What does the 2016 US election mean for global property markets?
United States presidential election, 2016
Trump’s surprise victory is slowly reverberating around the world and creating further anxiety in an already uncertain economic environment. While it's still early days, it is important to think about the potential implications on global property markets.
Immediate concerns around the resilience of oil prices, which declined yesterday, along with the potential for a weaker dollar suggests there may be further global economic uncertainty ahead.
An uptick in imported inflation as a result of a weaker dollar will put already stretched Middle East household finances, still reeling from the economic fallout of the low oil price environment, under further pressure. Any further contraction in the oil sector will also have negative ramifications for the property markets, especially where the oil sector dominates office take up and is responsible for the bulk of new household creation.
Our 2016 Middle East Private Capital Survey revealed London as the top property investment pick for Middle East High Net Worth Individuals, followed by New York and Singapore, for 2016. LA was the only other US city to feature in the top 10, coming in eighth place. We were a little perplexed to see New York drop out of the top target locations for 2017; in fact no US city appeared in the wish lists of Middle East investors for 2017.
Dubai overtook London as the most preferred property investment location for 2017, while Toronto emerged, in joint third place with Abu Dhabi, Singapore, Kuala Lumpur and New Delhi. Toronto was the only North American city named as a likely target for next year.
Rising numbers of students from the Gulf travelling to Canada has certainly aided the city’s emergence in the minds of the Gulf’s wealthy, but it’s quite likely that it will serve as a proxy location to New York, while we all wait and watch to see what ramifications, if any, the US election result has on global property investment flows.
At this early stage, it certainly makes London look like a much safer investment hub for Middle East investors, particularly as this is a market they understand well; however with currencies pegged directly to the dollar, the pull of a London investment may be eroded to an extent, should the dollar slide in the coming weeks and months.
This may well strengthen the appeal of an investment closer to home, helping markets such as Dubai and more secondary locations like Doha, perhaps, benefit from any temporary recoiling in global property investment appetite.
Dubai is a market that is well known and well understood and with events like the 2020 World Expo looming on the horizon, the surprise US election results may well strengthen the appeal of a more localised investment, at least temporarily.
For London, its historic position as the world's safe haven may well be bolstered by the election results as investors seek out the familiar and the reliable. For now however, residential values continue to soften gradually, with some resilience around the £1 million to £2 million mark, while the office market continues to record a stagnation in headline rents.