US still of interest for Middle East real estate investors

Analysts are predicting that Middle East sovereign wealth funds will continue to buy big chunks of real estate in America’s biggest cities despite Donald Trump’s election victory.

Over the past year, the funds, which have traditionally invested in high-profile London buildings such as the Shard and the Berkeley Square estate, have moved much of their buying appetite to North America and Asia following the Brexit vote.

But property advisers say that Mr Trump’s victory will not have the same effect.

“Donald Trump, during his campaign, made a lot of promises but we now know that he is toning down everything,” said Fadi Moussalli, the head of JLL’s international capital group in the Middle East and North Africa. “If the economy is in good health, which is important for real estate, then I believe investing in the US still makes a lot of sense for Middle Eastern investors.”

According to JLL, cross-border capital flows into London property fell by 44 per cent in the first six months of this year, compared with a year earlier. The US and Canada were the only regions to show increases in the amount of cross-border property investment during the period.

CBRE has likewise reported that London’s influence as an investment destination is waning. It said that the city received 32 per cent of the cash spent on property by Middle Eastern investors in the first quarter of 2016, down from 43 per cent in 2013.

Economists are concerned that the uncertainty surrounding Mr Trump’s presidency will lead to lower growth, with Bank of America Merrill Lynch cutting its forecasts for US GDP in next year to 1.8 per cent from 2.1 per cent.

But with the Dow Jones Industrial Average climbing to record highs and the US Dollar Index reaching its highest level since 2003 in the days after the election, property advisers say that it is a good time to buy American.

“Overall, we expect to see continued interest in the US from Middle Eastern investors, although as yet it remains unclear exactly what policies president-elect Trump intends [or will be able] to implement and what impact these may have on real estate or other capital flows,” said Nick Axford, CBRE’s head of global research.

“Having spent considerable time building up long-term portfolios of high-quality real estate assets, it appears unlikely that SWFs will become net sellers as a matter of policy in either the US or the UK.”

Earlier this year, Qatar’s sovereign wealth fund paid US$622 million for a 10 per cent stake in the company that owns New York’s Empire State Building as part of a plan to boost its North American assets.

Qatar Investment Authority (QIA), which already owns stakes in Europe’s tallest building, The Shard, the Canary Wharf Estate, Harrods and the Olympic Park in London, said that it had bought a 9.9 per cent stake in Empire State Realty Trust, acquiring 29.6 million shares in the group at $21 each.

The high-profile property purchase is expected to be the first of many from QIA, which last year opened a New York office as the state-owned investment fund seeks to increase its North American portfolio and diversify away from the UK and Europe, where it already has large exposure.

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