Real Estate Lending – The Trump Effect

The Expected Effects Of the Election On Real Estate Financing

Donald Trump and Economic ImpactWhen in July 2016 the U.S. Census Bureau reported the lowest rate of homeownership in 51 years, not a few people were alarmed including then Presidential contestant, Donald Trump.

Private home ownership has also been seen as the major indicator of having achieved “the American dream.” It turned out that that decline was due to more young people coming together to form households in multi-tenanted rental properties so there wasn’t that much to fear after all. For Reference {}

The Presidential election that followed a few months later was full of surprises and a few scandalous revelations. The air of uncertainty among the American people and globally was palpable. You could feel it and as expected, the financial markets responded sharply and accordingly. But how did the real estate market fare? Well, real estate translates to big money and big money spenders are usually reluctant to make decisions that will commit them to long-term financing during election years. They will usually postpone major projects till the elections are done. Obviously, this tends to create a lull in business activity but so far data from the commercial real estate market has not shown evidence of that.

Though it’s hard to discern exactly what will happen, here’s how we see the real estate market responding to the fallout of one of the most contentious U.S. elections we have seen so far.

If you were to say the November 2016 U.S. election was the most contentious ever, you wouldn’t be mistaken. But while the electronic and social media were busy magnifying the political differences of both parties, they failed to notice one thing; both candidates had a lot in common regarding their business outlook.

They both agreed on the need to support current infrastructure by improving the nation’s sea and airports, bridges, road networks, and power lines and also create more jobs, as a way to kick-start U.S. economic growth. They showed open support for Janet Yellen’s push for a low-interest rate policy. She still occupies the post of Chairwoman of the Federal Reserve till date.

These points all mean well for the real estate market because lowering interest rates will keep the cost of commercial real estate financing down. While increased jobs coupled with better infrastructure will enhance activity in both commercial and residential real estate.

Opposing Views on Business Tax Policies

Building up to the final Election Day, both candidates had differing tax proposals.

Clinton’s tax proposal was directed at encouraging business incentives. She planned to offer benefits for corporations that share profits with employees or establish apprenticeship programs. She was very vocal about discouraging American-based companies from moving their operations overseas as this would lead to more job losses. She planned to impose tougher restrictions on those companies that leave American soil. Interestingly, Donald Trump had the same view on the matter.

Though immediate past President, Barack Obama, had planned on cutting corporate tax rates, Hillary Clinton did not specifically address that topic.

Trump’s tax proposal then was a sharp cut in corporate tax rate from the nominal rate of 39.1% to 15%. Such a significant cut has the potential to stimulate economic activity. The commercial real estate market will not be left out as businesses expand as a result of this cut.

The Issue Of Immigrant Housing

Will Trump’s controversial immigration policies make this country become so unbearable that even immigrants and minorities that are not deported outright would choose to leave on their own, taking their money away with them and leaving many once occupied homes behind and empty? This issue is still under observation. But we can say that his immigration policies could deter foreign investment in U.S. real estate. The multiplier effect would be limited price growth and possibly a reduction in the demand for housing.

Uncertainty Will Continue Even After The Elections Have Ended

The last elections presented us with a choice between two candidates with very different backgrounds and personal orientations.

The Democratic nominee, Hillary Clinton is no newcomer to politics but it was surprising to see a possible indictment due to issues surrounding an FBI investigation questioning her use of a private email server.

Donald Trump on his part did not come up through political, or military ranks. This was evident in his interaction with the arms of Government including the FBI, the Senate, and Congress and so on both during and after the elections.

We can’t say exactly how it’s going to play out but we’ll safely say the uncertainties will continue for a while yet.

Uncertainties May Slow Real Estate Price Increases

During the elections, though both candidates offered proposals aimed at supporting business and that would eventually boost real estate prices, the prevailing tendency has been that asset prices in the real sector rise much slower in election years. This is largely due to the sense of uncertainty that most presidential elections create. It’s more evident when you have a 2-term President vacating the seat. Coupled with the earlier discussed point on immigrant housing, you can expect property price increase to be slow for a while yet.

What Can We Expect In The Commercial Real Estate Sector Going Forward?

It’s not all doom and gloom. Despite the surprising election result, there are still many positives that could boost the performance of the commercial real estate market.

Majorly, when you consider the Federal Reserve’s commitment to keeping a low-interest policy, it’s clear there will be many advantages for both borrowers and lenders in commercial real estate financing.

Investors should remember that real estate investment remains a rock solid avenue to put their money in. If they can just stay focused on the big picture and ignore many of the short term volatility and naysayers, they could find themselves reaping from the ripple effect of the low interest rates throughout 2017.

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