Property

A New Trump World



Months after the shocking Brexit vote, controversial real estate mogul and reality television star Donald Trump prepares to take the most powerful office in the world

Right up until the west coast numbers started rolling in, no one really believed Donald Trump, the surprise Republican presidential candidate that not even all Republicans approved of, would win the US election on November 8.

But spurred on by significant social divisions and a draconian Electoral College voting system, come January 20 we will be living in a world with President Donald J Trump.

Immigrants, African, Asian, Latino, LGBT, and Muslim-Americans and women are fairly sure what they’re in for in the next four years – likely one of the reasons Citizenship and Immigration Canada’s website crashed due to “higher than normal web traffic” on election day – but what does it mean for real estate investors?

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The Good

Following a stock dip and greenback slump on November 9, markets rebounded after the election dust had settled and returned to normal, with the dollar climbing to a 13-year high on November 18 on expectations of interest rate hikes and faster inflation.

For Asian real estate, “Regardless of political shifts in other regions, here in Asia Pacific we continue to see growth based on domestic demand, demographics and urbanisation. Increasing volatility and risk should push investors towards greater diversification,” said JLL’s head of research, Dr Megan Walters in a post-election statement.

“Yields are increasingly global, rent growth is local. That provides sufficient reason in the longer term for diversification into Asia Pacific real estate for investors seeking the rent growth driven by demand for space by both local and foreign MNCs.”

After Brexit, the weakened pound attracted investors despite anti-immigration messaging, and there could be a repeat of that in the US; if investors perceive bargains, it will drive volumes – but only if the dollar drops again. Another trickle down effect of a Trump administration could be the bolstering of regional APAC capital flows.

“We have seen China and Singapore funds moving into Australia and Japan. Given the diversification benefits of growth here, we may expect to see increasing movements of global funds into Asia Pacific,” Walters said.

On other fronts in the US, infrastructure spending is likely to get a boost (Canadian Prime Minister Justin Trudeau won points on similar pledges in 2015), as is defence and public safety spending. But as Trump didn’t run a policy-driven campaign, and so it remains to be seen how he intends to fund said spending.

On November 9, JLL theorised Trump would abandon his threats about repealing the North American Free Trade Agreement (NAFTA) or the Trans-Pacific Partnership (TPP), of which the US is the lynchpin, but by mid-November had vowed the TPP was officially on the elimination agenda, along with a heightened deregulation. The potential end of the TPP marks what many consider reduced American presence in Asia-Pacific, leaving room for China to step into the breach.



The Bad

In the short term, most analysts expect to see a degree of currency volatility – common after elections – that could lead to an appreciating Yen, which will be regarded as a safe haven currency.

That uncertain currency climate could stimulate global transactions, and should the US dollar remain low, Hong Kong assets are going to become more appealing, particularly to Mainland investors. That could, in turn, lead to more stamp duties.

A great deal of the Trump election campaign rhetoric was targeted at China (who he threatened to slap with a 45% import tariff), India, Vietnam and other major export economies that he views as the reason for American job outsourcing in the global economy.

“There are definitely concerns in terms of how Trump’s win can affect outsourcing to countries like India,” theorises Anuj Puri, chair and country head at JLL India.

“The country’s real estate sector does depend a lot on the commercial real estate demand generated by this sector. Likewise, the entire IT/ITeS sector has had a direct correlation to residential demand in the country.”

In a statement from Colliers International’s executive director of research of Asia, Andrew Haskins, agrees. Citing forecasting house Oxford Economics, a moderate Trump policy could have a limited negative impact on the US, but a more radical Trump policy pivoting on US$2 trillion in tax and front-loaded spending cuts, and imports tariffs against China (at 45%) South Korea and India would, “Have a significant negative impact on US growth and materially reduce growth prospects in Asia.”

The Ugly

The US is among a handful of safe havens for investments largely due to political and social stability. That could be put to the test in the next four years if Trump continues to appoint advisors and attorney generals that are alleged white supremacists (Steve Bannon) and vehemently anti-immigration (Jeff Sessions), to go along with his radically Christian, anti-civil rights vice-president, Mike Pence.

That may come as news to Mainland Chinese investors, of whom 53% are more likely to invest in US real estate under Trump, according to a survey carried out by Hong Kong-based East West Property Advisors.

Respondents said they respected Trump as a businessman and strong negotiator, which would lead to a better American economy and, following that, property gains.

“Principles and ideologies will be less important compared to expected business returns,” said East West’s report.

Ironically, it is that insular thinking that could be Trump’s economic policy Achilles heel.

“Given the fact that Congress has granted the president a tremendous amount of leeway with regard to trade, it will remain an important area to watch,” said CBRE’s Global Market Flash report.

“This is particularly true in US commercial real estate markets where large multinational service providers operate, and in industrial and logistics markets that support the flow of goods in and out of the country.”

Combined with the unexpected Brexit vote in the summer, 2016’s political landscape has shaken things up for the next two to four years. And it should remind investors that instability and socio-political shocks are not the purview of Africa and Asia – of emerging countries.

“Since the global financial crisis, US financial assets have been in high demand and the US dollar has been strong. This has been reflected in heavy capital outflows from Asian real estate and stagnating capital inflows over the past eight years,” Haskins says.

Despite likely immediate volatility in emerging economies, 2016’s one-two punch of the UK and US political shocks will put paid to long simmering misconceptions about Asian risk and, “Lead to higher demand for Asian financial assets, including property, over time”.

As JLL’s Puri succinctly sums up: “What can be said with any degree of certainty is that there are some very interesting times ahead.”