With Donald Trump’s victory in the U.S. presidential election, many economists are forecasting turbulent times ahead for the European economy. The "worst-case scenario" predicted by experts has unfolded, and the financial ramifications of Trump's protectionist policies are expected to reverberate across the global market. While Europe braces itself for a trade war, which some experts estimate will cost nearly 200 billion euros over the next four years, the question arises: Could Europe’s real estate market emerge as a safe haven for U.S. investors?

A Shift in U.S. Investment to Europe

In 2016, following Trump’s initial presidential victory, many Americans sought to safeguard their wealth by investing in European real estate, purchasing second or third homes, and investing in commercial and industrial properties. This trend was not just driven by a desire for a stable investment environment, but also by a yearning for political stability in a Europe that seemed more in line with their values compared to a Trump-led America. Now, after his second election, it seems likely that the demand for property in European cities and vacation hotspots will rise once again, particularly in Portugal.

Europe, in general, has increasingly become viewed as a safer place for international real estate investors, not just in Germany, France, or the Benelux countries, but across the continent. For American investors and others seeking to secure their assets in a democratic and stable environment, Europe presents a promising option. Portugal, in particular, offers a significant competitive edge due to its location, high-quality digital infrastructure, and overall economic stability, although its tax policies are still in need of improvement compared to other European countries like the Netherlands.

Key Drivers of the European Real Estate Market

Several factors contribute to the dynamics of the real estate market, including income growth, interest rates, demographics, and the cost of construction. In the coming years, European income growth is expected to be hampered by anticipated trade wars and increased spending on external security. Higher inflation pressures, both in the U.S. and Europe, may also limit the potential for interest rate cuts, which could further dampen transaction volumes in all asset classes.

In such an environment, real estate investors are likely to focus more intently on core market segments. Areas like health, logistics, industry, renewable energy locations, and data centers are expected to receive the lion’s share of investment. However, construction volumes, particularly for new housing, are unlikely to see significant growth. This limitation in new development could create social tensions, and there is a pressing need for swift and effective political solutions to address housing shortages.

The Challenges of the Second Trump Administration

The second Trump administration is expected to prioritize deregulation and technological innovation, which could strengthen U.S. competitiveness and attract more international capital to the U.S., potentially at Europe’s expense. This shift in focus may bring additional challenges for the European real estate market, as U.S. investors might increasingly look toward their own shores for opportunities.

While the political checks and balances within U.S. institutions may stabilize markets to some extent, global capital flows will likely remain volatile. In the coming years, Washington is expected to make fast and unpredictable decisions, contributing to significant volatility in international markets, including real estate. Higher uncertainty, however, could play in favor of real estate markets, as many investors view property as a secure asset in uncertain times. This holds true, as long as the underlying economic fundamentals are not severely disrupted.

Inflation and Real Estate: A Double-Edged Sword

The primary risk for European real estate markets lies in global inflation. If inflation continues to rise across the globe, it could undermine the attractiveness of real estate as a safe investment. The general fear of inflation, compounded by political instability, might deter investors from putting capital into the European property market. However, if managed well, inflationary pressures could also push investors toward real estate as a hedge against currency devaluation.

In conclusion, while the re-election of Donald Trump may introduce significant challenges for Europe, it could also create an opportunity for the European real estate market to become a haven for U.S. investors looking to protect their wealth in uncertain times. Countries like Portugal, with their stable economic outlook and attractive tax policies, are well-positioned to capture this influx of investment. Yet, as always, the success of this shift will depend on managing the underlying economic risks, particularly inflation, and creating an environment conducive to long-term growth in the real estate sector.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes