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Sun 22 Feb 2015 09:17 AM

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Exclusive: Gulf invests $3bn in UK property in 2014

Gulf accounted for 10% of the total $26 billion of direct capital flows into the UK real estate market

Exclusive: Gulf invests $3bn in UK property in 2014

Gulf states directly invested $3 billion in UK property in 2014, according to new statistics.

As yet unpublished research by CBRE shows that the Gulf accounted for 10 percent of the total $26 billion of direct capital flows into the UK real estate market – predominantly in London – last year.

Almost 50 percent of that contribution came from Qatar, which directly invested at least $1.3 billion through transactions including the acquisition of HSBC’s London headquarters by the nation’s sovereign wealth fund, and of Canary Wharf owner Songbird Estates by a Qatari-led consortium last month.

Abu Dhabi made the second largest contribution, pumping $1 billion into UK real estate, according to CBRE’s analysis. This was the result of deals such as Abu Dhabi Financial Group’s acquisition of London’s Scotland Yard for $600 million, and a $450 million stake in UK private rented sector (PRS) vehicle Fizzy Living.

Saudi Arabia, meanwhile, accounted for less than 10 percent of the overall contribution by Gulf states, but CBRE predicts the kingdom to be increasingly active in 2015 as it continues to mature and seek greater direct exposure to real estate. Last year, a Saudi-backed fund bought 15 Sackville Street in Mayfair – a newly let office building with three luxury penthouses above – for $120 million and set a new prime yield for London of 3.9 percent.

Kuwait, meanwhile, accounted for less than five percent following a more active year in 2013.

CBRE noted that, despite its substantial investment in UK property, the Middle East accounted for less than two percent of central London vendors in 2014. Investors from the region tend to hold on to their acquisitions for long periods rather than flipping them to make a quick buck.

Chris Brett, CBRE’s executive director and head of international capital markets, told Arabian Business he expects Middle East capital flows into UK property to reduce in 2015 as oil prices fall and sovereign wealth funds seek to curb their spending.

“There appears to be a potential trend towards Middle Eastern countries lowering allocations of capital for real estate,” he said. “There also appears to be a shift towards private capital, rather than sovereign wealth funds, making most of the investments.”

Middle Eastern investors remain particularly active in the residential sector. Safina Ahmad, head of residential agency at CBRE Middle East, said her department predicts the region will directly invest $4.6 billion in UK real estate every year for the next 10 years – and these are likely to be long-term not speculative investments, she said.

But the findings have sparked fears in the UK that continued investment by Middle Eastern and other foreign investors will make London in particular unaffordable.

“If the UK government was investing more affordable housing in central London at even a fraction of the scale being invested by Middle Eastern and other overseas companies in private housing, we would not have the current housing crisis in London,” said Paul Dimoldenberg, a Labour councillor from Westminster City Council.

“Hollowing out the centre of London so that it is only affordable for the very rich will be a disaster and destroy the very thing that makes the city special and a good investment.”

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