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Fears of Brexit hold back Gulf investors in the UK
June 4, 2016, 5:14 pm

Sovereign wealth funds and private investors from Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, who have been prolific buyers of British assets in the past decade, are holding back from new acquisitions because of a fear that property prices could slump, if Britain leaves the European Union (EU) following a referendum on 23 June.

The value of residential property in upmarket areas of London popular among Gulf investors — including Chelsea, South Kensington and Knightsbridge — fell between 3.5 and 7.5 percent on the year in May, according to Knight Frank, a leading residential and commercial property consultancy in the UK.

A report published by Britain’s Treasury in April predicted foreign direct investment into the country would be between 10 and 26 percent lower after fifteen years if it left the EU, compared to where it would be if it stayed in. The most recent YouGov poll on the referendum results, held for the Times newspaper last Wednesday, showed an even split between “Remain” and “Leave” voters.

Gulf family businesses and private investors are heavily involved in London real estate. Investors from the UAE accounted for more than 20 percent of buy-to-let property sales in the UK in 2015. While the precise impact on Gulf investments is unclear, overall flows of foreign capital into commercial real estate in Britain stopped in the first three months of 2016, Bank of England Governor Mark Carney said in April. Statistics also showed that business investment in the country fell in early 2016.

While there is no suggestion long-term investors from the Gulf will exit assets en masse if Britain votes out, many are worried about the impact on portfolios and wider economic effects, a senior Gulf government official said. Under the prevailing scenario, investors have become cautious and were still researching opportunities and discussing details without finalizing any deals, said sources familiar with the UK property market.

Gulf investors also have broader worries about their investments in other sectors and how a possible Brexit could affect the British economy. “Of course we are worried about what will come next if the British decide to leave the EU,” said the Gulf official. “We think that there will be a negative impact on our investments in the UK because the selling (prices) will go down and the banks in England will face some difficulties.”

Kuwait Investment Authority, which has $592 billion in assets under management according to Sovereign Wealth Fund Institute (SWFI) is a major investor though its London-based Kuwait Investment Office. In 2013 it said the fund had more than doubled its investment in Britain over the previous 10 years to more than $24 billion.

Kuwait investors own London landmarks such as the More One riverside development which houses the headquarters of the mayor, as well as buildings in Canary Wharf. It has focused on infrastructure investments through its Wren House Infrastructure Management arm set up in 2013.

The Qatar Investment Authority (QIA), which has $256 billion of assets under management globally, according to the SWFI, has been diversifying its portfolio away from Europe towards more investments in the United States and Asia in the last couple of years. Nevertheless, the QIA is still heavily invested in Britain and holds stakes in Barclays, Royal Dutch Shell and Sainsbury’s.

Qatar is also one of the most high-profile investors in London, owning landmarks such as the Shard skyscraper, Harrods department store and Olympic Village, as well as luxury hotels. The country also leads a consortium that bought the owner of the Canary Wharf financial district last year.

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