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The UK’s vote to exit from the European Union (EU) has a strong, immediate impact on the country’s housing market. For those invested in real estate, the overnight deterioration in the value of the sterling will have erased any gains in recent years. This holds particularly true for buyers from the GCC, whose currencies retain a fixed peg to the US dollar, points out Cluttons, a leading international real estate consultancy.
Faisal Durrani, head of research at Cluttons, says: “Any US dollar or UAE dirham investor will find the price of an average prime central London residential asset $96,000 (Dh350,000) less than it was on June 20. Conversely of course, London residential property is now $96,000 cheaper for international buyers looking to enter the market.
“A silver lining today is that those from the Gulf eyeing a London residential asset will find it 31 per cent cheaper than it was during the last market peak in the third quarter of 2007, suggesting that we may be on the cusp of seeing a significant resumption in property investment activity in the British capital.”
He adds: “The longerterm implications are too early to assess, but we may start to see the unlocking of London’s stalled residential property market, with investors both exiting and entering the market as we head towards a period of demand volatility.”
Hamish Pound, Senior Investment Manager at IP Global, is also optimistic about the UK’s real estate scene. “Many foreign property investors will nowbe looking to capitalise on the short-term foreign exchange volatility to purchase competitively priced assets in the UK,” says Pound. “Despite short-term turbulence, the longer-term trajectory for the UK property market is onward and upward, driven by its resilient and globally focused economy, transparent legal system and a rich history of adaptation and evolution.”
Traditionally rich Arabs have always invested in large developments in London as part of a diversification strategy. Attracted by the city’s relative security, many have snapped up trophy assets as a hedge against regional volatility and to some extent to boost their status.
“Investors from the GCC have prospered in the London property market [as they have the] funds and capital to invest [when an opportunity comes up],” says Stuart White, Director of Coldwell Banker Great Britain. “Taking the investment opportunity aside, London has also proven to be a popular destination outside of the region for spending time in one of the world’s finest cities.
“London has everything a wealthy investor can ask for and the lifestyle, shopping and entertainment industry is unrivalled.”
According to real estate consultant CBRE, Gulf developers are funnelling approximately $15 billion a year into overseas real estate assets, with London being at the top of the list. Last July Abu Dhabi-headquartered retail conglomerate LuLu Group International bought the Great Scotland Yard, the original home of the Metropolitan Police in London, for $170 million.
“As a pure investment London makes sense,” says Richard Bradstock, Director and Head of Middle East at IP Global. “The GCC traditionally has a volatile property market so a mature and wellmanaged market like London offers a safe haven status that allows the GCC investor to hedge against this. The impact has been significant, particularly at the very top end. Institutional Arab funds and buyers own a significant and increasing amount of property in London. At lower price levels, demand is largely local.”
The savvy investors are looking for affordability, which in London means broadly anything under £700,000 (Dh3.5 million). Arab investors, who might be looking at more central locations in zone one and two, will be comfortably spending in excess of a £1 million, explains Bradstock.
At 13.5 per cent, the annual increase for house prices in London is considerably higher than other UK regions. An average property will cost approximately £530,000 as opposed to the national average of approximately £190,000. “All London boroughs are in a positive growth position with the slowest being Camden with an annual increase of 3.6 per cent,” says White of Coldwell Banker Great Britain. “All property types are popular in London. Town houses and single dwellings are highly sought after and you do not need tolookfaralongtheriverfront to find an attractive range of apartments and complexes overlooking the famous river Thames.”
Kensington Palace Gardens remains the UK’s most expensive street, dubbed Billionaires Row with residents such as the Sultan of Brunei and Tamara Ecclestone paying an average £42.7 million for a property there. Other popular areas to buy luxury property include Mayfair, South Kensington, Belgravia, Hampstead and St John’s Wood. Croydon property
prices boomed last year, delivering a sustained growth throughout 2015-16 due to the Westfield & Hammerson’s £1-billion shopping centre, leisure and housing project. Battersea remains highly attractive with the impending arrival of the US Embassy and its support functions, while London Southbank is also in the middle of significant change.
“Arab investors have a huge attachment to zones one and two although the more savvy, pure investment purchasers are starting to look further afield,” says Bradstock. “Expat buyers in London are now looking for affordability and value and investing in areas like Croydon, Ilford, Sutton and Bromley, and even going as far afield as Slough and other commuter belt towns.”
While London remains the undisputed summer capital for wealthy Arabs, typical investors are setting their sights beyond the city. “The investment returns have been lower in London, with prices rising very quickly in the last five years because of foreign investments,” says Amit Seth, Head of International Residential Developments at Chestertons. “Rents, however, did not rise and the typical return on investment in terms of yield is now 3-4 per cent, while earlier it was 6-7 per cent.
“Investors have now started to look outside of London to other cities, especially Manchester, which is considered the capital of the Norther Powerhouse, for good returns.”
With strong capital appreciation due to strong growth and affordable price points that start at £150,000 or £350 per square foot, the Northern Powerhouse has a lot to offer. The HS2 rail link will connect London to Birmingham in 48 minutes and Manchester in 68 minutes, and both cities have direct flights to major US cities, the Far East and the Middle East, says Seth. The term Northern Powerhouse was first used by British politician George Osbornein June2014, when noted that the cities of the North are individually strong, but collectively not strong enough. He explained the need for a Northern Powerhouse to work alongside the powerhouse of London.
Meanwhile, as industry insiders agree the result of the EU referendum has sent shock waves through the realty market, the longterm impact will ultimately depend on Britain’s exit negotiations from the bloc.
Source: Sanaya Pavri, Special to PW