Property to trump shares as trade war beckons

By Angus Raine, Executive Chairman
APRIL 1, 2018

A series of tit-for-tat tariffs has triggered fears in the US that a trade war with China is now a distinct possibility, according to a recent article in an industry publication.

The premise of the article is that a trade war between the superpowers will be a plus for the Australian property market. On the flipside, President Trump’s tariffs aren’t great news for shares either, with local investors sure to seek the safety of bricks and mortar while this latest politico-economic crisis plays out.

Factors driving down shares

The weakness in shares reflects ongoing worries about whether the US Federal Reserve will increase interest rates, higher bond yields, and concerns the US tariff hikes will ignite a global trade war that will depress economic growth and profits, noted Shane Oliver, Chief Economist, AMP Capital. Shane believes doubts about President Trump’s team, rising short-term bank funding costs in the US and a hit to Facebook in relation to privacy issues are combining to weigh down share markets.  

The economist also predicts that the Mueller enquiry could have a destabilising impact on global share markets. Since May 2017, an investigation has been led by Robert Mueller, a former Director of the Federal Bureau of Investigation (FBI). The investigation is examining Russian interference in the 2016 United States elections, including investigating any links between Donald Trump's 2016 presidential campaign and the Russian government.

Australian property a winner from trade wars and Trumpism

However, while a hit to the economy from possible trade wars and other economic and political dramas could have an unfavourable impact in Australia, it could result in more local and international buyers turning to the safety of Australian property.

“For many Chinese Australia is an alternative to the US. Australia offers comparable lifestyle, property markets, and educational and employment opportunities, CEO Carrie Law told Elite Agent. “The key difference is, of course, that Australia tightly restricts and taxes foreign property investment, while the US does not. Hypothetically, were the trade war at some point to cause Chinese demand for US property to seriously decline, it’s entirely plausible to consider those buyers turning to Australia as a fall-back,” she said. Australia is already one of the leading property destinations, according to a report from Juwai last month.

For local investors, our banks are more willing to lend you money to buy property than shares, and usually at a more competitive interest rate. Moreover, increasing your equity in a property can be the deposit required for the next investment. To find out more about your capacity to borrow money for a property investment, contact financial specialist Our Broker today on 1800 913 677.