Turmoil in the oil markets this year has seen Middle Eastern institutions become more cautious in their property buying. As a result, London could soon see sovereign wealth funds from the region sell assets and repatriate money as governments look to make up deficits created by the subdued oil price.
Speaking at Estates Gazette’s London and Dubai debate at the London Real Estate Forum, Steve Morgan, senior partner of Cluttons, said there would be a reduction in activity from the largest institutions.
“With the government having a fiscal deficit, some of the sovereign wealth funds will have to take assets out of the market, but high net worths still want to spend and spread their risk,” he said. “There is a sense it might not be appropriate to spend outside your country and that is coming through quite strongly from Saudi Arabia.”
Dubai has grown exponentially in the past 10 years, and last year its airport handled more passengers, 78m, than any other world city, surpassing London’s 75m.
This was in part down to the decisive nature of how business is done and investment is made in the “benign dictatorship”, as described by Morgan.
“Sheikh Mohammed makes the decisions and that is a massive difference, and it is a real problem for us and an obstacle to be able to challenge it,” he added.
Morgan and Gavin Winbanks of UKTI agreed that London’s strengths compared with Dubai were the UK capital’s transparency, democracy and rule of law.
“The rule of law in the UK, while the planning process has its frustrations and timescales, might not be appealing to all investors, but it is a fair and equal playing field for international investors and has given London its position as the number-one city in which to invest,” Winbanks said.
“From our perspective, we think we will continue to see a high level of interest from the Middle East because of the economic fundamentals that continue to make London an attractive place to invest,” he added. “Potentially, the benign dictatorship, as Morgan refers to it, could be a less attractive place to commit to over the long term and ensure that you make returns.”
Dubai managed to strengthen its status in world business and attract investment because of its unrelenting spending strategy during periods when western economies were hamstrung by financial markets.
“During the recession, Dubai’s infrastructure spending went up and it continued to invest heavily, managing to win the World Expo for 2020. The city has proved to everyone that it has a lot to offer,” said Simon Fraser, senior partner at Hopkins Architects.
In order to combat its deficit, Dubai may introduce taxation and that could subdue its competitiveness, according to Morgan.
“There is a deficit in the government budget and that can only mean tax. There is already talk of VAT coming in later this year and then maybe corporate and income tax. There are taxes but just stealth taxes. It would be a quantum change in terms of everything Dubai has tried to create and be.”
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