the same simulation assuming that Mr A bought Dollar every year with the rent money. This would have helped me to benefit from a dollar cost average scheme and I am sure his net worth would have been improved.