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Post-Brexit, Middle East property investors eyeing UK

Deterioration in the value of the pound sterling has reduced property prices in London Suparna Goswami Bhattacharya July 6, 2016: Britain’s historic decision to leave the EU has sparked a period of volatility across the world’s financial markets. The pound sank to multi year lows against the dollar. David Cameron’s decision to step down has only added to its woes. However, even the darkest clouds...

Deterioration in the value of the pound sterling has reduced property prices in London

Suparna Goswami Bhattacharya

July 6, 2016: Britain’s historic decision to leave the EU has sparked a period of volatility across the world’s financial markets. The pound sank to multi year lows against the dollar. David Cameron’s decision to step down has only added to its woes.

However, even the darkest clouds come with a silver lining. The deterioration will now allow investors from around the world, especially the Middle East, to invest in London’s residential property.

International real estate consultancy, Cluttons, states that for those invested in the property market, the deterioration in the value of the pound overnight will have erased any gains in recent years, particularly buyers from the Gulf, whose currencies retain a fixed peg to the US dollar.

Basically, any US dollar or UAE dirham investor will find the price of an average Central London residential asset cheaper by $96,000 (Dhs 350,000). “Gulf investors eyeing up a London residential asset will find it 31% cheaper than it was during the last market peak in Q3 2007, suggesting that we may be on the cusp of seeing a significant resumption in property investment activity in the British capital,” says Faisal Durrani, head of research, Cluttons.

Victoria Garrett, partner, head of international project marketing (MENA), Knight Frank, says, “For Middle East buyers, Europe is a key destination. Within Europe, UK is the primary market where Middle East investors like to put their money in. Hence, Brexit has only helped them go after the market they have been eyeing for a long time.”

A report by CBRE in January found that Middle East buyers invested £2.72bn on snapping up hotels in the UK in 2015. In fact, the UK was the biggest market for Middle East investors in the whole of Europe. Recent assets acquired by Middle East investors include Claridge’s, The Connaught and the Berkeley in London’s Knightsbridge. The report also stated that Middle East investors would soon account for up to 30 per cent of the sales of new prime London properties. For Middle East property investors, the top four locations are London, Paris, Milan and Lyon.

Garrett says, “UK remains a destination of choice for investors from the GCC who have been investing in the market for a long time. The fact that the market has a transparent legal system and property tenure is clear-cut and underpinned by the legal system makes it all the more attractive for buyers.”

In fact, from trophy assets to investment properties, not restricted to Central London, Middle East buyers cover the whole spectrum in terms of the type of properties they acquire. “The buyers are looking at areas like East London where they are finding very good value for money. We have also seen a drive for investment into areas such as Birmingham and Manchester where the entry points are much lower and the yields are higher,” says Garrett.

“There are Middle East buyers who are taking advantage of the current situation by converting their funds into sterling to show their readiness to buy. I will not be surprised if the second half of the year actually sees Middle East clients in the city hunting for properties,” says an expert from Jones Lang Lasalle (JLL).

Durrani says the longer term implications are too early to assess, but ‘we may start to see a change in London’s long stalled residential property market’. “This has the potential to free up much needed stock in the capital and allow the resumption of more regular levels of transactional activity,” he says.

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