According to the Zhito Finance APP, UBS Group's Chief Investment Officer Equity Strategist Jonathan Woloshin wrote in a report last Friday that the direction and level of interest rates and the Republican power to legislate will determine the real estate landscape under Trump's second term government.

He said: "Importantly, once President Trump is elected, there will not be a majority that can be vetoed." This means Congress will need to use reconciliation to implement any major tax reform, rather than through a bill unless the Republicans can gain enough support from the Democrats to pass a tax bill.

Fiscal, tariff, and immigration policies will have the greatest impact on inflation and the 10-year U.S. Treasury yield, which in turn will affect the magnitude and direction of interest rates.

Woloshin stated, "We believe the commercial property market will benefit from a series of policies, including retaining the 1031 exchange, maintaining the 199A transfer exemption and accelerated depreciation, as well as postponing any attempts at national rent controls."

A more lenient regulatory approach towards the banking industry may also boost commercial property loans. Additionally, UBS Group expects China to push for a reduction in capital gains tax rates.

The most direct impact on housing is that the new government is expected to focus on opening more federal land for development, expanding the current state and local tax ("SALT") cap from $0.01 million, making the 2017 tax reform act permanent, raising the capital gains limits for primary residential sales, and easing regulations to promote housing construction.

UBS group’s initial expectations were based on proposals made during the campaign rather than any official policy, as official policies will not be released until Donald Trump takes office on January 20, 2025, and the actual implementation may be completely different.

The focus of UBS group is:

Making tax reform permanent under the Tax Cuts and Jobs Act of 2017, which is set to expire at the end of 2025.

Significant restrictions on immigration and large-scale deportation actions.

Reducing the corporate tax for companies producing in the USA from 20% to 15%, and lowering the corporate tax for all other US companies to 20%.

Lowering the maximum capital gains tax rate from the current 20%.

Imposing a benchmark tariff of 10%-20% on all imported products and a benchmark tariff of 60%-100% on products imported from China. Trump also discussed imposing a 25% tariff on Mexican imports if the Mexican government does not cooperate on immigration policy.

In terms of real estate, Woloshin pointed out that Trump's proposals could widen the federal deficit, leading to a steeper yield curve. Lowering capital gains and corporate taxes benefits both businesses and consumers, but rising interest rates could harm housing affordability and incentivize homebuilders to increase incentives to maintain housing affordability, which could offset the benefits of tax cuts.

This strategist stated, "The balancing measures of the Obama administration will involve cutting enough spending to offset a supply- and growth-oriented agenda to prevent the deficit from widening further."

Tariffs may ultimately harm the new housing and repair and renovation markets. Woloshin said, "If Trump pushes for tariffs, especially heavy tariffs against china, it may not only cause overall inflation in the usa economy but also have a significant impact on the costs of building and/or renovating homes."

Strict immigration restrictions will not only increase labor costs for home construction but also reduce demand for housing. It is estimated that a large portion of the construction workforce comes from outside the usa. Expelling workers means fewer consumers and fewer workers.

During the previous Trump administration, the Federal Housing Finance Administration attempted to initiate the release of Fannie Mae and Freddie Mac. By the time Biden took office, this had not occurred. The Biden administration has also not taken any measures to privatize the mortgage giants. Although GSEs do not originate mortgages, they play a crucial role in guaranteeing housing mortgages and keeping the mortgage market running smoothly. ubs group is skeptical about the mass privatization of the two companies.

Woloshin said, "Given the importance of the housing market to the overall economy, and the fact that the overall 'mortgage pipeline' is functioning well, we question whether this is the best use of government time and political capital."

Since Trump's victory, investor confidence in homebuilder stocks has declined. The iShares USA residential construction etf has fallen 2.6% since the market close on November 5, contrasting sharply with the S&P 500 index's 2.9% increase.

However, ubs group believes this will have many positive effects on commercial property. It believes that the 1031 exchange will remain in its current form and seems safe for the foreseeable future. The 1031 exchange refers to swapping one property for another, thus deferring capital gains taxes.

Additionally, according to Section 199A of the tax code, the incoming administration may implement a 20% permanent tax cut on certain pass-through business income. This strategist stated, "This provision is clearly beneficial for the dividends of reits and real estate investment and is part of the TCJA."

Woloshin also expects that the position of real estate investment trusts (REITs) is secure, and the likelihood of national rent control becoming an issue is very small.