San Francisco, Miami may experience demand shortage; London, Dubai may reap benefits
The fallout from Donald Trump’s upcoming presidency on luxury real estate markets comes down to an old maxim—location, location, location.
Take San Francisco for example, where a flight of wealthy Chinese buyers in the wake of a potential trade war with China prompted by Trump could create a demand shock in the Bay Area. Secondary markets, meanwhile, like Melbourne, Amsterdam and Vancouver, could all stand to benefit if an unsteady political landscape pushes investors to diversify their real estate holdings, experts said.
If there’s anything the world learned from Mr. Trump’s election—and the U.K. vote months earlier to exit the European Union—it’s that nothing is certain. There are, however, a few nationwide economic changes that economists and industry leaders predict will play out in the near-term under Mr. Trump, including rising mortgage rates, some form of infrastructure spending, deregulation and reduced taxes for corporations and the wealthiest tier of individuals.
While rising mortgage rates will have little-to-no effect on the luxury sector, as buyers tend to pay cash, said Danielle Hale, managing director of housing research at the National Association of Realtors, infrastructure spending paired with lowered corporate taxes would create an economic boost that could spur more real estate investment, at least short-term.
“There’s not a whole lot of detail yet,” Ms. Hale said. “If the infrastructure spending were to go through, we would see a short-term economic boost.”
Counteracting that, however, could be a flight of foreign buyers, as aggressive trade policies or offensive rhetoric from America’s top leadership pushes them to invest in cities outside of the U.S. To get a better sense of how these scenarios might affect prime real estate’s major markets, here’s a global city-by-city breakdown:
There are three drivers of New York City real estate, said Donna Olshan, a New York broker and publisher of the weekly Olshan Report on luxury contracts.
“One is Wall Street, how is it doing; two is supply and demand; and the third is how do people (particularly foreigners) feel about New York as a safe place for their financial assets,” Ms. Olshan said.
“If New York is seen as safe financially, then we’re in good shape,” she said.
Wall Street has already seen some gains on the back of his election, particularly for construction companies like Caterpillar. Bank shares have also moved precipitously, with theSPDR Financial Select Sector exchange-traded fund reaching its highest point since 2008 last week.
Moving forward, proposed tax breaks to companies and their wealthy executives could mean more cash for New York moneymakers to invest in Big Apple real estate.
“Trump’s economic platform proposes a large tax cut and investment in infrastructure which are generally favorable to housing,” Jonathan Miller, the chief executive of appraisal firm Miller Samuel, told Mansion Global the day after Mr. Trump’s election victory.
And while New York City voted overwhelmingly for Democratic candidate Hillary Clinton, the shock of her loss did nothing to slow contract signing on megamillion homes. There have been two strong weeks for the luxury market since the second week of November, with 40 contracts signed, according to the Olshan Report.
“With world economies generally falling or remaining weaker than the U.S., I’m skeptical of any adverse impact to housing markets like New York, which I believe will remain a global safe haven for investors,” Mr. Miller said.
British brokers are generally optimistic about Mr. Trump’s potential effect on the London market, as his win brings the world’s largest economy onto the same political boat as the U.K.
“The U.K. and its commercial and residential property markets, ironically could end up beneficiaries of the shock election result,” said Frank Knight Chief Economist James Roberts. “Until now the U.K. has appeared a political outlier since the Brexit vote, for having turned its back on the economic consensus that favoured large trade blocs. Today, Brexit appears to be part of a wider political groundswell.”
Peter Wetherell, chief executive of London West End, was ecstatic about Mr. Trump’s win, banking on the hope that the president-elect will boost U.S.-U.K. trade relations that could lead to more American investment in London prime real estate.
“Post-Brexit there has been a significant upturn in American buyers and renters into the prime London resi-market. The first post-Brexit sales deal in Mayfair was to an American buyer who bought a big flat in a significant eight-figure deal,” Mr. Wetherell said in a statement the day after Mr. Trump’s election.
“He will be very pro-property, and this can only be a good thing for London,” particularly Regent’s Park, Grosvenor Square and West London, which have been very popular among U.S. expats, he said.
Another boon for London could be if Mr. Trump’s anti-Islamic rhetoric, which was seen on the campaign trail, continues into the oval office. In that case, London can also expect to see more dollar-backed foreign buyers from the Middle East, said Becky Fatemi, director at Rokstone brokerage.
“I do think there will be more Middle Eastern buyers coming to London rather than Los Angeles or New York,” Ms. Fatemi said.
On that note, Mr. Trump vexed a number of his own business partners in the Middle East when he proposed temporarily banning all Muslims from entering the U.S. last December during the Republican primaries.
A chain of retail stores in the Middle East suspended selling Trump-branded home decor products, and his name was stripped from a golf course under development in Dubai.
His comments, if they continue, and proposed registry of Muslims could stem the flow of investment from wealthy Arabs into U.S. properties, but they’re unlikely to have a direct impact on Dubai’s local property market, said Yolande Barnes, head of Savills World Research.
“I’m not sure Trump will make a great deal of difference,” Ms. Barnes said. “It’s not one of the safe-haven cities with regard to people outside of the region; it’s a safe haven market within the region.”
Dubai’s luxury residential market could still get a boost, however, if high-net-worth buyers from the Middle East start hunting for investment properties away from the political uncertainty now facing the U.S. and Brexit-headed U.K.
“It may well be that Middle Eastern investors will be more inclined to look for alternative cities to invest their money,” Ms. Barnes said. That bodes well for Dubai, but also amenity-rich metropolises like Sydney, Melbourne and Amsterdam.
There’s already some evidence that Arab investment in American real estate has slowed.
Francis P. Lively, executive director of real estate for Wafra Investment Advisory Group, the investment arm for Kuwait’s social security trust fund, said investors in the Middle East have been “very, very concerned” since Mr. Trump’s election. Mr. Lively offered his views during a panel discussion last week in New York on global equity capital flows.
Some Arab investors will “hold off for now” on funding U.S. real estate development until it’s clear whether Mr. Trump will follow through on discriminatory, anti-Islamic policies, or whether it was empty rhetoric, Mr. Lively said.
“Basically the Bay Area is in shock,” said Patrick Carlisle, chief analyst at Paragon Real Estate Group.
Like New York, San Francisco turned out voters for Ms. Clinton in droves, and the city stands to suffer from any hint of a trade war with China.
“They are significant players in the luxury condo market,” as both home buyers and commercial investors in condo developments, Mr. Carlisle said. Their participation in the market could drop off, however “if our relationship with China declines precipitously to the point where the Chinese don’t believe they are welcome here.”
At a recent commercial real estate conference in New York, Kai-Yan Lee, managing director of Vanke Holdings USA, a subsidiary of China Vanke Co., the mood has been one of concern and “wait and see” since Mr. Trump’s election.
Mr. Trump’s presidency is unlikely to affect demand in Los Angeles for luxury homes valued up to $15 million, said Eric Lavey, an L.A. broker at The Agency,
“I’m not going to lie, Los Angeles was rocked. But the hangover is already starting to go away,” Mr. Lavey said.
Los Angeles, like most of the U.S., has seen oversupply and price corrections at the highest levels of the luxury market, but there is still strong demand for entry-level luxury homes between $3 million and $5 million and even in the $10 million-$15 million category, Mr. Lavey said.
“I have a sneaking suspicion that we aren’t in any form of a decline,” he said, citing the fact that L.A.’s price per square foot at the luxury price point is still far below competitors like New York and London.
Price per square foot for luxury homes was just over $1,000 in 2015, compared to $1,860 in New York and $1,930, according to a report by Christie’s International Real Estate published in June.
Like other U.S. cities, however, L.A. may suffer from a slowdown in foreign purchases, particularly in the already-soft market for homes over $15 million, if foreign policy discourages buyers in China or the Middle East, Mr. Lavey said.
Miami is already suffering from an oversupply of luxury condos, with even more developments under construction or in their planning phases (like the Aston Martin high rise).
But with Mr. Trump leading the country, Miami could face a demand shock if his election puts off Latin American buyers, said Nela Richardson, chief economist at Redfin.
“Trump’s immigration plan may cool demand among foreign nationals who are turned off,” she said. About 10% of buyers in Miami are from outside the U.S., with a large contingent from Latin American countries.
Foreign buyers are “much more fickle,” and they may hold off from buying until Mr. Trump’s stances on immigration, borders and his general rhetoric is fully known, she said.