Is UK Property The Only Global Asset You Can Still Rely On?


As financial markets react to Donald Trump’s US election victory, is UK real estate the asset you can rely on most to steer you through the current volatility?

It was arguably the most significant global political event for a generation – and the world’s financial markets have reacted accordingly.

Donald Trump will become the 45th President of the United States in January, after clinching an unlikely victory over his Democrat opponent Hillary Clinton in the 2016 US Presidential Election. It’s a result which had a huge impact on investment markets the world over, given the President-elect’s policies are likely to bring a radical change to the status quo in America.

What’s happened?

Within hours of Mr Trump’s victory being announced, $3 trillion was wiped off the value of global stocks.

US stock futures fell around 4.5%. All Asian stock markets posted heavy falls, with Japan’s Nikkei in particular suffering, plunging 5.4% over night. In the Middle East, the global oil benchmark dropped to its lowest rate since August amid uncertainty of the future of the Middle East’s relationship with the US.

Some markets fluctuated wildly between huge losses and rapid gains. For example, the FTSE 100 dropped by as much as 146.8 points on the opening of trading on the 10th November, but ended up closing the day up 1%.

Furthermore, Mr Trump’s success has also increased the prospect of a sharp rise in the base rate of interest by the US Federal Reserve, which should cause concern for investors dealing in dollar-pegged currencies.

So amid all of the current volatility, which assets can investors still turn to and, crucially, in which markets?

Investors turn to ‘safe havens’

Gold is widely viewed as a safe haven in times of economic turbulence and, following Mr Trump’s victory, the commodity enjoyed its biggest rally since the Brexit vote in June, spiking almost 5% to $1.337.4 an ounce.

It demonstrated huge growth during the 2008 global economic crisis, but then suffered a sharp fall in 2013, underlining the need for investors to diversify portfolios.

Property is one of the most common investments in the world and, like gold, is an asset popular with investors when financial markets are in a tail spin due to its low correlation. As an investment that works best for those with a long-term mind-set, real estate is particularly popular with investors that have equity-heavy portfolios, encouraged by its ability to generate high returns in the long-term, as well as steady regular income in the form of yields.

But Mr Trump’s victory should discourage real estate investment in the US, with the current political and economic uncertainty making inward investment risky and too unpredictable to guarantee reliable returns.

Several other population locations for property investment currently fare no better either. New stamp duty rates have just made Hong Kong property, already the most expensive in the world, even more unaffordable, while Singapore’s property market is enduring its longest losing streak since 1975.

There’s only one property market, built on strong, resilient fundamentals, investors can still rely on.

UK property can deliver short and long-term gains

While key British markets such as the prime central London sector may see a spike in activity from American investors, it’s likely to be ‘business as usual’ for UK property given its current supply to demand imbalance.

The UK simply doesn’t have enough homes to satisfy demand. 250,000 new homes are needed each year in the owner-occupier sector alone, while the country’s private rented sector currently has a 4:1 demand to supply ratio. These dynamics have a very low correlation to equities and US foreign policy.

Yields in key cities such as Manchester, currently the UK’s number one location for property yields, are averaging as high as 8%. Long-term growth levels are also strong, with the average house price £16,000 higher in September 2016 than it was one year previous.

Crucially, the UK’s vote for Brexit earlier this year caused the pound to fall to its lowest level for 31-years. For international investors, in particular those dealing in dollar-pegged currencies, UK real estate got as much as 15% more affordable. But with the dollar taking a hit following the US election, and the pound showing its resilience, this currency window of opportunity is getting smaller by the day.

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