|15 December, 2019

Gulf investor rush to UK realty likely before rising pound drives prices up

The UK is now expected to leave the EU on January 31

City workers head to work during the morning rush hour in Southwark in central London, Britain April 16, 2014.

City workers head to work during the morning rush hour in Southwark in central London, Britain April 16, 2014.

REUTERS/Toby Melville

The current strong rebound trend of pound sterling in the aftermath of the Conservative party victory and the certainty on Brexit are prompting Gulf investors to buy luxury properties in London before a widely expected price rally, realty experts said.

Kyra Motley, Partner at Boodle Hatfield, says that the period of extremely low London luxury property prices for buyers in US dollars may begin to end as certainty over the UK's exit from the European Union is finally reached. The UK is now expected to leave the EU on January 31.

Analysts said investors from the dollar-pegged Gulf countries would only have limited time horizon at their disposal before the current affordability of properties in the UK ceases to exist in the event of a relentless pound rally.

"For those considering a London luxury property purchase, time is now of the essence. Prices are unlikely to stay so low for a long period, and Gulf buyers will want to get deals completed as soon as possible," said Motley.

"The last three years have been a great time to buy in London for Gulf investors, but that window of opportunity may start to close."

"Finally getting certainty on Brexit could see the pound recover, and Middle Eastern buyers lose some of the foreign exchange discount they have enjoyed since 2016."

Mansoor Mohi-uddin, senior macro-strategist at NatWest Markets, has said an orderly Brexit and certainty in the UK-EU relations would draw central banks and other longer-term money managers back into British assets, helping sterling rally to $1.40 to $1.45 in the next few months.

Sterling's fall against the dollar since the 2016 Brexit referendum and the country's Brexit-driven economic slowdown have kept purchase prices on central London luxury properties more affordable for Gulf buyers. Sterling is now likely to gradually recover against the dollar, pushing up prices for non-UK buyers, according to analysts.

ING Bank had said the pound could hit $1.35 with a Conservative majority, compared with $1.26 or $1.24 against the dollar if there were a hung Parliament or a Labour Party majority, respectively. Citigroup predicted that sterling would reach $1.40 against the dollar in 2020, bolstered by a Conservative majority bringing certainty to the market.

The pound has lost around 15 per cent of its value since the 2016 Brexit vote. In August, it hit a low of $1.20 it has not seen since the 1980s (excluding 2016's so-called flash crash) when it looked as though new Prime Minister Boris Johnson was gunning for a no-deal Brexit.

Michael Hewson of trading platform CMC Markets has predicted that a move towards the $1.40 area would be a possibility for the sterling.

However, some analysts are quick to caution against too much optimism. Eli Lee, head of investment strategy at Bank of Singapore, said sterling's rise could be capped next year, given the challenges of reaching a trade pact with the EU and the economic impact of a potential "bare bones" free-trade agreement.


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