Populism isn’t rocking markets, but it remains a threat

The gains made by the nationalist, anti-immigration Sweden Democrats in the country’s September election are unlikely to have severe repercussions in the real estate market.

Although the far-right party won 17.6 percent of the vote and has threatened to wield “real influence” in parliament, this result was far from the 25 percent some polls had predicted. Property investors like Sweden – SKr152 billion (€15 billion) was invested in 2017, according to Savills – and with economic growth of 2.6 percent forecast, most predict another strong year.

The surge of sympathy for the far-right in a such a seemingly stable country is a concern, certainly socially. It demonstrates the groundswell of populism across Europe has not gone away. Italy, Austria, Hungary and Poland all now have far-right leaders, or at least a far-right presence in government.

However, from a purely commercial real estate point of view, there is limited evidence of populist governments’ impact on markets. In July, we reported property lender sentiment in Italy had been hit by the agreement of a populist coalition. Lenders, we were told, were aiming to price increased risk into loans following a spike in Italian sovereign debt yields.

BNP Paribas Real Estate data for H1 2018, covering the run-up to the March election and subsequent political deadlock, showed a 35 percent dip in Italian investment volumes, year-on-year. However, the agency was quick to point out they were 22 percent above the half-yearly average of the past 10 years. Until Q3 figures are published, the impact of uncertainty is difficult to measure.

In Poland, where the ruling Justice and Law party’s policies have caused disquiet, one market player quoted in the Urban Land Institute and PwC’s Emerging Trends Europe 2018 report said: “Investors are holding daily conversations about the situation in the country. The message sent to foreign investors is rather discouraging.”

However, BNP Paribas Real Estate’s H1 figures showed €3.3 billion of investment – more than double the same period in 2017. With economic growth and occupier demand both high, it seems market fundamentals trump political concerns for many.

Despite the resilience of individual European markets, property people should consider the deeper implications of the populist upswing, of which Sweden’s election was a symptom. Populists are playing on concerns surrounding the issues of immigration and the structure of the European Union to stoke fear and the cumulative effect is a weakening of the outlook for the European project.

The defeat of nationalist candidates at last year’s Dutch and French elections led many to conclude populism was being put back into its box. Indeed, in the Loan Market Association’s May 2018 survey of real estate lenders, the volume of capital chasing too few assets overtook political uncertainty as the main considered threat. In 2017, 41.8 percent of those polled signalled the latter, dropping to 23.7 percent in 2018.

However, Sweden serves as a reminder that populist sentiment has not gone away. Although it is difficult to draw a clear line between this upswing and the performance of real estate investment and lending markets, the uncertainty populism is creating across Europe – of which Brexit is the most damaging example – is a long-term threat that property people cannot overlook.

Email the author: daniel.c@peimedia.com