The Fiscal Cliff Impact
At the beginning of 2012, commercial real estate investors were starting to move toward value-added commercial real estate properties, but with the possibility of the “fiscal cliff” looming, investors have changed course.
The Federal Housing Authority/HUD has offered an enormous program that assists with the acquisition and refinancing of multi-family rentals at very low interest rates, which is good for refinancing and the construction of multifamily properties.
Even if the multi-family business experiences a downturn because of a shortage of new renters, the result of a deep recession, apartment building owners can still refinance and grab onto the least costly mortgage.
Regardless of any changes in the tax code, Obamacare may help the commercial real estate industry, simply because the healthcare sector may need new real estate development.
And in addition, REITs may benefit from a different tax environment, according to Daniel Clifton, head of policy research at the investment-research firm Strategas. He told the Wall Street Journal, in a November 9th article, that because REIT dividends are already taxed as ordinary income, REITs will look better compared to other dividend-paying stocks, if scheduled dividend-tax increases take effect.
Overall, continued uncertainty created by the fiscal cliff is likely to cause positive capital inflows into real estate, due to investor demand for investments that may provide capital preservation, some long-term appreciation, and at least partial inflation-hedging.
The bright side for real estate fundamentals from the fiscal cliff is on the supply side. New development projects are likely to be delayed, which limits competition for those existing properties. Get them before they’re gone!