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Monday, September 16, 2019

UAE vs London

by Linda S. Heard

© Karl Jeffs
© Shutterstock

Investing in cities with well-establish financial centres has also been a sure bet for investors, like London, Paris and New York. However, with prices going through the roof in the UK, investors in the United Arab Emirates are increasingly looking at the home market for sound investments. Linda S. Heard reports.

Emiratis are increasingly investing in the UAE property market, with a surge in demand for properties in Dubai fuelled in part by transactions sealed by UAE nationals and, according to The National, “Foreign investment is also playing an important role, with half of real-estate transactions, which total Dh113 billion, made by overseas buyers last year”. A marketing intelligence report by Tasweek Real Estate Development and Marketing suggests the real estate sector in the UAE will remain attractive during 2015.

Although Emiratis have traditionally favored London as a safe haven, the UK property website Rightmove reported that areas of the capital known to be favored by Gulf investors, such as Kensington and Chelsea, experienced a seven percent decline in sales last summer. If this indeed reflects a trend it’s a sensible one. Firstly, because investing at home strengthens the economy. Secondly, buyers get a lot more for their money in GCC States, particularly the UAE, and, most importantly, prices for London houses and apartments are currently red hot… too hot to be sustainable. Savills says the overall value of London’s property now exceeds Brazil’s GDP but low oil prices combined with Russia’s struggling economy means there is less money to go round.

In July last year, the Governor of the Bank of England warned of a bubble, adding that was the biggest risk to the economy as a whole in the mediumterm. Bubbles are serious in the sense a sudden crash may leave homebuyers with large mortgages exposed to negative equity. Data released by the Halifax Building Society reveals that homeowners are beginning to cash in fearing property values could reverse course and warns that a period of panicselling may be in the offing.

That’s not so surprising when a garage in a south London industrial estate sold for a whopping £550,000 last April and, earlier last year, London boasted the World’s most expensive apartment - a penthouse at One Hyde Park - admittedly with bullet proof windows and its own underground passage to a Heston Blumenthal restaurant - on sale at £ 140 million!! Another penthouse in the same development was bought by the Qatari Prime Minister at a steal for a mere £ 100 million.

In fact the bubble may be popping. Some months ago, the Business Insider suggested “Panic selling in London drives fear that the UK housing bubble is about to burst” and quoted the real estate agent chain Savills announcing the London market “was topping out” primarily because owners are getting out “while the going’s good”. Prices of prime London homes prices over £4 million fell by 4 per cent in the last quarter of last year.

The same trend is seen in New York’s Manhattan (annual rise of 18 percent) and in Sydney where prices have soared by 15.4 percent. Concerns of a overheated market prompted Hong Kong and Singapore to impose mortgage caps, levies on foreign buyers and taxes to deter purchasers from using homes as investment assets to be bought and sold; policies that have resulted in a pricing dip. However, it’s unlikely the UK would follow suit as those measures would be viewed as infringing the free market and would meet with heavy opposition.

It wasn’t so long ago that UK property prices were in freefall, leaving many home owners with negative equity. London was the exception; the rise fuelled by low interests rates, demand that exceeds supply and keen foreign buyers, many of whom are buying-up apartments off-plan as investments. Areas of the capital have been turned into ghost towns due to absentee foreign apartment owners. Cranes pepper the changing skyline. However, on the back of a slight decline of prices in July, there are worries the bubble might burst.

UK house prices rose by 10.5 per cent during the first six months last year and the trend appears to be continuing. In January 2015, they bucked the usual January trend by rising 1.4 per cent. London is witnessing a surge. Last year prices rose by £260 a day!! Average property prices in central London are over £1.5 million while the average for homes throughout the country is in the region £271,000. This translates to a person’s home earning more than its owner-occupiers and is extremely bad news for even middle-class couples with two incomes, hoping to get on the first rung of the housing ladder.

A tsunami of Chinese buyers is partly to blame for Londoners being unable to afford a home where they were born. British developers have opened offices in Beijing to bypass domestic buyers where they charge Chinese purchasers inflated prices often 30 per cent more than their official worth.

Savills, says 51 per cent of prime Central London property was sold to foreign buyers last year, a percentage that rose to 80 per cent pertaining to new build properties. The Shanghaibased owner-developers of a seven acre site in Wandsworth, the Greenland Group, say it will be turned into ‘a new town centre’ with 661 homes, shops and restaurants and admit that they are targeting overseas buyers. “It will be bought mainly by rich and middleclass Chinese,” said the company’s Chairman.

Wealthy Russians and Ukrainians have also buying-up London property for years, a rising trend since the conflict in Ukraine that’s still causing uncertainty. According to the Daily Telegraph, they are “trying to shift more cash into London property…amid indications that eastern European oligarchs are using the capital’s housing market to conceal their assets from international sanctions.” One estate agent, Knight Frank, says Russians top foreign buyers of London homes costing more than one million pounds. Indeed, over half of the Battersea Power Station development’s homes, designed by the renowned architect Frank Gehry, have been grabbed off-plan by non-resident companies and individuals.

The future is unknowable but the signs that property buyers will be caught on the hop are visible. Those averse to risks would be well advised to consider investing in the UAE which is not only attracting Emirati buyers and expats but also investors fleeing from conflict regions, such as Iraq and Syria, encouraged by the country’s reputation for stability, security, advanced infrastructure, award-winning airports and good governance. Real estate prices are rising in the UAE but according to a report published by the Standard Chartered Bank, the rise is on the back of strong demand, heightened investor confidence and improved regulations. In 2014, villa prices surged by 25 per cent and apartment prices by 38 per cent in Dubai.

If the worst comes to the worst and the UK bubble does burst, London will eventually bounce back but the fact that the UAE’s market is outperforming its global competitors, will give many investors serious pause for thought.

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