London calling

June 10, 2013 10:09 am

Over the past 10 years, London’s residential market – in both primary and secondary locations – has continued to garner the interest (and investments) of international HNWIs and investment companies, with most of that appetite originating from the Middle East.
Despite the UK’s capital having a seemingly complicated tax regime when compared to the Middle East’s tax-free environment, Faisal Durrani, London-based residential analyst at international surveyors and property consultants Cluttons, says he doesn’t suspect it has deterred buyers from favouring the market as their ‘go-to’ investment destination.
“Middle East money is not new to London and most investors aren’t new to the scene,” he says. “We’d think most of them know the market and are relatively familiar with the tax situation, but of course, with new investors, education and awareness is the key.”
A recent report by the real estate specialist suggests that as the number of private tenancies in London’s new-build residential areas has risen by 80 per cent over the past decade, Middle East investors are reaping the rewards of increasing rent returns.
The independent new research paper entitled “one size does not fit all: diverse opportunities in London’s rental market” highlights the growing popularity of new-build housing stock in London among international investors.
Bill Siegle, senior partner at Cluttons, says that it is more important than ever to cater to the growing pool of renters, for whom home ownership in London continues to seem increasingly unlikely, particularly given that the average price of apartments in prime Central London has breached the £1 million mark for the first time.
“Our forecasts suggest a 25 per cent surge in capital values over the next five years. Outside prime core areas, higher returns are available; our research shows that gross yields in these areas are more favourable,” he says.
Ian Gladwin, chief executive of Cluttons Middle East, says that he does not expect any significant strengthening of sterling over the near to medium term. “This is expected to further enhance London’s investment appeal, particularly for investors from the GCC,” he said.
Investments from the Middle East are not new to the London scene; among last year’s biggest residential investment deals was Abu Dhabi Investment Corporation’s JV with London & Stamford for the purchase of Moore House in Chelsea for £147 million.
The London market has always been of interest and new-build properties – ones with modern amenities and polished finishing – are particularly popular because they strike a chord of familiarity with what buyers in the Middle East are commonly used to. These new properties are efficient, often have lower management costs and can be tailored to match distinctive renter profiles, which have been identified by the research. New-build rental accommodation can also achieve a rental premium due to location and quality, making it attractive to highly skilled workers, who are increasingly attracted to the British capital.
Durrani says as more young professionals are drawn to rent new-build properties, rental value growth for owners will outpace capital growth in the long term. Last year, London was picked, among seven cities, as being the top target for overseas investments for Dubai and Manama-based investors.