US vs Europe Property Market: Trump, Brexit & Political Uncertainty.
With Donald Trump set to be named the 45th President of the USA, the future outlook for the country is somewhat uncertain. Conditions across Europe are equally unclear, with the implications of ‘Brexit’ yet to materialize, political turmoil across Europe and the continued terror threat that plagues many nations.
However, the new US Presidency shows some encouraging signs for the US property market, with promises of significant tax cuts and heavy investment in infrastructure. With more than 3 billion dollars of his own wealth invested in property, it’s in Trump’s best interests to ensure that the real estate sector continues its growth.
Moreover, the entire nation benefits from a prospering real estate sector – it secures housing opportunities, brings in jobs and is crucial to driving the economy. While there is a lot of uncertainty surrounding Trump, the housing market is the one aspect that should excel under his stewardship. After all, real estate is in his blood.
The US – will it still trump other markets?
Home sales in the US rose at their fastest pace since 2007 in May of this year and the housing market continues to go from strength to strength.
Even though the US economy is well on track to full recovery, experts believe there is still plenty of investment opportunity given that property prices are expected to continue to rise.
A report on Emerging Trends in Real Estate for US & Canada 2017 suggests that foreign investment will continue to pour into favorable US markets.
In fact, in South Florida, mid-market Miami single-family homes posted a 10.3% rise in sales in the third quarter of 2016, according to the latest figures from Miami Realtors.
South Florida will be a key market to watch as increasing capital inflows from Latin American countries. A report by CBRE attributes this influx of Latin American money to foreign investors seeking a safe haven for their investments following poor economic performance in their native countries.
Spain & Portugal – high yield, high risk?
The markets in Spain and Portugal have been cruising for some time now, and in fact, the Portuguese capital of Lisbon has soared into the top 10 cities named in the Emerging Trends in Real Estate 2017 report released last month. This is primarily due to its recovering market, and the fact that it is still viewed as having plenty more room for growth.
Lisbon boasts higher yields than other European capitals, and offers investors potential for good returns – as long as they are prepared to accept some risk. The report by PwC & ULI states that Iberian cities as a whole are very much in the frame, although with varying degrees of enthusiasm. “Lisbon, now at Number 7, is viewed more favorably than either Madrid or Barcelona. Though a small market, the availability of assets and risk/return profile are attracting investors, some of whom feel Spain is overpriced”.
Lisbon is yet to reach the same yields as their previous peak in 2007/2008, and experts believe that if the economic situation remains stable then there could be a further increase in returns. However, the report by PwC & ULI also expresses concerns in Portugal’s economy: “There are worries that economic growth is fragile and Portugal’s time “in vogue” can end suddenly. When the tide changes, liquidity leaves Portugal very quickly”.
Some experts believe it wouldn’t take much for either Portugal or Spain’s markets to plummet, given the strong influence that UK expats have over property prices and the implications of an impending “Brexit” from the EU. A flood of sellers from the UK expat community could tip the sector back into a downward spiral. This could soon be a reality if EU countries are unable to compromise on Brexit negotiations and decide to forcibly eject UK expats that reside in their country.
Turkey – facing east or west?
In terms of investment property opportunities, Turkey has become a popular rival to other warm and sunny destinations such as Spain, Portugal and South Florida. Istanbul has been enjoying a property boom, at least in local currency terms. According to Knight Frank’s Global House Price Index, Turkey boasts the fastest rate of housing price increased with 18.4%.
However, this trend is not expected to continue and increased interest rates will slow down the price increase. There is a strong belief that the price hikes are not sustainable, and that the economy is slowing. Over the next couple of years, the Turkish housing sector will also face further threats from increasing political turmoil caused by terror events.
In the PwC & ULI Emerging Trends report, Istanbul has plunged 19 places to Number 28 in their rankings, with investors citing deadly terrorist attacks and the failed political coup as reasons to avoid the city. “Until stability returns to Turkey, international investors are steering clear of Istanbul”.
Ironically, Turkish citizens are increasingly setting their sights on South Florida real estate as they seek a more stable market to invest their assets. With all political uncertainty in Turkey and nearby countries, interest in investing in South Florida is accelerating. Turkish Airlines now flies non-stop between Miami and Istanbul, and Turkey has established a consulate in Miami.
Thailand – stability or turmoil?
OK, neither Europe or the US, but Thailand remains a popular investment destination for foreign investors. According to Property Report, the number of expatriates in the capital, Bangkok, has increased 10 percent year-on-year in recent times. High-end real estate had benefited from rising house prices, and luxury condominiums are taking over Bangkok’s neon skyline.
Unlike the Hong Kong dollar, the Thai Baht is not directly linked to the US dollar and is likely to remain fairly stable over the coming months. Therefore, Thailand’s real estate market is not expected to see any major impact from the US election – at least in the short term.
However, demand for real estate in all markets is highly dependent upon macro-economic conditions. With this in mind, it will be essential to keep a close eye on how policies enacted by the new US administration influence global markets, especially in the case of China, which is one of Thailand’s major trading partners and a growing source of real estate investment into Thailand.
Global Property Guide states that while high end prices remain bullish, the overall housing market is losing steam – “Thailand is set to grow at a slower pace than most other nations in Southeast Asia, according to the IMF, its long-term prospects weighed down by structural problems including rapid population aging, relatively low education quality and skill sets, and overdue structural transformation”. Due to its weak economy, many experts are wary of significant investments and suggest that large-scale projects are hugely risky right now.
So which traditionally ‘safe havens’ remain safe?
Uncertainty is a common trend for 2016 so far, with the UK’s decision to ‘Brexit’ causing shockwaves and Trumps shock election shaking up the stock market. Political certainties are rapidly diminishing and returns are low due to sluggish economic growth. Safe havens such as London no longer hold that status, and non-core locations also seem risky.
Financial Analyst and Real Estate Investment writer, Roxanna James, agrees that performance across Europe is likely to be poor – “due to Brexit and the economic outlook for many countries, the EU is second only to Russia as the world’s weakest performing world region… investors are increasingly looking to the US as their safe haven of choice as the world economy stutters”.
David Glenn of Overseas Real Estate believes this increased inflow of capital into the US will continue to drive the housing prices up – “The US housing market is considered one of the most stable in the world, meaning that the most likely place for these new investors to put their funds in the US housing market. If a significant number of investors begin purchasing real estate in the US, we will more than likely see an increased demand and prices will go up.” In a period of global uncertainty, the US remains the best bet.