It is no surprise that the containment of the coronavirus and the state of the U.S. economy remain at the forefront for investors. Nearly half of all respondents rated the two issues as top concerns in the coming 12 months at 54 percent and 48 percent, respectively. But the bigger fear among nearly two-thirds of respondents is potential changes to taxes ahead under the new Biden administration.
One of the reasons taxes top the list of concerns is uncertainty. It is too early to get a solid reading on what the new Congress and president plan to tackle this year, notes Chang. There is a path for the Biden administration to raise taxes with Democratic control of the House and a 50-50 split in the Senate. “Is it going to be the first thing on their list, absolutely not. But it is something they are going to have to deal with at some point given all of the stimulus money that has been plowed into the economy,” he says.
When asked specifically about potential tax law changes, most survey respondents are concerned about higher capital gains taxes (72 percent), followed by a higher personal tax (61 percent). Nearly half of respondents also worry about higher corporate taxes (49 percent), changes to the estate or gift tax (49 percent) and the modification/elimination of 1031 tax-deferred exchanges (48 percent) [Figure 6]. At the same time, it is important to note that a majority of respondents do not believe changes to tax law, higher interest rates or the Biden administration will impact their decisions to buy or sell real estate in 2021.
The results of the investor sentiment survey paint a picture of cautious optimism, notes Chang. “We still have very severe headwinds over the short term. There also are clearly those property sectors that continue to perform well, or are in recovery, and then there are those that have a great deal of uncertainty. That is showing up in investment sentiment,” he says. “However, investors are very cognizant of a possible post-pandemic surge as pent-up consumer and business spending is released later in the year, creating a tailwind for all commercial real estate.”