Gulf Investors Look to Europe to Balance Their Portfolios

By Smith, Pamela Ann | The Middle East, February 2009 | Go to article overview

Gulf Investors Look to Europe to Balance Their Portfolios


Smith, Pamela Ann, The Middle East


WITH AN ESTIMATED $1.3 trillion to invest, the Gulf's private investors are continuing to look at opportunities in Europe despite the recession and the slowdown at home. Real estate, particularly involving Islamic finance, is a prime target. Partnerships with western companies are also being sought to provide technology, innovation, knowledge and access to markets. Meanwhile, European leaders are seeking funds from the Gulf to help their own economies weather the global contraction.

In Europe, the UK remains the main focus for investors from Saudi Arabia, Kuwait, Qatar, Bahrain, the United Arab Emirates and Oman. Figures produced by UK property advisors, Jones Lang LaSalle, show that of the more than $13bn placed in real estate abroad from the Gulf, Britain accounted for $4bn, followed by Germany at $1bn, France and Sweden. Turkey was another favoured target. Although the data is for 2006, the last year for which complete figures are available, real estate analysts say that even with the current downturn in the past year, an increase on these sums is likely.

In October, the world's largest Shariah-compliant, open-ended real estate fund, the HSBC Amanah Global Properties Income Fund, completed the acquisition of a substantial real estate portfolio in the UK. Financing was provided by the Royal Bank of Scotland. HDG Mansur Investment Services of the US acted as investment advisor. Legal services were provided by King & Spaulding, also of the US. While details of the acquisition were not disclosed, the HSBC Fund is reported to have total assets of more than $1.8bn.

Other Islamic real estate transactions in the UK have been finalised or are expected to close in the coming months. These include deals by the Bank of London and Middle East (BLME) and Bahrain's Gulf Finance House (GFH), which has launched the second tranche of its Gulf Atlantic Real Estate Fund. David Testa, CEO of Gatehouse Bank, the London-based Shariah-compliant institution founded in 2007, told The Middle East his institution was discussing two "landmark" deals in Britain "with good yields". Islamic funds, he added, had the advantage of a "tax-efficient" regime in the UK thanks to recent regulatory changes.

"Periods of negative returns are very rare in the UK and usually decades apart," GFH said in its recent Real Estate Asset Management Report. "Because of the enduring popularity of UK commercial property, international buyers have used these brief periods of weakness to snap up bargains as values have recovered into positive territory." However, the Report adds that while "there is no doubt there are good deals to be done," investors should "choose carefully to reap the rewards that are undoubtedly available".

Richard Thomas, managing director of Kuwait's Global Securities House (GSH), the parent company of Gatehouse, is confident that despite the downturn, the UK market "is becoming investible again". Real estate market fundamentals and yields "are starting to meet expectations," he says, noting that "significant opportunities" should be available early this year "without the need for excessive leverage". Both London and regional centres in Britain are attractive, he added.

London-based property consultants, Strutt &Parker, who have opened offices in Abu Dhabi and Dubai, managed and sold the Lighthouse Portfolio in the UK on behalf of the Kuwait Finance House (KFH). The portfolio consists of eight properties valued at a total of 178m [pounds sterling]. Strutt & Parker also acted as consultants for the acquisition of a $17.5m freehold retail and office building in London's prestigious Kensington High Street by a private Middle Eastern client.

[ILLUSTRATION OMITTED]

Ali Ghannam, Head of Real Estate Development at KFH, one of the Gulf's oldest and largest Islamic financial institutions, told TME in December that in addition to the UK, it was looking at properties in central and eastern Europe as well as in the US, Canada and Australia. …

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