More than 63% of GCC-based high net worth individuals are set to continue to invest in their most preferred global real estate investment location during 2016, according to a new survey by Cluttons.
London remains the top destination of choice outside of the Middle East for the region’s wealthy, followed by New York and Singapore, reveals Cluttons’ third Middle East Private Capital Survey, carried out in partnership with YouGov.
The survey found 54% of respondents prefer residential property as an asset of choice, while 60% identified capital value growth as their main financial investment driver across all asset classes.
“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,” said Steven Morgan, senior partner at Cluttons.
“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 favourite global property investment destination, with 11% of respondents naming the British capital as their most preferred city for investment. In the first quarter of 2016, Middle East investors pumped $418m into London’s commercial real estate, accounting for 7% of total investment during that period. This adds to the $5bn invested by Middle East commercial investors in the city throughout 2015.
“On the residential front, Canary Wharf, South Kensington and South Bank were named as the top preferred London investment hotspots by respondents. Yields in Canary Wharf of circa 5% offer investors significantly better returns than more core areas such as South Bank with 3.4%, or South Kensington at 2.5%,” said Faisal Durrani, head of research at Cluttons.
“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.”
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, the survey found. At 50 UN Plaza in Manhattan, for instance, one bedroom apartments start from $1,785 per square foot (psf), whereas prices in London’s Kensington and Chelsea usually start from about $3,265 psf, and are even higher in more core locations such as Mayfair, where values are often upwards of $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 $1,585 psf. Singapore’s pro-business environment, political stability and high quality of life are among the most important factors in attracting GCC investment.
“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, Durrani said.
Heading into 2017, Cluttons’ 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.
Cluttons’ survey of investors across the GCC also threw up the UAE, namely Dubai, Abu Dhabi and Sharjah, as key MENA hot spots expected to continue attracting the region’s wealth.