Brexit fears weigh on Mideast property investors

The outcome of the UK’s upcoming referendum over EU membership is creating uncertainty among Middle Eastern investors, although a weakened pound might mean this is the right time to invest in the British property market, analysts told Argaam.

A survey conducted by property consultancy Cluttons on high net worth individuals across the GCC found some investors concerned about the potential negative impact on the UK economy if the country votes to leave the EU in the June 23 referendum, said Faisal Durrani, partner – head of research at Cluttons.

Other analysts noted that the outcome of the Brexit vote was making investors from the region more guarded about the UK market.

Victoria Garrett, partner and head of international project marketing (MENA) at Knight Frank, told Argaam that the consultancy has already seen a Brexit effect on investment into the UK property sector from Middle East buyers.

“The fear of the unknown is creating a wait-and-see approach for a number of buyers and sellers,” she said. 

UK-based Chestertons, however, said the Brexit result was unlikely to have much impact on investors from the region. 

“We are firmly of the opinion that it will be business as usual, at least in the short to medium-term, and there will be potential benefits and drawbacks to either outcome. London has long been a favored destination for investors from the Middle East; it is a mature, well regulated market with a solid track record for capital appreciation,” said Declan McNaughton, managing director UAE at Chestertons MENA.

In 2015, Chestertons closed property sales worth over AED 610 million on behalf of Middle East investors, with London ranked as the most attractive market for buyers from the MENA region. 

Investors from Kuwait topped the Gulf list, accounting for 21 percent of total London sales, followed by Saudi Arabia (17 percent), Qatar (10 percent), UAE (10 percent) and Bahrain (7 percent).

With the depreciation of the sterling pound since the EU referendum was announced, analysts said it was a good opportunity for Middle Eastern investors to cash in.

“Savvy investors are looking at London as a safe haven and place for capital preservation, taking advantage of the current currency play with the weakened sterling to invest into the UK market. This may be a small window of opportunity if the vote is to stay and this will see the sterling start to rally again,” Garrett said.

Durrani echoed Garrett’s views, noting that with the weakening pound, “a good opportunity for foreign investors to sell their prime residential assets to make a significant profit has emerged.”

“The significance of currency fluctuations is often overlooked and this is understandable given the relative strength of sterling in recent years. However, the current weakness of sterling which has been in large part fueled by the looming Brexit referendum, coupled with a 35 percent rise in average prime Central London values since 2007, means that some international buyers are in quite an enviable position,” he said.

Should a Brexit result from the June 23 referendum, Cluttons expects a rush of inbound capital flows as international investors seek to take advantage of a predicted 20 percent fall in sterling, Durrani added. 

Write to Jerusha Sequeira at jerusha.s@argaamnews.com