Will the US election’s stunning election result prove to be a trump card for the Australian real estate market or will economic uncertainty and higher interest rates put an end to this property cycle?
While no one really knows what’s ahead, let’s look at some of the common questions being asked and I’ll give my view on things:
What are Trump’s major policy initiatives?
The simple answer is that no one really knows what Donald Trump is going to do – in fact, he probably doesn’t know himself.
During the last 12 months he made so many promises and so many threats to help him get into office, yet now that he’s won the election he seems to have a more pragmatic approach, backing away from some of his campaign promises and listening to his advisors.
However, we do know that Trump plans to boost America’s economy through:
- Major infrastructure investments to create employment, boost the economy and refire the American steel furnaces. The incumbent government tried to boost the US economy and stimulate spending through lower interest rates, while Trump plans to spend money to boost the economy.
- Lowering US tax rates. Lower personal taxes should encourage consumer spending, and while some may see lowering corporate tax rates as self-serving, I suggest it is aimed at repatriating large amounts of money that American corporations are holding overseas.
- Raising tariffs. Trump has been outspoken about his opposition to free trade agreements and his stance will make it harder for Chinese, Mexican and Canadian exporters to tap into the US market.
- Stopping America being the global policeman, saving American dollars and forcing foreign countries (including Australia) to increase their defense spending.
What does this mean for the Australian economy?
If Trump’s pro-growth policies work, America will once again be a very strong economy.
This will lead to higher inflation, higher global interest rates and pressure on the Chinese economy which at present is a major exporter to the USA.
Money will likely flow to the USA, lowering the Australian dollar which is good for our exporters, while at the same time lower Chinese demand for our resources will have a negative impact.
In a world that was has been to this point globalising, Trump’s protectionist approach, together with Brexit, suggests the world is becoming more insular meaning we’ll have to manage our own economy better.
Is there really an increase in enquiries from US buyers looking at buying Australian property already?
Yes, there was a knee-jerk reaction with the Canadian immigration website melting down shortly after Trump’s election win and an increase in Google searches on “Moving to Australia and moving to New Zealand.”
And realestate.com.au did notice a spike in searches for Australian property emanating from Clinton strongholds in the USA.
Currently the United States is the second-biggest foreign investor in Australian property, with $7.1 billion worth of applications approved by FIRB in 2016.
Is this because Australian property is seen as a safe haven?
Foreign investors see Australian property as a secure long-term investment and a safe haven for their funds because we have a sound political system and a strong banking system.
However, foreigners are limited to buying new and off the plan residential properties in Australia rather than established properties.
Yet if the welcome mat is pulled out from foreign investors to the USA, large investors could turn to commercial real estate in Australia, where they are allowed to buy established properties.
What impact could all this have on property values?
While economic uncertainty and stock market gyrations may cause an initial “flight to quality” in real estate, if interest rates do rise in the medium term, this will negatively affect our property markets.
This will also mean commercial real estate values will fall in value because the sale of these properties are yield driven.
And the first home buyer market, which is very interest rate sensitive, is likely to suffer as is the top, more prestige, end of the market.
However, in the middle ring, more affluent suburbs of Australia’s capital cities, people are still going to get married, divorced and have babies (not necessarily in that order) and they’re still going to need to and will be able to afford to to upgrade their homes, meaning those who hold well-located residential real estate in Australia should have little to worry about.
Certainly Donald Trump’s victory in the US presidential election raises uncertainties for the global economy, trade and our stock markets, but the risks to Australian property should not be overblown.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.