The UK real estate market has long formed an integral part of the investment strategies of Middle East private investors and families. As part of our ‘Real Estate from a New Perspective’ series, Jade Fellowes, Client Services Director and Head of Intermediaries, explores how real estate is perceived from an Islamic finance perspective and how Sharia compliance can influence structuring…
Q: Middle East investors have long had an interest in UK real estate - what’s driving that sustained appeal?
The UK has always been a favourable jurisdiction for Middle East investors. It’s perceived as a safe and stable investment destination with London in particular retaining its appeal due to its prime real estate in locations such as Mayfair, Knightsbridge and Kensington. On the commercial side, sites such as The Shard and Harrods are also considered ‘trophy’ assets.
It is not only a tale of one city though – Manchester, Birmingham and Edinburgh are also experiencing strong growth on both the commercial and residential side.
Ultimately, investing in UK property is about more than just owning a tangible asset; it’s about securing a financial future in an asset class that has proven resilience and that offers real potential for long-term returns, through rental or capital growth. In addition, the established network of skilled property professionals makes buying and owning real estate in UK a profitable and headache free experience.
There are further market and political aspects at play that are bolstering the appeal of the UK property market. As well as the expectation of further interest rate cuts, falling inflation and a perceived post-Brexit appeal, the new Labour government’s ambitious affordable housing targets should ease market pressure and create long term confidence in the UK housing market. It’s a dynamic that is clearly resonating with the Middle East investor community – our teams at Suntera are certainly seeing this through both our onshore and offshore structuring workflows.
Q: What sort of real estate opportunities are Middle East investors interested in?
There continues to be a strong appetite for large scale living sector investment, whilst recent research undertaken by Bank of London and The Middle East (BLME) also predicts that GCC investment in UK commercial property is expected to grow over $4bn annually.
Our own experience would support that. We continue to see interest from GCC families and HNWIs wishing to diversify their investments into commercial and mixed-use real estate. It offers long term stable performance, a robust form of wealth preservation, and, importantly, opportunities for generational wealth planning and asset protection
One area we continuously see a particular interest in is student accommodation. It’s a sector where Middle East investors have long had an interest, and aside from the high yields, there is good reason for this. HNWIs and families from across the Middle East have for some time sent their children to the UK for educational purposes and developed strong ties with those regions that extend beyond the financial to develop family, cultural and societal links too.
Q: How important is sustainability, as perceived by Middle East investors?
Sustainability is critical when it comes to Islamic Finance-driven real estate investment. Not only have Middle Eastern nations made sustainability central to their own national development plans, such as Saudi Vision 2030, but Islamic Finance by its nature aligns strongly with sustainability. Following Sharia is a way of life for Muslims and sustainability is engrained in beliefs and morals.
In that sense, sustainability is not a separate consideration, neither is it ‘new’. Real estate investments that are Sharia compliant must typically be ethically and socially responsible - hence the rise in Sharia compliant green finance and Sukuk in recent years. The fact that the London Stock Exchange published new guidance this year in relation to the issuance of green, social and sustainable Sukuk was a welcome move in this respect too.
Q: How does that focus on sustainability impact structuring when it comes to UK real estate investment?
There is a strong argument that Sharia compliant real estate investment could support UK sustainability initiatives perfectly, in terms of ethical finance, social responsibility and environmental stewardship. Thankfully, the UK has a wealth of professionals with Islamic finance expertise, including the team at Suntera, who are able to structure deals to support a move towards long-term sustainability in accordance with Sharia law.
In real estate terms this could include clients wishing to invest directly into green bonds and clean energy equities; real estate with strong sustainability credentials; fully Sharia compliant lending; and Sukuk issuance – there are currently 68 listed on the London Stock Exchange. Over the years we have also supported Middle Eastern clients wishing to expand their property portfolios with financing obtained from Sharia compliant lenders, typically via a commodity Murabaha, and we are continuing to see growth in this area.
Q: How do multijurisdictional touch points impact Sharia compliant structuring for real estate?
Where there are multijurisdictional elements to a real estate investment, it’s crucial to be carefully coordinated to ensure that legal, regulatory and financial frameworks all align with Sharia principles, whilst also adhering to the legal and tax regimes of the countries involved.
There is added complexity there, but experts with a global reach, like our team at Suntera, can help clients navigate a safe and robust path, often through a collaborative approach and throughout a structure’s lifecycle to ensure ongoing compliance.
Visit our real estate services overview page for information on our structuring and administration services.
Key Contact:
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Jade Fellowes
CLIENT SERVICES DIRECTOR AND HEAD OF INTERMEDIARIES
