As a real estate investor, you should be asking the question whether Donald Trump’s Presidency will be good for real estate? We know that Trump is a seasoned investor and developer of prime properties in several real estate markets in the United States and around the world; therefore, a first impression should be that Donald Trump’s election as President would be good for real estate. After all, if anyone would know what can move the real estate market in a positive direction, he should.
So not surprising, that seems to be the feeling of most real estate investors as reflected in the 2016 4th quarter survey by National Real Estate Investor Magazine (NREI) of real estate investors. The NREI survey shows that the impact of Donald Trump’s election as President is viewed favorably by an almost two to one margin in terms of being positive for the real estate market, as well as favorable for the economy as a whole.
The NREI survey revealed that a majority of real estate investors had a positive outlook on economic growth and expected job growth in 2017 to exceed 2016, with a small minority (18%) predicted a turn for the worse and a potential recession. There was however a note of caution in that the NREI Investor Sentiment Index [Figure 1] has declined from a high of 187 in the 4th quarter of 2014 to 153 in the 4th quarter of 2016. This however is way above the low of 91 when the Index bottomed in 2009.
The index measures investors anticipated changes in property values and whether they plan to increase or decrease their real estate holdings in 2017. The factors cited for the cautionary tone included a sense that the real estate market has reached a mature stage and expectations of raising interest rates.
What is curious is that you would think that a more positive outlook for the economy would mean a more positive outlook for the commercial real estate market since job growth and economic expansion would mean greater demand for commercial real estate and continuing rent increases. But the backdrop to the survey is that 69% of the respondents feel that the commercial real estate market is reaching a cyclical peak. However, about the same number (65%) feel that Trump’s economic policies will good for real estate values and investment activity.
But the key may be the perception versus reality. No one at this point can predict with any degree of accuracy whether the policies that Trump has promoted will actually get adopted. The recent failure of the new administration and the Republican House to repeal and replace Obamacare has raised the concern that the next two big legislative initiatives, major tax reform and a robust infrastructure program, may become more difficult to enact. Trump’s current popularity in the high 30’s does not give him a lot of political clout to pressure lawmakers to vote for changes that maybe unpopular. New Presidents are most effective in enacting their agenda in the first 12 to 24 months after they take office. If the efforts to change the tax code and enact large infrastructure spending get bogged down, the positive perceptions in the stock and real estate markets could begin to change. If this happens, the optimism that is driving the stock market to new highs and keeping the commercial real estate market humming along may end as well. At that point, reality may set in and optimism could quickly turn to pessimism that could impact both the stock and real estate markets.