Published on 20 October 2017 by Olga Voirin
London has long attracted property investors from the Middle East driven by many reasons, ranging between the high quality of education, the falling real estate prices and the decline in exchange rate of the British Pound among others.
According to a study released in January 2017 by IPE Real Assets, a European publication for institutional investors, UK is a prime location for Middle Eastern investors looking to capitalise on commercial and residential properties. It said that a recent survey indicated that 11 per cent of Middle Eastern investors had listed the UK as their top preferred investment location.
So why is London so appealing to Middle Eastern property investors?
IPE Real Assets cites the weakened British Pound as a reason behind the great interest in London’s property market by Middle Eastern investors. “A weakened Pound means that more dollar-based investment institutions, such as those in the Middle East, can acquire property at prices up to 20 per cent lower than they were last year,” it said.
CNN Money reports a 12 per cent decline of the Pound against the U.S. Dollar since June 2016, due to concerns about the impact of Brexit on the U.K. economy.
IPE Real Assets explained that the Bank of England had cut interest rates to historical lows, in order to encourage investment in assets rather than simply be on deposit. “The UK is politically stable, with government policy remaining largely unchanged following the change in Conservative leadership, and has transparent accounting and long-term income streams, offering strong fundamentals for real estate investments,” it added.
Another reason behind the attractiveness of London’s property is the year-on-year price decline in Q3 2017, with a 0.6 per cent fall, according to mortgage provider NationWide. It said that London saw a particularly marked slowdown, with prices falling in annual terms for the first time in eight years.
For Raed Hanna, Managing Director at MFL Finance, concerns over state income derived from oil and gas and the presence of so-called Islamic State have undermined the political stability in the Middle East, with private investors and families expressing concern over some of their local investments.
“We have recently become aware of wealthier individuals and families from the region who are seeking to diversify their investments globally – often with London topping their preferred destination list,” he said in a study conducted for Property Week in 2016.
“I think Middle Eastern investors now see an investment in UK real estate as an insurance policy against the local pressures their families face in their respective home nations such as Kuwait, Bahrain, Qatar and Saudi Arabia. We have even heard concerns expressed over currency control, and ultimately difficulty in taking money out of the region in the future,” he added.
Other incentives for investing in the UK, cited by Hanna, include the little language barrier with English being widely spoken across the region. ”Most investors have been educated in London, or have children educated there. However, the greatest pull is the UK’s robust legal system, market liquidity and leasing structures. The long lease profiles, upward-only rents and historic capital appreciation all prove strong draws to London,” he added.
So who’s mostly investing in London’s property market?
CNN Money cites JLL, a real estate and investment firm, saying that Gulf clients spent approximately $600 million on London’s property in 2016.
Moreover, a 2016 study by Cluttons, property consultants and estate agents, reveals that London has emerged as the favorite global property investment destination in 2016 for GCC’s High Net Worth Individuals, with 17 percent naming the British capital as one of their three top international property targets.
Another study by Galliard Homes, London’s property specialists, shows that Iranian buyers are eager to get a foot in the door, after January 2016 saw international sanctions on Iran annulled.
“Because of this, Iranian assets, worth an extensive sum, were released which will allow prosperous Iranian investors to venture into the London’s property sector,” it said.
It added: “Wealthy Iranian buyers will join the ranks of Qatari, Kuwaiti and Saudi buyers and become significant players in the London’s luxury property market…the number of Iranian buyers looking for homes in London over the next two years will rise by 25 per cent. Certain ultra-rich Iranian individuals worth over £30m, at the very least, are predicted to spend an approximate total of £6bn in European cities, including London, within the next five to 10 years.”
Moreover, Cluttons states that Dubai overtook London as the most preferred property investment location for 2017.
Following London, New York and Singapore were the leading cities for target real estate investments in 2016 outside the Middle East region.
The demand for London’s property by Middle East investors prompted developers to invest in projects in the British capital.
Northacre, for instance, has started selling units at The Broadway in London last week, according to CNN Money. The development consists of 285 apartments on the site of the former police headquarters at New Scotland Yard in Westminster. The apartment prices start at £2 million ($2.6 million).
It is estimated that 80% of luxury London homes are bought by foreign investors.
Northacre is developing another project of 72 luxury apartments across from Buckingham Palace. More than half of the 52 apartments that have already been sold in the development went to foreign buyers, CNN Money added.