Middle East pension funds are following private investors into the London property market. Regional investors have doubled their share of property purchases in the UK capital in the three years.
Pension funds take to London property
Middle East pension funds are following private investors into the London property market.
Regional investors have doubled their share of property purchases in the UK capital in the three years to last year to about 12 per cent of all overseas investment, according to CBRE, a property services company. The trend is expected to push the price of prime property higher as sovereign wealth fund (SWF) purchases are fuelled by a strong oil price.
At the same time, the expanding middle class in many regional economies is creating bigger pension pots seeking the long-term investment yield offered by UK property, where commercial leases often run to 25 years.
"The continued inflow of capital from SWFs and pension funds is likely to have a knock-on effect for the UK commercial property market," said Simon Barrowcliff, an executive director at CBRE.
"The long-term investment horizon for these types of investors means that increased competition in a supply-constrained market could depress yields further at the very prime end of the market." Investment yields fall when the price of property rises.
London property prices have bucked the slowdown in the British economy. Overall, UK house prices gained 0.6 per cent to an average of US$259,500 (Dh953,169) last month compared with January, according to Nationwide Building Society.
While regional political upheaval has diverted some sovereign wealth fund buying activity from overseas to home during the past year, many countries across the Middle East are developing their domestic pension industries, which is stoking demand for overseas property purchases.
The expansion of the middle class is also creating a bigger pool of discretionary income to invest in many emerging economies.
"The result has been a net inflow into these emerging market pension funds, building up reserves very quickly over the past decade," according to a CBRE report.
London property, often seen as a haven, is also becoming more attractive to individual investors chasing secure and long-term returns.
While prime residential markets in the capital such as Knightsbridge and Belgravia continue to attract purchases from wealthy Gulf players, many are also considering investments in other areas of the city and beyond, brokers say.
Foreign investors took the lion's share of UK property purchases last month worth an estimated £322 million (Dh1.8 billion), according to Colliers International.