Thanks to Trump the European real estate market becomes even more attractive
Donald Trump makes an uncertain world a little more uncertain. His way of governing raises a lot of questions, including what his economic and financial policy will look like, not to mention the foreign policy guideline. The already well-running US domestic economy is likely to be boosted in the short term, but the setback will be even worse.This has consequences for international investors and is ultimately also reflected on the European real estate market. Asian investors are looking for stability and security for their investments and as long as American governance is unpredictable, they´ll find it in the major European metropolises.
It is true that the federal authority in Washington and the states is slowly beating back against the unleashed president and putting Donald Trump in his place, but the uncertainty stillremains. Targeting a certain return on investment, investors place their trust in stability and economic prospects and that is why Europe is becoming more and more important for Asian investors, who have not long been investing only in the Far Eastern real estate markets. However, Trump is not by far the only reason: the old continent is becoming increasingly important in the course of diversification. Already in 2015, Chinese outbound investment to Europe exceeded that of North America – for the first time ever in the 2000s. Surely without any doubt: the Trump effect will continue to keep this trend going.
Europe is not only making positive headlines: the euro crisis is still far from overcome, the southern member countries are still giving cause for concern, and the Brexit is also causing additional uncertainty in the markets. However, the strong middle axis, countries like Germany, the Netherlands or Switzerland, offer almost heavenly security. Especially Germany, with its political continuity, is rightly regarded as a guarantee of stability – a country that in 68 years, since 1949 has just counted eight different chancellors with very good economic prospects.
In these European real estate markets, more and more Asian investors are pushing in, some directly, others indirectly, for example via British funds. These funds often operate with money from Hong Kong or Singapore, two markets closely linked to the British Commonwealth. Singapore itself, however, with its strictly regulated funds is for Asia increasingly becoming what Luxembourg is for Europe: a financial center of growing importance and funds that provide security.
What do the Asian shopping tours mean for the real estate market in Europe? Not too much for Europe's wobbly south, but also Eastern European countries such as the up-and-coming Poland or the Czech Republic are still not in focus. Chinese do not drive Polish cars, they do not use Czech machines. In other words, Asian investors are not yet so familiar with the market. Great Britain and, above all, London, until now the favorite place for Asian investors in Europe, will lose their importance. This does not happen suddenly, as some had expected after the Brexit, but it is an ongoing process. As the first investors have already announced their departure from London, more will follow. Paris, Frankfurt, Berlin and Munich will benefit from this, investments are concentrated mainly in the large centers and especially in office properties. A prime office location is more popular than all other asset classes, hotel real estate or the housing market are following with a difference.
And what are the effects of Asian investment in the middle axis, especially in Germany? When capital seeks products, the market remains stable. This is the state of play. A crash is thus less likely, but also the time of strongly rising prices is over. Why? This is due to interest rates, when the return on capitalis falling due to rising real estate prices, government bonds become more profitable. In addition, buyers from China, Japan and Korea do not push the price here, but pay what the market gives. The competition for top European properties has only increased by a vast number of Asian bidders. This is by no means just due to the Trump effect, but the uncertainty surrounding the United States will continue to make European properties interesting for Asian investors.
Mario Caroli - CEO of Ellwanger & Geiger