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.”