Arabs still keen on London property despite Brexit and plummeting prices
An uncertain property market and the Brexit crisis have not dissuaded GCC buyers from purchasing housing in London, said experts.
“There are more important issues than Brexit for GCC buyers,” Faisal Durrani, partner, head of research at property company Cluttons, told Arabian Business.
Durrani said: “They have bigger issues in their own markets, such as the conflict in Syria or the transformation plan in Saudi Arabia. All these issues make London seem like an even stronger safe haven.
“As much as we all get caught up with Brexit news, the safe haven appeal of the UK is unlikely to change in light of Brexit.”
London house prices posted their biggest drop in almost a decade in July this year. Home prices fell 0.7 percent from a year earlier, the biggest decline since September 2009, the Office for National Statistics (ONS). The average property in the capital cost £485,000 pounds ($640,000).
Nationally, growth moderated to 3.1 percent, the weakest pace since August 2013.
According to Cluttons research, the overall volume of London property transactions has dropped by five per cent year-on-year in 2018.
However, Durrani said prime London properties “priced at over £10 million” saw a transactional uptick of four percent, as wealthy buyers perceived the capital’s plummeting prices to represent “good value”. Many of these buyers are overseas investors, Durrani said.
The Cluttons expert said the London property market “presents a complex picture”.
Durrani expects prime central real estate prices in London to drop by 5-6 per cent in 2018, with flat growth predicted for 2019.
Over the next five years Durrani predicts six percent growth for house prices in prime inner London, 12-13 per cent growth for greater London and 15-16 per cent outside London.
A recent survey of Gulf HNWIs by Cluttons found that the UK was jointly listed with America as the second favourite choice for property purchases, after India.
Durrani said: “We find that private property purchases are driven by the heart rather than the mind. Individuals can be quite fickle, whereas companies are thinking more long term.”
According to property company Colliers International, Middle Eastern investors have invested a total of £18.9 billion in the London commercial and residential property market in the last decade.
Over the same period Middle Eastern investors were engaged in sales totalling £8 billion. This breaks down to a positive net investment of £10.9 billion since the start of 2009.
Guy Grantham, Colliers’ director of research and forecasting in London, told Arabian Business: “Current GCC-London property investment activity appears show a measure of equilibrium but there is evidence of pent up demand, particularly from the Saudi buyers, although we have yet to see that translated into positive capital flows.”
Grantham added: “Middle Eastern investors remain opportunistic but still favour product offering keener yield profile and longer-term income.”
The Colliers expert said that there is “no suggestion” that Brexit has been a major factor in below average activity in London property. Instead he said levels of markedly sub-trend supply and availability of product in London have “stymied” investment ambitions.
“Potential sellers are acutely aware of the challenges of re-investing funds in a tight market that remains fully priced,” said Grantham. “Competition from Asia-Pacific capital has been acute.”
Cluttons’ Durrani added that a “lack of affordability and a 1,000 year-old infrastructure” are some of the main factors putting pressure on the London housing market.
Farrukh Raza, managing director of UK-based Islamic finance consulting firm IFASS Group, suggested that property developers could stimulate the market by building more Islamic-financed developments, which can be paid for with Islamic-style mortgages (Home Purchase Plans).
“There is a big opportunity in the market, a lot of people want to invest, not just in London but all over the UK,” he said.
Raza added: “However, both regions (the UK and the GCC) are going through a period that is very blurred. There are problems in both regions so people are bearish and in waiting mode.
“GCC buyers may not want to move their capital until things become clearer. In the longer term, things will settle down one way or another.”
Andrea Fuentes, team leader – corporate service consultant at Dubai-based company formation and wealth management firm Europe Emirates Group – said she has seen no let-up in the number of enquiries into UK property purchases, particularly from Saudi clients.
“The desire is always there since many client’s relatives already have assets over there… into second and third generations. They look at the market with a retroactive perspective so they perceive it as valuable,” she said.
British property is seen as a status symbol by GCC cultures, added Fuentes.
She said: “GCC culture is very much influenced by friend and family relationships. Social recommendations and social or educational requirements often have more influence on property purchases than the actual price of the properties.”
Fuentes added: “No matter what happens, GCC clients will continue to have their eye on the UK because they value comfort, luxury and being close to their loved ones over whether the national property market crashes or not.”