UK Tel: +44 20 3432 1937 • US Tel: +1 954-537-0611

Israeli Hamas Conflict Impact on Prime London Property

By +Eric Jafari

In what ways will the latest Israeli-Hamas conflict impact the London Property market?

The latest Israeli-Hamas conflict serves as a stark reminder of the on-going instability that continues to prevail in the Levant and surrounding area further to the Arab Spring uprisings last year: Neighbouring Syria continues to be blighted by a prolonged civil war, Lebanon with its ties to Hamas, struggles to contain dissent and Jordan is currently experiencing its own version of the Arab Spring.   

London the safe haven of choice for Middle-Eastern flight of wealth

Even before the advent of the Arab Spring, London property had long been a favourite location for the affluent from many Middle East and North African (MENA) countries.

According to a Savills report released in 2010, buyers from the region were crucial to propping up the prime central London market during the financial slump in 2008 and 2009, purchasing 13% of all high-end properties sold in the capital during this period. This figure declined to 7% in 2010 but the Arab Spring prompted a renewed flood of investment by Middle Eastern buyers in the capital's top-tier properties, driving this figure up to 9% during that year.  This trend continued during 2011 with industry pundits estimating that Middle East buyers had been behind as much as 20 % of all prime central London real estate transactions last year.

These latest regrettable events, will doubtlessly spur a fresh influx of high net worth individuals from the countries in the affected region as they seek to secure their wealth and the safety of their families by investing in prime property in the UK capital.

In retrospect, figures released earlier this month by Knight Frank just a few weeks before the conflict erupted, can be seen as heralding further trouble ahead, with buyers from countries including Israel, Jordan, Egypt and the United Arab Emirates spending 50% more on property in London in October than they did in the same month in 2011, paying an estimated average 3.5 million pounds.

Why London?

The on going global/European economic uncertainty and the geopolitical tensions in the MENA region, have been widely documented as being key drivers behind the phoenix-like rise of London´s prime residential market.  Industry reports published this year reveal that prices for top-end homes in the UK capital have risen 52% from their all- time post-crisis low in 2009. 

An interesting comparison of how the prime property sector has fared on a global scale year-on-year and just how highly regarded London ranks among the established European safe haven destinations and emerging market capitals - is illustrated by the following Prime International Residential Index charts (source: Knight Frank Wealth Report 2012):

PIRI Average Price Per Sqm PIRI Average Price Change

Middle Eastern investors diversify into development and London's prime commercial sector

With London regarded as one of the safest places in which to currently deposit large sums of capital, Middle-Eastern interest in the capital´s new-build prime sector has also increased in the past few years.   Qatari investment in particular has been on the increase in this respect. By means of example: the Shard is 80% Qatari investor-owned while a company owned by Qatar's Prime Minister partly funded the ultra-exclusive Hyde Park One development. 

As a means of securing income streams and diversifying their investment portfolio, Middle East investors are also setting their sights on the capital's prime commercial sector. According to Knight Frank's Wealth Report 2012 a Middle Eastern investor recently paid £10 million for the freehold of an office building in Mayfair. Qatar's sovereign wealth fund recently completed the acquisition of Credit Suisse's headquarters in London and leased it back to the bank until 2034; a deal reported by The Daily Telegraph as being valued in the 330 million pounds range. Other Qatari high-profile investments in London include the high-end Chelsea Barracks residential project, Harrods Department store and the US embassy building in Mayfair.

Lifestyle and security factors decisive to Middle East investors when selecting a second-home location

The Arab Spring has created unprecedented consequences and thus has forged a sense of uncertainty across the region.  The inhabitants of this region are accustomed to living with conflict - but this is different. It is as volatile as it is unpredictable.

As such, London's principal appeal for the swathes of Middle East investors originating from the areas currently afflicted by political volatility is undoubtedly the ability to maintain a residence in a strife-free region and the UK´s stable political system, with the relaxed lifestyle these two factors guarantee.  

According to another chart extracted from Knight Frank´s Wealth Report 2012 (see below), which compares the most important factors to HNWIs around the globe when choosing second-home locations, investors from Africa & the Middle East rated "Lifestyle"  as their principle criterion above the safe haven factor:

 

HNWI Second Home Location Factors

 

The continued knock-on effect of the Arab Spring is driving wealthy individuals to seek a safety net and property within a major western city centres.  These individuals want a place that they can relocate to at will. They want a property that is large enough to accommodate their family within a safe location and within close proximity to good schools for their children.

London certainly ticks all the boxes in this respect and as a long-favoured haunt of the wealthy from these regions, while political turmoil prevails, the tragic misfortune of the situation will paradoxically continue to fuel the fortunes of London's prime property market.  

27 November 2012

Tags

London Rental Property Market,London Prime Property Market,Arab Spring,Foreign Property Investment in London