63 Percent of GCC Wealthy Individuals to Invest in Global Real Estate in 2016
London, New York and Singapore top preferred investment destinations
According to international real estate consultant Cluttons, Gulf Cooperation Council (GCC-based) high net worth individuals are set to continue investing in global real estate for the remainder of the year, with the 63% claiming that they are likely to invest in their most preferred real estate investment location during 2016.
The third installment of Cluttons' 2016 Middle East Private Capital Survey
, carried out in partnership with YouGov, shows that London, New York and Singapore; are the destinations of choice (outside of the Middle East) for the region's wealthy, with 54% naming residential as their preferred asset class. 60% of those surveyed identified capital value growth as their main financial investment driver across all asset classes.
Steven Morgan, Senior Partner at Cluttons commented: "For the Gulf states as a whole, the oil price collapse that began in mid-2014 has certainly put government budgets under pressure. This has also triggered a series of macro policy amendments, aimed at tackling the projected budget shortfalls. However, from an investment perspective, sentiment remains positive amongst high net worth individuals who are targeting real estate in London, New York and Singapore in particular. These locations offer investors a variety of asset classes that command high capital value gains and high rental returns."
According to Cluttons' latest report, London has emerged as the favorite global property investment destination amongst respondents, with 11% naming the British capital as their most preferred city for investment. In the first quarter of 2016, Middle East investors pumped US $418 million into London's commercial real estate, accounting for 7% of total investment during that period. This adds to the US $5 billion invested by Middle East commercial investors in the city throughout 2015.
Faisal Durrani, Head of Research at Cluttons, said: "Investment into London from the region is a well-trodden path going back to the 1950's or 1960's, so it is no surprise to see the city emerge as a key favorite. On the residential front, Canary Wharf, South Kensington and South Bank were named as the top preferred London investment hotspots by respondents. Each location offers a diverse range of residential assets and price points, catering to different investment drivers but yields in Canary Wharf, of circa 5%, offer investors significantly better returns than more core areas such as South Bank (3.4%), or South Kensington (2.5%). In Canary Wharf, the abundance of new build stock resonates with Gulf based investors, as the residential products on offer mirror those from their own home markets, complete with modern amenities and global lifestyle appeal.
"Of course, London's residential real estate has long been a global star performer, with close to 70% residential capital value growth recorded in the past ten years alone and we continue to witness an uptake in interest from Middle East investors. With Brexit, an instant currency discount of 12%-13% has opened up, which is attracting buyers from the Gulf, especially to markets such as Belgravia and Chelsea. Currency based investment strategies are often overlooked, but they are increasingly significant, particularly in the current environment of sterling weakness.
"In fact, today, investors from India, Malaysia and the EU, for instance, could in theory exit the London residential market 61%, 13% and 17% better off on their 2007 investments, respectively."
The report highlights that New York is the second most preferred city for investment, with 5% of respondents identifying the American city, which has historically been a popular destination for both institutional and private investors from the GCC. The Abu Dhabi Investment Authority and Qatar Investment Authority have both invested heavily in New York in recent years, underscoring the importance of the city as a key property investment hub in North America for outbound funds from the GCC.
From a private investment perspective, the city's lower price points compared to cities like London make it increasingly appealing. At 50 UN Plaza in Manhattan for instance, one bedroom apartments start from US $1,785 psf, whereas prices in London's Royal Borough of Kensington and Chelsea usually start from about US $3,265 psf, and are even higher in more core locations such as Mayfair, where values are often upwards of US $5,225 psf.
Cluttons' report also shows that 4% of respondents pointed to Singapore as their most preferred destination for investment, making it the most popular gateway in Asia. In Marina Bay, one of the most sought after locations in the city-state, entry level prices are slightly lower compared to New York starting from around US $1,585 psf. Due to the persistent demand from international buyers and investors, the Singaporean government has recently intervened by introducing several cooling measures to better regulate the market.
Still, Singapore's pro-business environment, political stability and high quality of life are among the most important factors in attracting GCC investment. A recent example of this has been the announcement by Qatari Diar, which intends to acquire Asia Square's Tower 1 for US $2.22 billion. Once the acquisition is finalized, it is expected to represent the largest ever-single tower real estate transaction in the Asia Pacific region and the second largest worldwide.
Durrani continued: "It's worth noting that Indian cities, such as Bangalore, Mumbai and New Delhi, also appear amongst the top ten property investment targets for GCC based HNWIs, perhaps reflecting personal ties as well as a push for foreign direct investment (FDI) from amongst the diaspora by the Indian government.
"As well as the markets identified as preferred locations during 2016, we expect to see an even greater spread of investment heading into 2017. Our research suggests that markets like Paris, Toronto, New Delhi, and Berlin are all gaining popularity and are likely to be targeted by GCC high net worth individuals in the years ahead. In fact, Toronto was the only North American city named as a 2017 target, reflecting the Canadian city's rising appeal as a destination that is increasingly attractive to students from the region due to the quality of the higher educational institutions available, much like London and it also offers easier access to more affordable luxury residential property."
During Cluttons' survey of investors across the GCC, locations in the UAE, namely Dubai, Abu Dhabi and Sharjah were identified as key MENA hot spots and these are expected to continue attracting the region's wealth, reflecting the diversity of property investment offerings in the country and its perceived stability as a regional safe haven.