For those of us who have worked, indirectly or directly, with Donald Trump in the New York City real estate landscape, sentiments vary about whether his win is a positive or a negative for our country. He has long held to his business strengths as putting him in a unique position to stimulate our economy, and the stock market is already up over 6% since the election. Let’s take a look at his proposed policies and how they will likely impact NYC real estate based on what we know so far.
The real estate market was at a near standstill before the election. Buyers and sellers were reluctant to move, not knowing what to expect. From Q3 to Q4, the number of days a home spent on the market increased 22% from 50 to 61 days. Then, almost immediately after Trump’s win, the market engines revved again. Major banks posted higher Q4 profits than expected and then expressed optimism about a strong 2017 performance. Here are some of the policies Trump has discussed and how we can expect them to impact the NYC real estate market.
Deregulation of banks
Trump’s plans to reverse Dodd-Frank would help the commercial real estate industry by making it possible for banks to expand and hire more employees, thereby requiring additional space and new commercial leases, which have been down city-wide for 5 of the last 6 quarters. The plans would also benefit buyers who would more easily qualify for mortgages, though the impact in Manhattan would be limited since half of apartment purchases are done by all-cash buyers.
Trump’s 1 trillion dollar infrastructure plan shows promise of spurring job growth which would benefit the city’s residents, though it’s unclear what the infrastructure focus will be. Two high-powered real estate developers and long time Trump friends were just picked to lead the infrastructure plan: Steven Roth and Richard LeFrak.
Trump predicts his proposed tax cuts will contribute to a GDP growth rate of 3.5%, whereas the World Bank predicts it will be closer to 2.5%, still an improvement on last year’s 2.3%, the lowest our growth has been since the 2008 financial crisis. These tax cuts for the wealthy will give high net worth individuals additional money to snap up some of the ultra luxury homes that have been lingering on the market over the last 2 years.
Yet Trump’s proposal for a 15% tax rate for all corporate or business income would have at least one negative side effect for real estate partnerships: the current exemption on carried interest would likely be revoked, bringing the tax bracket for carried interest from 20% to 30%. The Real Estate Roundtable says this will discourage risk taking and development in “long-neglected neighborhoods” because of the increased costs in building residential and commercial spaces.
1031 Exchanges, a sweetheart of the investment and business world, allows tax-free swaps of “like-kind” assets, has not been mentioned by Trump or the GOP; a possible indication that the benefit will continue for at least another 4 years. Unfortunately the 1031 Exchange only applies to investment and business real estate transactions.
According to Knight Frank, Russian interest in buying American property has spiked 25% since Q4 of 2015, with the majority of buyers interested in purchasing a property valued between $500K – $5M in New York or Miami. Perhaps we can look forward to another record breaking deal such as the purchase of the 15 CPW Penthouse for $88M by Russian billionaire Dmitry Rybolovlev in 2011.
Trump has been warning that he will impose a 35% tariff on imported goods, a policy whose implications could offset the benefits brought to the economy through proposed tax cuts, if the affected countries seek retribution.
Although it’s still too soon to have a wide view on how Trump’s global policies will impact us in the New York City real estate market, so far the market has only seen positive gains.