UK real estate offers opportunities for Middle Eastern investors

With the introduction of the new 3% SDLT band for buy-to-let investors – effective from 1 April, attention is now turning to the impact for UK property prices of British exit from the European Union – "Brexit" to be decided by referendum in the UK on 23 June this year.

Whilst there is much talk of doom and gloom in the UK real estate market, with the introduction of the new 3% buy to let SDLT band and the change to SDLT on commercial property – others see UK property as an opportunity, particularly for Middle East based investors.

Cluttons' expectation following their Middle East Private Capital Survey 2016 is that most buyers will take a long term view of the market as many perceive the 3% increase in the SDLT rate a small price to pay for securing a London asset.  They feel that the sentiment very much remains that most investors would still rather be a buyer than a seller.

Continued geopolitical unrest and low oil prices, which have tumbled by 60% over the last two years, are driving Middle Eastern investors towards property assets, with the UK a firm favourite.

Fasi Moussalli, Head of JLL's MENA group also highlights the impact of the weaker pound "Recent currency movements have given this purchasing trend additional impetus, as the British pound is at a seven-year low against the US Dollar, to which most Gulf currencies are pegged".

In Cluttons' Survey, they found that three in five respondents claimed that they would most likely invest in their top target city in 2016.  Of those top target cities London was the most preferred global investment choice.

When questioned, the UAE HNWIs surveyed in the Cluttons study stated that 50% are expecting to target residential property, 22% favour the commercial sector and 28% are expecting to target a mixture of both.

JLL's Moussalli agrees “With demand for London properties heating up, these investors are now also willing to consider residential property in Northern England, especially where reasonable yields can be tied to good capital returns. A property yielding 5-6 percent per annum, and appreciating by 10-12 percent annually, will be very attractive to an investor – especially when you consider returns for comparable London properties will be half that".

JLL also see the likely slowdown in the market's pace caused by the uncertainty created by Brexit as a buying opportunity.  JLL's Moussalli says "We see Middle Eastern investors increasingly willing to take on more risk in their purchasing decisions, and many don’t see Brexit as cause for concern".

Once Brexit is behind us, Cluttons expect to see the residential market pick up pace, with activity rising over the next 5 years helping to deliver cumulative growth of about 19% over the next 5 years.

Both JLL and Cluttons see increased interest in UK commercial property.  Cluttons state that this appeal in demonstrable in the £3.8 billion of commercial property assets purchased by Middle Eastern investors in 2015 alone.  Highlights include the £300m acquisition of the Liverpool One shopping centre by Abu Dhabi Investment Authority.

JLL are seeing Middle Eastern investors showing interest in the sub-institutional range of high yielding assets valued at less than £35m.  "In short, they are seeking long-term, stable properties with good yields".

Collas Crill will be attending the Jersey Finance – Clear Direction GCC Roadshow in Dubai on Wednesday 20 April.

The Jersey Finance Roadshow will led by Geoff Cook, CEO, Jersey Finance, and will feature keynote speeches from Joe Moynihan, Director of Financial Services for The Government of Jersey, and a panel session of industry experts, which will cover a range of topics including Islamic finance, multi-generational and multi-jurisdictional family offices and real estate.

Angela Calnan, Group Partner and Head of Collas Crill's Middle East Practice Group and Michael Morris, Group Partner and Head of UK Real Estate will be representing Collas Crill. They are looking forward to discussing and sharing knowledge with clients and industry colleagues.

If you would like meet Michael or Angela to discuss the latest trends and developments in the region, or discuss how we can service you or your clients in one of our five jurisdictions, please contact us.

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