It is fair to say that 2016 is a year full of surprises. Anyone who had the foresight to predict Britain voting to leave the European Union, Leicester City winning the Premier League title and Donald J. Trump being elected president of the United States of America could be in for a huge payout.
In January, bookmaker Paddy Power was offering odds on a Brexit/Leicester City/Trump treble at odds of 3,000,000/1, and so if you had put a £10 bet on back at the start of the year, you would now be £30 million better off!
Despite much uncertainty, the UK economy remains resilient in the face of Brexit, Leicester City are in strong position to progress to the UEFA Champions League last-16, and the Brexit-style financial disarray predicted on a Trump victory has so far failed to materialise.
However, many traders had priced-in a win for Hillary Clinton, meaning that investors endured a rollercoaster ride in the immediate aftermath of the election result, amid volatility that roiled financial markets around the world, until a few conciliatory comments in Trump’s victory speech calmed the financial markets.
“We clearly saw the market turn when Donald Trump began speaking and rather than continuing with divisive campaign rhetoric, thanked Hillary Clinton, said he would reach out to all Americans and the Democrats for guidance,” said Mark Haefele, global chief investment officer at UBS Wealth Management.
The knee-jerk reaction on the markets may have been predictable, but what longer-term impact Trump’s victory has on global events is not so clear given that he is an unknown quantity, and it would seem that some Americans are not willing to stick around and find out.
Flight to safety
Canada’s immigration website crashed in the early hours of Wednesday morning – just as the election result started moving in Trump’s favour, while New Zealand immigration services also reported increased traffic to its website for residency visas from US nationals in the hours before Trump surged to victory.
“Many companies and investors may look to move their investments and companies, at least in part, out of the US to safer havens,” said Ohio-born Jean Liggett (right), CEO of UK’s Properties of the World.
It has been suggested that some Americans could head to the UK, partly because it is a fully English speaking nation, but also because London in particular is widely viewed as a sensible place for wealthy people to park their cash when their own countries are going through a period of instability.
“We are already seeing a flight to safe haven assets such as gold and prime central London property has always been seen as a safe haven asset in turbulent times,” said Camilla Dell, managing partner at independent property buying agency, Black Brick.
Aside from greater demand from US investors who hold the view that “Trump is risky for the markets”, Dell also expects to see plenty of other foreign buyers start to consider London over America, including those from the Middle East and of Muslim faith, deterred from investing in the US due to the president-elect’s remarks about banning Muslims from entering the country.
Simon Tollit, central London sales director at United Kingdom Sotheby’s International Realty, also believes that Trump’s election victory will boost investment into the UK’s housing market, particularly London.
He commented: "Investors do not like to buy in uncertain markets and a win for Trump means a change of party, meaning changes in policy are far more likely with a Clinton defeat.
"New York and London are historically rival property markets, meaning this result could sway buyers to favour a London purchase instead."
The pound has been suffering against the dollar ever since the Brexit vote in June. Ahead of the US election, it was trading close at a 31-year low versus the greenback, which in itself makes it worthwhile for American nationals to consider a move to London, according to Nick Davies, head of residential development at Stirling Ackroyd.
He said: “The recent fall in the value of the pound against the dollar means there are great deals available in the London market for buyers from across the Atlantic. While the capital’s house prices have risen 13% year-on-year for domestic buyers, those using the dollar will find homes in London are almost 10% cheaper than a year ago.
“With the culture of the West End, thousands of years of history and fantastic employment opportunities, London has lots to offer US buyers, aside from a declining cost of living. And, of course, British winters aren’t as cold as Canada’s.”
Unsurprisingly, the pound has made strong gains against the dollar since the election, rising 1.2% against the dollar at $1.2529 as markets react to the prospect of a Donald Trump presidency.
But the slight improvement in sterling’s value against the dollar, a trend that could eventually help reduce inflationary pressures in the coming months, will not deter investment in the UK’s housing market, according to Charles Curran (below), principal at Maskells, who also believes that the US election will prove “favourable” for the UK housing market and wider economy.
He commented: “Sterling has already strengthened against the US dollar which, notwithstanding a potential [interest rate] hike in the US in December, may start reducing some of the post Brexit inflationary pressure in the UK.
“This is good for mortgage payers as it reduces the likelihood of the Bank of England’s hand being forced to increase rates to counter a strong dollar; the currency in which many of imported products are priced.”
Whilst Americans have never been prolific property buyers in London, owed in part to their complex tax liabilities, Richard Bernstone (below), director at Aston Chase, can also foresee a situation whereby more Americans – and people based in countries with currencies pegged to the dollar – may “decide to take up permanent roots in the capital”.
“International dollar based buyers who have been ‘holding off’ following the recent weakening of sterling, may now decide that it is the right time to buy before the dollar starts to weaken in the wake of this election result,” he said.
Front of the queue
Barack Obama infamously warned that the UK would be at the “back of the queue” in any trade deal with the US if the country chose to leave the EU, as he made an emotional plea to Britons to vote for remaining a part of the 28-member state.
But now we are set to have president Trump in charge, who has not only vowed to rip up international trade deals and start an unrelenting offensive against Chinese economic practices, but has also publicly backed Brexit, saying the UK would be “better off” without the EU.
Trump, who has already invited Theresa May to visit Washington in a phone call in which both reportedly stressed the importance of UK/US relations, even hinted during his election campaign that he would offer the UK preferential treatment in trade deals, should he win the presidency.
Evdokia Pitsillidou at easyMarkets commented: “Trump has been vocal about renegotiating or even cancelling trade deals he deems to be unfavourable to the US. He has singled out China as a trade relationship he would like to reform.”
Without the economic clout of being part of the EU, some economists fear that the UK will inevitably struggle to strike more favourable trade deals on its own. But if it can succeed in reaching an independently positive trade agreement with the U.S., it would undoubtedly be viewed as an encouraging step in the right direction, providing a welcome boost for the UK economy, including the housing market, not to mention the commercial property sector.
For commercial property, the key policies that are likely to drive capital flows globally, including both to and from the US, will not be known for some time, according to Colliers International’s chief economist, Walter Boettcher.
He commented: “Once again, just like after the EU referendum outcome, we are left with more questions. How isolationist will the US become under Trump? Is the EU-US trade deal dead? Will the US offer a trade deal to the UK so as to keep the UK within the US geopolitical sphere? How much will immigration controls be tightened? Will Trump try to make good on his various ‘bombastic’ policy ideas or was this all just hyperbole?”
Boettcher (left) accepts that only “time will tell”, and that there will not be any clear indicators until the end of the year and even then, “the likelihood is that his policies will only become clear over his first “100 days”.
“In the meantime, another layer of political uncertainty has been added to EU/UK uncertainties,” he added. “This will mean that business investment will be buffeted."
Global direct property investment activity will continue, due to the sheer weight of global capital, but Boettcher says a slowdown is anticipated, at least until global currencies settle at new levels.
In the commercial property sector, occupier markets look set to see increased caution and hesitation by international operators. But Boettcher points out that once again, this uncertain environment is looking more like “the new normal”, but businesses and markets will undoubtedly adapt “as they always do”.
In the UK’s residential market, Stephanie McMahon, Strutt & Parker’s head of research, pointed out that the “differing of opinions” between forecasters going into 2017 is an indicator of the uncertainty currently going on in the market, making things far more difficult to predict than usual because of the “high number of upcoming global events”.
With so many unknowns, McMahon reminded us that it is important that we go back to looking at the core fundamentals.
The property analyst said: “When compared to the rest the world, we have benign corporation tax, mid-level residential property tax, a favourable GMT time zone, we speak in the international business language and have huge depth of markets and skills. As a result, our economy is currently holding up better than perhaps many expected following the EU referendum.”
The election of Donald Trump provoked only brief panic, but can the calm last? Only time will tell. In the meantime, we can look forward to seeing what impact the Dutch, French and German elections taking place throughout 2017 will have, along with Brexit closer to home.
In fact, looking ahead to next year, I wonder what odds I could get on Article 50 not being triggered in March, Marine Le Pen’s National Front securing victory in the French presidential election and Lord Alan Sugar winning a snap general election to become the next prime minister?
Donald Trump’s win means anything could happen now!
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno