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With billions invested into real estate markets globally, real estate is clearly one of the preferred assets by investors from the Middle East. According to property advisor CBRE, total outbound realty investment from the Middle East has already reached $11.5 billion (Dh42.23 billion) in the first half of the year alone, compared $13.8 billion total investment last year.
David Godchaux, CEO of Core Savills, UAE, says London remains a favourite, followed closely by western European markets. “Locations such as the South of France, Spain and Portugal are increasingly popular as investors factor in capital appreciation and yield levels, [which are] slightly higher than London,” says Godchaux.
According to the Savills 12 Cities Report H2 2015, the level of interest is likely to be strengthened, noting that the 2008 financial crisis and subsequent geopolitical conflicts in the region have given real estate investment a new role and significance. Many cash-rich investors have been putting money into real assets rather than paper ones, in safe jurisdictions with good title and political stability. They appear to have been vindicated, in light of increasing geopolitical and economic threats in vulnerable regions, the report states.
At this year’s Cityscape Global in Dubai, many potential investors were seen looking for options in London, particularly locations such as Wembley where investors were drawn by the combination of good connectivity and price, says Chris Pratt, who handles residential development sales at Savills. Even though prime and super prime continue to draw investors, the focus is now on areas with capital values less than £500,000 or around £900 per square foot or.
“The response was very strong in relation to London property,” says Pratt. “We are still seeing some interest in prime and super-prime developments across London, most notably Chelsea Barracks and Chelsea Waterfront, but real interest is in investment stock sub £500,000k capital value and below £900 per square foot, with deals being done in the weeks since the event.”
Some analysts say this reflects long, steady interest in the market. Richard Bradstock, Director at IP Global, an international property investment consultancy, says, “London remains the key market — whether for expat or Emirati. What is happening is a ripple effect. The traditional central London prime areas have grown so much. So there is interest in areas a little further out, which may be traditionally a little less popular but don’t cost so much.
“Essentially, people are still spending money they were spending before, but what you can buy for that money has changed.”
For UAE investors interested in acquiring properties overseas, London remains a leading location, but many are now looking at a higher return on investment. “Most UAE investors in Europe are now more frequently favouring lower entry price points, and the Wembley development was a very good fit for them, offering a good mix of quality, location and very affordable price for London,” says Godchaux.
Steady supply in some secondary locations has also helped attract investors. Bradstock says, “Our customers are looking to invest in a mature, stable market. They are looking at good value per square foot and supply is greatest in some of secondary locations.”
The CBRE report says apart from retail investors, institutional investors are also still very focused on London. “London remained the main beneficiary of investment during the first half of 2015, receiving $2.8 billion and representing 24 per cent of Middle Eastern outbound capital,” according to CBRE. “Notable deals included the Qatar Investment Authority’s $2.47-billion acquisition of Maybourne Hotels and the $110-million purchase of the London Midtown office by a private investor.”
It is also possible that investors are now more mature and cautious, gravitating towards markets that promise stability and steady returns. While real estate has always been an investment of choice, geopolitical factors also underpin investment decisions. “There is more Middle East money currently at the retail investment level searching for more mature and more stable markets, having seen the volatility in some destinations,” says Bradstock. “There is a trend to diversify.
“I think they are just more aware of the risk than they were before. People are more careful. Markets such as the US, Germany and Australia are interesting. They are mature, well-legislated and ultimately lower risk.”
Not all traditionally popular markets are seeing equal interest. France, which has historically attracted funds from the region, has lost its prime position. Bradstock says, “From an investment point of view, we don’t buy into the French story. There is zero growth. If you buy in France right now, you don’t buy it to earn any money in the next few years.”
The US remains an attractive option for investors thanks to a stable economy, where key real estate markets, as outlined in Core Savills’s 12 Cities report as well as the World Residential Markets 2015-2016 report, are forecast to outperform over the next five years.
“Within the US, we are seeing increased interest in the West and in particular Southern California in the Los Angeles area,” says Godchaux. “Along with several other US cities, California’s real estate market is expected to continue to grow and attract interest, although it offers relatively lower yields as a very mature market seeing very strong demand.”
Major East and West Coast cities also offer opportunities to real estate investors looking to venture outside of grade A buildings, and even though yields are expected to continue compressing, some quality multifamily or grade B office properties still offer over 7.5 per cent yield, which is similar to that enjoyed in the UAE market, but with much more favourable financing rate, and hence overall better return on investment.”
The US is also a hub for students looking for quality education, which could affect its popularity with both expat and local investors in the region. Bradstock says, “There has always been interest in the US. New York, Chicago, Miami and Los Angeles are extremely interesting from an investment standpoint,” he says.
Availability of capital, yields and even the possibility of obtaining citizenship nudge investors into making buying decisions. At this year’s Cityscape Global in Dubai, Megan Copley, who handles International Development Sales at Savills, reported strong response to Portugal’s investment schemes, which offer an opportunity to obtain a golden visa, along with Eden Island.
Bradstock says Germany and Australia tend to outdo the US in terms of investor interest because of funding. “You can borrow more in Germany and Australia compared with the US. You have to put a little more cash in the US purchase,” he says.
Back to the UAE
As an investment location, the UAE scores pretty high as an investable destination, pitted alongside the old favourites. Godchaux says, “For those seeking a higher return on investment, secondary or fast-growing cities are becoming [popular] when seeking higher yields and less fully valued markets. With this in mind, we are also noticing a renewed interest in property within the UAE from local investors.
“These investors are aware that the London real estate market is getting close to be fully valued and are looking back at the UAE, with the recent price decline an interesting opportunity for higher-return investments and steady, long-term capital appreciation.”
Savills reports that Dubai is the most internationally invested city for real estate in the Middle East and much of the UAE’s success is due to its multilayered appeal as a business and leisure destination for European and Middle Eastern markets.
“As the market matures in Dubai, we are noticing that short-term investors are no longer the dominant class anymore, and that there is a sound and healthy long-term view driving most investors,” says Godchaux. “This is increasing confidence [in the market] as there is more security and certainty, which in turn is attracting more quality and qualified regional and global investors.”
However, investor interest in Dubai is likely to fluctuate in response to various factors. “As an emerging market, Dubai is at times more affected by macroeconomic changes than other parts of the world and, naturally, investor behaviour is often influenced by these changes,” says Godchaux. “Global stability and growth are important for Dubai as it continues to market itself as a global hub.”
Source: Shalini Seth, Special to Property Weekly