Gulf in­vestors hold back from UK prop­erty deals on Brexit fears

Jerusalem Post - - BUSINESS & FINANCE - • By SYLVIA WESTALL and PAMELA BARBAGLIA

DUBAI/LON­DON (Reuters) – Gulf Arab in­vestors, some of the big­gest buyers of Bri­tish real es­tate, are hold­ing back from new deals be­cause they fear a prop­erty-price slump if Britain leaves the Euro­pean Union, ac­cord­ing to le­gal and in­vest­ment sources.

Sovereign and pri­vate in­vestors from Qatar, Saudi Ara­bia, Kuwait and the United Arab Emirates have been pro­lific buyers of Bri­tish as­sets over the past decade, snap­ping up bil­lions of dol­lars worth of prop­erty, mostly in Lon­don.

“Sovereign wealth funds are con­cerned that Brexit is tak­ing its toll on the prop­erty mar­ket in Lon­don,” said a Lon­don-based lawyer who works with some of the largest Gulf funds. He de­clined to be named, cit­ing the con­fi­den­tial na­ture of his work. “The sit­u­a­tion will fur­ther de­te­ri­o­rate if there’s a Brexit vote.”

The value of res­i­den­tial prop­erty in up­mar­ket ar­eas pop­u­lar among Gulf in­vestors – in­clud­ing Chelsea, South Kens­ing­ton and Knights­bridge – fell be­tween 3.5 per­cent and 7.5% on the year in May, ac­cord­ing to es­tate agent Knight Frank.

Gulf fam­ily busi­nesses and pri­vate in­vestors are heav­ily in­volved in Lon­don real es­tate.

In­vestors from the UAE ac­counted for more than 20% of buy-to-rent prop­erty sales in the UK in 2015, said Amit Seth, the Mid­dle East and North Africa head of international res­i­den­tial de­vel­op­ments at Lon­don-fo­cused real-es­tate agency Ch­ester­tons.

“At the mo­ment it seems clear peo­ple are lit­tle bit more skep­ti­cal on mak­ing an in­vest­ment to­day be­cause of Brexit,” he said, re­fer­ring to pri­vate Gulf in­vestors in res­i­den­tial real es­tate.

Seth, who is based in Dubai, said in­vestors were still re­search­ing op­por­tu­ni­ties and dis­cussing them with his com­pany but were not fi­nal­iz­ing deals.

While the pre­cise im­pact on Gulf investments is un­clear, over­all flows of for­eign cap­i­tal into commercial real es­tate in Britain stopped in the first three months of 2016, Bank of Eng­land Gov­er­nor Mark Car­ney said in April. Busi­ness in­vest­ment in the coun­try also fell in early 2016, sta­tis­tics showed last week.

LON­DON LAND­MARKS

Gulf in­vestors also have broader wor­ries about their investments in other sec­tors and how a pos­si­ble Brexit in a June 23 EU ref­er­en­dum could af­fect the Bri­tish econ­omy, the sources said.

A YouGov poll for the Times news­pa­per showed an even split be­tween “Re­main” and “Leave” vot­ers last week.

There is no sug­ges­tion longterm in­vestors from the Gulf will exit as­sets en masse if Britain votes “Out,” but many are wor­ried about the im­pact on port­fo­lios and wider eco­nomic ef­fects, a se­nior Gulf gov­ern­ment of­fi­cial said.

“Of course we are wor­ried about what will come next if the Bri­tish de­cide to leave the EU,” the of­fi­cial said. “We think that there will be a neg­a­tive im­pact on our investments in the UK be­cause the sell­ing [prices] will go down and the banks in Eng­land will face some dif­fi­cul­ties.”

Asked to com­ment on Gulf in­vestor con­cerns, Tobias Ell­wood, a Bri­tish For­eign Of­fice min­is­ter, said the EU ref­er­en­dum was a sig­nif­i­cant event that had been dis­cussed as part of reg­u­lar bi­lat­eral en­gage­ments cov­er­ing a wide va­ri­ety of ar­eas.

“But [it] has not been raised in any form in re­la­tion to im­pact on in­vest­ment op­por­tu­ni­ties, which go from strength to strength,” he told Reuters in Qatar’s cap­i­tal, Doha, on May 21.

Sheikh Ha­mad Bin Jas­sim Bin Jaber al-Thani, a for­mer Qatari prime min­is­ter and in­vest­ment chief who over­saw much of the Gulf state’s UK ac­qui­si­tions, has spo­ken out against a “leave” vote.

“In the Mid­dle East we all want to see a strong Europe and be­lieve that eco­nomic in­te­gra­tion is key to mak­ing it stronger,” he told Reuters, de­scrib­ing the City of Lon­don as the “fi­nan­cial cap­i­tal of the world.” “In fact, we be­lieve the UK should not only be part of the EU but should lead it.”

Qatar is one of the most high-pro­file in­vestors in Lon­don, own­ing land­marks such as the Shard sky­scraper, Har­rods de­part­ment store and Olympic Vil­lage, as well as lux­ury ho­tels. It also leads a con­sor­tium that bought the owner of the Ca­nary Wharf fi­nan­cial district last year.

While the Qatar In­vest­ment Author­ity (QIA) wealth fund has been di­ver­si­fy­ing its port­fo­lio away from Europe to­ward more investments in the United States and Asia over the past cou­ple of years, it is still heav­ily in­vested in Britain and holds stakes in Bar­clays, Royal Dutch Shell and Sains­bury’s.

If Britain votes to leave, “then you are go­ing to see a big hit to investments,” said a se­nior Qatari banker who does busi­ness with sovereign and pri­vate in­vestors.

In­vestors were still work­ing on deals with­out fi­nal­iz­ing them un­til the pic­ture be­comes clear, he said, adding: “They are watch­ing to see what hap­pens. But peo­ple are con­tin­u­ing to work on new things, as they take months to get done.”

CA­NARY WHARF

The QIA has $256 bil­lion of as­sets un­der management glob­ally, ac­cord­ing to the Sovereign Wealth Fund In­sti­tute (SWFI). It has at least $7b. di­rectly in­vested in eq­ui­ties traded on the Lon­don Stock Ex­change, in which it also holds a 10.3% stake, ac­cord­ing to Thom­son Reuters data.

Thani said in April that Qatar’s to­tal investments in Britain were about £30b. ($44b.), ac­cord­ing to com­ments in a Fi­nan­cial Times in­ter­view.

Kuwait In­vest­ment Author­ity, which has $592b. in as­sets un­der management ac­cord­ing to SWFI, is also a ma­jor in­vestor through its Lon­don-based Kuwait In­vest­ment Of­fice. In 2013 it said the fund had more than dou­bled its in­vest­ment in Britain over the pre­vi­ous 10 years to more than $24b.

Like Qatar, Kuwait owns Lon­don land­marks such as the More One river­side devel­op­ment that houses the head­quar­ters of the mayor, as well as build­ings in Ca­nary Wharf. It has fo­cused on in­fra­struc­ture investments through its Wren House In­fra­struc­ture Management arm set up in 2013.

(Luke MacGre­gor/Reuters)

A BUS CASTS light trails as it passes iconic de­part­ment store Har­rods in Lon­don. Qatar is one of the most high-pro­file in­vestors in Lon­don, own­ing land­marks such as the Shard sky­scraper, Har­rods and Olympic Vil­lage, as well as lux­ury ho­tels. It also leads a con­sor­tium that bought the owner of the Ca­nary Wharf fi­nan­cial district last year.

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