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GCC investors are increasingly looking overseas to expand their real estate portfolio. Initially driven by low oil prices and geopolitical unrest in the region, investors are flocking to mature Western markets and emerging locations in Asia-Pacific and within the Middle East to benefit from higher returns and liquidity of assets.
“The deals we are seeing are in the sub-institutional range, typically priced between $20 million [Dh73.46 million] and $50 million, and the preferred assets are high-yielding with long lease tenures. In short, they are seeking long-term, stable property with good yields,” says Fadi Moussalli, Head of the Middle East and North Africa group of JLL’s International Capital division. “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.”
London remains the most popular destination for Middle East investors, as highlighted in a recent survey by Cluttons and YouGov, which found that high-net-worth individuals from the GCC rate London as their preferred city to buy property. Some 127 investors were surveyed about their preferences among 196 global cities. Eleven per cent of investors consider London as their key target for investment, while 5 per cent find New York as their preferred destination.
The survey also noted that this year will be significant for the Middle East
high-net-worth individuals investing abroad, with 63 per cent of respondents stating their plans to expand their real estate portfolios.
Other preferred destinations include Germany, Lake Geneva and Lake Como, as outlined in a recent wealth report by Knight Frank. “In our Wealth Report, a global perspective on prime property and investment, London once again was named as the number one destination for UHNWI’s to live, invest, educate their children, grow their businesses, network and spend their leisure time,” says Victoria Garrett, Associate Partner at Knight Frank. “We are also seeing interest in Turkey and the Alps, as well as other destinations in the UK, such as Manchester and Birmingham, and even as far as Scotland.”
In April the 12th edition of the International Property Show in Dubai showcased properties from over 100 countries. According to Dawood Al Shezawi, President of Strategic Marketing and Exhibitions, organiser of the show, the most sought-after markets by UAE investors were Turkey, India, Pakistan, the UK and Egypt. Newmarkets on the exhibition’s radar include Australia, Poland, Spain, Portugal and Greece, which are categorised under the most promising regions for UAE investors.
In terms of assets, Middle East investors have traditionally favoured office and retail assets but are now also looking at non-core offerings such as student accommodation, health care and logistics, which offer highincome, long-term tenures.
“With demand for London property heating up, these investors are now also willing to consider residential property in northern England, where reasonable yields can be tied to good capital returns,” says Moussalli. “A property yielding 5-6 per cent per year and appreciating by 10-12 per cent
annually will be very attractive to an investor, especially when you consider returns for comparable London properties will be half that.”
Several Middle East investors would also be in selling mode to benefit from higher returns. “Some Gulf sovereign wealth funds [SWF] take a trading approach to their property portfolio strategy — they buy, they create value, then they sell,” says Moussalli.
Prone to risk
The Global Investor Outlook report for 2016 by Colliers found that 38 per cent of the Middle East investors surveyed said they will invest outside their domestic region in the next 12 months. The most liquid and transparent regional markets continue to be favoured as analysts closely observe the next several months.
The report notes that investors are not likely to take more risk, as some of the current sources of uncertainty, particularly geopolitical ones, are not likely to subside over the short to medium term. These external factors will continue to interfere with investors’ strategies in what is already a highly competitive marketplace.
In terms of global real estate investments, 31 per cent of Middle Eastern investors will be directing funds to the Americas, while capital to Asia-Pacific from the Middle East will be more prominent this year (19 per cent from 15 per cent).
Most Middle East investors also prefer offices, with 64 per cent of respondents saying they are looking for central business district offices. Other preferred assets are industrial and logistics (50 per cent), residential (36 per cent), high street retail (29 per cent), shopping centres, developments, hotels and suburban offices (21 per cent), and student housing and land (14 per cent).
Source: Manika Dhama, Special to PW