The real estate market in the UK has seen a remarkable rise and growth in 2015 compared to 2009 statistics, with the London property price index rising by 71%, confirming the city’s status as a safe haven for capital investors following the global financial crisis, However, a recent decline in demand has led to a slowdown in sales price growth, reaching a rate of 4% year-over-year in June 2015, while rental rates in the British capital increased by 3.8% annually through June 2015.
The London real estate market is no different from others in terms of residential property valuation, as rental investment yields for standard residential properties exceed those for luxury properties. This is due to the relative increase in luxury property prices. Standard properties achieved rental yields ranging from 4% to 4.5% in London in June 2015, while the luxury sector recorded a yield of 2.59%, prompting luxury real estate investors to turn to markets in the areas surrounding London and beyond, to other regional centers such as Birmingham, Bristol, and Manchester, where real estate investments yield better rental returns.
In contrast, the decline in prices for luxury real estate in Dubai was approximately 4,5% in the current year through June 2015, a smaller percentage than for standard real estate due to higher demand for the former.
Furthermore, investors around the world are seeking to diversify their real estate investments, especially during periods of economic instability. While London offers the opportunity to grow capital amid a steady rise in residential property prices, the decline in prices in the Dubai market and the rise in rental yields present a unique opportunity for a steady income stream that is no less significant than the former.
Diaa Nofal, Executive Partner and Head of Research for the Middle East and North Africa at Knight Frank, said: London real estate has long been considered a strong investment and a complement to the real estate portfolios of investors in the region, especially during times of economic crisis. Throughout the extraordinary journey of the Dubai real estate market—from boom to bust and then recovery over the past decade—the London real estate market has consistently served as a safe haven for those seeking capital growth, with the proportion of Middle Eastern buyers of luxury properties in London rising from 11% to 16% in the first half of 2015, placing them second only to the British themselves.
A simple comparison shows that British investors are among the largest in the Dubai market, surpassing many other nationalities. In the first half of 2015, British investments in Dubai accounted for 9% of the total transaction volume, ranking second only to India’s share among investors from outside the Arab Gulf states. There is no doubt that the investment relationship between London and Dubai has proven to be robust in both directions.
British real estate buyers in Dubai seek to increase their capital as their primary goal and to use the property as a primary or secondary residence as a secondary goal, while many Gulf nationals purchase real estate in London to use as residences for themselves, their children, or their spouses—either during their children’s education or for the purpose of spending vacations in Britain.
With the current real estate market in Britain improving and stabilizing, Middle Eastern investors are turning to London as a safe haven for investment, but declining returns in London and disproportionately high prices are likely to push investors toward the outskirts of London or to regional cities where profitable alternative investment opportunities are available, or even further afield, to global cities with strong international connections that promise greater growth and stability—Dubai being a prime example.
