London and Arab investment: What is the draw?

Published July 3rd, 2016 - 09:56 GMT
Qatar is one of the most high-profile investors in London. (File photo)
Qatar is one of the most high-profile investors in London. (File photo)

Victoria Garrett, from Knight Frank International Residential Sales commented, “London is a dynamically changing property market and has been a favourite investment destination for buyers from the GCC for decades. Some of the most iconic buildings and developments are owned by investors from the GCC. Qatar is one of the most high-profile investors in London, owning landmarks such as the Shard skyscraper, Harrods department store and Olympic Village, as well as luxury hotels. A Qatari lead consortium bought the Canary Wharf financial district last year and Qatar Diar are the developers behind Chelsea Barracks and Southbank Place”.

While the Qatar Investment Authority (QIA) Wealth Fund has been diversifying its portfolio away from Europe towards more investments in the United States and Asia in the last couple of years, it is still heavily invested in Britain and holds stakes in Barclays, Royal Dutch Shell and Sainsbury's. The QIA has $256 billion of assets under management globally, according to the Sovereign Wealth Fund Institute (SWFI). It has at least $7 billion directly invested in equities traded on the London Stock Exchange, in which it also holds a 10.3 percent stake, according to Thomson Reuters data.

Kuwait Investment Authority, which has $592 billion in assets under management according to SWFI, is also a major investor though its London-based Kuwait Investment Office. In 2013 it was said the fund had more than doubled its investment in Britain over the previous 10 years to more than $24 billion. Like Qatar, Kuwait owns London landmarks such as the More One riverside development which houses the headquarters of the Mayor, as well as buildings in Canary Wharf.

Abu Dhabi’s portfolio includes the GBP 400-million Berkeley Square Estate, purchased in 2001, which consists of the square and surrounding buildings. Abu Dhabi is also funding the GBP 200-million conversion of the former US Naval Headquarters in Grosvenor Square, into luxury apartments and penthouses being developed by high end developers Finchatton.

As well as large-scale Arab investments GCC investors have traditionally bought properties in Knightsbridge, Chelsea, Mayfair and Belgravia. However having seen a staggering 53 per cent growth between 2009 and 2012 post the Lehman brother crash as a result of London being invested in for its safe haven status, some GCC investors are looking to buy further afield outside the golden postcode to find value. Knight Frank has seen a number of clients recently investing into East London, where they’re still able to find investments for circa GBP 1,000 per square foot in a great location close to transport links and with ready tenants on their doorstep. “This coupled with the changes to infrastructure and public realms”, noted Victoria, “we are forecasting a 26.4 per cent growth between now and 2020 in East London with yields of circa four per cent making it a very attractive proposition”.

But why it is that the London property market has always been a favourite investment destination for buyers from the GCC?

London it a truly multi-cultural city and boasts some unique benefits. Foremost London is hailed as a ‘safe-haven’ location. But what does this mean?

On a pure investment basis, London has a transparent property market. Property tenure is clear cut and underpinned by the legal system. Given that it is such an established market, there are also good liquidity levels in every price band compared to some less established global hubs.

London is also physically and politically safe. There is clear rule of law and transparency in the political system that is not replicated in some emerging economies. An independent judiciary burnishes this reputation.

UK investment also offers a currency play. With the current uncertainty that we have seen around the EU referendum we have seen the sterling weakening and investors have been taking advantage of the currency play to invest into the market. The lure of the world renowned schools and universities in and around London cannot be overstated. A third of buyers of off-plan new build properties do so with their children’s education in mind. In many cases, the property or properties will be used by their offspring while they study at a university, and then rented out once the child or children move elsewhere or return home. If the children are not yet at the correct age for university, the property will be rented out until they are.

London is among the top cities when it comes to tertiary education- it boasts 12 universities ranked in the top 700 world institutions, according to QS- rivalled only by Paris. The popularity of these establishments is clear, as London has the highest number of overseas students anywhere in Europe. At the London School of Economics (LSE), a highly regarded institution across the globe, international students make up more than 65 per cent of the student body.

The lure of a British education is nothing new, and many investors may have been educated in the UK themselves, or have family or friends who have done so. As stated by the Knight Frank Wealth Report London remains the destination of choice for high net worth individuals for the reasons I have highlighted above and these are the fundamentals reason for why it is a destinations of choice for buyers from the GCC.

By Matthew Amlôt


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