The third Private Capital Survey from Cluttons, which details the results of a survey of 250 wealthy property investors in the Middle East to understand their global property investment intentions, has been published in partnership with YouGov.
The survey, which uses sentiment as an indicator of future capital allocation, also interviewed 50 sterling millionaires residing in London.
The research found that the UK continues to be at the front of the thoughts of both international and domestic investors, despite the ongoing uncertainty being caused by Brexit.
Among Middle Eastern investors, the UK emerged as the second most preferred property investment destination on a global basis for investors from the Gulf, behind India and in joint second place with the USA.
In the UK, London remained the most attractive investment destination, with nearly half (49%) of the investors from the Middle East saying they would commit funds to a London property investment during 2018. Manchester, too, is proving increasingly popular amongst Middle East investors, with some 38% naming the city as one of their top three UK investment destinations.
The appeal of London as a place for global investment is also now stronger than it was in 2016 – up from 18% to 22% - suggesting that Brexit isn’t putting international buyers off from investing in the capital.
“The recent recovery of sterling may mean there is a perception amongst Middle Eastern buyers to take advantage of the currency play before sterling strengthens further,” Faisal Durrani, head of research at Cluttons, commented.
“Furthermore, with oil prices starting to tick upwards once more, disposable incomes and the appetite to invest overseas will undoubtedly rise in parallel.”
The most popular property asset class was new build residential property (54%), followed by offices (37%) and serviced apartments (37%). Meanwhile, capital value growth (56%) was named as the main reason for investing in UK residential property, followed by earning a solid rental income (42%). Capital value growth was also revealed to be the strongest reason for investors to consider UK commercial property investments.
“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,” Durrani continued. “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 four years.”
From experience, though, he said Middle East and Asian investors both have a preference for new build as it ‘is something they are familiar with from their own markets’. What’s more, rental returns are higher for 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,” Durrani added. “This illustrates why it is essential the British government continues to invest in the country’s infrastructure if it wants to encourage inward investment.”
For home-grown investors, meanwhile, London was named as the most likely location for a property investment by 52% of those surveyed in the capital. London (76%) stands out as the most popular property investment location in the UK, way ahead of Manchester (6%) and Reading (5%). Despite the recent troubles of the capital’s property market, confidence from investors still remains very high.
Domestic investors, unlike their overseas counterparts, realise the capital growth potential is higher for period property than new build, according to Durrani. As a result, 60% of those surveyed cited period property as their preferred asset class. Given period property will forever remain in finite supply, it has been suggested that this part of the market has the brightest prospects in the coming months.
“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,” Durrani concluded.
“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.”