London and Dubai residential property markets - Finding a connection

Residential property marketHenry Faun

The London residential property market has developed over hundreds of years. It has been built on a foundation of legal structure that can be traced back to the Romans, stringent financial controls and the timeless amenities and culture of the UK’s capital city. It is for these reasons that it currently sits as one of the world’s most sought-after residential markets.

The Dubai residential market has only started to see significant development over the past 12 years, after foreigners outside the GCC were allowed to own property. When compared with London, Dubai’s legal and financial protocols governing real estate can be seen as less robust. While the emirate’s residential market does not have the same established history as London, it has certainly benefitted from a thriving economy and, similar to London’s, Dubai’s property market is now flourishing after weathering the effects of the global financial crisis.

Global real estate consultancy Knight Frank’s research shows that the London market has historically been a key focus for investors from the UAE. Between 2009 and 2012, of the nationalities buying into London residential property, buyers from the UAE were the seventh most prominent, acquiring 1.8 per cent of the properties sold. From the wider region, buyers from Saudi Arabia ranked 15th, acquiring 0.6 per cent.

The connection between the residential markets of Dubai and London lies in their relative safety. When investing in London’s residential market, you are not just buying into the bricks and mortar of a house or flat, you are also protecting your invested money from many of the vagaries and inconsistencies associated with the wider markets. London can be seen as a relative safe haven from the financial troubles in Europe and other regions, and one that could still flex its property muscles in the coming year or two.

Dubai similarly represents a relatively safe investment in the Middle East. The protection from the political unrest of the region in recent years makes a simple and quick investment in Dubai’s residential segment an easy and viable option.

But why residential property? The answer is speed and simplicity. A completed transaction in Dubai can take place in as short a period as a week. In London, a purchase or sale can often be equally as swift. Most who have an inkling to invest will have a clear view of what makes a desirable home and will be familiar with the fundamentals of how a residential tenant’s occupancy agreement works. This contrasts favourably with some of the acquisition and leasing structures associated with acquiring and letting of commercial property. Terminology such as tenant’s covenants, dilapidations, full repairing and insuring leases can be potentially off-putting to a prospective one-off investor.

Should the worst economic scenario materialise, an investor in residential property can always take comfort in the knowledge that, while there could be fewer businesses taking up commercial space, there will always be demand for housing.

How do London and Dubai’s respective levels of investment safety compare? For the reasons already highlighted, London offers a level of investment safety on a global scale, as opposed to that offered by Dubai within its region. While rental yields could be higher in Dubai, Knight Frank’s UK Residential Forecast predicts capital growth for prime central London from this year until 2019 being a strong 22 per cent and prime outer London 28 per cent over the same period. This is significant for purchasers based in the Middle East, assuring them that while local markets are cooling, the London investment option is still producing robust returns. London hotspots for faster growth can still be found in areas with new infrastructure, such as those with access to a station on the upcoming Crossrail line.

Crossrail is set to increase London’s rail transport capacity by 10 per cent and will open access to greater areas of London to those living along the route. The construction is the biggest infrastructure project to be undertaken in the city for 20 years and it will be the largest single uplift in the rail capacity since the Second World War. The scheme received Royal Assent in July 2008, and while forecast to be operational by 2018, it will be completely finished by 2019.

As the UK economic recovery continues to gather traction, the outward ripple from London has ensured that price growth is now a national story.

Source: Henry Faun, Special to Property Weekly
Surveyor at Knight Frank Dubai with a wealth of experience dealing in the Middle East and UK real estate markets


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