Real estate

Is The London Property Market Feeling The Heat Of Brexit?

Published in Forbes Middle East, 16 November 2017

The London property market has long been a favorite of Gulf investors, but does the Brexit vote and the instability of a minority government in Westminster make the city less attractive?

Political turmoil may be something Middle East investors are used to, but it is also something they like to avoid. That is one reason for the huge amounts of Gulf mon­ey that have been poured into property in cities like Paris and New York over recent years.

London too has benefited hugely due to this investment behaviour. From the Harrods depart­ment store to the Shard skyscraper and countless luxury apartments and homes, Middle East buyers have made their mark on the London property mar­ket. But the threat of the U.K. leaving the European Union (EU) in a ‘hard’ Brexit deal (or even no deal at all), coupled with a general election earlier this year which left Prime Minister Theresa May weakened and without an overall majority in parliament, is tar­nishing the U.K.’s image as a place of stability. Might all this force Middle East investors to look elsewhere when thinking about property in the future?

There have certainly been some signs that wealthy Gulf buyers are shying away from London, both in terms of commercial and residential prop­erties, although the picture is a mixed – not to say confusing – one.

One reason the market is so hard to read is there are several different issues at play. On the one hand, the unstable political climate has caused the value of sterling to plummet, making it cheaper to pick up assets in the U.K. For anyone using dollars – or cur­rencies pegged to the dollar, as most Gulf countries are – prices are effectively 18% lower than they were two years ago.

“The incentive for Middle Eastern purchasers has sharpened in recent months, mostly due to the favourable currency swing,” says Charles Penny, an associate at the London super prime team at Knight Frank, a real estate consultancy.

But prospective buyers need to weigh up cost savings against other negative developments be­fore deciding whether it makes sense to press ahead with a purchase. For example, the stamp duty tax on purchases has increased several times since 2012 and other new taxes have been introduced to cover properties held by corporate owners that had previ­ously avoided stamp duty. Those changes have ar­guably had a greater influence on prices than any nervousness caused by the febrile political atmo­sphere and, while there has not been a crash in pric­es across the city, there is evidence of a slowdown, particularly for new-build developments, many of which have tended to be sold in recent years to buy-to-let investors.

“We have seen a softening of prices in prime central London,” says Naomi Heaton, chief execu­tive of London Central Portfolio (LCP), a real es­tate investment firm. “That’s mainly been due to tax more than Brexit uncertainty.”

When it comes to weighing up these pros and cons, some market participants will have less dis­cretion than others over whether to buy or sell. A wealthy parent may want to acquire a property if a child is coming to London to study, for example, while marriages or divorces might also prompt sales or purchases. Those buying investment properties will have more hard-nosed calculations to make, but it is not an easy call for anyone.

The fall in the value of sterling “definitely does make a difference,” says Fionnuala Earley, residen­tial research director at estate agency Hamptons International. “It makes U.K. property relatively cheaper, but you’ve got to take into account the un­certainty we’re facing because of Brexit and whether that, in the judgement of a buyer, means the U.K. economy is going to go downhill and whether it will take house prices with it.”

All this helps to explain the slowdown in ac­tivity. Hamptons International says this year it has taken an average of 21 weeks to sell a home in London, compared to just seven weeks in 2014. And according to LCP’s analysis of transaction data, the number of deals across the main areas of prime cen­tral London – including neighbourhoods such as Kensington, Chelsea and Westminster – were down 21% in 2016 compared to the year before. Chelsea was hardest hit, with a 12.2% fall in average prices and a 28.5% fall in sales volumes. Price falls were also seen in Kensington (3.9%) and St James’s Park & Mayfair (2.5%).

There are similar trends at play in the commer­cial market, where concerns about the nature of any Brexit deal are even more pressing, as a bad deal could lead to a slump in demand for office space, particularly in the city where the finance industry is concentrated. Here too, Middle East investors ap­pear to be taking a back-seat. “None of the recent major transactions in either the city or the West End have involved Middle East buyers or sellers,” says Kiran Patel, chief investment officer of Savills Investment Management.

“We’re not really seeing that much appetite coming from the Middle East since Brexit,” he adds. “They’re either keeping their powder dry or [pur­suing] opportunities elsewhere. There are some Middle East family offices around, we just haven’t seen them in the market as much. They may be buying the odd small building here and there but they’re not featuring much at the moment.”

Middle East investors are not uniquely affected by these issues. Indeed, European buyers are likely to see Brexit as a more serious concern, as trade flows between the U.K. and the rest of the EU are far more substantial than they are with the Gulf. In ad­dition, Brexit may end EU citizens’ right to live and work in the U.K. without a visa that could potentially dampen demand for real estate from this section. According to Hamptons, the proportion of EU buy­ers has been falling for a year: in the second quarter of 2016, EU citizens accounted for a third of buyers in prime central London but by the first quarter of this year they made up just 8% of buyers. Indeed, they have now fallen below Middle East buyers, who were the largest group of overseas investors in prime central London, accounting for 10% of all purchases in Q1, albeit it in a slower market.

Overall, it looks like international investors as a whole are in retreat. Data from estate agency Countrywide released in mid-July shows the pro­portion of overseas-based landlords across Great Britain is now at a record low of 5%, compared to 12% in 2010. London has seen the largest fall with 11% of rented homes now owned by an overseas landlord, down from 26% in 2010. In prime central London, overseas-based landlords owned 31% of all rented homes in 2010, a figure which has fallen to 23% this year. The number of European-based landlords in London has been gradually falling over time and now stands at 28%, ranking them behind Asia-based landlords at 33% but ahead of North Americans (10%) and Middle East landlords (9%).

Despite all this there are some things that have long been – and continue to be – in London’s favor. The city remains a big draw for Gulf buyers who know the landscape and enjoy visiting. And de­spite the uncommonly tumultuous politics of the U.K. in recent years, observers say London contin­ues to be seen as a safe haven, particularly at a time when there is so much turmoil within the Middle East itself.

“London is always one of those global cities that carries with it a cachet that some others do not,” says Earley. “The London prime market has always performed well against other sorts of assets and the Middle East [investors] in general have al­ways favored buying in London, so it would be odd if they didn’t continue to do that. It doesn’t look like they’re scared of what’s happening at the mo­ment, they may just be a little bit wary of where capital values might go.”

The UAE's Northern Lights

Published in Forbes Middle East, 24 October 2016

There is a slowdown afoot in the northern emirates. According to real estate agency Cluttons, rents in Sharjah in the first quarter of this year were down by more than 8% year-on-year. That followed a 2.4% fall in the 12 months to December 2015. The drop at the start of this year was steepest in villa rental prices, which are down 9.6% over the past 12 months, while apartment rents fell by 7.7% over the same period. The real estate firm expects rental costs to drop a further 3-5% over the course of this year.

Yet, despite this weak outlook, significant new developments are still going ahead, both in Sharjah and beyond. In fact, some of the most ambitious real estate schemes the northern emirates have ever seen are currently being pursued.

In Umm al Quwain, Dubai-based Sobha Group is developing the Firdous Sobha scheme, a mixed-use island development that will have villas, apartments, hotels, shops and leisure facilities with a total value of around $6.8 billion. The scheme was announced in late April and will cover 4.9 square km.

Further north, in Ras al Khaimah, there are two major schemes underway. Al Marjan Island, a man-made archipelago stretching 4.5km out to sea, will be home to more than 20 hotels and resorts with the capacity to host up to 20,000 guests once completed, including properties from Anantara, Crowne Plaza and Marriott.

Elsewhere in the emirate, the local Al-Hamra Real Estate Development is working on its $272 million Falcon Island project, which will contain 150 villas and a marina on an island divided in two by a central canal. The larger Al Hamra Village scheme, which the island is part of, covers 77 million square feet and includes more than 1,000 villas and townhouses and nearly 2,500 apartments as well as five hotels, a golf course and a shopping mall.

Meanwhile, in Sharjah itself new developments are also under construction, such as the $654 million Tilal City gated residential scheme, which is open to foreign buyers and will be house up to 65,000 residents once complete. The project is being developed by Tilal Properties, a joint venture between Sharjah Asset Management and Eskan Real Estate Developments. The first plots of land are due to be handed over before the end of this year, with a second phase of plots to be handed over in December 2017.

Collectively, these projects add up to a big bet on the future potential of the northern emirates. Overall, there are more than $6.5 billion worth of construction projects planned or underway in the five northern emirates and a further $1.8 billion worth of hospitality projects, according to Dubai-based MEED Projects, which tracks such activity around the region.

The motivation for many of the larger schemes is a desire to inject some life into the local commercial and tourism industries by attracting more outside investment. The individual emirates themselves are certainly not large enough to support these developments on their own. The latest census for Ras al Khaimah, for example, which was carried out in 2015, showed it had a population of 345,000 people, almost 100,000 lower than previous estimates. Credit ratings agency Fitch Ratings noted in a report released in early May that “Hotel capacity is set to increase 50% over the next three years and a key challenge will be to develop Ras al Khaimah as a destination to capitalise on the planned new capacity.”

Tourism is a key element for the residential units being built as well. Given the distance from the main cities and the small size of the local economies, many potential buyers will be the sort of people who look to the northern emirates as a leisure destination rather than a place to live and work full-time. “People are going to the northern emirates, but more for holidays or weekends away from Dubai or Abu Dhabi,” says Suzanne Eveleigh, head of Sharjah at Cluttons. “People aren’t buying in terms of moving and living there, they’re buying property as a holiday home.”

The northern emirates do have some factors in their favour as they try to attract international money and visitors. In particular, the relatively low cost of property compared to the big cities of Dubai and Abu Dhabi is one element that they can exploit. Sharjah is well placed in this regard, being closest to the bigger cities and having long acted as a dormitory town for Dubai. The price differential is certainly large at the moment. A three-bedroom villa in Sharjah costs around $24,500 a year to rent, compared to anywhere between $32,600 and $92,500 in Dubai, according to Cluttons.

The other emirates further north also have an eye on the potential and are keen to stress how simple the process of buying property can be. “It’s very easy for foreigners to buy property in Ras al Khaimah. It’s become quite attractive because the price of property is a lot lower than comparable properties in Dubai or the other emirates,” says Haitham Mattar, chief executive officer of the Ras al Khaimah Tourism Development Authority. “You can still buy a property that is on the beach front or sea-facing at a fraction of the price that you’d pay in the other emirates.”

Mattar says that the two key source markets for those buying in Ras al Khaimah are the U.K. and Asia. For some of these buyers it’s simply a matter of investment, with the property being rented out thereafter, but others are more interested in buying a relatively cheap holiday home.

Yet alongside all these grand schemes, there is also a shortage of affordable housing for local buyers, many of whom cannot afford the prices attached to villas and apartments in the new high-end developments. In late February, Sheikh Mohammed bin Rashid al Maktoum, vice-president and prime minister of the U.A.E., visited the east coast of the country and approved $1.9 billion worth of infrastructure projects being planned by the Ministry of Infrastructure Development. The schemes will be developed across the northern emirates and include a substantial investment in housing. Some $1.3 billion of the total will be put into 12 compounds over the coming five years, providing homes for 42,000 people.

“Housing is an essential service and is every citizen’s right and a priority for the government,” he said at the time. These days it’s also a priority for a lot of developers in the northern emirates, even if they are targeting a different set of buyers.

UAE Real Estate: A Buyers’ Market

Published in Forbes Middle East, 23 October 2016

The real estate developers were putting a brave face on it, saying they had been remarkably busy, but there was no hiding the fact that the Dubai Property Show in London in mid-May was both small and, at least on the first day of the show on Friday afternoon, sparsely attended. Around a dozen developers including Dubap Properties, Tebyan Real Estate Development and Binghatti Developers filled part of the Olympia West exhibition hall, which was dominated by a Nakheel stand in the centre.

It was certainly a far cry from the likes of the Cityscape show in Dubai, but that’s perhaps to be expected. London is after all a long way from the U.A.E., and the gloss has come off Dubai’s real estate scene of late. Prices are down by 15% from their mid-2014 peak and confidence is low in the light of the oil price slump.

In addition, the rise of the U.A.E dirham (and other Gulf currencies pegged to the dollar) means that inward investment into the region is becoming more expensive for a lot of po­tential buyers. And while expat residents in the Gulf who are earning money in the local currency are not affected, the re­gional economic slowdown also means that some of them are losing their jobs, selling up and leaving the country.

Craig Plumb, head of research at estate agency Jones Lang LaSalle (JLL), says the rising value of the dirham has “definite­ly been a factor” for international investors in the residential market. “The volume of residential sales in Dubai over the first half of 2016 is down by around 30% compared to the same period last year,” he says.

But such trends do not mean the whole system is about to come crashing down. In broad terms, the market for cross-bor­der real estate investment continues to be fairly vibrant, even if these days the bulk of the deals involve Gulf investors putting their money in international markets, rather than overseas buyers picking up properties within the region. Plumb says Middle East investors bought almost $9.5 billion of real estate outside the region in the second quarter of this year, compared to $2.3 billion of capital flowing into the region.

“There has been a shift in the nature of [outbound] invest­ments, with private investors becoming relatively more impor­tant compared to the major sovereign wealth funds,” he adds. “But the desire to invest in real estate assets outside the region remains.”

This trend has been developing for a couple of years. According to CBRE, another real estate consultancy, a total of $14.1 billion of investment flowed from the Gulf to other parts of the world in 2014, with Qatar leading the way with $4.9 billion of purchases, followed by Saudi Arabia ($2.3 billion) and the U.A.E. ($1.6 billion). The total was down on the $16.3 billion a year before but it still made the Gulf the third largest source of capital in the world after North America ($66.5 bil­lion) and Asia ($28 billion).

While much of the outward investment has historically been done by sovereign wealth funds, in the wake of lower oil prices they have been drawing down some assets to help plug their government’s budget deficits. That leaves them with less to invest. However, that trend is being partly balanced by the fact that rich individuals are showing more inclination to in­vest overseas. CBRE predicts that while sovereign wealth fund investments in global real estate will fall from $9-11 billion a year to around $7-9 billion a year going forward, non-institu­tional investments from the Middle East will rise to an annual figure of $6-7 billion, up from an average of around $3 billion in 2010-2013.

London has long been the most enticing market for Middle East investors and it still holds the top spot, but it is not as dominant as it once was. In 2014, the U.K. capital city accounted for 32% of all outbound investment, compared to 45% in 2013. Other large Western cities followed it in popular­ity, including Paris ($2.2 billion), New York ($1.3 billion) and Washington ($481 million).

More recent events have altered the landscape, in particu­lar the vote by the U.K. in June this year to leave the European Union. That is pushing investors to re-evaluate their position. A recent survey by financial advisory firm DeVere Group found that 69% of its clients, including some in the U.A.E. and Qatar, intended to decrease their investment exposure to the U.K. following the Brexit vote.

“High net worth investors are overwhelmingly consider­ing rebalancing and diversifying their portfolios following the U.K.’s decision to leave the EU,” says Nigel Green, chief executive officer of the firm. “These investors are seeking to reduce their exposure to U.K.-based assets in the wake of the impending Brexit.”

Nonetheless, the motivation to invest in overseas markets still remains strong, whether because investors want to diver­sify their portfolios away from their home market and from dollar-denominated (or dollar-pegged) assets, or simply a de­sire to buy a residence for themselves or family members in overseas cities.

That helps to explain the results of another survey released earlier this year by property consultancy Cluttons, which found that 61% of high-net-worth individuals (HNWIs) in the GCC were likely to invest in their preferred location in 2016, against 25% who said they were unlikely to (the remaining 14% said they weren’t sure). Of those, London was the preferred city for 13% of investors, followed by New York and Bangalore in India. Half of these investors were targeting residential prop­erty, while 22% favored commercial property and 28% were looking for a mixture of both.

They are not just investing in distant lands though. Just over half (53%) of HNWIs in the U.A.E. told Cluttons that Middle East locations were among their top three investment targets for the year ahead. Dubai and Abu Dhabi were, perhaps unsurprisingly, the most popular, cited by 30% and 23% of re­spondents respectively. They were followed by Sharjah (8%), Muscat, Kuwait City, Doha and Riyadh. The reasons for the U.A.E. cities’ popularity stem from the country’s role as both a trading hub for the region and also—particularly in the case of Dubai—its position as a safe haven.

That too has been one of the long-term attractions of London. And although the political uncertainty caused by Brexit has unnerved some investors and led them to postpone or cancel some deals, demand is expected to recover before long. For one thing, the rise of the U.A.E. dirham and other Gulf currencies pegged to the dollar over the past few years means that it is now far cheaper for Gulf investors to buy U.K. property than it was previously, all the more so following the slump in the value of the pound after the Brexit vote.

As a result, many real estate agents say they are expecting interest in London to recover in the second half of the year.

“One of the key things of benefit to buyers from the Gulf is the fact that the majority of them, except for Kuwait, maintain a fixed exchange rate with the U.S. dollar. That means they’re effectively purchasing in dollars, so for them London property became 12% cheaper overnight on 23 June [the date of the ref­erendum],” says Faisal Durrani, head of research at Cluttons. “Since the referendum, some of our offices in locations like Belgravia and Chelsea have reported an upturn in interest from buyers from the Gulf.”

Whether the investments follow remains to be seen but, for everyone involved, the ups and downs of recent years in Dubai and London alike is at least a useful reminder of the inherent volatility in real estate investment no matter where you are in the world.

The Gulf's pivot to Asia

Published in MEED, 15 March 2017

King Salman’’s tour through Malaysia, Indonesia and Brunei is the latest sign of how keen Gulf governments are to strengthen economic ties with Southeast Asia

As he toured around five Southeast and East Asian countries in February and March, Saudi Arabia’s King Salman bin Abdulaziz al-Saud captured the attention of headline writers as much for the size of his retinue as for any deals signed or speeches made. In many ways, it was a return to the pre-austerity days, with the supply of five-star hotel rooms in the cities he visited drying up and locals gossiping about how many luxury cars were being hired and how much money was being spent by the 1,500 Saudis that formed the delegation.

But amid all the chatter, there was some serious business to be done too. Southeast Asia is a vital market for Saudi crude oil, a fact that is increasingly important as Riyadh battles for market share against US shale and the return of Iran to the international energy market.

That helps to explain the decision by Saudi Aramco to invest $7bn in the 300,000-barrel-a-day (b/d) Refinery & Petrochemical Integrated Development (Rapid) project being developed by Petroliam Nasional Berhad (Petronas) in Malaysia. Aramco will meet most of the crude feedstock requirements of the refinery, while Petronas will supply the natural gas, power and other utilities. The plant, which is due to be up and running by 2019, will produce gasoline, diesel and feedstock for an integrated petrochemicals complex, which will have a capacity of 3.5 million tonnes a year.

The agreement followed a deal announced with Indonesia’s PT Pertamina in December under which Saudi Arabia will pour $6bn into a similar project, the Cilacap refinery, giving Aramco a 45 per cent stake. Aramco has also held talks with PT Pertamina on an upgrade of the Bontang refinery, in the East Kalimantan region of Indonesia, although that currently seems less likely to go ahead.

Such deals help to ensure future demand for Saudi crude exports in the region and there was little surprise when Aramco CEO Amin Nasser said at the signing of the Rapid project that “the Southeast Asia region offers tremendous growth opportunities.”

Investment in oil and gas projects is the dominant theme in GCC involvement in southeast Asia and Riyadh is not the only one to get involved. Kuwait Petroleum International, the overseas arm of Kuwait Petroleum Corporation (KPC), owns a 35 per cent share in the 200,000-b/d Nghi Son refinery in Vietnam. Construction began in October 2013 and is now close to completion – the first deliveries of Kuwaiti crude are due to be made in May.

In January this year, another KPC subsidiary, Kuwait Foreign Petroleum Exploration Company (Kufpec), agreed to invest $900m in offshore oil assets in Thailand. The deal gives it a 22 per cent interest in the Bongkot gas and condensate field and other concessions in the Gulf of Thailand, previously owned by UK/Dutch Shell Group.

Abu Dhabi-based International Petroleum Investment Company (Ipic) also has interests in Southeast Asian oil and gas fields, through its wholly-owned Spanish subsidiary Compania Espanola de Petroleos (Cepsa). The latter owns Cayman Islands-registered Coastal Energy, which has onshore and offshore assets in Thailand and Malaysia.

Such deals may be the most significant aspect of Gulf-Southeast Asian relations these days, but there is activity in other sectors too. King Salman’s time in Malaysia also saw memorandums of understanding agreed in areas including scientific and education cooperation, labour, and trade and investment cooperation. When his delegation reached Indonesia, there were further deals agreed around health, housing, tourism, aviation and fishing.

“An important focus for Saudi officials on this trip, and in policymaking more generally, is to identify and expand markets for non-oil exports,” says Kristian Coates-Ulrichsen, fellow for the Middle East at Rice University’s Baker Institute.

Other Gulf investments in the region range from financial services to telecoms and real estate development. Examples include Qatar National Bank’s majority holding in QNB Indonesia and Kuwait Finance House (KFH)’s wholly owned subsidiary KFH Malaysia. Qatari telecoms firm Ooredoo won a mobile telecoms licence in Myanmar in 2013 and also has operations in Indonesia, Laos and Singapore.

In the real estate arena, both KFH and Abu Dhabi-based Mubadala have invested in Medini, a project to create a new city of up to 300,000 people at the southern tip of peninsula Malaysia, just across the Straits of Johor from Singapore. Medini is part of a series of efforts to develop the Johor region – the Aramco-backed Rapid refinery is another important element. Indeed, those involved in Medini think the oil and gas project could have some benefits for their own scheme.

“The Aramco deal is good for us,” says Khairil Anwar Ahmad, CEO of Iskandar Investment Berhad, an offshoot of the state-owned Kazanah Nasional Berhad, which is driving the development of the region. “They’re investing in this big oil and gas and petrochemicals complex and it’s just next door, so we’re hoping that… there will be some spill-over to Medini as well. We’re hoping that we can attract some people looking for back office services, middle office support and things like that.”

As is evident from the above examples, a few countries in Southeast Asia have been the focus of much of Gulf activity in the region. Partly as a result of their cultural and religious affinity, but also because of their relatively large economies, Malaysia and Indonesia have drawn a lot of interest and investment.

At times this has been negative though, in particular the ongoing scandal around Malaysia’s sovereign wealth fund 1Malaysia Development Berhad (1MDB), which involves questionable payments to senior Malaysian politicians and their associates from a number of Gulf sources. The situation continues to cause difficulties for some Gulf businesses. In October last year, Abu Dhabi-owned Falcon Private Bank had its licence in Singapore stripped from it by the Monetary Authority of Singapore because of what the latter described as “serious failures in anti-money laundering controls” surrounding transactions associated with 1MDB.

Despite such difficulties, trade between the Gulf and SE Asia undoubtedly has the potential to expand much more. The steady growth of the big Gulf airlines’ route networks in the region could be an enabler for further development. The latest addition will come in July, when Emirates is due to start daily flights between Dubai and the Cambodian capital Phnom Penh. The airline says it expects garments and textiles to be a significant export in the future.

Until now, ties with Cambodia have mainly involved aid projects, such as the Cambodia-Kuwait Friendship Hospital, which opened in the southern Kandal province last year, although there has been the occasional commercial investment too. For example, in 2011 Kuwait’s Pima International formed a joint venture with India’s D&D Pattnaik to invest in exploration for gold and iron in Cambodia.

The relationship between the regions is not just about crude oil and money flowing from the Gulf into Southeast Asia though. Another central element is the supply of labour from South and Southeast Asia, without which the Gulf economies would cease to function. And as part of efforts to diversify their economies, Saudi Arabia and other Gulf countries are also keen to boost investment from Asia into their own markets. With that in mind, King Salman’s tour has also included conferences designed to attract investment from Asian businesses into Saudi Arabia.

The promise of more business opportunities is keeping locals keen. There is a tight battle being fought among Asian stock markets for the rights to host a listing of shares in Aramco, for example. Among those hoping for a cut of the action are the Singapore, Hong Kong and Tokyo bourses. In that at least, there is continuity with the long-term relationship between the Gulf and Southeast Asian regions. Coates-Ulrichsen says the past decade has seen the ties expand but “energy continues to form a linchpin of the relationship”.

Real estate investment in Medini

The Gulf’s enthusiasm for real estate is at the forefront of a large project in southern peninsula Malaysia, just across the causeway from Singapore. The project’s three shareholders include Dubai-based United World Infrastructure (UWI), alongside the Malaysia state-owned investment fund Kazanah Nasional Berhad and Japan’s Mitsui & Co. The development has also attracted investment from Abu Dhabi-based Mubadala and Kuwait Finance House (KFH).

Plans to develop the site began in 2007, when it contained little more than abandoned palm oil plantations. Today, roads have been laid, utilities put in place, and the first homes and offices handed over to their owners, but much remains to be done. The population is around 20,000 at the moment but, when complete, the site will house as many as 300,000 people, according to Imran Markar, principal of UWI.

The building of an entire new city – complete with homes, businesses, entertainment facilities, schools and hospitals – owes much to the past experience of UWI executives in the Gulf, where they have been involved in the development of the Dubai International Financial Centre (DIFC), Dubai Media City and other projects.

“The Dubai experience and the idea of economic clusters was very useful,” says Markar. “One of the other key learnings from Dubai was that the infrastructure has to be ahead of the game. If it lags behind, catching up is an exercise in futility, you’ll never do it. So when the masterplan was drawn, it laid out exactly what’s going to happen in every plot.”

Markar suggests that Medini could provide a template for other developments elsewhere in the world. “For us the challenge is how replicable this is in other parts of the world, and we feel it is to a large extent,” he says.

Investors target London property market with Shariah-compliant funds

Published on Salaam Gateway, 14 November 2015

Interest in Shariah-compliant investment in the UK property market is showing signs of strong growth, with several hundred million pounds of investment potentially on the way into the market over the next year.

Among those currently raising money for investment is London Central Portfolio (LCP), which has been running an investor roadshow in Southeast Asia in recent weeks, holding meetings with local banks around the region. It is seeking to raise £100 million by the end of March for its London Central Apartments III fund, which will invest in the private rented sector in the UK capital.

Naomi Heaton, CEO of LCP, says the combination of a Shariah-compliant fund and the reputation of the London property market is proving to be a compelling one. “We’ve spoken to a wide variety of banks in Malaysia, Singapore and Hong Kong. A lot of them will come on board,” she says.

In the coming weeks, Heaton is due to travel to the Gulf region to talk to potential investors there. One Qatari bank, Masraf al Rayan, has already signed up as an investor.

‘STRONG DEMAND’

London property has been a popular option for international investors for many years, including those from the Middle East and Southeast Asia. However, the growth of Shariah-compliant investment vehicles is providing a new route to the market and adding to the dynamism in the sector.

“We have seen strong demand for cash-generative Shariah-compliant real estate investments for a number of years,” says Chris Coombs, head of product development at Gatehouse Bank, a boutique finance house in Kuwait that has invested heavily in the UK real estate market. “Investor demand for real estate developments structured in accordance with Shariah has increased. We have made a big push into the residential private rented sector in the UK.”

As Coombs notes, from an Islamic finance perspective, the fact that property investment involves a physical asset makes it a more straightforward option than many others. “Relative to other alternative investments, real estate is a natural fit with Shariah, provided that care is taken with respect to the uses of the assets,” he says.

EXPANDING INVESTOR BASE

The market is not just being tapped by high net-worth individuals and institutional investors. The House Crowd launched in March 2012 and styles itself as the UK’s first Shariah-compliant, crowd-funding property platform. With a minimum investment of £1,000, it is more accessible than many of the larger funds. In comparison, the minimum subscription for private investors in the new LCP fund is £25,000.

Frazer Fearnhead, CEO of The House Crowd, says it has financed the purchase of more than 150 properties to date, usually holding them for between three and five years. The company has ambitious plans for the year ahead.

“In the next financial year we anticipate raising £100 million’, he says. ‘Over the course of the next few years, we intend to grow significantly beyond that and be in a situation where we are managing several hundred million pounds worth of property.

Not all of this will come from people concerned about whether the fund meets the requirements of the Muslim faith. As with other areas of the Islamic economy, being Shariah-compliant means that funds can appeal to investors in the Islamic world but also to people beyond it.

“We want our funds to be globally available,” says Heaton. “They’re just as attractive to conventional investors as Islamic investors because the model of targeting the private rental sector in central London is one that appeals to everyone globally. And the cost of funds and the cost of structuring it in an Islamic way is no greater than doing it in a conventional way.”

London property dispute draws in Kuwaiti sheikhas and UAE real estate giant

Published in Gulf States News, 12 November 2015

A complex legal dispute over a property deal in central London could be heading to mediation or a future trial.

Another complex dispute over property involving wellheeled Gulfis has come to the High Court of Justice in London, where Sheikha Hind Bint Salim Hamud Al- Jaber Al-Sabah and two other claimants are pursuing a legal action involving six defendants, including the Kuwaiti royal’s sister Sheikha Salem Hamud Al-Jaber Al-Sabah and Iraqi- Emirati businessman Hussain Sajwani, chairman of UAE-based developer Damac Properties.

The sheikhas’ father was Sheikh Salim Hamud Al-Sabah, described in court documents as a high-ranking professional soldier who was head of the Emiri Guard for 25 years. A grandson of Emir Sheikh Jaber I (who ruled from 1915 to 1917), Sheikh Salim died on 10 June 2003 without leaving a will; he left 15 heirs, including the two sisters. His estate included two adjoining flats, numbers 61 and 62, at 3-8 Porchester Gate, on the north side of Hyde Park in central London. The two flats had been converted into a single property and were registered in the names of two Gibraltar companies, Rosork Holdings and Fairlann Trading.

In June 2009, the combined property was bought for a documented price of £1.9m ($2.9m today) by British Virgin Islands-incorporated Gulf Heritage Properties Company Ltd, controlled by Sajwani. The transaction was arranged by agent Tareq Al Baho, a Kuwaiti national. At the centre of the disputeare Sheikha Hind’s claims that the property was undervalued at £1.9m and that a ‘bribe’ was paid to secure the property at a below-market rate. She contends that the property’s true value is £2.5m-3m.

In the particulars of a claim submitted to the High Court in July, Sheikha Hind said that, on top of the £1.9m, further payment of “not less than £600,000” was paid by or on behalf of Sajwani to Al Baho or Andrew Pinnell, a solicitor appointed under a power of attorney in 2008 to represent 12 of the 15 heirs and Sheikh Salim’s estate. The £600,000 figure is based in part on a claim that Al Baho told Foxtons estate agency that the property had been sold for £2.5m – in other words £0.6m above the £1.9m figure. The property had been marketed through Foxtons for a time, although the sale was agreed separately.

Two other claimants in the proceedings, property agents Asad Meerza and Mohsen Mehra, claim they are owed a £300,000 commission from Al Baho and Sheikha Salem for their role in introducing Sajwani to Al Baho.

In their defence, Sajwani and Gulf Heritage say they paid £2.2m, comprising £1.9m for the property and an agent’s fee of £300,000; these sums were paid to the benefit of Rosork Holdings and Fairlann Trading. The £300,000 was paid via two bankers drafts made out in UAE dirhams. Gulf Heritage and Sajwani say no payment was made to anyone other than the two vendor companies and deny that the £300,000 constituted a ‘bribe’. They also deny that a sum of “not less than £600,000” was paid in connection with the property purchase.

In a further twist, Sheikha Hind claims that Al Baho obtained the £300,000 by lodging the two bankers drafts in accounts held by two ‘clone companies’ that he had set up in the UK and which had identical names to the two Gibraltar companies, Rosork Holdings Ltd and Fairlann Trading Ltd.

In a two-day hearing in the High Court’s chancery division, Justice Peter Smith noted that Al Baho had not served a defence nor filed any evidence. On 3 November, he made judgements that Sheikha Hind could claim a number of interim payments from Al Baho and BC Penthouse Ltd, a company wholly- or partly-owned by Al Baho, for the benefit of the estate.

According to the defence, substantial sums have been spent on the Porchester Gate property since the transaction went through, including £1.89m to renovate and extend it. The property is used by Sajwani as his personal residence when in London.

A lawyer for the three claimants, Matthew Jenkins at Hughmans Solicitors, told GSN that mediation efforts have been proposed and are due to take place before Christmas. If they do not go ahead, or prove unsuccessful, the matter is expected to proceed to trial in early 2017. A spokesman at FTI for Sajwani declined to comment on the proceedings. Lawyer Richard Barca at Wilson Barca, for Al Baho, Pinnell and Sheikha Salem, did not respond to a request for comment.

Dubai Adjusts to a Cooler Real Estate Market

Published in Bloomberg Businessweek, 5 October 2015

The real estate sector is accepting that lower prices may be here to stay

Almost all the main indicators are pointing in the wrong direction for Dubai’s property market these days. Over the past year the sale price of apartments has dropped by an average of 9 per cent and for villas by 5 per cent, according to Jones Lang LaSalle (JLL), a real estate agency. Prices are expected to continue their fall for the rest of this year. Rental values for villas have also been declining, albeit at a slower rate of 2 per cent, while apartment rents have shown a small rise of 1 per cent.

Many working in the real estate sector and beyond are questioning whether this represents the start of a sharp downturn or simply the usual market ebb and flow. Zainab Mohammed, CEO of property management and marketing at wasl Asset Management Group, says that Dubai’s property sector is in a much fitter state than it was prior to the property crash in 2008. “We are witnessing a correction,” he says. “However, the current situation is healthy. Dubai’s real estate market has matured and should be viewed in the overall context of the economic cycle.”

The downward pressure on real estate prices is likely to continue. Investment in Dubai property from foreign markets–particularly Russia and Europe–has slowed due to currency pressures. The slump in the price of oil is hurting demand from within the region also. The slowdown has “dented confidence and applied downward pressure on transaction levels and prices,” says Diaa Noufal, associate partner at real estate agency Knight Frank. “This has led to speculation that prices may soften further over the remainder of 2015 leading some buyers to adopt a watch and wait attitude.”

This is happening in the wake of tighter regulations introduced in late 2013, including a mortgage cap and an increase in transaction fees. These are having a bigger impact than low oil prices, according to Steven Morgan, CEO of Cluttons Middle East, a real estate agency. “What we’re seeing in the market is a general slowdown, which is natural as a result of the legislation and the supply coming on,” he says. “There is a possibility that if oil prices continue to be low there could be an impact on population growth and therefore house prices. You hear that oil companies are starting to downsize and aren’t recruiting, but we’ve yet to see that come through in the market.”

What has been seen is a fall in the volume and value of sales. The Dubai Land Department says the number of unit sales fell from 20,309 in the first half of 2014 to 16,107 in the first half of this year. The value of those sales dropped from 31.9 million dirhams ($8.7 million) to 25.3 million dirhams.

Some property firms are adjusting their strategies to take account of the slower market. Dana Salbak, research manager at JLL, says developers are being more realistic in terms of the scale and timing of their project launches, and some schemes have been delayed. “We see the residential market as subdued, with sale prices softening and rents stabilising as a result of the negative investor sentiment, but also because Dubai had become too expensive,” she says. “Both the government and developers have realised that.”

With many buyers unable to access the higher end of the market, affordable housing–a traditionally underserved area of the market–is seeing increased demand. “Developers are now catering more to middle-income earners who are increasingly putting down their roots in the region,” says Mohammed. “The character of the market has changed [to] one where property is being purchased primarily as a home and not just an investment.”

The shift is seeing some developers look for growth in new markets. Damac Properties, which specialises in high-end developments, is paying more attention to places like China, to supplement its usual markets in the rest of the GCC, India, Pakistan and the UK. “We explore and experiment with new markets all the time,” says CFO Adil Taqi.

Further help from foreign shores could come in the form of the easing of economic sanctions on Iran following its signing of a nuclear accord with world powers in July. Dubai has strong trade links with Iran and is likely to be the first port of call for Iranians looking to buy overseas. The emirate is also an ideal location for international companies looking to access the Iranian market to establish or expand operations. “I think Iran will be as important as any other country of its size and proximity,” says Taqi. “If and when it opens up in the short-term you might see some surge because of the pent-up demand, but that demand will be met very quickly.”

Further falls in the oil price and an injection of new properties onto the market could offset such a boost. JLL estimates an extra 19,000 residential units will be available next year. “There will be a strong level of supply in the market over the next 12 months, which will undoubtedly have an effect on transaction levels and possible further softening of prices,” says Noufal.

The downturn is still a long way from comparison with Dubai’s 2008 property crash. Lenders have not been spooked in the way they were then, according to Morgan from Cluttons Middle East. “In 2008 and 2009 the banks stopped lending,” he says. “That’s not happening now. There is a lot of competition, banks are liquid and they’re still keen to lend.”