UAE and Arab investors look to London

While the resurgence of interest in the Dubai residential market has been grabbing the press headlines in recent weeks, another trend has continued to gather pace, albeit with less public attention - the growing demand from the UAE and other Arab investors for residential properties in central London.

London has been a favoured destination for many years. Jones Lang LaSalle estimate that Arab investors accounted for 15 per cent of all Central London residential sales in 2012, with the majority of these coming from the GCC. This places Arabs as the second most important group of overseas investors in this market, behind those from Asia-Pacific.

There are a range of different factors that make London attractive to Gulf investors. London combines the benefits of a political safe haven and a global financial centre. There is also a degree of cultural and historic familiarity, with many Arab investors having been educated or having family homes in the UK.

London is a transparent, well-regulated, tax-efficient, accessible and well-established international real estate investment market. Other attractions for Arab investors include the pound’s relative weakness against the euro and the dollar during 2013, time zone similarities and the relative ease of travel from the GCC.

Underlying all these attractions is the continued strong financial performance of this market. Over the past 30 years, prime Central London prices have risen by an average of 8.9 per cent per annum, compared with average growth of 6.7 per cent per annum for the UK as a whole. Combining this with a conservative estimate of 4 per cent per annum income return, the result has been total returns of more than 12 per cent per annum.

The residential sector has outperformed both the UK equity market and commercial property over the long term and the sector is presently looking increasingly attractive given the lower returns available from fixed interest and other available investments.

The attraction of central London residential property for Arab investors has improved further over the past few months with the clarification of the tax position of overseas owners. There were initial concerns and uncertainties about new rules introduced in the 2012 Budget, but these rules have now been clarified with the outcome that they are less wide-reaching or as imposing as initially thought, with purchases under £2 million being unaffected.

Turning to the future, the prospects for the Central London residential market appear to remain strong for the next three to five years. There are now over 14,000 units under construction across central London, boosted by a surge in new starts in 2012. While higher than in previous years, future supply remains limited by a scarcity of development land and strict planning controls. Accordingly, developer sentiment remains positive. This new supply brings with it the additional advantage of increasing choice of new and quality product across different price bands and locations.

The writer is the CEO at Jones Lang LaSalle, Middle East and North Africa.