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London remains an investment hot spot for the UAE's top earners, according to Cluttons and YouGov's 2016 Middle East Private Capital Survey. The survey studied investment trends and behaviour of the Gulf states' high-net worth individuals (HNWIs) to gain a meaningful understanding of their global and regional investment intentions.
According to the survey, some 61 per cent of the UAE's affluent property investors are keen to invest in global property before the end of the year. Furthermore, London has been a key investment destination not just for the UAE, but for the rest of the GCC. The trend is expected to continue, with the growth of average residential property prices in prime central London expected to reach between 2.5 per cent and 3 per cent this year, according to the report.
Commenting on the survey results, Steven Morgan, CEO of Cluttons Middle East, says, ''The strength of the US dollar, to which the UAE retains a fixed peg, has certainly contributed to the strong appetite for global property investments, particularly in the face of mute local and international economic conditions, which have been traditional triggers for capital flight to perceived investment safe havens.''
He adds: ''With investment safety at front of mind for HNWI, London is just ahead of New York as the most preferred city for investment. However, our survey shows that New York appears more frequently in investors' top three preferred cities for investment this year.''
While residential property remains the most attractive investment asset for UAE HNWIs, interest in commercial property remains strong with 22 per cent of HNWIs surveyed indicating a preference for offices as an investment class.
As office yields in London are tightening at 4.8 per cent, compared with 7-10 per cent in Dubai, Faisal Durrani, Head of Research at Cluttons, says contract strengths will play an important role in driving investment into London's office market. He points out that lease terms for London offices typically start at five years and could reach up to 15 years, while leases in Dubai are usually from one to five years. This gives London office investors the security of a longer tenure. Moreover, London also has a good supply of investment-grade stock.
As London continues to be a top performer for capital growth and long-term investment, there are varied reasons for investing in London. Some UAE buyers purchase property for personal use, while others want a straightforward investment property, says Andrew Covill, Director of Henry Wiltshire International.
''At the top end of the scale, we see UAE investment into family houses or apartments in areas such as Knightsbridge and Mayfair, often beautiful period properties that have been refurbished and possibly furnished also,'' says Covill. ''Buyers of these properties acquire a piece of the history of London, which will always be in finite supply.''
He adds that off-plan property appeals to many elite buyers, mainly because it can appreciate well and give thema handsome return. ''There are many world-class developments and some highly individual properties for sale, and in the right areas [there is] a strong supply of tenants if you are buying to rent out the property,'' says Covill. ''While rental yields are not as high as in developing markets, prospects for capital growth is always very strong — property prices in London statistically double every ten years on average. Therefore, some compare buying in London to buying gold — a solid investment over the long term.''
Traditionally popular areas to those with large budgets are Knightsbridge, Mayfair, Kensington and Chelsea, but some are now moving a little further out to get greater value for money or invest into a regeneration area, such as Nine Elms or Canary Wharf, says Covill. Furthermore, Crossrail, a new east-to-west train line, is expected to deliver a major boost for London. For example, the new financial centre, Canary Wharf, is currently a one-and-a-half hour journey from Heathrow Airport, but when Crossrail opens in 2018, travel time will be cut to 43 minutes.
There are differences when purchasing property in the UK and the UAE. ''For a start, [in London] a lawyer will act on your behalf and deal with the seller's lawyer,'' says Covill. ''All monies will be held and transferred between them and contracts 'exchanged' at the appropriate time. Also, the seller normally pays the agency fee in the UK and is exclusive to one or more estate agencies. There are purchase taxes, which depend on the value of the property and the reason it is purchased. There are also income taxes.''
He advises buyers to be clear on their purpose for investment and decide whether they are buying purely for investment or for personal use. ''If buying for investment, you should be open minded to new regeneration areas that you may not consider living in yourself, but will often have potential to outperform other areas,'' says Covill. ''However, with any kind of purchase, don't proceed without proper advice from an agent with local knowledge and experience. Also, get tax and legal advice.''
The results of the Cluttons study reflect the views, investment activity and intentions of 127 HNWIs, including 34 from the UAE.
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Source: Hina Navin, Special to Property Weekly