Pound rises, UAE property investors in UK hit

Dubai: UAE and Gulf investors eyeing UK property options have reasons to feel the pinch from the decisive Boris Johnson victory, which immediately pushed the pound higher. If the currency maintains an upward trajectory — and forecasts are very much on that happening — real estate in the UK comes with an additional cost for foreign buyers.

The pound pushed up to Dh4.9 — from Dh4.7 — after the results started coming in, indicating a sweeping victory for the Conservative government. In the months leading up to the December 13 election, the currency was on the softer side, at one point trading at Dh4.41 in April this year.

With the pound now gaining, UK developers’ main marketing theme since June 2016 — that the weak pound is the best thing for foreign buyers from dollar/dollar-pegged markets — is on shaky ground. And it could get even shakier.

Foreign investors will be hoping that any further firming up will stop short of the Dh5.26 that the pound fetched on April 16, 2018.

Or the Dh5.46 it was quoting on “June 23, 2016, which was the day of the Brexit referendum,” according to Anthony Jos, Executive Director at Joyalukkas Exchange. “After the “Yes” vote in the referendum, the pound fell to Dh5.02 the very next day, and then to Dh4.85 on June 27, 2016.

“Thereafter, it recovered all the way to Dh5.26 on April 16, 2018. But in the months leading up to the election, it was on the softer side. The new-found strength post-election should remain as the government unveils its plans for a final deal on Brexit.”

Pricey property?

If the gains were only for the currency, it wouldn’t have mattered much for foreign investors. But of late, property values in UK are on a slight mend, especially in those locations that UAE investors have traditionally favoured.

Despite the noise over Brexit, UAE and Gulf investors have remained quite active in UK real estate, launching residential projects (Damac and Abu Dhabi Financial Group) or refurbishing a heritage building into a luxury hotel (LuLu Group).

According to an update from Savills, “UK house prices rose by 0.5 per cent in November — this was the highest monthly rise of the year so far and puts prices 0.8 per cent above the same time last year. It remains to be seen whether this will become a trend of recovering activity.”

That’s also the question the Gulf’s investors have to factor in for their next property purchase in London and elsewhere in the country.

Savills is forecasting “only modest price growth” next year “on the basis that, despite domestic political uncertainty receding, some economic uncertainty will remain until a trade deal is agreed with the EU; even if, as is widely expected, the UK leaves the EU by the end of January without a further extension of article 50.

“This could mean a bounce in demand in the first part of 2020 proves difficult to sustain through the summer months and into autumn.”

Get deals done

Those investors still working on closing a deal should put some speed into their efforts. “Time is now of the essence,” said Kyra Motley, Partner at the wealth law firm of Boodle Hatfield. “Prices are unlikely to stay so low for a long period.

“The last three years have been a great time to buy in London for Gulf investors, but that window of opportunity may start to close.

“Getting certainty on Brexit could see the pound recover, and Middle Eastern buyers lose some of the foreign exchange discount they have enjoyed since 2016.”

Watch out for those stamp duties

One detail in the Conservatives’ election manifesto would have created a sense of dread for foreign investors. It had recommended an additional 3 per cent stamp duty surcharge on those buyers who are not a resident of the UK.

As such, if this comes into effect, it would be on top of the 12 per cent duty that foreign buyers have to shell out on transactions worth £1.5 million. (There is also a 3 per cent surcharge that buyers who already own property in the UK have to pay.) According to Savills, “There is a possibility that some buyers and sellers hold out for a stamp duty cut that was floated by Boris Johnson during his Conservative party leadership campaign over the summer. However this was noticeable by its absence in the Conservative Party manifesto. “We saw proposals for a further 3 per cent stamp duty surcharge on buyers who are not resident in the UK. If anything, we think this is likely to support demand from overseas buyers in the short term as they seek to buy before it is imposed.”