On the night of the U.S. election results, Australia’s Prime Minister, Malcolm Turnbull told national television, “We have no stronger relationship, whether it’s on the battlefield or in commerce, than we have with the United States.”
And, as pollsters the world over looked on in shock, the significance of this relationship became increasingly apparent as Australian shares mimicked global stocks and dipped sharply, amid fears over what the result would mean for the economy and trade.
Amidst the uncertainty in the immediate aftermath, investors in all sectors across Australia looking for investment opportunities are debating what impact a Trump government will ‘Down Under’, and no more so than in the real estate sector.
Like Brexit, the immediate impact of the Trump election victory in the U.S. has had an exaggerated short-term impact on financial markets because the outcome in both cases was unexpected
“Risk in sharemarkets, currency and bond markets is quickly re-priced and market positions are reversed, generating high levels of volatility”, says Dr David Rees, JLL’s Head of Research in Australia. “In real estate markets, for the same reasons, we may see a short-term delay in real estate investment decisions,”
“Overall commercial property transaction activity in Australia in 2016 will track below 2015 activity, in large part explained by a scarcity of investable assets in our tightly held market. However, offshore appetite for Australian assets remains strong with foreign investors continuing to account for around 40 percent of commercial real estate transactions,” he says
This sentiment is echoed by JLL Australia Country Head, Stephen Conry, who explained, “The increased uncertainty injected into financial markets in recent months due to unexpected results like Brexit and the U.S .Presidential election once again highlights Australia’s attractions as a high yield market supported by stable underlying growth and a transparent regulatory regime.”
According to Dr. Rees, the longer term impact of the Trump victory is likely to be more measured.
“As the Trump presidency’s actual policy positions emerge over the next few months from the noisy rhetoric of the election campaign, market uncertainty is likely to diminish rather than increase,’ he explains
“The U.S. Federal Reserve Board, in particular, is likely to remain cautious. Policy interest rates are likely to remain lower for longer, which makes commercial real estate yields in Australia look very attractive.”
Mr. Trump comes to the U.S. Presidency with a long list of policy proposals, many of them very expensive. To fund this he will need the U.S. economy to perform strongly, particularly if he is to fulfil his ambitions to double the GDP growth rate. Conflicts with major trading partners, increased barriers to cross-border trade and limitations on labour migration do not sit comfortably with these ambitious policy objectives.
Dr. Rees believes that, over time, re-pricing is likely across a range of sectors, reflecting the President-elect’s policy positions – pharmaceuticals, infrastructure, manufacturing and defence. This has obvious implications for real estate markets.
“The impact of November’s election outcome is likely to be felt at the micro and locational level. But the broad parameters that determine real estate investment returns and investment strategies have not fundamentally changed,” he concludes.