By Winai Jaiton
Dr Megan Walters, Head of Research for Asia Pacific at JLL, shares her view on the implications of the outcome of the US presidential election to Asia pacific investors and real estate markets.
Very much like Brexit, the election of Donald Trump to the Presidency of the United States was unexpected.
In the short term, the most immediate transmission mechanism is currency which may see some volatility as the news is digested and risk is assessed.
In the medium term, some commentators suggest that the Presidency, House and Senate all under Republican control, would strengthen the US dollar.
No short-term impact on Thailand’s real estate markets expected
Mr. Andrew Gulbrandson, Head of Research and Consulting at JLL in Thailand, does not expect Thailand’s real estate investors and market to see any impact from the US election, at least in the short term.
Unlike Hong Kong’s dollar, the Thai baht is not directly pegged to US currency and has remained fairly stable over the last several months. Thus it is unlikely that Thailand’s real estate pricing will be more attractive to international investors than it was pre-US election.
If there is a sustained devaluation in the US dollar such as in the UK following the Brexit vote over the summer, the United States may become a more attractive investment destination for Thai real estate investors than in years past.
However due to a high level of uncertainty and the fact that no new policy directions should take place until at least the first quarter of 2017, it may be too early for any investors to rush into the market.”
“Having said that, demand for real estate in all markets is highly dependent upon macro-economic conditions. As such, it will be important to keep a close eye on how policies and programs enacted by the new US administration impact global markets, particularly in the case of China, which is one of Thailand’s major trading partners and a growing source of real estate investment into Thailand,” Mr. Gulbrandson concludes.
In the current climate, currency movements might be sufficient to prompt some international investors to execute deals before the market gets more expensive; however there may also be a period of pause.
If the US dollar falls, here in Asia Pacific, Hong Kong whose currency is linked to the US dollar, is likely to become even more appealing to mainland Chinese.
Over time the Hong Kong government may enforce stricter cooling measures, having just doubled stamp duty just prior to the US election.
After Brexit, despite the fall off in volumes before the vote, weakness in the Pound prompted some Asia Pacific investors to re-enter the UK market, providing a post referendum boost. If the fall in the US dollar is sufficient, after an initial lull to digest the news, Asia Pacific investors may see US real estate as cheap and in turn drive volumes.
In both the UK referendum and the US election, immigration featured; that has not deterred Asian investors from re-entering the UK market; it is too early to make that call for the US.
One side effect of the US result may be to reinforce a trend of cross border capital rising within Asia Pacific. China and Singapore funds have already moved into Australia and Japan. Given the diversification benefits of growth here, there could be increasing movements of global funds into Asia Pacific.
Lastly, there comes a question as to whether the Fed would keep the interest rates lower for longer.
Again, following Brexit, the Bank of England cut rates and introduced stimulus measures. Janet Yellen was widely expected to raise rates in December. If there is a similar level of financial market turmoil, we can expect the US rate cut to be deferred, and real estate yields here to remain stable, or continue to compress under the weight of capital aimed at Asia Pacific real estate.
Regardless of political shifts in other regions, here in Asia Pacific, growth will continue to be based on domestic demand, demographics and urbanization.
Increasing volatility and risk should push investors towards greater diversification.
Yields are increasingly global, rent growth is local. That provides sufficient reason in the longer term for diversification into Asia Pacific real estate for investors seeking the rent growth driven by demand for space by both local and foreign MNC.