One of the early observations of the global economic meltdown was that it wasn’t quite global in its impact. Several regions emerged almost unscathed from it, some more powerfully so, bringing home lessons on geographical diversification as a hedge against the worst.
High-net-worth individual investors from the GCC, whether nationals or expatriates, have traditionally owned second homes in locations such as the South of France, India and London, among other places. With buying property now more an investment decision that takes into account peripheral benefits, friendly laws and mortgage deals, investors are willing to consider more unusual markets including outside their home countries.
“Many of our customers have properties across Europe. Despite the global downturn some areas such as London have maintained their value. But now people are more conscious that they do need to diversify,” says Tom Smith, Executive Vice-President and Group Head of Retail Banking, United Arab Bank.
While the bank does not have a retail product offering mortgages for properties outside the UAE, Smith says it facilitates investments in property overseas for its existing customers.
Cannes and the rest of southern France have always been favourites in high-end overseas investments. Brice Bonato, Managing Director, Sextant French Properties, based in the UK and France, says this year about 200 of his clients in central Paris are from the Middle East, with budgets between €1 million (about Dh4,625 million) and €5 million. “There was no downturn within this price range. There are more purchase opportunities now, but people are even more careful on location and on return on investment (ROI). Buyers are ready to spend more, they are more educated and even more demanding,” Bonato says in a phone interview with GN Focus.
In London, according to a July research by property consultants Savills, 34 per cent of all prime residential buyers in 2011-2012 were from overseas. Property dealers in locations as varied as Turkey, the Bahamas and Brazil say that both Emiratis and expatriate citizens of other countries resident in the GCC are their key clients in these markets, along with buyers in markets such as Sri Lanka, Pakistan, India and China.
Baha Mar, a resort project in the Bahamas, for instance, is finding takers in emerging markets all over the world. Out of 307 units, which will see completion in 2014, 50 have already been sold, 25 of these to investors from Saudi Arabia, where the project launched in April this year. Rick English, Senior Vice-President of Residential Sales at Baha Mar, says a UAE launch is on the cards this September. “In addition, we are looking at visiting and having agents from Karachi and Lahore in Pakistan, Mumbai and Bengaluru in India and Sri Lanka,” he says.
Governments and institutions wanting to attract foreign direct investment, make the destination attractive to property buyers. In the Bahamas, for instance, income from rents is tax-free. “There are no restrictions on who can buy. Buyers get permanent resident status, which allows them to live and work here. Private offshore banking is attractive to many people. For residents of countries facing any unrest this works like an insurance policy,” says English.
Closer home, Turkey is seeing a lot of interest from GCC buyers, particularly since it has listed countries that would be allowed to buy under the new reciprocity-free property law — the UAE, Saudi Arabia, Lebanon, Kuwait, Jordan, Egypt, Bahrain and Russia are on the list of countries whose citizens can buy property in Turkey. China and India are also on it, although they require approval from the Turkish Domestic Affairs Ministry. “The Turkish Central Bank has just confirmed that there has been a mini investment boom since the new property law was published in May. Approximately £706 million (Dh4,117 million) worth of property was purchased by foreign investors. This was four times the total purchased by foreigners in 2011,” says Loxley McKenzie, Managing Director of UK-based Colordarcy Investments, which deals in properties in Turkey.
Julian Walker, Director at Spot Blue Overseas Property, says many of his buyers are from the GCC, looking for property not just in Istanbul but also in resort towns for personal use and as an asset. “The world situation is such that all countries are looking for FDI. Turkey wants to continue its success story. Many countries which it has opened its door to are stronger economies at the moment,” he says.
Dealers are not just facilitating deals, but also post-buying yields. Walker, for instance says that they help get the investor in touch with people for renting out the property. Baha Mar offers investors a rental programme. “Even though it is their fully-owned, deeded property, owners can give us up to one month of annual usage, in return for which they get credit to stay in five-star hotels for free, such as the Fairmont in Makkah, at Raffles hotels, or the Intercontinental in Madina.”
The post-downturn property buyer in the UAE, say investment advisors, is a keen investor, and not necessarily in the Ultra-High-Net-Worth (UHNW) range, keeping ROI at the top of the must-haves when shopping for a second, third or fifth home. “When we started to market Istanbul real estate to Middle Eastern investors in 2010, 90 per cent of buyers were high net worth individuals. However, since early 2011 we have seen more middle class Middle Eastern investors securing properties in Istanbul. At this moment I would say that a full 40 per cent of our investors from the Middle East investing in Istanbul are middle class individuals,” says McKenzie.
This holds true for London as well. Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “The ultra-high-net-worth market remains very robust, but we are seeing a greater number of HNW individuals purchasing in the £500,000 to £5 million range. These can be British expats working in the Middle East or Middle Eastern nationals taking advantage of the weak pound and the strength and simplicity of the London real estate market.”
Mortgages made easy
While many international property deals work on cash, the new buyer may come with a mortgage requirement. Dealers across markets from the Bahamas to France say that they are comfortable handling mortgages. In the Bahamas, English says, three Canadian banks are open to offering mortgages to Baha Mar property buyers, with 30 per cent down payment, 3.5 per cent to 4.5 per cent. In France, Sextant says, about 15 banks offer mortgages to foreign buyers.
Matthieu Cany, Managing Director at Sextant in charge of Mortgages and New Build/Off Plan properties, says, “Middle East nationals who reside in the UAE can get up to 70 per cent loan to value (LTV) mortgage if they work for an international company with headquarters located in Europe. Otherwise they can get 50 per cent to 70 per cent LTV if they have a very good financial profile. For European or American expats working in the Middle East with expat status, we can offer up to 80 per cent LTV. All other expats are eligible for loans up to 70 per cent depending on their financial profile. With Middle East customers we usually arrange mortgages between €700,000 and €3 million. We have done five applications so far this year with an average amount of €1 million.”
In the UAE, Standard Chartered Private Bank has announced that it caters to clients looking to invest in the UK property market through a Shariah compliant mode of financing available from its Jersey Booking Centre. Stephen Richards Evans, Regional Head of Standard Chartered Private Bank, Europe, Middle East, Africa and Americas, Standard Chartered Bank, says, that the Islamic finance product is available for “properties in England and Wales, with a focus on prime London and prime central London for tenure of up to 25 years, with a minimum financing of £250,000.”
The bank also assists in sourcing properties through leading property search and acquisition consultancies.