Lure of London homes is hard to resist for Arab buyers

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International appetite for London’s property market has picked up with Arab buyers expected to play a key role in its post-Covid recovery.

The pandemic impacted every sector of the UK economy, with house-buying in England’s capital no exception. As global investment retrenched, the market became increasingly dependent on domestic buyers and resident non-doms for new sales. 

But industry experts can now predict where the money is coming from.

“Since the relaxation of travel restrictions, we have seen a steady flow of clients from the Gulf,” Paul Eden, co-founder of property developer Regal London, told AGBI. “And we always see an influx of customers in Q2 and Q3 coming to London where they look to invest with a keen emphasis on quality, design and location.”

UK estate agent Savills expects Middle Eastern wealth to be a significant component of demand underpinning a recovery in the prime central London market – not least because of the recent increase in oil price. 

“Clearly Middle Eastern buyers have always been attracted to the central London market which still looks relatively good value in a historical context because it’s the one part of the UK housing market that really didn’t benefit from the lockdown surge when people reassessed their lifestyle choice,” Lucian Cook, UK head of residential research at Savills, said. 

“Prices at the end of March were still 18 percent below where they were in 2014 and we’ve seen the dollar strengthen over the recent past. This means there’s a currency play on offer for overseas buyers using any US dollar-denominated currency.

“What I’d expect is that as we start to see the return of international travel, the central London market is one area where I think there’s still capacity for a strong pick-up in prices.”

Long term investments

Despite the disruption caused by the pandemic over the last couple of years, Middle Eastern demand for UK property has remained fairly resilient, according to real estate consultancy Knight Frank. 

“The habits of Arab buyers of UK property have remained consistent in recent years, even while the London residential market has been subdued,” Henry Faun, partner and head of Knight Frank’s private office in the Middle East, said. “Families across the Gulf seek property in the UK to hold in the long term, with a ten to fifteen year window of holding the asset.

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“Changes in recent years of the US dolllar to GBP have presented opportunities for purchasing GBP and obtaining their desired property at a more attractive and effective price.

“The UK is still the number one destination for Arab buyers second homes given the ease of travel, language, educational system and lifestyle.”

The shift to regeneration areas

As has been well documented, the pandemic led to a shift in buying preferences from UK property investors due to dramatic changes in lifestyle, with increased demand for properties on the outskirts of London. 

And Arab investors have been no exception to this trend. 

Research published in March this year recorded a growing demand from Middle East investors for more affordable, high-quality homes in London’s outer zones – otherwise dubbed “Cinderella” areas – so-called due to their ongoing regeneration. 

Data from Barratt London, part of the largest residential property development company in the UK, and Rightmove, the largest online real estate portal, noted how investors from the Middle East are attracted to areas within Greater London, including Hayes, Hendon, East Ham, Catford, Tooting, Hounslow and Acton, all of which offer a lower initial purchase price and the likelihood of substantial capital gains.

Investors from Kuwait and Bahrain comprised the majority of interest but demand has also increased from investors from Saudi and Qatar.

While Arab buyers have historically been known for their penchant for prime central residential real estate they are now showing increased interest in lower-price-point but higher-yield properties.

Stuart Leslie, international sales and marketing director at Barratt London, noted in March how houses in outer zones 3-6 offer rental yields of around four percent – considerably higher than that of central London homes.