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Reversal of fortune, The National 11.11.2008

The UK is currently experiencing a wave of investment from the Gulf region. From Manchester City Football Club to Barclays Bank, to flats in London squares, the time is right for GCC residents to consider investing in Britain. As the credit crunch increases and the UK enters a recession, domestic house buyers are disappearing fast. But for those living in the Middle East with the cash to spend, this provides a fantastic opportunity. “With the dollar appreciating against sterling, and discounts on top of that due to the falling property market, GCC residents will find substantial savings buying in London right now,” says Mike Topham, the general manager of Kanoo Property.

In fact, such is the interest in UK property from Gulf-based investors that Kanoo Property is teaming up with the leading UK property search firm, Garrington Home Finders, to open an office in Dubai at the end of the year. Tim Johnston, the head of client relations and international development at Garrington, has been travelling to the UAE several times a year for the last few years and is familiar with the requirements of shrewd UAE investors.

“UAE purchasers are looking for huge value, say a discount of 30 to 40 per cent,” says Johnston, who takes on clients looking for UK properties in the range of £750,000 (Dh4,310,000) upwards, which is the price bracket most affected by the current financial crisis. As Johnston explains, “This is the city broker price range. It is very mortgage sensitive. In tough financial times such as this, the second home goes first and then the London pad.”

As an example of the bargains currently on offer, the Kanoo-Garrington team recently looked at a property for a client in Lennox Gardens in London’s prestigious Chelsea neighbourhood. The initial sale price was £4 million (Dh22m). In response to a turgid market, that price was dropped to 3.1m (Dh17m). The discount didn’t stop there, as Mike Topham explains. “When the property went on the market the dirham/sterling exchange rate was 7.2, but by the time the sale went through, the exchange rate had dropped to 5.6. This made nearly a 45 per cent reduction on the original price – a good buying opportunity.”

For those not familiar with what a property finder does, one thing they are keen to point out is that they are not estate agents. Garrington was set up in 1996 by Phil Spencer (of the BBC’s Location, Location, Location fame) to help purchasers in what he perceived to be a vendor-biased housing market. They charge a monthly retainer, which is then netted off a success fee based on a percentage of the purchase price of the property. In return, they offer a “wrap-around” service, dealing with everything on behalf of the buyer, from finding the property to arranging the surveyor and lawyers, negotiating with the sellers and then overseeing the conveyancing through to completion. Around 30 per cent of their clients are based overseas. Four years ago, there were eight people working at Garrington in the UK; today, there are more than 20. All employees have to sign a confidentiality agreement upon joining, which is important when much of their client base includes high-net worth individuals and people in the public eye.

Some buyers from the region have found that when a seller realises he is dealing with someone from the Gulf, the price will suddenly rise. Johnston and Topham believe that their role as agents in negotiations can protect clients from such reactionary price hikes. “We can ensure the price is right for the market at that time and probably get a better price than if the clients represent themselves,” explains Topham.

Another property Topham and Johnston looked at for a client was a flat in Campden Hill Gardens in London’s trendy Notting Hill Gate area. When it came on the market, the asking price was £799,000 (Dh4,591m) and the dirham/sterling exchange rate was 7.2. Topham expects the final sale price to be between £680,000 to £700,000 (Dh3,907 to Dh4,022m), which, at today’s exchange rate, would mean a saving of around 30 per cent. At the higher end of the market, another client was interested in a property in Bramham Gardens in London, near the chic area of South Kensington. This four-bedroom, ground floor flat was on the market for £2.9m (Dh16.7m) with a dirham/sterling exchange rate of 7.2. It sold for £2.25m (Dh13m) at an exchange rate of 5.6, which saved 40 per cent on the original asking price.

“Most of our Middle East clients have some property in London and are interested in acquiring more. They have an established set of contacts, but they don’t always act in the client’s best interest or have the necessary expertise,” says Topham. Garrington has no properties on its books, but does have a huge network of contacts. They aim to match their client’s brief to properties they hear about on the market, or premarket, before the advertising brochures have even been printed, or to off-market properties. As Topham explains, “A lot of property being sold in the UK by distressed sellers won’t go on the market at all. They will want to sell quickly and cheaply. We will hear about them through our network of contacts and we then have a dedicated resource at Garrington in the UK to pursue the right properties.”

“We know people using property finders are very serious buyers because they are paying them a retainer, so they go on our list of hot applicants,” says Sally Noakes, an estate agent with Strutt & Parker. This means property finders are on the list of those who get a chance to view properties before they go on the market. As Sally points out, “The vendors are paying for a professional, so why shouldn’t the buyer?”

Currently, most of the clients taken on by Kanoo Property acting with Garrington are individuals introduced through links with the Kanoo Group. These clients buy properties seeking capital gain rather than rental yield. “There is very little flipping,” explains Topham, “most hold these properties for over 20 years”. In the future, they may well expand their focus to include UK expatriates seeking to buy homes back in the UK. “There will be great opportunities to buy in the UK over the next year or so. Expatriates may even find they are able to buy back the house they sold a couple of years ago at half the price they sold it for,” adds Johnston.

The UK looks all the more attractive because there is a degree of nervousness at the moment about the state of the UAE property market. “We are on the verge of a decent correction in the local market,” states Topham. With sales of off-plan properties already dropping, investors are looking elsewhere for investment opportunities. Some are sitting back and waiting to see if the UK market has further to fall, hoping it will bottom out next spring, but Johnston is not so sure. “I think now is a good time to be in the market. There is a lot of uncertainty, so people are willing to take big discounts. I think we may be close to the bottom now.” Investors holding out for further discounts next year will have to weigh this up against the approximately 20 per cent savings a weak pound is giving them now. As with all speculating, the key is picking the right moment to pounce, but as Johnston warns, “When the market comes back, it will come back quickly.”

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