Prime London property one third cheaper for Arab investors

Reuters/Hannah McKay

• Buyers get more for their dollar against the pound
• New prospective purchasers are among highest in a decade
• Visa-free travel from UAE to UK will increase footfall

Wealthy buyers of prime London property have already seen prices fall since the start of this year, but Gulf buyers have been enjoying an additional dollar discount bonus thanks to their home currencies being pegged to the US currency.

“The dollar has strengthened against all major currencies including the pound since January,” said Liam Bailey, global head of research at real estate firm Knight Frank, speaking at an event hosted by the Arab Banker’s Association in London on Thursday evening. “We’ve seen quite a significant shift.

“The discount for a dollar-based buyer buying into the London market today is 34 percent compared to 2014 pricing. The international buyer is here, they’re back, but they’re still missing in certain segments.” 

• OpEd: Gulf currencies would prosper if decoupled from the US dollar

Almost all Gulf states have their currencies pegged to the US dollar. Kuwait is the exception – its dinar is pegged to a basket of currencies.

According to a research note published on June 22 by Knight Frank, there has been a noticeable surge in UK property interest from Gulf-based real estate buyers following the shift in the exchange rate, which has led the British pound to depreciate by 10 percent since the start of the year.

Knight Frank’s note highlighted how the number of new prospective buyers registering to purchase property in the prime London market in May ranked as the third highest figure in a decade, also coinciding with the number of new sales instructions in the capital that month being the sixth highest figure in 10 years.

“I ran the numbers in terms of the number of new buyers registering through our network of offices to purchase property in the prime London market,” Bailey said. 

“This is no exaggeration: we’re up about 80 percent in terms of the number of buyers registered over the past month, compared to the same period pre-pandemic. So there’s an incredible level of demand.”  

Bailey added he’s confident that demand will remain healthy, citing what he called the “wealth opportunity”. 

One of the standout statistics in Knight Frank’s Global Wealth report, published earlier this year, is that 23 percent of ultra high net worth individuals (HNWIs) globally are looking for the opportunity to invest in income-producing property during a period of high inflation. 

Based on Knight Frank’s forecasts of the future trajectory for the global economy over the next five years, it estimated there would be an additional 173,000 ultra HNWI’s and 37 million additional dollar millionaires globally over the next five-year period. 

“These calculations were made before the Ukraine crisis so let’s just assume for a moment that we’re way too optimistic and let’s halve those numbers to over 85,000 ultra HNWI’s and 15 million additional dollar millionaires being created over the next five years,” Bailey said. 

“That’s still a significant pool of extra demand coming into the market, and this is at a time when property is becoming much more central to wealthy individual lifestyles but also investment criteria portfolios as well.” 

While Knight Frank is confident on the future demand, research conducted by the firm over the past six months shows that the volume of international buyers is down around 20 percent compared to pre-pandemic times. 

“Wherever you are globally there is still no full normalisation in terms of global travel,” Bailey said.

“So while we’re seeing much more travel between the Middle East, Europe and the UK, it is still a fair way off where we’re expecting it to be.” 

Therefore, the news that UAE travellers will soon be able to go to the UK without a visa has been well received. 

On June 27 the British government announced that the UAE would be added to its new electronic travel authorisation (ETA) system in 2023, thereby removing visa restrictions for UAE passport holders.

“Without question it’s a hugely positive step which reinforces the strength of relationship the UAE enjoys with the UK,” Nicholas Spencer, an associate partner in Knight Frank’s Dubai office, told AGBI. 

“Britain has always benefited from a close affinity with the Middle East.

“Now, with one less hurdle to overcome there is more incentive than ever to visit where many consider home from home.

“This will promote additional tourism and footfall within the capital, which in turn should lead to up an uptick in Middle Eastern property transactions in due course.

“It is difficult to predict the exact impact at this stage, but for sure it is a positive step.

“We just have to hope the purchase process and regulations remain attractive for oversea purchasers.”