Cluttons, in partnership with YouGov has today published its third Private Capital Survey, which details the results of a survey of 250 wealthy property investors in the Middle East to understand their global property investment intentions, using sentiment as an indicator of future capital allocation. In addition, 50 sterling millionaires in London were also surveyed.
Middle East investors
The UK emerges as the second most preferred property investment destination globally for investors from the Gulf, behind India and in joint second place with the USA. London still remains the favoured investment destination in the UK, in fact 49% claim they will commit funds to a London property investment during 2018. Manchester is also growing in popularity amongst Middle East investors with 38% naming the city as one of their top three UK investment destinations.
In 2018, London was named among the top three global property investment targets by 22% of the sample up from 18% in 2016. Illustrating that the appeal of London amongst the Middle East cohort appears to be strengthening and despite Brexit the capital continues to remain front of mind for international investors.
Faisal Durrani, Head of Research at Cluttons explains: “The recent recovery of sterling may mean there is a perception amongst Middle Eastern buyers to take advantage of the currency play before sterling strengthen further. Furthermore, with oil prices starting to tick upwards once more, disposable incomes and the appetite to invest overseas will undoubtedly rise in parallel.”
New build residential property (54%) is the most popular property asset class, followed by offices (37%) and serviced apartments (37%). In contrast to the behaviour of values for new build residential, capital value growth (56%) was cited as the primary reason for investing in UK residential, followed by earning a rental income (42%). Capital value growth also emerged as the strongest reason for the attraction towards UK commercial property investments.
Faisal Durrani, comments: “It was interesting to note the preference for new build residential property, while at the same time, capital value growth has been named as the top reason for an investment. These are clearly at odds with the market’s normal behaviour, since 2010 period property has enjoyed a steady growth in the average transacted value rising to £3m today from £1m seven years ago. New build on the other hand has seen transacted values plateau over the past 4 years.
“However, from experience, we know Middle East and Asian investors alike, have a preference for new build as it is something they are familiar with from their own markets. There is of course also the fact that rental returns are higher in new builds than they are for secondary, or period properties”.
“With 63 flights a day between the UK and the Gulf, arguably making these two long haul geographies the most connected in the world, it is no surprise that infrastructure stood out as the main reason for Middle Eastern buyers to choose to invest in the UK. This illustrates why it is essential the British government continues to invest in the country’s infrastructure if it wants to encourage inward investment.”
When it comes to home grown investors, London itself has been named as the most likely location for a property investment by 52% of those surveyed in the capital. In the UK, London (76%) stands out as the most popular property investment location, followed by Manchester (6%) and Reading (5%), illustrating continued confidence in the capital despite market woes.
Unlike foreign investors, domestic investors realise the capital growth potential is higher for period property than new build. As such, 60% of the survey cited period property as their preferred asset class, which will forever remain in finite supply, suggesting this segment of the market has the brightest prospects.
Durrani concludes, “London is clearly still a top draw for investors from around the world, as well as domestic investors. Investors from the Middle East account for about 1 in 5 residential property transactions by overseas investors, while they are also the third largest group of London office investors, committing £1.3 billion last year, which equates to about 9% of all London office investments.
“It will be interesting to see how the raise in Capital Gains Tax Rates for overseas commercial property investors next year, as well as the planned application of corporation rates tax on overseas property investment structures and the publication of a register of property investment beneficiaries impacts on London’s appeal over the next couple of years. For now at least, despite Brexit, London’s position as an investment magnet appears to be unchallenged. The city is perhaps more Brexit proof than we give it credit for.”