Gulf investors hold back from UK property deals on Brexit fears
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.
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.”
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.
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.