This week’s shock US election result will create more uncertainty in European real estate markets still dealing with June’s Brexit vote.
In real estate circles, worries about geo-political events are more acute than they have been for many years. In the latest Emerging Trends in Real Estate Europe report, researched over the summer and published last week, 89 percent of the 800 property executives interviewed or surveyed put political instability at top of their list of concerns. In addition, 63 percent said they were worried about national stability in their own countries.
Donald Trump’s surprise victory in the US presidential election – a property developer who has never held political office – will surely pile on more anxiety. Coming so soon after the UK’s vote to leave the European Union, it is another unexpected turn of events that will add to the heightened uncertainty.
While the UK wonders about what Brexit could actually mean, Americans must now be rewinding Trump’s pronouncements on the hustings and guessing which of his ambitious promises he may try to follow through on.
Europeans, meanwhile, may ponder how this latest ‘protest’ vote against more established kinds of politics will play in coming elections on the continent with the Italian referendum and Austrian presidency re-run happening in four weeks’ time, followed by Dutch, French and German elections next year.
One of the key uncertainties for everyone, real estate businesses included, is how Trump’s election may come to affect the prospects of the US economy. We do not know whether, on balance, it will be good or bad, but real estate executives Real Estate Capital has spoken to highlight that the health of the US economy will affect Europe, while it will have as much impact on economic performance in the UK as Brexit, if not more.
In his acceptance speech, Trump repeated his promise to invest in domestic infrastructure, and to double growth. The UK’s Sir Howard Davies, chairman of RBS, commented afterwards that there is “a respectable argument for saying that the Trump recipe for increased spending by the government, perhaps compensated by slightly tighter monetary policy, may not be a bad economic prescription for the US … there is a need for a renewal of infrastructure”.
In addition to spending $600 billion on roads, bridges and schools, Trump has also promised to raise the minimum wage and take anyone earning less than $25,000 out of income tax, remarking they need then only submit a single page tax form, reading “I win”. This has been costed at $4.4 trillion.
There was nothing in yesterday’s speech of the other strand of Trump economics, the protectionist, anti-globalisation rhetoric that has stoked fears of an isolationist America and a negative impact on international markets. The worry is that even if the domestic economic prescription works – and the wisdom of borrowing for such a huge injection in the domestic economy at a relatively late stage in the US cycle is debatable – protectionist policies will cause a slowdown in global trade.
In a conversation before the election, the head of a large, European-based international real estate investment manager said: “The deepest trend driving real estate is the economic cycle globally – we’re not in a new paradigm. There is a natural cycle which is driven to a large extent by the US and increasingly by China.
“I don’t want to express any political views, but I do think if Trump were elected investors would lose a degree of confidence in the growth prospects for America, because he is likely to put up trade barriers and be more isolationist. Some of the policies he’s espousing are not particularly business or investor-friendly. That could bring forward the next global slowdown because all economies are interconnected now. A slowdown or recession in the US would profoundly affect the EU and UK, and therefore property markets.”
It is hard to invest when you don’t have confidence in what economic policy is going to be. Positing a positive future after the Brexit vote, one head of strategy at a pan-European private equity real estate firm said a couple of months ago: “I could easily see a set of circumstances where if all these geopolitical risks faded away in 2017, and we get a Clinton White House, we get a Juppe or a Sarkozy government in France, Merkel gets re-elected and Britain cuts a soft Brexit deal, we could be looking at a ‘melt-up’ rather than a meltdown for European real estate.”
Yesterday’s news means only one thing: one more, not less, event to worry about.
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