The Trump effect

Mar.March 13, 2017 01:00 PM

Developer-in-chief Donald Trump is a boon to confidence in South Florida’s real estate industry, according to law firm Berger Singerman, which last month released a survey of 100 local industry pros showing that 53 percent of respondents expected the area’s real estate market to be better than in 2016.

“President Trump brings a unique perspective given his decades of experience in the real estate sector,” Barry Lapides, a partner at Berger Singerman, told The Real Deal.

However, most respondents weren’t ascribing their positive outlook solely to the new president. “Other reasons included consumer confidence, high foreign investment, and a strong economy, which was the primary reason cited for optimism in the South Florida real estate market,” the survey said.

Single-family home sales jumped 13.1 percent in November compared to a year earlier, according to a report released by the Miami Association of Realtors.

“I think that the market has certainly seen a strong jolt post-election,” Jay Parker of Douglas Elliman Florida told TRD. However, he hedged against the Trump effect, adding, “We have seen increased velocity, but I also think it’s important to understand part of that is driven by realization of price reduction.”

Though some industry players, including Palm Beach’s Jeff Greene, bemoaned the inconvenience caused by the new president, some of those who don’t live in his immediate neighborhood are pleased to have him around.

“I’m happy to have him in Florida; I like it when he’s here,” Parker said. “There’s additional visibility — to whatever extent it does have value, that’s good.”

Following is a look at how Trump’s policies could affect various parts of the South Florida real estate market.

Foreign relations

South Florida’s attractiveness to foreign buyers remains vital to the real estate market, no doubt at least one of the reasons Cuban-born, Miami-based developer Jorge Perez called plans to build a wall along the United States-Mexico border “idiotic.” Perez also opposes the reversal of the U.S. trade opening with Cuba, an apparent possibility given Trump’s tough campaign talk regarding the island nation.

Trump’s travel ban could tangentially impact EB-5 visas, but there have yet to be concrete steps to block foreign funds from entering the country.  “Of course we have uncertainty, but he is a real estate expert who understands the benefit of the EB-5 program,” Peggy Fucci, CEO of OneWorld Properties, told TRD. OneWorld is the broker for the Miami Worldcenter, a $1.7 billion mixed-use development that has received EB-5 funds. Around 70 percent of the units have gone to foreign buyers, primarily from China, some of whom have also been investors. “We have not seen that Donald Trump’s presidency has impacted foreign buyers,” Fucci said, adding that she believes even if the minimum investment required to get an EB-5 visa increases, it will not make a large dent in willing investors.

“Whether you like him or you don’t, Trump presents a position of strength globally,” Jay Parker of Douglas Elliman Florida said. “I believe there will be tremendous amount of repatriation of funds that will be funneled to real estate as a safe-haven investment, and Florida is particularly well suited to capture that.”

However, David Cobb, the regional director of housing research firm Metrostudy, is worried about what Trump’s policies will do to the labor market. “His policy of building the wall and deporting illegals — about 15 percent of the construction workforce is undocumented — will constrain the labor market for housing,” Cobb told TRD.

Tax cuts 

The president’s proposed tax cuts are expected to benefit all potential homebuyers, according to David Cobb of Metrostudy. “Reducing taxes to individuals and corporations creates jobs, and that’s good for housing,” he told TRD. “The number one factor for housing is job growth.”

The southeastern U.S. is emerging as an economic powerhouse, according to a recent study conducted by CBRE. The driver is strong job growth, particularly in Miami-Dade County. “If we have job growth for several years like we are forecasting, we will have a couple good years for housing,” Cobb said.

But for the South Florida market, tax reform could also mean losing a vital competitive edge the state has in terms of attracting out-of-state buyers. “Right now residents in New York or in California enjoy tax benefits for owning property here, and we are reaping those benefits in our property markets,” Jill Hertzberg, one half of The Jills brokerage team based in South Florida, told TRD. “People will always want homes in South Florida because of our great weather, but broad tax cuts could make it less attractive to a certain buyer.”

Interest rates and bank deregulation

“Several rounds of small increases in interest rates won’t really play a major role in the real estate market in terms of the higher-income side of the market as long as you’re talking about marginal increases,” economist Tony Villamil told TRD. “For the big projects where those percentage points make a big difference, lack of foreign buyers and oversupply dictate that major construction shouldn’t be happening right now anyway.”

When it comes to deregulation, however, Trump’s disaffection for the Dodd-Frank Act has made hopeful first-time homebuyers more optimistic they can secure mortgages that may have previously been beyond their reach.

“Deregulation, in the short term, will likely result in additional growth in real estate as well as other industries,” Jeffrey Margolis, also a partner at law firm Berger Singerman, told TRD. “However, in the long term there could be detrimental effects as a result of deregulation and less oversight.”

The legacy of South Florida’s last housing boom, fueled by loose lending practices, has meant that it’s one of the target areas for financial regulators, who are putting cash transactions with foreign money under a magnifying glass. “Banks here will be under significant pressure in terms of due diligence and anti-money-laundering laws, which will remain in place. But on the consumer side there might be relief in terms of mortgage lending and paperwork,” Villamil told TRD.

Infrastructure spending

The state’s population grows by roughly 1,000 people per day, according to Democratic Florida Sen. Bill Nelson, who presented a trillion-dollar plan, the Blueprint to Rebuild America’s Infrastructure, in January at a press conference on Capitol Hill. “Those people need infrastructure,” he said.

But large-scale projects could be a double-edged sword for the housing market, according to David Cobb of Metrostudy, who says they could “siphon labor from the residential housing market over into building bridges, exacerbating a pretty constrained labor market the housing industry faces today.”

In a 2016 Infrastructure Report Card published by the American Society of Civil Engineers, nearly all of South Florida’s important projects received grades of B– or below except for its bridges, which received a B. Nelson described the state of these bridges as “about to fall down.” He furthermore highlighted coastal infrastructure needed to protect developments from rising sea levels, and the risk of contamination of the state’s drinking water. (Coastal infrastructure and drinking water received D+ and C+ grades, respectively.) For South Florida, plans will include expansions of the SunRail service in Orlando and restoring Amtrak service along the Gulf Coast. Improvements in transit infrastructure, aside from creating jobs, make surrounding real estate more valuable and can attract buyers for all real estate markets. 

Cobb worries about how this growth will play out in the long term. “If all this stuff comes to pass, a lot of job and wage growth, coupled with inflation and rising mortgage rates, we could see a price bubble, based on different circumstances than the last bubble. Back then it was fake demand; now it could be a supply-constrained bubble,” Cobb said.


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