Gulf Revival Sought for London

After more than a decade of London dinner party conversations being dominated by property prices, in the past year the talk has changed to other pressing topics such as how to pay the school fees and whether England can regain the Ashes this summer.
People that bought as many properties as possible to benefit from meteoric price growth – an average of 100 per cent in 10 years in London – have been quietly wondering how to limit their losses.

But if some industry players are to be believed, now might be a good time to hold on to your investment, or even start buying more properties. The decline is over, they say, and the only way is up.

They base this bullish forecast on two things: the drastic slump in the value of sterling and an across-the-board price decline of up to 25 per cent in the past year.
People who baulked at paying the excessive prices of 2007 – in Belgravia they went up 40 per cent that year – now say that the city is affordable again.

“London is on the map again as a stable, visionary, future value-growth location,” says Steve Williams, a global adviser at Real Capital Analytics, a property research and investment firm.
“It has the Olympics coming up and it’s always had this ambience that nowhere else in the world has.”

The opportunity has not gone unnoticed by property agents, who are turning their focus towards international buyers, particularly those living in the Middle East.
Middle East investors have traditionally held a strong niche in London’s property market. A report in February by Knight Frank, a real estate agency, said overseas demand for prime property in London rose 35 per cent last year, with buyers from the Middle East making up 52 per cent of the rise.

In the past, their buying habits tended to be seasonal, with interest increasing during the UK summer, and were mainly focused on property in prime, central London areas such as Chelsea, Kensington and Notting Hill Gate.

Thanks to the price decline, a property in such areas that might have cost £3 million (Dh16.1m) in 2007 is today going for about £2.4m.
But it is the additional discount to be made through the exchange rate – which is down to about Dh5.4 a pound compared with Dh7.5 a year ago – that is encouraging buyers from the Gulf to look at London property.

“They’ve never seen this kind of currency exchange before,” says Andrew Phillips, the regional sales director for Central and North London at Hamptons International.
“What we’re finding this time around is the Gulf buyer going for property in the lower market prices ranges; anything from as low as Dh1.8m on the outskirts of London to Dh2.7m.”

Gulf buyers, who are mainly cash buyers, also view London as a place to build a large portfolio of stock for long-term investment.
“This time around we’re seeing a lot of people investing for their children for the future,” adds Mr Phillips.

“They know the market in the UK is long-term, there tends to be 10-year cycles, so even if it goes into recession they know there’ll be another cycle again.”
The trick is calling the bottom of the market. While the rate of decline slowed in the first quarter, Cluttons, a property consultant, still recorded a fall of 1.9 per cent for properties in central London. This compares favourably to the 8.4 per cent in the last quarter of last year, but prices are not yet rising.

“Although the marginal fall in values in the last quarter is heartening, it is unlikely to mark the bottom of the market,” Cluttons said in a recent report.
“The current scenario of higher demand and limited supply helping to ‘hold’ prices is unlikely to last throughout the rest of the year... supply is likely to increase with more vendors coming under pressure to market their properties at realistic prices.”
Interest is also driven towards older property, although demand for new property is expected to rise as developments come on stream.

About a quarter of those who have bought into One Hyde Park, a luxury project being developed by Project Grande (Guernsey) Limited – a joint venture between CPC Group, a Guernsey based development business owned by Christian Candy and the Prime Minister of Qatar, Sheikh Hamad bin Jassim bin Jabr Al Than.

“Traditionally, the property purchases have been secondhand homes as London bases,” says Mr Phillips. “New developments are a little bit on hold still at the moment, but again they’re beginning to leak out on to the market because we’re finding the supply and demand factor now being a problem.

“I think the major developments that have been mothballed over the past couple of years are probably going to start coming to the market towards the end of the year, after which we could see 2 or 3 per cent increases in values.”
Hamptons is a UK-based agent that was bought by Dubai’s Emaar Properties in 2006 for Dh564.4m.

The move has given the company a base to counteract a slowdown of business in Dubai and the UK by finding Gulf buyers for UK
property.

And a special campaign has been devised to do just that job. In March, the company launched its Best of British campaign to sell UK property directly to Gulf buyers.
“Most of the individual properties that we’re selling here are a variation right across the board, from London out into the countryside,” says Mr Phillips. “With our very strong brand in Dubai and the UK we’re in a position where we’re able to offer something different, so it’s a sensible and clever move for us.”

Other UK agencies such as Chesterton Humberts, which opened an office in Abu Dhabi in December, and Knight Frank are making similar moves.
Another important slice of the Gulf market for them are British expatriates. Flush with more pounds against their dirham-based salaries, expatriates now have a better chance of getting mortgages from UK banks than UK buyers do.

According to Chris Allen, the head of operations for the mortgage division at Hamptons, some lenders are offering tracker rate mortgages at 4.1 per cent over two years. Those lending, which include the Royal Bank of Scotland and Skipton Building Society, are asking for deposits of about 25 per cent.
With office prices having slipped by about 40 per cent since their peak in mid-2007, London’s commercial sector is also proving attractive to Gulf
investors.

Jonathan Hull, the executive director at CB Richard Ellis, a property consultant, says rental yields for prime office space in London’s West End are now up to 6 per cent, while in the financial district yields have risen about 7 per cent.
“We’re beginning to see a huge amount of capital focusing on London,” Mr Hull says. “While we see markets continuing to be difficult, aggressive re-pricing combined with a weak currency make London a strong market for investment.”

Mr Hulls adds that a lot of Gulf funds have been “watching the market very carefully”, despite some analysts predicting further falls this year in the price of commercial property.

“With interest rates falling to virtually zero in the major markets, it’s very difficult to hide capital safely in an institution and get solid medium-term returns,” he says. “So I think people are looking at real estate once again as an equity return, which it does very effectively.”

Not everybody is convinced. Even though house prices this month posted their smallest decline for 13 months, the rise in demand is largely seasonal and is unlikely to be sustained over the rest of the year, Hometrack, a property services company, said.

Hometrack said the British government’s budget, delivered last Wednesday, offered little hope for the housing market and confirmed continuing economic uncertainty to homeowners.

“As a result, demand is set to remain constrained and we expect to see small monthly price falls over the rest of 2009 and into 2010,” said Richard Donnell, the director of research at Hometrack.
London may also have to vie for business with other promising European cities as they emerge from recession.
“There is also a lot of money looking at Paris and Madrid, as there has been re-pricing there too,” adds Mr Hull.

And Europe will not have it all its own way. In the long-term, the US will also emerge as “an alternative for an investment target” once it recovers, according to Mr Williams.
“Places like the UK and US are not quite as speculative as the Warsaws, Shanghais and Singapores. They’re just established and they have good, stable governance.”