This article was originally published by Michael Mata on the 10th Nov 2016 via yourmortgage.com.au
The 2016 United States presidential election has just concluded, and Donald Trump will take office as the 45th president early next year.
As Trump’s path to the White House became clear, global financial markets were shaken, stocks and commodities slumped, and currencies fluctuated wildly.
Nervous investors are snapping up supposed haven assets—boosting the Japanese yen, gold, and government bonds in the process. And according to Nerida Conisbee, chief economist at REA Group, the uncertainty following Trump’s victory means foreign investors are likely to focus more intensely on safe havens such as the Australian property market.
“Australia will be a beneficiary of this as it is considered to be one of the safest markets in the world,’’ she said.
Conisbee warned that property values were likely to drop in the United States, similar to what took place in the United Kingdom following Brexit. She added that it was too early to tell if the uncertainty would push the US into a recession.
“We will know by early next year and it will depend on how unstable Trump is as a president. From Australia, he looks incredibly unstable. The UK has narrowly escaped recession following Brexit.’’
The outcome of the US elections will have a profound impact on the Australian economy. Mathew Tiller, head of research at LJ Hooker, said that “nearly all parts of the Australian economy are intrinsically linked to the performance of the US. Our equity markets take their direction from the US and the Australian dollar is impacted by the strength of the US economy. It’s therefore important that there is confidence in the future policy direction of the US government and that of the president.”
That confidence is now lacking, and many foreign property investors will bail out of the United States in search of stability in Australia, Tiller predicts.
“A Trump victor adds sovereign, or crown risk, to inward investment into the US, affecting the amount of capital, the type of investors and the level of return expected. It makes investment [in Australia] more attractive for large foreign developers and institutions, as well as high net worth private buyers looking to purchase residential property,” he said.
Increased foreign demand for Australian property will only exacerbate an already tense situation at home, with median house prices likely to rise even further in high-growth markets like Sydney and Melbourne.
As it is, young adults, retirees, and families earning average incomes are finding it increasingly difficult to afford homes. A heightened foreign demand for Australian residential property will only disadvantage these groups even further.
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