UK's plunging pound offers record 'discount' for GCC investors

The currency 'advantage' for UAE property investors into London is the highest it has been for over a decade, according to a new report
UK's plunging pound offers record 'discount' for GCC investors
By Alicia Buller
Wed 21 Nov 2018 02:00 PM

The ‘discount' for dollar-based buyers, which covers most GCC states, stands at around 29 percent for London residential property, when compared to the market peak in Q3 2007, said exclusive research from UK property firm Cluttons.

The report also revealed that Asian investors planning to purchase in Chinese yuan and Singaporean dollars are looking at an even higher “discount” of up to 40 per cent on the last market peak in 2007.

Faisal Durrani, partner and head of research at Cluttons, told Arabian Business: “We’ve looked at the UK as a whole too and the discount is nowhere near as attractive as it is for London. The question is whether this will drive a deal surge, or will other factors counter the advantage of weak sterling?”

Mixed outlook

According to Cluttons about half of all residential transactions in prime central London are to international buyers. Of this group, 15-20 per cent are from the Middle East.

On the commercial front, Middle East investors remain very active in the Central London office market, having committed over £1.6 billion so far this year, positioning them as the fourth largest investor group behind investors from Asia, Europe and the US.

However, the overall London property investment market overall remains damp.

Andrew Burrell, an economist at London-based Capital Economics, said the falling exchange rate has made it cheaper for foreign buyers to purchase UK homes, and that will 'probably persist in the medium term'.

However, Burrell warned that the currency advantage would be offset by ‘other factors’ and is unlikely to drive a surge into UK property at present. He said: "Economic uncertainties around Brexit, and falling house prices and rents in London residential for instance will not encourage buyers."

Bleak data

Earlier this month, the Royal Institution of Chartered Surveyors announced the weakest real estate market reading since September 2012, citing anomic transaction levels by international buyers due to Brexit uncertainty.

House prices in the UK fell by more than £5,000 on average in November, according to the UK property website Rightmove.

In the largest November drop in prices since 2012, Rightmove said the average price of property coming to the market was down by 1.7%, or £5,222, on the month alone.

It said the biggest falls were in London, where the typical asking price fell by £10,793 (a fall of 1.7%).

Durrani said: “Investment activity in both the residential and commercial markets appears to be easing, in much the same way as was seen in the lead up to the Brexit referendum.

“This is being driven not necessarily by the nervousness around Brexit, but by the prospect of an even better currency deal, should sterling weaken further as we approach the March 2019 separation deadline.”

Durrani added: “With the EU negotiations reaching fever pitch, Brexit is at the forefront of many investors’ minds, including those from the UAE.”

The property expert clarified that the ‘ease of access to the EU’ was not top-of-mind for GCC investors.

Durrani said: “GCC investors invest in London and the UK largely because of the long-term gains the market has offered.

“Following Brexit, it’s quite likely the investment taps will begin to turn in the right direction once more as those that have built up sterling war chests over the last two years consider their options, but no deal surge is expected.”

Stamp duty ‘deterrent’

The research partner added that the UK government’s mooted Stamp Duty surcharge for international investors, announced in November, sends ‘confusing messages’ when Britain is meant to be ‘open for business’.

Durrani said: “Historically, we have found HNWIs, regardless of where they are from, view any tax changes as an irritant, rather than a deterrent.

“However, with transaction costs mounting, this [stamp duty] change could see funds redirected to regional markets, where entry price points are lower and yields are better. Some will undoubtedly think twice.”

A ‘wait-and-see’ approach

Wes Schwalje, COO at Dubai-based research firm Tahseen Consulting told Arabian Business: “Conventional thinking is that a weaker currency would make UK houses and commercial real estate more attractive to foreign buyers, but there is mixed evidence on the ground.”

Schwalje said: “International investors and commercial buyers, traditionally attracted to London, seem to be taking a wait-and-see approach due to heightened political uncertainty and a potentially significant market correction that could occur if the event of a bad Brexit.

“A key question investors should be asking themselves is have we seen the bottom of the market yet? The uncertain answer to this question is likely to lead to lower sales volumes in the short term as buyers watch from the sidelines.”

Gavin Serkin, managing editor, Frontier Funds Media and Intelligence, told Arabian Business: "The Herculean task facing politicians makes further slides for sterling and property almost an inevitability, so it would take a brave investor indeed to wade in at this juncture.

“The currency advantage from a UAE perspective makes UK property seem like a Black Friday bargain bonanza, but most investors will hold out for the post-holiday rush on this one."

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