middle east private capital survey 2016

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MIDDLE EAST
PRIVATE CAPITAL
SURVEY 2016
Part 3 | Global property investment
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Contents
Introduction4
Economic backdrop
7
Global property investment targets
11
Much ado about Brexit?
19
Other locations to watch
21
Understanding GCC HNWI investment rationale 26
2017 property investment targets
29
Conclusion30
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INTRODUCTION
Cluttons’ Middle East Private Capital Survey, carried out in partnership
with YouGov, investigates investment trends and behaviour of the Gulf
states’ high net worth individuals (HNWI) in order to gain a meaningful
understanding of their global and regional investment intentions.
Effectively tracking global private investment activity is challenging. This
study addresses the issue by surveying HNWI across the Gulf Cooperation
Council (GCC) states of Bahrain, Oman, the United Arab Emirates (UAE) and
the Other GCC states (Kuwait, Qatar and Saudi Arabia) to gauge sentiment,
rather than deal activity. The survey was conducted among HNWI who either
currently have, or intend in the future to make, an investment of USD 1
million or more in international property.
The results of the study reflect the combined views, investment activity
and intentions of 127 HNWI: 34 in the UAE, 30 in Oman, 33 in Bahrain
and 30 across the Other GCC states (Kuwait, Qatar and Saudi Arabia).
Together the GCC states represent a significant source of global capital
outflows.
In fact, according to the Credit Suisse Research Institute’s latest Global
Wealth Report, the number of millionaires in the Middle East and North
Africa currently stands at 330,000 and this number is due to reach 500,000
by 2020. Qatar was named as having the region’s highest wealth per
capita, at USD 157,000 per adult. The UAE followed in second place at
USD 144,000, while in Saudi Arabia the figure is significantly lower at USD
39,500. Overall however, personal wealth in Saudi Arabia is the highest in the
region and stands at USD 0.7 trillion, followed by the UAE at USD 0.6 trillion.
In this third and final paper as part of our Middle East Private Capital Survey
report series, we will specifically be examining the global locations that
GCC HNWI are intending to target for property investments during 2016.
The report considers the drivers of these investors’ intentions as an
indicator of future trends in international capital allocation, both
geographically and at a sector level. There is a particular focus on investor
appetite for real estate investment in London, where anecdotal evidence
suggests about half of all transactions are associated with international
buyers. Within this international segment, about 15% to 20% of
residential transactions are to buyers from the Gulf.
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Jeddah
SAUDI
ARABIA
Survey sample of 127
respondents across the GCC
KUWAIT
Kuwait City
Dammam
BAHRAIN
UNITED ARAB
EMIRATES
Manama
QATAR
Doha
Sharjah
Dubai
Riyadh
Abu Dhabi
Muscat
OMAN
Salalah
Size of respondents’ property portfolios
in city of residence
Size of respondents’ property portfolios
outside city of residence
One property
2-3 properties
4-5 properties
6-10 properties
More than 10 properties
50%
40%
30%
20%
10%
0%
50%
40%
30%
20%
10%
0%
Prefer not to say
Source: Cluttons, YouGov
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ECONOMIC BACKDROP
Sentiment
As we reported in the first part of our 2016 Middle East Private Capital Report series, the
global economic environment appears to be increasingly fragile. Disappointing economic
data from China and the EU, in addition to instability within the EU and the collapse in
oil prices, top the list of headwinds hindering global growth.
Previous editions of our survey have suggested that economic conditions play a central
role in influencing the investment behaviour of HNWI. In fact, results from our last
International Private Capital Survey hinted at regional locations around the world playing
a central role as property investment magnets for indigenous HNWI. In this report we
will seek to examine this theme further using the results of our 2016 HNWI survey from
across the GCC.
For the Gulf states as a whole, the oil price collapse that began in mid-2014 has certainly
put budgets under pressure. This has also triggered a series of macro policy amendments,
aimed at tackling the projected budget shortfalls. Chief of these has been the phasing out
of energy subsidies, which has seen the deregulation of fuel prices and the rise in utility
tariffs across the GCC.
Furthermore, with a new value added tax (VAT) regime being rolled out across the region
from 2018 onwards and ongoing debates about additional taxes, there is a distinct sense
of urgency to diversify state incomes and develop sustainable growth programmes. This
will likely raise the cost of living across the Gulf in the medium term.
HNWI view
We surveyed our GCC HNWI sample to gauge their opinion on the state of the global
economy and unsurprisingly, nearly half (47%) felt that conditions were worsening, or
deteriorating. Bahrain based HNWI had the most pessimistic view of global conditions,
with 61% of those surveyed of the view that global economic conditions were worsening.
Interestingly, when queried about the health of their own national economies, almost
three-quarters felt their domestic economies were stable or improving, with those
surveyed in the UAE (86%) having the most optimistic view. As we revealed in the second
report in our 2016 Middle East Private Capital Survey series, this high level of public
confidence in the local UAE economy has most likely been a key underpinning factor
in driving the desire to look to home markets for real estate investment opportunities
before looking overseas.
Elsewhere in the GCC, encompassing Kuwait, Qatar and Saudi Arabia, a third of
respondents felt their economies were worsening, or destabilising, which is fuelling a
desire to look for property investment opportunities outside their home markets as
they look to spread the perceived risk by targeting historically popular locations such as
London, New York, or Dubai.
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GCC HNWI economic sentiment
20%
33%
Bahrain
21%
Oman
27%
Other GCC
27%
18%
61%
27%
14%
48%
20%
24%
20%
30%
43%
0%
100%
80%
25%
62%
50%
27%
60%
40%
0%
20%
Stable
24%
53%
37%
Improving
47%
44%
20%
13%
30%
33%
100%
UAE
47%
80%
25%
40%
24%
All GCC
National economic outlook
60%
Global economic outlook
Worsening / destabilising
Source: Cluttons, YouGov
Investment intentions not impacted by
global economic conditions
The appetite for global real estate investments by our HNWI sample does not appear to be
dented by the global and regional economic slowdown. The majority (63%) of our HNWI
sample claim that they are likely to invest in their most preferred real estate investment
location during 2016, with one in four saying that they are ‘very likely’ to invest.
In general, there appears to be no urgency to liquidate international assets, despite the
apparent negative outlook on the global economy, with just 12% of the GCC HNWI investors
we spoke to expecting to sell, or considering selling, overseas property assets this year. UAE
based investors are most likely to sell overseas property (18%) in 2016, while respondents in
Bahrain are least likely to sell their overseas property assets (6%).
Likelihood of selling overseas property assets in 2016
27%
32%
24%
50%
67%
18%
UAE
64%
20%
10%
70%
Oman
Bahrain
All GCC
17%
12%
70%
13%
Other GCC
Yes, will sell
No, will not sell
Do not currently own real estate overseas
Source: Cluttons, YouGov
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As expected, the likelihood of investing in their top global pick was lowest among
UAE based HNWI, with just 18% claiming that they would be ‘very likely’ to invest
in international property this year. For the Other GCC HNWI (based in Kuwait, Qatar
and Saudi Arabia), the likelihood of investing in a location outside their countries was
significantly higher at 41%, perhaps reflecting a stronger need or desire to secure income
streams outside their home markets.
Likelihood of global property investment by GCC-based HNWI
63%
27%
of investors are likely to invest in
their preferred location in 2016
of investors are unlikely to invest
in their preferred location in 2016
Bahrain
43%
21%
23%
Oman
Other GCC
9%
9%
40%
10%
40%
24%
20%
0%
Somewhat likely
16%
42%
41%
Very likely
17%
Somewhat unlikely
Very unlikely
9%
14%
24%
3%
17%
14%
10%
10%
10%
80%
18%
10%
60%
UAE
37%
100%
26%
All GCC
Not sure
Source: Cluttons, YouGov
On average, GCC investors report that just over half (55%) of their real estate portfolio
is outside their country of residence. The percentage of overseas property in portfolios
is higher among investors from Bahrain and Oman (63% each).
If investors do buy overseas in the next 12 months, the share of their portfolios made
up of real estate outside their city of residence is expected to rise to 60% on average.
Current proportion of property portfolio
that is international
All GCC
55%
UAE 46% Bahrain 63%
Oman 63% Other GCC 46%
Source: Cluttons, YouGov
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Expected proportion of property portfolio
that will be international over the next
12 months
All GCC
60%
UAE 44% Bahrain 68%
Oman 71% Other GCC 57%
GLOBAL PROPERTY INVESTMENT TARGETS
London is crowned 2016 global property
hotspot for GCC HNWI
London has emerged as the favourite global property investment destination in 2016
for our GCC HNWI sample, with 17% naming the British capital as one of their three
top international property targets. London also leads as the ‘most preferred’ city for
investment.
Following London, New York and Singapore are the leading cities for target real estate
investment in 2016 outside the Middle East region.
Top 10 global property investment targets for GCC HNWI in 2016
London
11%
New York
4%
5%
7%
4%
Singapore
2%
4%
5%
4%
Bangalore
Mumbai
Istanbul
New Delhi
Los Angeles
Kerala
Sydney
0%
Most preferred
2%
2nd preferred
4%
6%
8%
10%
12%
14%
16%
18%
3rd preferred
Source: Cluttons, YouGov
Unsurprisingly, Indian cities, such as Bangalore, Mumbai and New Delhi, also appear
as preferred investment locations for HNWI, perhaps reflecting personal ties as well
as a push for foreign direct investment (FDI) from among the diaspora by the Indian
government. In particular, recent reciprocal historic state visits by the UAE, Saudi Arabian,
Qatari and Indian leadership may have boosted the appeal of a ‘home’ investment
amongst the Gulf’s non-resident Indian community.
Indian nationals account for approximately 30% of the UAE’s population (Embassy
of India, UAE), while India was among the UAE’s largest trading partners in 2014/15,
which resulted in USD 59 billion worth of cross border trade, according to the Indian
Government. No official recent figures have been published for the GCC’s non-resident
Indian population, however the Indian Ministry of Overseas Indian Affairs put the number
at around 5.6 million in 2012.
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London calling
London has historically been a key property investment target for Middle East investors, so
it is no surprise to see the city emerge at the top of the property investment league table of
our HNWI sample. Aside from London, 195 other global locations were named as property
investment targets by our respondents.
In terms of asset class investment among these intended locations, 54% is intended to be
mainly residential, 22% to be mainly commercial, and 23% to be a mix of both residential
and commercial investments. Of the commercial investments planned, there is a preference
for offices (50%) and also retail investments (36%). Industrial and hotel investments are less
favoured outside the Middle East region in 2016.
Tracking private residential investment volumes is challenging, however commercial
investment, particularly at an institutional level, is published widely. Indeed, the continued high
interest in commercial property from Middle Eastern investors was demonstrated in 2015 as
they secured over £3.8 billion in commercial property assets across the UK (Property Data).
The majority of this investment was London focused, with £3.2 billion purchased in the British
capital alone. Q1 this year saw a further £320 million pour into London commercial real estate
from the Middle East, accounting for 7% of the total invested during this period.
London residential in particular has been a
star performing asset class, delivering 70%
growth in the last seven years alone.
On the residential front, Canary Wharf, South Kensington and South Bank were named as
the top preferred London investment hotspots by our sample. Each of course offers a diverse
range of residential assets and price points, catering to different investment drivers.
In Canary Wharf for instance, the abundance of new build stock chimes well with Gulf based
investors, as the residential products on offer mirror those from their own home markets.
Furthermore, the 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%).
Top preferred London locations
Prime Central London
Canary Wharf
South Kensington
South Bank
2.3 million
430,000
3.4 million
927,000
Yield
3.72%
5.29%
2.54%
3.40%
15 year growth
98.9%
37.6%
105.2%
150.3 %
10 year growth
75%
19.3%
72.3%
93.7%
46.3%
34.3%
40.3%
44.3%
Average house price (£)
5 year growth
Source: Cluttons
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Reasons for GCC HNWI choosing London
“For children’s education in the
future, I want to make a base
there.”
“For investment purposes.”
Kuwait City investor, targeting London
“Global city with great
infrastructure, visionary
leadership and compelling
economics.”
“It is a safe city and also
good for my business.”
Dubai investor, targeting London
Abu Dhabi investor, targeting London
Dubai investor, targeting London
“Great appreciation in property
value, and a reasonable rate on
mortgages.”
Dubai investor, targeting London
“It is a cosmopolitan city and
provides reasonable returns.”
Abu Dhabi investor, targeting London
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The top10 global property investment
targets for GCC HNWI in 2016
11%
4%
5%
7%
4%
1%
2%
2% 8. Los Angeles
Top three property investment targets by sample group
UNITED ARAB EMIRATES
1. London
2. New York
3. Bangalore and Ahmedabad
13%
10%
7% each
BAHRAIN
1. Bangalore
2. Singapore 3. London
17%
10%
3%
OMAN
1. Mumbai
2. Bangalore and Kerala
3. Chennai, Guragon and London
10%
7% each
3% each
OTHER GCC STATES
(KUWAIT, QATAR AND SAUDI ARABIA)
1. London
2. Istanbul
3. Mumbai
Source: Cluttons, YouGov
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20%
10%
7%
2. New York
2%
1. London
5%
3%
1%
4%
1%
2%
6. Istanbul
3%
3%
5. Mumbai
2%
7. New Delhi
7%
4%
4%
1%
5%
4%
4. Bangalore
3. Singapore
3%
1%
2%
9. Kerala
2%
1%
Most preferred
10. Sydney
2nd preferred
3rd preferred
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Following the decision to leave the EU, uncertainty has persisted
as many questions remain regarding the complexities of a British
exit. This has caused continued volatility in the market, with sterling
falling to a 30-year low against the dollar overnight on June 23rd,
and the weakness persisting throughout the summer. However,
going forward this volatility could present a window of opportunity
for international buyers who are looking to enter the market,
particularly for buyers purchasing in dollar denominated currencies,
such as those from the Middle East
Impact on the residential market
The residential market is really a tale of two halves, with the supply
starved domestic market grappling with affordability issues, while
also struggling to keep pace with the government’s home ownership
programme. On the international front, we have certainly seen a
‘wait and see’ approach grip the market, with many opting to wait
for the Brexit storm to clear. With the results now behind us, it’s
clear that some international buyers are taking advantage of the
weakness in sterling, which fell to a fresh historic low against the US
dollar on August 15 (USD1 = £1.292), while others are waiting on
the sidelines, anticipating a value correction, which may well present
better deals.
With average residential values in London recording marginal growth
so far this year, the current economic conditions suggest that a quick
turn-around in the market’s performance, both in terms of the volume
and value of transactions, is unlikely in the short term, particularly where
currency based investment strategies are being impacted.
The significance of currency fluctuations is often overlooked and
this is understandable given the relative strength of sterling in
recent years against most major global currencies. Yet, the current
weakness of sterling, which has been in large part fuelled by the
Brexit referendum, coupled with a 35% rise in average prime Central
London values since the last market peak in Q3 2007, means that
50
30
Q3 2007 house price peak
10
-10
-30
Euro
UAE Dirham
Indian Rupee
Maylaysian Ringgit
Chinese Yuan
2016
2015
2014
2013
2012
2011
2010
2009
-50
2008
Prior to the referendum, we asked our sample about their views on
a potential British exit from the EU and of the small number who
expressed an opinion, some respondents felt that the renegotiation
of Britain’s relationship with the EU would be positive. However,
views were more negative on the prospect of the UK leaving the
EU, with investors acknowledging the damage that could be done
to the UK’s economic standing and ability to maintain a positive
growth trajectory.
70
2007
London’s property market had been stifled by the uncertainty in the
lead up to June’s historic in-out referendum and we saw investment
volumes fall ever since the referendum date was announced.
International investor sentiment was certainly dented, with
investment volumes and overall activity from this usually buoyant
group slowing markedly as we approached the June 23 referendum.
Currency pricing on a 2007 purchase
% increase in property values in local currencies
BREXIT AND LONDON’S
PROPERTY MARKET
US Dollar
Source: Cluttons, OANDA
some international buyers are in quite an enviable position. For
example, a £1 million property for a US Dollar investor will become
approximately $190,000 cheaper only as a result of the weakening
of sterling.
Those 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. This has been
driven by both strong capital value growth and a weakening in
sterling against their own.
Impact on the
commercial market
On the commercial front, the market had been showing signs of
cooling since late in 2015, with economic wobbles in China, the
collapse in oil prices and the slowing global economy all negatively
impacting investor sentiment. Even prior to the EU referendum, the
urgency had certainly gone out of the market.
In the wake of the decision to leave the EU, capital values have been
subject to downside risk and there is greater uncertainty about
achievable prices post-Brexit.
However, market fundamentals remain strong and the current
volatility is in many ways a response to the shock of the result.
With very low office vacancy rates and a robust occupier base,
the prospects are for a steady, rather than declining, market
profile. In the medium-term, this is likely to be beneficial as recent
rental performance is neither sustainable, nor affordable for many
occupiers.
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OTHER LOCATIONS TO WATCH
New York remains a key target for GCC HNWI
Results from our survey of HNWI shows that across the GCC, New York was the second most
preferred city for international real estate investment outside the Middle East, just behind
London. Indeed, findings from a survey carried out by the Association of Foreign Investors in Real
Estate also show that the city tops the investment destination list for global investors in 2016.
The city has historically been a beacon for both institutional and private investors from the GCC,
with a wide range of recent headline deals. Indeed, in our survey, an investor from Bahrain cited
the city’s attractive rental yields and expected strong capital value growth as key reasons for
targeting the city.
On the institutional side, 2015 saw the Qatar Investment Authority (QIA) launching its New
York office and announcing plans to invest up to USD 35 billion in US assets by the end of 2020.
Following the announcement, QIA has acquired a 44% stake in a USD 8.6 billion Manhattan West
mixed use project.
“Investment made will yield high rental value
as the USA’s economic expansion drives the
demand for real estate, leading to higher capital
value gains.”
Bahrain investor, targeting New York
Another example of investment in the city from the Gulf is the Abu Dhabi Investment Authority’s
(ADIA) holdings in the Big Apple, which amount to USD 850 million. During 2014, ADIA also
teamed up with Singapore’s sovereign wealth fund (GIC) to purchase The Time Warner Center for
USD 1.3 billion. During 2015, the fund acquired the New York Edition hotel on Madison Avenue
for USD 382 million, underscoring the importance of the city as a key property investment hub in
North America for outbound funds from the GCC.
There are some clear reasons for the city’s attractiveness. Chief of these is of course the lower
price points, particularly when compared to somewhere like London. At 50 UN Plaza in Manhattan
for instance, 1 bedroom apartments start from USD 2,000 psf (~£ 1,365 psf), whereas prices in
London’s Royal Borough of Kensington and Chelsea usually start from about £2,500 psf and are
even higher in more core locations such as Mayfair, where values are often upwards of £4,000 psf.
Of course the fixed US dollar peg retained by all GCC member states, except Kuwait, has meant
that the city’s attractiveness from this group has not waned, despite the current cooling of the
New York housing market, where a record house building boom is underway. According to Corcoran
Sunshine Marketing Group, 5,126 apartments in Manhattan are expected to be offered for sale
this year, the highest level seen since 2007. 63% of these are expected to fall under the “luxury”
category, putting them at USD 2,400 psf (~£ 1,682 psf), or higher.
Still, New York is also perceived to offer a more favourable tax regime for international buyers,
especially when compared to somewhere like Singapore, where international buyers pay taxes that
amount to approximately 15% of the property value.
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Singapore emerges as third
most popular global property
hotspot
Singapore was named as the third most popular global investment
hot spot by our HNWI investors, making it the most popular
gateway in Asia.
The attractiveness of the city state is further substantiated by the
United Nations Conference for Trade and Development’s (UNCTAD)
World Investment Report 2015, which reported Singapore (USD 68
billion) as being the world’s fifth largest recipient of foreign direct
investment last year. China topped the list, followed by Hong Kong,
the USA and the UK.
International investors have traditionally contributed to demand
for luxury real estate in Singapore. Due to the persistent demand
from international buyers and investors, the Singaporean
government intervened by introducing several cooling measures
to better regulate the market. These have included an increase
in ‘Additional Stamp Duty’ from 10% to 15%, a rise in ‘Seller
Stamp Duty’ and an increase in Loan-To-Value ratios. The
combination of these has impacted the real estate market, with
price declines and falling demand.
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 SGN 3.4 billion (~£1.7 billion). Once the
acquisition is finalised, it is expected to represent the largest ever
single tower real estate transaction in the Asia Pacific region and
the second largest worldwide.
In addition the country’s investment attractiveness is further
substantiated by the Boston Consulting Group’s Global Wealth
2016 report, according to which Singapore is expected to
become the second largest offshore financial centre, behind
Switzerland, by 2020.
“Economic growth of the country
and it is one of the top most
business hubs in the world.”
Bahrain investor, targeting Singapore
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Iran still not high on the agenda for GCC HNWI
When the historic deal to lift trade sanctions on Iran was reached
last July in Vienna, there was a strong expectation for the economies
in the Gulf and, particularly that of the UAE, to benefit from the
removal of over a decade of wide ranging restrictions on doing
business with the Persian state.
The rippling outward of business activity as global firms line up to
service an economy that has been starved of investment for over
a decade is not only likely to benefit other emirates in the UAE
federation, but regional states as well.
Given this backdrop, it was our expectation that there would be a
strong appetite from our GCC HNWI respondents to target Iran for
property investment. However, the vast majority of our sample do
not plan to invest in Iranian property in 2016, with just 14% saying
they either ‘definitely’ will, or are ‘considering’ it.
Prior to the introduction of trade sanctions, Iran was the UAE’s
biggest trading partner. Despite the sanctions, it has remained an
important market for the emirates, emerging as the UAE’s fourth
largest trading partner in 2014, which translates into AED 62.4
billion of cross border trade, up 8.3% on 2013, according to the
latest figures from the Iranian government.
Both local and global businesses have in the past based Iranian
operations in Dubai and although we are yet to see a notable uplift
in specific Iranian business-linked occupier activity, we have seen
some interest from these groups. Any impact is expected to be
a slow burn as international trade activity with Iran is gradually
ramped back up.
There is, never the less, some disparity across the regions, with a
stronger interest from the Other GCC investors (Kuwait, Qatar and
Saudi Arabia) and a relatively weak level of interest from Oman and
Bahrain investors.
The overall lack of interest at this stage probably stems from a
combination of political tensions between the Gulf and Iran, in
addition to a lack of awareness of the Iranian property market,
which we expect to gradually change over time.
Our view remains unchanged and we see the landmark deal as
a medium to long term catalyst for the UAE’s growth, which is
expected to be centred on Dubai.
Views on investing in Iran’s property market in 2016
5%
6%
8%
14%
Of respondents ‘definitely /
considering’ investing in Iranian
property market
Investment consideration by region
82%
Yes, definitely
Undecided, but considering
No
Don’t know
Source: Cluttons, YouGov
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UAE
Oman
Bahrain
Other GCC
Yes definitely
6%
3%
13%
Considering
11%
3%
9%
7%
Snapshot on Iran
Interestingly, according to the Statistical Centre of Iran, the total
value of all investment into urban real estate, including all project
construction costs, stood at just over 750 trillion riyals (~£17.8 billion)
during 2015. To give this context, a total of £62 billion was invested in
UK commercial real estate just from international buyers and investors
last year. It stands to reason that the figure is significantly lower in Iran
given that sanctions have hampered foreign direct investment.
Tehran, the Iranian capital, accounted for the lion’s share of 35,000
construction permits issued last year, with over 90% of these for
residential developments. Just 330 commercial construction permits
were issued. Over two-thirds of the permits were for buildings greater
than five storeys, while the rest were for buildings between one and
four levels. With a core population of around 8.5 million, Tehran is Iran’s
most populous city and therefore also home to the most significant
development opportunities.
Away from the Iranian capital, some of the county’s southern
islands, such as the port cities of Bandar Abbas and Qeshm, also
present exciting opportunities, given the government’s wide ranging
infrastructure programs designed to boost economic growth and
competitiveness. The Gulf island of Qeshm for instance, has been
earmarked as a free trade zone, with a new masterplan for the island’s
airport being unveiled recently. The government has announced plans
to build a new £532 million port on the island to help position it as one
of the main shipping and transit hubs in the southern Gulf.
This includes upgrading existing facilities and developing supporting
cargo and tourism infrastructure as the country moves to capitalise on
the lucrative GCC tourist market, which may well help to pave the way
for more substantial cross border investment.
On the investment front, the Iranian government has already
announced that estimated investments of £140 billion are required
over the next five years by its oil and gas industry alone, while the
aviation sector requires just over £3.4 billion in immediate investments.
The country’s aviation sector consists of 67 airports, with total
passenger movements of 47 million. With estimates ranging from 300
to 500 new aircraft required by Iran’s carriers, there is a potential for
the main international airport in Tehran (Iman Khomeni International)
to emerge as a regional rival to Abu Dhabi, Dubai or Doha.
With the rise in aviation and infrastructure investment will come the
need for complementary industries and therefore economic growth will
follow. However, Iran is a sophisticated market that has weathered over
a decade of sanctions, which may challenge the perceptions of many
looking to target the Iranian market.
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UNDERSTANDING GCC HNWI INVESTMENT RATIONALE
Investment drivers
We asked our sample questions about
their investment rationale and divided
these into financial drivers and other
qualitative factors.
‘Capital value growth expectations’ was
most commonly named among the top
three financial drivers for global real estate
investment. ‘Rental yields’ however, was
reported as the most important primary
financial driver by 22% of GCC HNWI
investors, and by 27% of investors in
Oman and Other GCC states (Kuwait,
Qatar and Saudi Arabia).
‘Financial market performance’ and ‘Tax
reasons’ also emerged as particularly
important factors for UAE based HNWI
respondents.
In the context of prime Central London,
residential rental yields currently hover
around 3.72%, with 20-year growth
in capital values standing at 267%,
underscoring why residential investment
in London continues to be attractive for
investors.
‘Infrastructure’ was named as the
leading qualitative driver for real
estate investment, particularly among
Oman based HNWI investors. London’s
connectivity with the Gulf clearly is an
important factor in facilitating cross
border travel and capital flows. There are
currently 37 flights per day from the Gulf
to London.
Infrastructure was followed by ‘being close
to family and friends’, which is especially
important for investors in Bahrain.
For UAE investors, ‘security’ is the most
important qualitative driver.
‘Entertainment attractions’ were markedly
more important to Other GCC HNWI
(Kuwait, Qatar and Saudi Arabia) investors
than the rest of our sample.
Property use
We also surveyed our sample of HNWI on
the final intended use of their international
real estate investments in their top city
of choice. Using potential real estate
investments as a second residence for
themselves, or their family, was the most
commonly envisaged end use. A third of
respondents from the UAE and 30% of
those we surveyed in Other GCC states
stated this as the most expected use of their
investment. This was closely followed by
investing purely for capital gains, which was
cited by 25% of our respondents.
Decision making
Rather surprisingly, nearly half of GCC
investors (49%) said they will follow
the recommendations of family and
friends when selecting a target property
investment location. This is perhaps
reflective of the family-run business culture
that is prevalent in the Middle East.
A large proportion of investors either
intend to, or have travelled to, potential
investment locations (42%); however the
proportion is much lower among UAE
investors (26%).
Interestingly, attending local real estate
road shows (12%) ranked very low in
importance for influencing the decision
making process.
Nearly half of GCC investors said they will
follow the recommendations of family and
friends when selecting a target property
investment location.
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When it comes to the actual decision
making, the majority of HNWI investors
(56%) claim that they will make the
decision on where to invest in property
on their own, while three in ten said
it would be a joint family decision. In
Bahrain, four in ten said the decision
would be made jointly with family.
Amongst the Other GCC states (Kuwait,
Qatar and Saudi Arabia), 63% said they
would decide on their own, while just
23% said they would consult with their
families.
Stocks dominate alternative
asset class preferences
Away from property, our GCC investors
report stock market shares as their most
active investment asset class (22%).
Funds (13%) followed in second place.
Interestingly, currency investments
are more popular in Oman compared
to other places, as is venture capital
in Bahrain and art in our Other GCC
country grouping (Kuwait, Qatar and
Saudi Arabia).
Main financial property
investment drivers
Main qualitative property
investment drivers
Alternative asset class
investment preferences
Capital value growth
Infrastructure
Stock market shares
Rental yields
Close to family and friends
Bonds
Financial market performance
Security
Funds
Intended use of international
property investment
Factors influencing
decision making
Level of investment
advice sought
Second residence for myself / my family
The recommendations of family or friends
I decide on my own
I’m investing for capital gains
Engage a local agent
It will be a joint family decision
Let / rented out to tenants
Travel to the location
I seek the advice of investment advisors
60%
47%
44%
41%
40%
26%
25%
22%
Most important
Second most important
38%
49%
46%
42%
40%
36%
30%
56%
30%
12%
Third most important
Source: Cluttons, YouGov
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“I am simply sentimental about Paris. Paris
will always be Paris and I look forward to
spending more time there in the future.”
Saudi Arabia investor, targeting Paris
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2017 PROPERTY
INVESTMENT TARGETS
Parisienne allure
Along with London, Paris was named as the most probable
investment destination for GCC HNWI in 2017, outside the
Middle East. Although it was named as a key target for next year,
it has continued to attract funds from the Middle East, particularly
at an institutional level. For example, The Qatar Investment
Authority (QIA) acquired a luxury retail complex on Paris’
exclusive Champs-Elysées boulevard for USD 623 million in 2012.
Another notable acquisition includes the landmark Peninsula
Hotel, which was bought by Qatari Diar for USD 460 million in
2008. This has since been transferred to Katara Hospitality, which
sits under the umbrella of QIA.
It is also important to note that Qatar, being one of the major
investors in France, benefits from a special tax treaty for state
owned entities, which will no doubt fuel further institutional
investment into France from this Gulf country.
Toronto beckons
According to the findings of our survey, Toronto was ranked
joint third for possible investment locations in 2017 by our
GCC investors, making it the only North American city being
considered as a target next year. Its attractiveness in part
stems from its perceived quality of life, which is reflected in the
city’s fourth place global ranking according to the Economist
Intelligence Unit’s Global Liveability Ranking index for 2015.
Like the way in which London’s higher education institutions attract
education-linked property investments, Canadian universities are
also attracting a rising number of students from the Gulf (with the
exception of 2015), which may support further investment from
the GCC.
Improved air connectivity and immigration from the Middle East and
South Asia, amounting to circa 30% of the total number of migrants
in 2014 (Government of Canada), is likely behind the rising profile of
Toronto amongst Gulf based HNWI.
Student population in Canada by selected nationality
Country of citizenship
2013
2014
2015
Saudi Arabia
13,846
13,421
11,719
Kuwait
168
191
231
United Arab Emirates
151
112
95
Bahrain
90
77
63
Qatar
40
32
32
India
34,692
38,017
48,914
Iran
5,155
4,601
4,535
Pakistan
4,018
4,005
4,059
United Kingdom
3,334
3,253
3,252
Source: Government of Canada, Immigration and citizenship, International students with a valid permit
on December 31st by country of citizenship (2015 ranking)
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CONCLUSION
Final thoughts on GCC HNWI
global property investment
London has, perhaps unsurprisingly, emerged as the most preferred
global investment destination for our HNWI sample from the Gulf.
However it’s important to note that there was a great variation in
top target locations named in our survey, with New York following
closely on the heels of London.
The British capital has long been a magnet for property investors
from the Middle East, driven by a range of reasons, from the
cosmopolitan lifestyle London offers, to the high quality of
education.
Financial drivers include the capital value growth history that the
city has been able to deliver, despite tough headwinds to local
and global economic growth. It’s clear that the city’s position as a
global investment safe haven remains intact and in times of global
economic turbulence, we have seen investors turn to the British
capital’s bricks and mortar.
Still, the currency advantage through the current weakness of
sterling is something that is likely to be of particular interest to
our survey sample. For now, 79% of our GCC HNWI indicated
that they are expecting to spend at least USD 1 million on an
individual property in their top target location during 2016, with
18% claiming that they would be looking to invest at least USD 1.5
million in an international property asset in their prime target city.
The oil price collapse has of course aided the appeal of top tier
global investment hubs such as London, New York and Singapore,
with the appetite to invest in home markets in the Gulf diminished
amongst our sample when compared to previous editions of our
survey.
Still, Dubai has predictably emerged as the Middle East’s leading
investment magnet for our HNWI sample, with over a quarter
(27%) of our sample naming the emirate in their top three Middle
East investment destinations. It is clear from the league table of
target cities that the UAE is a stand out property investment target
for GCC-based HNWI.
This is in part due to the political stability offered by the emirates,
in addition to the wide variety of investment options available to
GCC investors, not just in Dubai, but across the UAE.
In fact, when we asked our sample which locations they were
considering as a possible property investment target during 2017,
Dubai edged out London for consideration.
Doha and Paris (at 3% each) followed closely behind. Almost twothirds (64%) of investors however, claimed not to be thinking about
any particular locations beyond 2016. Of those that are, a mix of
both regional and global investment locations are mentioned.
Other GCC investors (Kuwait, Qatar and Saudi Arabia) are more
likely to have locations in mind for 2017 and beyond, perhaps
reflecting
a stronger need to diversify their investment portfolios beyond the
region, as outlined above. For this group, London was front of mind,
alongside locations such as Dubai, Doha, Paris and Toronto.
As we work our way through 2016, the way in which the oil price
story plays out will have a significant impact on the volume of
capital outflows from the Middle East. Going forward, it is clear that
global safe havens play a critical role in soaking up ‘refugee’ capital,
or nervous funds and London’s position in that respect still appears
relatively intact, regardless of how the short term global economic
story plays out.
GCC HNWI spending budgets for 2016
Individual property valued under USD 500k
7%
Individual property valued at USD 500k or more
9%
Individual property valued at USD 750k or more
8%
Individual property valued at USD 1m or more
61%
Individual property valued at USD 1.5m or more
13%
Individual property valued at USD 2m or more
Oman
UAE
Other GCC
6%
7%
3%
13%
6%
7%
12%
10%
9%
7%
6%
10%
67%
73%
54%
50%
15%
7%
17%
13%
-
-
11%
7%
Individual property valued at USD 3m or more
1%
-
-
-
3%
None of the above
2%
-
-
3%
3%
Source: Cluttons, YouGov
30
4%
Bahrain
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31
For further details contact
Cluttons
Faisal Durrani
Head of research
+44 (0) 20 7647 7166
[email protected]
Kseniya Savelyeva
Residential research analyst
+44 (0) 20 7647 2174
[email protected]
Zoe Farrell
Commercial research analyst
+44 (0) 20 7647 7192
[email protected]
YouGov
Caroline McGarr
Research manager
+44 (0) 20 7012 6120
[email protected]
© Cluttons LLP 2016. This publication is the sole
property of Cluttons LLP and must not be copied,
reproduced or transmitted in any form or by
any means, either in whole or in part, without
the prior written consent of Cluttons LLP. The
information contained in this publication has been
obtained from sources generally regarded to be
reliable. However, no representation is made, or
warranty given, in respect of the accuracy of this
information. We would like to be informed of any
inaccuracies so that we may correct them. Cluttons
LLP does not accept any liability in negligence or
otherwise for any loss or damage suffered by any
party resulting from reliance on this publication.
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