Joe Biden expected to be friendlier to foreign investors, property market observers say

Lam Ka-sing
·5-min read

President-elect Joe Biden is likely to be more friendly towards foreign investors, immigrants, renters and students than US President Donald Trump, but he might also implement taxes that are less favourable to the rich, market observers said.

Perhaps the relationship between the United States and China will not go back to what it was, but Biden will be viewed by investors – local and foreign – as a more rational leader, said Georg Chmiel, executive chairman of Juwai IQI, a privately held real estate sales and media company. Biden will be more interested in stability and economic growth than Trump, he added.

“Most Chinese clients [whom] we work with believe Biden will be more friendly to investors from overseas than President Trump has been,” Chmiel said. “Biden might reverse some tariffs and have a more pro-immigrant and pro-student stance. Parents will feel less worried about sending their children to the US under Biden. They think the Chinese will be more welcome in the country.”

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The US-China trade war has dealt a blow to investments in US property by Chinese investors. The volume of purchases of US homes by Chinese buyers in 2020 stood at US$11.5 billion, or just about a third of levels seen in 2017, when Trump took office and the numbers started a three-year decline, according to National Association of Realtors data. The number of purchases have also plummeted this year, by more than half from 40,600 in 2017 to 18,400 transactions.

Biden is also more likely to control the US’s coronavirus outbreak, launch a realistic stimulus package and build a significant amount of infrastructure, all of which could drive up prices, Chmiel said. “He will build housing. He will support renters,” he added. “All of these policies tend to increase property values.”

Under the new regime, investors in Democrat-leaning “blue states” New York, New Jersey, Connecticut, California and other high-income states could save significantly on property tax as Biden was likely to repeal a rule that prevents people from itemising the tax as an expense, which would be a “big boost” for home prices, Chmiel said.

But where Trump was likely to try and reduce the capital gains tax rate, Biden “would like to see it increase for those earning in excess of US$1 million”, as a way of raising revenue to fill holes in the budget and to follow through on proposed health care coverage expansion, said Naomi Budden, the founder and managing director of Nest Property, a real estate agency.

“This could result in a substantial hit in taxes for foreign investors who sell real estate assets in the US,” Budden said. “That changes the dynamics for a lot of people.”

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She said that Biden intended to limit the policy tool 1031 Exchanges, which allows real estate investors to defer capital gains taxes by directing the sale proceeds into new investments, to taxpayers with annual incomes of less than US$400,000 per year. The president-elect also intended to reform the Opportunity Zones programme, which offers tax breaks to developers that invest in designated areas.

Colliers International said that if a Biden victory did add to an upwards pressure on the yuan, Chinese capital will potentially start targeting other Asia-Pacific property markets – such as Hong Kong – again, and also traditional destinations such as Australia. A likely weaker US dollar under Biden could further reduce the competitiveness of US dollar domiciled investors and funds, restricting their activity to higher-yielding assets.

Real Estate consultancy CBRE said it expected a fiscal stimulus package of US$1 trillion to US$2 trillion to support the US economy. The amount of stimulus will be higher if the Democrats gained the senate majority, it said.

“President-elect Biden’s plans for US$5.4 trillion in additional spending over 10 years, if enacted, will likely boost demand for health care real estate as a result of expanded health insurance coverage, benefit industrial and logistics real estate through more infrastructure spending, and spur more development of affordable housing,” Richard Barkham, CBRE’s global chief economist, said in a statement. “Biden’s plans would also generate nearly US$3.4 trillion in additional tax revenue over 10 years, which could dampen consumer spending in high-end retail and some parts of the housing market. His environmental agenda may have some implications for commercial building operating costs.”

While Biden’s victory might encourage some investors to move out of wait-and-see mode, ongoing travel restrictions will ensure investment volume remains limited in the short term, Henry Chin, head of research in Asia-Pacific at CBRE, said in a statement.

Next year, the consultancy expects Asian investors to “display a growing appetite” for US property, such as offices in major cities, logistics and data centres, Chin said. Sources of capital will be led by Korea, Singapore and Hong Kong. Buyers from China are likely to remain cautious and could potentially be net sellers due to capital controls and continuing geopolitical tension with the US.

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