GCC investors can cherrypick deals in post-Brexit Britain
Lower prices, weaker pound will act as a catalyst for investors
Four months on, the dust still hasn’t settled on the intense and heated debate on the real impact of the historic European Union (EU) referendum vote. Britain’s new Prime Minister Theresa May has ruled out a second referendum or a general election on the terms of Britain’s exit from the EU. May is expected to trigger Article 50, the untested protocol for a member state leaving the EU, in early 2017, sending the UK and the EU into unchartered territory.
With the departure of the UK from the EU seemingly inevitable, we look ahead to the possible implications that will impact GCC nationals and expats.
Although ambiguity, anxiety and uncertainly have been the buzzwords surrounding a post-Brexit Britain, the unique circumstances also present opportunities for GCC investors attracted by the drop in the value of the British pound.
The pound’s initial fall to its lowest level in over 30 years has created opportunities for dollar-pegged investors to acquire commercial property at discounted prices. The collapse of the pound in 1992 and 2008 followed a period of economic growth, and it is possible that the combination of lower prices and a weaker pound will act as a catalyst for overseas investors looking to purchase commercial property assets, if international finance remains readily available.
In one high-profile example, a consortium of Saudi and UK investors recently made an accelerated $1.3 billion bid for London’s Grosvenor House hotel, plus shares in the Plaza and Dream Downtown hotels in New York. The reason for rushing the bid? To take advantage of the current “Brexit discount”. This is not just the case in commercial property. Average prices in the London district of Knightsbridge fell 7.3 per cent in the year to the end of last month, according to Knight Frank, the biggest annual decline in almost seven years — prompted by Brexit uncertainty and tax hikes.
Acquisitions
The “Brexit discount” has been applied to more than property in the UK. It has also played a part in Japan’s SoftBank £24 billion takeover of Britain’s biggest technology company, ARM Holdings. More than 95 per cent of the microchip designer’s investors voted in favour of the deal at a meeting in London, prompting concern about UK’s post-Brexit plans to reinvent itself with a new industrial strategy. Some even called for the new Prime Minister to step in and block the deal.
Despite the current “Brexit discount”, the underlying fundamentals of the UK economy remain positive. The UK is internationally recognised for its sense of political stability, rule of law, democratic institutions, overall transparency in the real estate market and is a destination of innovation and business in its own right. In the medium to long term, the market is expected to demonstrate resilience, which will be aided by the prospect of a clear policy direction by the government. In the long run, it is also possible that the Brexit vote may bolster London’s global reputation by discharging it of the financial regulations driven by the EU.
Another opportunity for the GCC after Brexit is to finally strike a trade agreement with Britain, in the absence of a long and elusive EU free trade deal. The EU has been unable to reach a free trade agreement with the GCC, despite negotiations dating back to 1988, and the potential for the UK to go one step further and make an agreement would only strengthen the new target set for bilateral trade between the UK and the GCC. The new target, set last October, will more than double the previous value to Dh135.24 billion by 2020.
In a recent example of the UK and a GCC state cooperation, the UAE and UK signed an agreement in April to avoid double taxation, enhancing the depth of the bilateral relations. If the UK can secure an agreement with the wider GCC after Article 50 is triggered, this would benefit both parties.
What long-term effect will this have on the UK’s economy and currency? As Zhou Enlai famously said of the impact of the French Revolution, “It is too soon to say”. UK residents have a lot to contemplate as they make provisions for their ex-EU future. However, when one door closes, another one opens and we mustn’t lose sight of the great opportunities presented to the GCC and GCC residents who are increasingly interested in expanding their business interests in Britain. The writer is partner at Charles Russell Speechlys. Views expressed are his own and do not reflect the newspaper’s policy.