MOSCOW (Sputnik) — According to them, the market is rather inert and it is not able to immediately react on new developments, therefore it would be possible to talk about any consequences of Trump’s election just half a year later.
Role of the Federal Reserve System
Since the US President-elect has not provided any specific program yet, the experts could only rely on his election pledges. Though, they find it extremely difficult to predict any future trends, including developing of the real estate market.
"Until Trump announces some key points of his program, including the economic one, everyone will sit and guess what is going to happen. At the election debates he made rather sharp remarks, in particular about the Federal Reserve System and its head Janet Yellen, as well as expressed his discontent with the economic system," economist Vladimir Rojankovsky told Sputnik.
The LLC "Savings Management" chief analyst Alexander Potavin believes that Trump’s statements about Yellen’s dismissal were just pre-election rhetoric, though the policy of the Federal Reserve could change.
"The question is how it would change. Perhaps, the interest rate would be raised, but then another question is how fast it would happen," Potavin said.
The situation at the real estate market directly depends on the Federal Reserve’s interest rate. Now the basic interest rate ranges from 0.25 percent to 0.5 percent.
Rojankovsky said that the fluctuation of supply and demand was directly proportional to the interest rate.
Other important indexes are risks and market’s rate of return, President of the international real estate Agency Gordon Rock Stanislav Zingel said.
"Many investors predict rising interest rate, therefore, the value of money for investors would grow. For example, the effective interest rate for the investor is 4-4.5 percent, and it may be a little bit higher. But the Federal Reserve System is not for sure the player which would do something rapidly, so the rise [of the interest rate] would be like a gradual evolution, but not revolution," Zingel told Sputnik.
"Rising value of money is always an asset flow, including such inert assets as at the real estate market. So everything is in the hands of the Federal Reserve System. We’ll see how the situation will clarify, and this will happen in the coming months," Potavin said.
According to him, tight money means assets decline, so in the case of rising interest rate, nothing would go up in price, while real estate prices would start to decrease.
Foreign Investors
The US real estate market is now at its peak, the prices are close to their maximum. The latest downward adjustment was in 2008, Elena Yurgeneva, director of the Knight Frank’s Key Account Management Department said.
Nevertheless, according to Rozhankovsky, the demand on the part of the non-residents is growing.
"First of all, due to the value of dollar. But dollar, according to some experts, will become stronger," he said.
Rojankovsky added that the Chinese were buying a lot.
"They become richer and they are happy to buy houses in the green zone. This process will continue, if Trump of course does not stop it by taking legal action," he said.
The question of China is open as Trump said nothing about China in his election pledges in contrast to promises to build a wall across the US-Mexico border and deport 11 million illegal immigrants, mostly Spanish-speaking.
"The demand is enormous, considering the population of China and the fastness of China’s getting richer, it can provide growth of real estate prices for many years," Rojankovsky told Sputnik.
In contrast to the 2003-2007 growth of prices, this demand would not be exaggerated, but solvent, the expert said.
It could be assumed that the Chinese would prefer to invest money from exporting goods to the United States not to the treasury bonds, but in the US real estate. If Trump and Congress do not like it, they probably could legally limit access of foreign investors to the market, or if they leave the things as they are, the real estate prices in the United States would be growing for a long period of time, the economist said.
Commercial Real Estate
In the long-term prospect, the elections outcome could be a signal to the Asian investors that they should reconsider their interest to commercial real estate in the United States, since ownership of objects could get more complicated, Cushman & Wakefield Partner Denis Sokolov said.
"The access of foreign investors to the United States would be complicated. They will take time-outs for additional consultations", the expert said.
Zingel stressed that the situation when Trump would be bent on decreasing the corporate tax rates could influence the investors in the future, as their rate of return would increase.
Trump promised to lower the corporate income tax to 15 percent and introduce a tax relief on investments.
"At the moment the tax rate is about 30-35 percent, and if he downwards it to 15 percent, this will become an impetus for new investments, a greater number of transactions and growing real estate prices," Zingel said.
He added that the return rate in the United States would be more attractive for investors.
Domestic Policy
Chief researcher at the Institute of World History of Russian Academy of Sciences (RAS) Alexander Petrov considers that Trump would focus on the country’s internal problems, and will make housing loans more affordable, which would be beneficial to the middle class.
According to Zingel, the internal real estate market stabilized in 2010-2011, and the banks began providing mortgage loans and lending commercial real estate.
"When money and loans are available, it leads to increasing prices," Petrov said.
The market is currently growing by 3-5 percent annually, despite the fact that the economy is in a rather good shape. As regards the availability of loans, Zingel argued that people should not expect that the 2008 situation would repeat, when lending was too available and led to negative outcome.
Changes to Happen in Long-Term Prospects
Anyway, the experts do not think that there would be any changes at the real estate market in the short term due to the results of presidential elections, as deals there take more time than security sales that need a few seconds.
"If you want to sell a property, the transaction will be possible only after half a year. And if all rush to sell, the prices would be low, and when you decide to buy something, prices would return to previous level," Sokolov said.
He added that any transactions and decisions take at least six months.
It also important to keep in mind that the president’s term is just four years, so it is possible that some would decide to wait till Trump quit and only then return to transactions.
Partner Vladimir Sergunin considered that we would see an increase in demand and in value of assets in the long term, aimed at getting money back into the country.
Zingel concluded that in order to understand how the markets would react, it is necessary to take into account the fact that market structure was rather complex, and it would not immediately react to the election of a new president.
