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Brexit 'wipes out Gulf real estate gains in London'

Middle Eastern investors eyeing London residential property would benefit from a significant drop in sales prices following Britain’s vote to exit the European Union (EU) whereas existing investors stand to lose out, it has been claimed.

The sharp drop in sterling over the weekend will have “erased” any gains made by property buyers in the capital in recent years, particular those from the Gulf whose currencies are pegged to the US dollar, according to real estate consultancy Cluttons.

However, for prospective investors operating in the US dollar or UAE dirham, the price of an average prime central London residential asset is now $96,000 (AED 350,000) less than it was on June 20, the company claimed.

A further silver lining, said Cluttons’ head of research Faisal Durrani, is that Gulf investors will find London residential property 31 percent cheaper than it was during the last market peak in 2007.

London, long viewed as a safe haven by investors from the Middle East and beyond, is likely to “retain its appeal”, possibly prompting a resurgence in the capital’s currently sluggish residential sales market.

“We may be on the cusp of seeing a significant resumption in property investment activity in the British capital, mirroring the results of our recent Middle East Private Capital Survey, as global investors seek out safe haven assets such as gold and London’s bricks and mortar, which we expect will retain its appeal,” said Durrani.

“The longer term implications are too early to assess, but we may start to see the unlocking of London’s stalled residential property market, with investors both exiting and entering the market as we head towards a period of demand volatility.”

However, other experts predicted that uncertainty would prevail in the weeks and months after the Brexit vote and investors may stall or reconsider investment decisions entirely until currency markets become less volatile.

Guy Grainger, JLL’s CEO, EMEA, said: “This event is a trigger for many investors and occupiers to make adjustments to their real estate strategy. Some decisions may continue to be put on hold, or reassessed entirely.

“At the same time, we expect there may also be some positive implications for other mature markets in Europe and, potentially, in the light of currency movements, international investors may be attracted to certain parts of the UK market.

“This could be relatively short-lived at least until currency volatility subsides and notwithstanding the underlying uncertainty which will colour sentiment for at least a couple of years.”

Gary Dugan, chief investment officer at Emirates NBD, said real estate prices in parts of the UK could fall by as much as 10-20 percent with the effect of a substantial drop in transactional volumes – even if property has essentially become cheaper for investors from the Gulf.

Meanwhile, UK investors seeking to buy real estate in the Gulf will experience challenges. “It has literally got expensive for them overnight,” he said.

Gráinne Gilmore, head of UK residential research at Knight Frank, said the UK’s vote in favour of Brexit is likely to make a “swift” impact on the domestic housing market, and that the scale of the impact would depend on the speed and outcome of the UK’s negotiations with the EU.

Sales activity and volume is likely to flatten, she said, including among Middle Eastern investors that make up a relatively large proportion of the central London market.

“In the short term, consumer confidence is likely to be knocked by the continued uncertainty, especially with regards to trade. This may weigh on activity in the [real estate] market, especially those making discretionary purchases, which could result in a slip in transaction volumes, and prices.

“However, uncertainty could also result in a further dampening of homes coming onto the market, and this lack of supply will provide a floor under price.”

Bader El-Jeaan, a Senior Partner at Kuwait-based corporate law firm, Meysan Partners, said: "Investors don’t like uncertainty. This decision has engendered massive uncertainty, and will no doubt result in a shock to the UK economy, hurting growth and decreasing foreign investment.

"From a legal perspective, EU law has become enshrined within UK law, so few practitioners can speculate what mechanism will now be used to bifurcate the two in order to achieve separation.”

A spokesperson for Core Savills, Middle East, added: "The prime markets, that typically are more volatile, may well see a greater short term impact. However, along the line, a fall in the value of sterling should bring some international buyers back into the market, albeit with potentially less gusto than in previous downturns given higher stamp duty costs."

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