I am frequently asked the age-old question: why is London the destination of choice for Middle Eastern investors? A number of factors in London and the Middle East change frequently, yet London remains a popular choice. The rock-solid British laws and property market continue to draw foreign investment from around the world.
A number of key traits make London attractive to Middle Eastern investors. First, there is little language barrier, as English is widely spoken across the region. Many Middle Easterners have a second home in London and most investors visit the city regularly for both business and pleasure, making them familiar and confident with the location. Many will also have been educated or have had children educated in London.
Smaller investors are seeking a safe haven for their money. Political uncertainty in the Middle East has made them very nervous. A large majority of this money is now being deployed in the UK and is targeting the residential market, which people find less daunting, more familiar and easier to understand.
There are fewer barriers to entry in the residential market and a plethora of agents, websites and developers keen to sell stock.
Middle Eastern investors feel comfortable buying property for personal occupation, as a letting investment or simply to park their money in and decide what to do with it later.
Mutual Finance works with many developers keen to pre-sell or bulk-discount to robust buyers and there are various incentives and discounts to encourage investors. Housebuilders, for example, have offered 3% stamp duty payments and 4% rental guarantees to make buyers’ decisions easier.
With purchases modestly leveraged at, say, 55% to 60% and guaranteed rental income for three years, residential investments can show a decent return on equity. The choice is then whether to hold for the long term or cash in when the market picks up – as history shows us it inevitably will do.
Property prices are falling or at least plateauing. This is despite record-low interest rates, the Bank of England pumping huge amounts of money into the system to motivate banks to lend more and government schemes such as Help to Buy.
Today’s uncertain market offers the conditions in which clever buyers can strike a bargain. It is the perfect time to take advantage of lower prices Middle Eastern investors’ circumstances are improving. The pound falling to around £1.28 per dollar and oil prices rising have led Middle Eastern investors to view the UK as a cost-effective and lucrative investment platform.
Investors are no longer targeting the super-prime residential assets once associated with Middle Eastern buyers. The trophy hunters are long gone, with buyers seeking well-priced and lettable units at the sub-£1,500/sq ft level. And London is also no longer the only target; cities such as Leeds, Glasgow, Birmingham and Manchester are all proving popular.
The Arabic banking community has increased its lending offer across Shariah and conventional lending platforms. London branches of many major Arabic Banks are best placed to deal with Middle Eastern investors, having better knowledge of their customers, who are likely to be existing clients of the bank at home. Banks’ willingness to lend and improved accessibility to the lending market are mobilising investors to seek out residential investment over commercial transactions.
It doesn’t matter what you think will happen in the next year or so. People love Britain because it is safe, economically stable and very unlikely to lose its lustre. So long as they can take a long-term view, Middle Eastern investors that see something they like and that makes sense will continue to buy it for the foreseeable future.
Raed Hanna is managing director of Mutual Finance