Each summer the British media finds a new way to report on the luxury supercars parading around London. From purple Lamborghinis to gold Rolls-Royces and superfast Ferraris, the novelty value never wears off. Equally, some of the poshest parts of the British capital are increasingly being called home for the Middle East’s richest families.
In May, the Qatari royal family bought one of the city’s grandest homes for over £40m ($61.9m) in an area of Mayfair that has become so popular with Qataris it has been dubbed “Little Doha” by some excited real estate brokers.
The big-spending Al Thani royal family is also attempting to build a $300m mega-palace for themselves in London’s Regents Park by knocking together three listed homes, but is facing council objections to its plans,Arabian Business reported.
However, the Abu Dhabi royal family, the Al Nahyans, is now reportedly the largest landowner in Mayfair behind the Duke of Westminster, who inherited huge swathes of property in Central London. Its portfolio includes the lavish £400m ($627.7m) Berkeley Square Estate, purchased nearly 15 years ago.
Arab Invasion
It’s not just royalty either. Persian Gulf Arab developers are channeling $15 billion a year into overseas real estate assets, with London remaining the top draw, according to real estate consultants at CBRE.
However, “Little Doha” is not the only location where council objections have been fought over Arab plans to redevelop the city. Some elements of the British media and political classes are not overly keen on the Arab invasion of some of the UK capital’s most sought-after property markets and a recent legal battle in the High Court could lead to Persian Gulf-based developers being handed a bill for millions of dollars in fees.
In November last year, Conservative Party government housing minister Brandon Lewis unveiled a “Vacant Building Credit” scheme, which amended the current regulations and introduced a minimum threshold for councils to seek affordable housing.
Lewis claimed that the current contribution levels amounted to a “Stealth Tax” and was putting large developers off redevelopment land banks in some of the city’s most lucrative areas. He hoped it would be a catalyst for development and investment and make it easier to convert empty or unused buildings back into housing schemes or viable homes.
The move by Lewis and his government meant developers would potentially save millions, if not billions, leading to massive objections from many stakeholders. For example, Westminster council complained that the new policy would mean the Abu Dhabi Investment Council, along with partner developer Finchatton, would see its affordable housing contribution fee to redevelop the former US Navy HQ in Mayfair decrease from £17.6 million ($27.6 million) to around £8.6 million ($13.5 million).
Irrational
In his ruling against the Housing Minister Justice David Holgate stated that the minister’s “consultation process that preceded the policy change was unfair”, and the decision to introduce the new national exemptions from affordable housing requirements “was irrational”.
In response to a query on the impact the removal of this loophole would have on luxury London developers, a department for communities and local government spokesman issued the following statement to Arabian Business: “We’ve got Britain building and we’re determined to maintain this momentum, including by reducing the red tape and extra costs that prevent smaller developments from getting built. We are disappointed by the outcome of the judgment and will be seeking permission to appeal against the judge’s decision. This will have a disproportionate impact on smaller builders who are important in providing homes for local communities”.
Jonathan Manns, director of planning at property consultant Colliers in London, says the main issue here is “the government’s reforms lacked support from the industry and, ultimately, were shown in court to be legally unsound”.
Hurdle for Arab Investors
“The planning system has always been one of the hurdles for a Persian Gulf investors in the UK. The costs of residential development has potentially gone up but there still remains the opportunity to negotiate if the required contributions make a development unviable. At worst, the position has just returned to where it was in October 2014 before the policy was announced,” he adds.
With the ruling focused on smaller developments, the British Property Federation is eager to believe that this will have limited impact on Persian Gulf Arab investors. “Since this ruling only applies to schemes of ten units or fewer, it should not deter Persian Gulf Arab investors from investing in larger regeneration schemes either in London or the rest of the UK.”
JR Capital, a London-based firm that manages money from the Middle East for residential investors, says, unsurprisingly, it is not convinced the removal of the credit would deter developers from investing in the capital and it has not seen any drastic change in the investment habits of developers from the region.
The Arab investors prefer to stick to central London, which they are more familiar with and consider a safe haven. The outlook for UK property remains positive over the medium term. Whilst residential values in prime central London have slowed over the past 18 months, zones 2 to 6 continue to outperform due to a lack of supply.
The consensus seems to be that it is unlikely rich Arabs will stop investing in large developments and snapping up trophy assets in London, but going forward it is clear that it will now cost them millions more in fees and allocations to local councils.
