London prime property attracts Arab buyers despite Brexit woes

Prime London properties are now 40% cheaper for Arab buyers than in June 2014
London prime property attracts Arab buyers despite Brexit woes
The final Battersea Power Station project will house 4,239 homes, three million square feet of commercial space, 250 shops and restaurants, leisure space and cinemas, all set within 18 acres of public realm. The first three phases (of eight) will be completed by 2021.
By Alicia Buller
Sun 21 Jul 2019 08:19 AM

Despite London’s uncertain political climate, Middle East investors view the post-Brexit market as a buying opportunity, experts have said.

“There are many who see London property as good value and are seeking opportunities in which to invest,” said Robert Pearce, head of international residential at property firm Savills.

Arab buyers are also being enticed to the UK market by the relative weakness of the UK pound versus US dollar and the value correction in the London market since mid-2014, Pearce told Arabian Business.

According to Savills, price falls across all prime central London value bands have now converged at around 20 percent below their peak of market 2014 levels.

When taking into account a currency play, prime London properties are now 40 percent cheaper than in June 2014 for a US dollar-based buyer.

“Prime London locations continue to be popular with Middle Eastern buyers, especially now that prices have fallen,” Pearce said.

“But Arab buyers who are seeking stronger rental yields than on offer in prime London locations are looking towards outer zones of London, as well as towards Tier 2 UK cities where capital values are lower and where yields are higher compared to London and the South East.”

Short-term upheaval

According to Savills research, the upheaval caused by a hard or no-deal Brexit could be felt across the entire UK economy in the short term, with a devaluation of Sterling and a subdued residential property market.

But Pearce insisted there are many Middle Eastern investors who have anticipated such a scenario "believing it to be a significant buying opportunity".

“[Middle Eastern] buyers have already allocated capital to invest in UK property if it happens. Crucially, they believe strongly in the medium to long term fundamentals of the UK and London market, its resilience and its historic trend of bouncing back quickly following market corrections and financial crises,” Pearce said.

Savills predicted in a recent report that prime London property value is expected to increase by 12.4 per cent over the next first years.

Rival international real estate firm Knight Frank said that Middle East Ultra High Net Worth Investors (UHNWI) poured $3.3 billion into London’s real estate market in 2018.

Battersea boom?

Amid the increased appetite for prime London properties, the developer behind the £9 billion (Dh41.86 billion) Battersea Power Station regeneration complex said it has seen a healthy stream of buyers.

“Sales in the last 12 months have been in excess of £120 million. The blended average uplift from launch to the present day is 36 percent, with some recent sales seeing a 40 per cent uplift,” said Andrew Jones, international sales director at Battersea Power Station.

Set within 42 acres along the River Thames, the development is the largest regeneration project under way in Europe. The first phase, Circus West Village, is already open with more than 1,000 residents living there.

The final Battersea Power Station project will house 4,239 homes, three million square feet of commercial space, 250 shops and restaurants, leisure space and cinemas, all set within 18 acres of public realm. The first three phases (of eight) will be completed by 2021.

Jones said that all of the first phase units have been sold, with only 25 units left for sale in the second phase. The project’s third phase, which consists of apartments, as well as retail units and restaurants, is expected to be fully sold by mid-2021 according to Battersea CEO Simon Murphy,  

Delay rumours

However, the project has been plagued by reports of delays. One London newspaper reported that the redevelopment is so far behind schedule that buyers of hundreds of flats in the project will be eligible to reclaim their deposits and walk away.

Responding to reports that some buyers have already filed their deposits, Jones admits that there has been ‘an element of clients requesting deposits back’.

He said: “We are 100 per cent confident in our project. It will be completed. The few that have chosen to walk away have mainly chosen to do so because of personal circumstances. They will be mournful as they have missed out on an opportunity to buy history.”

Jones said that the development sales team has witnessed little difference in buyer interest since Brexit shook Britain in 2016.

“Post the UK Europe referendum our enquiries have actually increased,” he said.

According to Jones, GCC investors in particular are unfazed by the impact of Brexit on the UK property market.

“It doesn’t make any difference to Gulf investors. The main attractions of the UK are still here – they have always been our stable government, security and good education. The weak pound also gives an incentive.

“You only need to look at all the instability in the Middle East to see why the attention is directed to London as number one choice for property. There are so many flights into the UK from the region, getting a visa is easy and the third generation want to spend more and more time in London.”

High taxes dampen prices

Victoria Scalongne, senior real estate analyst, investment intelligence at CA Indosuez Wealth Management, told Arabian Business that Brexit is not the main driver behind dampened UK house prices.

“Of course Brexit, in whatever form it takes, is affecting sentiment at the high end of the market. The globally mobile are getting cold feet about buying luxury properties amidst all this uncertainty. However, so far, it is increased taxes for high-end properties and buyers of second homes that have had a direct impact on transactions and prices in the housing market,” she said.

“However, what is preventing stronger price falls in the capital is arguably a relative lack of liquidity due to continued low interest rates and a historically pronounced imbalance between demand and supply.”

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