By Denise Marray
Gulf Times Correspondent
London
Will the new UK stamp duty charges announced in the autumn budget have a negative impact on foreign investment into property? This is a question to which Keith Leach, chief commercial officer (CCO), Al Rayan Bank, has an answer based on his direct experience in meetings with potential buyers from the Gulf region.
Speaking to Gulf Times from Al Rayan’s flagship Knightsbridge branch, he said: “I’ve just come back from a trip to Saudi. I was there for almost a week — I went from Jeddah to Riyadh to Dammam and met a number of clients who are private companies, and without fail they are all still looking to buy a property in London.”
So what was his assessment of the drivers behind the undiminished appetite for UK property?
His answer showed that potential investors are looking at the big, global picture.
“The tax changes — what might be on the horizon — all of that really wasn’t figuring in their thought processes. What was in their thoughts was the political and economic instability in the region,” he explained.
He said clients were keen to put some of their surplus funds ‘somewhere we think is safe’. They were typically not fixated on short-term gains but thinking long-term with the expectation that ‘in ten or fifteen years’ time (the property) will still be worth what we paid and more.”
An added attraction for clients buying a home in London is the comfort and convenience of having their own private space without the pressure of finding suitable hotel accommodation — especially as demand for hotel rooms in London is high with prices to match.
With regard to the impact of the 3% hike across all bands of stamp duty on buy-to-let landlords in the UK, Leach said it could lead to landlords faced with higher charges raising rents, or abandoning the buy-to-let market with a consequent reduction in availability of rental properties. The great national shortage of housing, he said, would only be resolved through building more homes.
“Today’s shortage was caused by the lack of investment in construction five or six years ago. The population is growing and people are living longer — the supply isn’t there to meet the demand,” he said.
However, for high net worth clients from the Gulf who typically buy in the richest and most exclusive parts of London, he didn’t see the new stamp duty charges as being a game-changer in the way they view the property market.
“I have been doing this for a long time and demand is as strong as I can remember. There has been no tailing off due to taxation — the new measures have not impacted the Arab world. It’s not all about what is happening here — a lot is about what is happening locally,” he said.
The golden footprint for the wealthy overseas buyer he described as covering Marylebone, Regent’s Park, St John’s Wood, Paddington, Bayswater, Hyde Park, Kensington, Knightsbridge and Mayfair.”
He noted: “There has been a spread westwards to some degree (from Knightsbridge) to Chelsea, Fulham and Battersea and Vauxhall. Some own £1.5mn houses in places like Cobham, Surrey, or nice leafy areas but they will invariably have a West End home in addition to their country retreat.”
New prime residential developments on, for example, the South Bank and in areas of East London around Tower Bridge and into Docklands are attracting a different kind of customer, he said. “They are not the traditional areas where our Arab world client base would buy. Some might be buying there more as an investment in a more speculative way.”
Gulf investors are also interested in buying commercial properties that will provide a decent return for their shareholders.
As Leach explained: “One of their requirements is to be able to pass on a dividend to their underlying investor. To do that you need an income producing asset — like a commercial asset, but obviously with yields in Central London on office or retail of 3%/4%, you can’t achieve that.
“So, they are now looking outside of London and virtually anywhere in the UK. They are looking for a specific type of asset — something that they believe has a good quality tenant — maybe just a single tenant — nothing too complicated, on a reasonable length lease which with a bit of bank finance involved can get yields up to 6 or 7% and then they can pass some of that down to their investors. There has been a lot of that type of investment.”
He gave an example: “An investor bought a UK head office of an international construction company — this property was located in North London outside the ring of the M25 — and they paid £30mn for that — the tenant is a successful company.”
He added: “Our role is purely as a financier, but we are able to put our clients in touch with agents who can give advice. We have agents that we know and trust who are able to find these opportunities.”
Leach was asked about the impact of foreign investment in areas of London which are undergoing significant redevelopment. Areas such as Stratford, Battersea, the South Bank. London Bridge, Tower Bridge and the Docklands.
“If you look at the redevelopment that has happened in London over the last fifteen years, it has all been fuelled by foreign money. Look at the construction industry jobs created by overseas investment and the new opportunities created through the regeneration of the areas,” he commented.
Asked about the aspects of Al Rayan Bank, the UK’s only wholly Shariah compliant retail bank, that most appeals to Gulf clients, Leach said: “Because we were a retail British bank first (Islamic Bank of Britain, prior to being bought by Masraf Al Rayan in 2014) we have an infrastructure to support basic retail banking: on-line banking, a mobile application, contactless payments, cash machines — all the general services that people expect from a bank. If you compare us to some of the other British Islamic banks in London, they can’t do any of that — they might be able to provide some property finance and some basic banking services but they can’t do all the things that we do. We can do property finance — we can help our clients to find residential and commercial property. In short, what they would be used to locally — they can have here.”
Asked to comment on performance and new plans, Leach was upbeat.
“2015 will be a good year for the bank in terms of profitability and 2016 will be better. We are recruiting a new head of private banking who will start in February — and we hope to pursue a European Branch — Paris — in the near to medium term.”
“The bank is on a good footing now and shareholders have been very supportive.
“We have a five year plan to grow every year as much as it has grown this year – I don’t think there is anything that is going to stop this.”
Leach: Upbeat
