When Fahed Boodai gazes out across Kuwait’s burgeoning skyline he isn’t just admiring the view, he’s looking for investment opportunities. “I would have loved to have bought the building we are in right now,” he says. “But we can’t because we know that there is a possibility that non-compliant tenants will take it.”
The chairman of Gatehouse, a sharia-compliant lender, might not have been lucky this time but Britain’s property slump has provided it with several investment opportunities over the last twelve months.
The bank, a subsidiary of Kuwait’s Global Securities House, has snapped up more than £150m ($239m) worth of property in the UK since the start of the year and Boodai doesn’t plan to stop yet. “Year to date we have done five transactions and we are planning on hopefully closing another one in the next few weeks,” he says proudly.
Gatehouse was established in London in May 2007 and is currently one of 22 lenders that offer Islamic services to Britain’s 2.3 million Muslims. The United Kingdom is Europe’s largest Islamic finance centre, in part due to its growing Muslim population, and also due to several government reforms, which introduced tax concessions for Islamic bonds and extended tax breaks to sharia-compliant mortgages.
“I think the British government — not this one, prior to this one — has really tried to convince the world market that it is very welcome to Islamic finance,” says Boodai. “The City of London and the Lord Mayor’s office have been very welcoming to us. The current Mayor, Nick Anstee, made a trip to the United States promoting our industry — that tells you a lot when you have the Lord Mayor visiting the US to promote Islamic finance.”
Despite government support, the growth of the UK’s sharia-compliant industry has failed to have the impact many experts expected it would several years ago. A July report by the ratings agency Moody’s noted that a “lack of government support” coupled with the economic downturn had significantly hurt its growth.
The Islamic Bank of Britain saw income from Islamic transactions decline from £8m ($12.5m) in 2008 to £3m ($4.7m) last year while the UK’s largest mortgage lender, Lloyds Banking Group, recently stopped offering sharia-compliant home lending altogether.
Boodai, however, is optimistic going forward. “The pie is big and there is still a lot that can happen within this industry,” he says. “What is more interesting is the global growth trajectory, which has been astonishing. [It] is about 20 percent return over the last 20 years. If you take that into consideration, we are at about $1.4 trillion right now… That is a significant number.”
In fact, the chairman believes the turmoil in the global markets offers the ideal opportunity for not only Gatehouse but also other Islamic finance providers. “There was a period of a little bit of slowdown, but you will see growth patches again. I think, as the larger global banks try to deal with their own issues, [it] gives the opportunity for banks such as Gatehouse to take advantage.”
Those opportunities, however, didn’t stop the lender posting losses of £12m ($18.8m) in 2009. Boodai points out that these are a result of a recent restructuring of the firm. “I am happy to say, less than a year later, we have achieved our goals of breaking even and making a profit on a monthly basis. Year to date we do have losses, basically taking more provisions and the cost of repositioning. But I am happy in the second half we will be profitable for this year.”
Britain’s housing market has been hit hard by the economic downturn. Although housing started to show some signs of recovery this year, in the last three months prices have declined 3.4 percent, wiping out half of the gains made since the start of 2010, according to property experts Rightmove.
These declines have provided Gatehouse with ideal investment opportunities in both commercial properties (it owns Procter & Gamble’s headquarters, the regional headquarters for BT in Leeds and the InterContinental Hotels Group’s global headquarters in London) as well as a number of student accommodation blocks.
So far this year the Gatehouse has acquired three student housing developments in the university cities of Oxford, Loughborough and Liverpool.
“Student accommodation is an extremely well-established sector in the UK, worth £6.5bn,” Philip Churchill, head of real estate at Gatehouse, said shortly after the lender announced it had acquired £28.9m ($45.2m) of accommodation at Oxford Brookes University.
“When combined with the inherent supply and demand imbalance, which guarantees nearly 100 percent occupancy rates, student properties make a particularly attractive investment option and we see it as an area of considerable growth for the bank,” he added.
Boodai says that the deals they have been involved in this year have “been done very conservatively” and “they have all performed beautifully.” To prove his point, he says that 50 percent of the bank’s clients in its latest deal are repeat customers from their first three deals.
But it’s not all been plane sailing, raising finance for real estate has been tough, especially given the current market conditions. “It is not an easy task to get people to invest in this region after what happened. I would say that anybody that raises a £1m in this market it is like raising tenfold of that in the older days,” Boodai explains.
And like the building we find ourselves sitting in today, many of the opportunities Gatehouse has been offered it’s been forced to turn down because of its failure to comply with the lender’s Sharia-compliant policies. “We would never buy a building in the City of London, for example, because 50 percent of the time it is going to be a bank and I don’t want to be in a position where we would have to replace that tenant with another one.”
Real estate isn’t Boodai’s only concern. He is also hoping that Gatehouse’s presence in the UK will also facilitate the growth of the sukuk — or Islamic bond — market. Last year the London Stock Exchange listed 25 sukuks, which raised a combined total of £9.1bn ($14.5bn), the largest after Nasdaq Dubai. Many of these have been criticised for not being competitive enough compared to their conventional counterparts and have failed to have the mass appeal that was expected but Boodai doesn’t think it will be long before the government issues a sukuk.
“Two weeks ago I had the honour of having dinner with Lord Sasson, the Minister of Trade and Finance, and we discussed this exactly and he said ‘Is there a price difference?’ and I said ‘no there shouldn’t be as it is the same risk for the UK government’ and he was sincerely taking notes with his head of debt for the government on reengaging this process.”For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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