Has the US trumped Brexit?

The good news is, if Donald Trump goes ahead with the number of walls promised in his election campaign the construction industry and its supply chain will be very busy. Sadly, given his rhetoric about walling off the US economy, his election victory might deal another blow to the UK property market.

SUPERSIZED UNCERTAINTY

Trump promised Brexit plus plus plus, which essentially means that US voters have ordered the same uncertainty, supersized.

“Once again, just like after the EU Referendum outcome, we are left with more questions,” said Colliers International’s Chief Economist, Walter Boettcher. “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?”

Naturally, the UK has been gazing wistfully across the Mill Pond since it chose to sever ties with the EU and focus on global trade. The Mayor of London, Sadiq Khan, recently encouraged construction firms to recruit beyond Europe to ease the skills crisis. Unfortunately, if Donald Trump’s isolationist policies catch on, the UK could find itself trying to negotiate trade and visa deals at a time when other countries are pulling up the drawbridge.

In the meantime, another layer of political uncertainty has been added to EU/UK conundrum. “This will mean that business investment will be buffeted,” said Boettcher. “Global direct property investment activity will continue, due to the sheer weight of global capital, but a slow-down is anticipated, at least until global currencies settle at new levels. Occupier markets may see increased caution and hesitation by international operators.”

CURRENCY WOES

If there’s one thing financial markets hate, it’s uncertainty. “With little political experience and virtually no ties to special interests, Trump is a true wildcard president, something not taken lightly by the world of finance,” said Evdokia Pitsillidou of easyMarkets.

Had the pound not taken a walloping in the last months, currency investors probably would have flocked there. Unfortunately, sterling no longer being sound as a pound, the euro is the most likely currency to benefit. This could make the UK a less attractive place for skilled workers who remit their earnings to their home countries, and continue to hoist the cost of construction.

“Trump has also been vocal about renegotiating or even cancelling trade deals he deems to be unfavourable to the US,” Pitsillidou. “He has singled out China as a trade relationship he would like to reform. Rather than strengthen the dollar, these actions may actually lead to weakness, as major powers would look to renounce US policy by unloading greenbacks. A falling dollar may push more investors into the euro, which is the only currency big enough to rival the greenback.”

Uncertainty, however, might work in Britain’s favour. “Uncertainty means there is plenty of cash sat on the side-lines,” said Mark Dampier, Research Director at Hargreaves Lansdown. “The smaller than expected fall and subsequent recovery suggests that investors are buying market dips. There is no reason to believe this won’t continue, offering support for global markets.”

LONDON CALLING?

The London Central Portfolio believes that there will be a net positive impact on London’s property market as investors retrench to blue-chip tangible assets as uncertainty on the political and economic stage is heightened once again.

The result will likely move the global spotlight away from Brexit, repercussions may be felt across Europe with the prospect of anti-establishment votes becoming keener. At the same time, the likelihood of the UK Parliament thwarting the people’s mandate to exit the EU has dwindled.

Whilst all of this plays out, Prime Central London property, a traditional safe haven, is expected to benefit from a similar flight to quality, asset-backed investments.

“Ironically, after Brexit took a bite out of London’s reputation amongst international investors, we expect to see renewed interest in the British capital, especially for commercial property,” said Lloyd Hughes at Athena Advisers. “The lease of a prime commercial asset in London is normally 15 years with a yield of up to 10%, so plenty of time to see out Trump’s term.

“For more than a year, currency has been the biggest catalyst for Americans buying overseas and there is resounding uncertainty over whether Trump’s economic policies will affect the USD currency negatively. Dollar buyers from around the globe will want to capitalise on their strong position against the GBP and Euro. By next Spring, things could look very different, so this is a golden window for those seeking to invest capital abroad.”

However, although anecdotal evidence suggests a sizeable portion of disillusioned Clinton supporters will be packing up and looking for the next new world (now that the Canada immigration site has crashed due to heavy traffic), this is unlikely to have any tangible effect on demand.

“As the world absorbs the shock of a Trump presidency, it’s fair to wonder what this new raft of uncertainty means for the UK,” Frazer Fearnhead, founder and CEO of The House Crowd. “From the point of view of the UK property market – not a lot. Will some disenchanted US citizens seek refuge in London? Perhaps.

“However, for the property market in general, the fundamental issue of short supply and high demand remains exactly the same. As we have seen post-Brexit, northern property hotspots like Manchester remain the best options for property investment.”