Commercial property investors are writing clauses into contracts giving buyers the right to walk away from real estate deals if Britain votes to leave the European Union this month, as a way to unfreeze a sector stalled by uncertainty over Brexit.
The moves come as Arabian Gulf investors, some of the biggest buyers of British real estate, are holding back from new deals because they fear a property price slump if Britain does leave the EU, according to legal and investment sources.
Among Gulf Arab investors sovereign and private investors from Qatar, Saudi Arabia, Kuwait and the United Arab Emirates have been prolific buyers of British assets in the past decade, snapping up billions of dollars worth of property, mostly in London.
“Sovereign wealth funds are concerned that Brexit is taking its toll on the property market in London,” said a London-based lawyer who works with some of the largest Gulf funds. He declined to be named, citing the confidential nature of his work.
“The situation will further deteriorate if there’s a Brexit vote.”
The overall value of residential property in upmarket areas popular among Gulf investors – including Chelsea, South Kensington and Knightsbridge – fell between 3.5 and 7.5 per cent on the year in May, according to the estate agent Knight Frank, although some areas did better.
Investors from the UAE accounted for more than 20 per cent of buy-to-let property sales in the UK in 2015, said Amit Seth, the Middle East and North Africa head of international residential developments at the London-focused estate agency Chestertons.
“At the moment it seems clear people are little bit more sceptical on making an investment today because of Brexit,” said Mr Seth, who is based in Dubai, referring to private Gulf investors in residential property.
He said investors were still researching opportunities and discussing them with his company, but not finalising deals.
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, the Bank of England governor Mark Carney said in April. Business investment in the country also fell in early 2016, statistics showed last week.
Asked to comment on Gulf investor concerns, Tobias Ellwood, a British foreign office minister, said the EU referendum was a significant event that had been discussed as part of regular bilateral engagements covering a wide variety of areas.
“But [it] has not been raised in any form in relation to impact on investment opportunities, which go from strength to strength,” he said last month.
Sheikh Hamad Al Thani, a former Qatari prime minister and an investment chief who oversaw much of the country’s UK acquisitions, has spoken out against a “leave” vote.
“In the Middle East we all want to see a strong Europe, and believe that economic integration is key to making it stronger. In fact, we believe the UK should not only be part of the EU but should lead it,” he told Reuters, describing the City of London as the “financial capital of the world”.
Qatar is one of the most high-profile investors in London, owning landmarks such as the Shard ower, Harrods department store and Olympic Village, as well as luxury hotels. It also leads a consortium that bought the owner of the Canary Wharf financial district last year.
Sheikh Hamad said in April that Qatar’s total investments in Britain were about £30bn.
Kuwait Investment Authority is also a major investor through 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 $24bn.
Like Qatar, Kuwait owns 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.
Uncertainties about the legal and regulatory framework that would result from a Brexit is a worry for any large investor in Britain, said Fabio Scacciavillani, the chief economist at Oman Investment Fund.
“If the region’s sovereign wealth funds have invested in UK assets they would be rightfully concerned for their long-term returns outlook,” he said, adding most would put their decisions on hold until after the vote.
“Brexit implies a long and potentially thorny period of adjustment as the UK will need to negotiate trade relationships.”
Meanwhile, transactions in commercial property fell by 40 per cent in the first quarter, according to the Bank of England, spurring a revamp of standard purchase and sales contracts.
In one example from a commercial transaction seen by Reuters, a clause sets a deadline after the Brexit vote when the buyer would be permitted to terminate the contract if the referendum results in a decision to leave.
Sellers, too, are taking legal precautions, seeking language in contracts to ensure that Brexit will not be considered a “material adverse change” that would annul a deal.
Paul Firth, the head of property at the law firm Irwin Mitchell, said a significant per cent of the firm’s “bigger investment deals” with values ranging from £10m to £80m either included Brexit clauses, or purchasers had sought to negotiate that they be included.
He said the use of such clauses had increased in recent weeks as the referendum date draws closer.
“[Investors] fear that the value and return on investment properties may decline and that it may not be as good an investment if Britain withdraws from the EU,” he said.
Since commercial real estate deals are usually confidential, it was not possible to determine precisely how common such clauses are.
However, half of the 24 law firms, brokerages and commercial property firms Reuters spoke to said they had used Brexit clauses, brokered a deal with such a clause or had requests to include them in at least one deal. Some of the others said they had seen them.
The prime minister David Cameron and other politicians supporting the campaign to stay in the EU say a vote to leave would damage the economy and cause property prices to fall. Those campaigning to exit say any such threat is overblown and Britain can prosper outside the EU.
But whether overblown or not, it is a risk some buyers seem unwilling to take.
Guarantees are being offered not only for commercial property but also for homes. An invitation to a May 25 launch of some floors of Two Fifty One, a 41-storey luxury apartment tower going up in south London’s gentrifying Elephant and Castle district, offered buyers a “money back Brexit guarantee pledge”.
Buyers attending the launch would not have to exchange contracts until July 6 and could withdraw their offer and get their deposits back if they were unhappy with the outcome of the vote, said Martin Lent, the chief executive of SCM, the development manager for the project by residential developer Oakmayne.
In commercial property, Brexit clauses are more common in higher-value deals where the risks are greater, said Andrew Friend, a director of a UK property fund at Henderson, one of Europe’s largest investment managers.
“Deals that include these clauses tend to be at the higher lot size end of the market and they’re more focused on sectors such as financial office space in London, which are more sensitive to a Brexit type situation,” said Mr Friend.
Brexit clauses are particularly in demand among overseas investors. Two lawyers dealing with property said most enquiries about Brexit clauses were from foreign investors who were concerned that an “Out” vote could weaken sterling, as well as reduce appetite for leasing commercial space in Britain.
“When it comes to international investors looking to build global or European portfolios, we are either ‘on hold’ or would use a Brexit clause,” said Rob Wilkinson, the chief executive of AEW Europe, a property manager property.
Melanie Curtis, a real estate partner at the law firm K&L Gates, said she had worked on a deal with a Brexit clause in a commercial property transaction worth more than £10m, in which her firm acted on behalf of an overseas buyer.
“The buyer required a Brexit clause, as it may reassess its UK investment policy in the event of withdrawal from the EU.”
James Crookes, the head of real estate and property at the law firm Pinsent Masons, said some clauses, rather than giving the buyer the right to walk away or renegotiate, would automatically reduce the purchase price of a property in the event of a Brexit vote. In one deal, the price would be lowered by £1m.
“So they’re factoring in a valuation on the assets based on Brexit.”
Nick Lloyd, the national head of capital markets at the commercial property broker Lambert Smith Hampton, said offering Brexit clauses could also be beneficial for sellers, to secure deals while fewer transactions are taking place, in anticipation of a potential flood of properties returning to the market if Britain votes to remain in the EU.
“Whilst they mitigate downside risk for buyers, they can be attractive to a vendor who wants to avoid the risks of marketing during a potential oversupply of new stock after the referendum,” said Mr Lloyd.
But with less than a month to the vote, two law firms and one property broker said they were now advising clients to reject demands for a Brexit clause and simply put deals on ice.
“One seller recently asked the buyer to confirm it would proceed with the purchase irrespective of the outcome of the referendum,” said Mark Payne, a partner in the property team at the law firm Clifford Chance.
“This proposal was, however, rejected.”
business@thenational.ae
Follow The National's Business section on Twitter
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Ziina users can donate to relief efforts in Beirut
Ziina users will be able to use the app to help relief efforts in Beirut, which has been left reeling after an August blast caused an estimated $15 billion in damage and left thousands homeless. Ziina has partnered with the United Nations High Commissioner for Refugees to raise money for the Lebanese capital, co-founder Faisal Toukan says. “As of October 1, the UNHCR has the first certified badge on Ziina and is automatically part of user's top friends' list during this campaign. Users can now donate any amount to the Beirut relief with two clicks. The money raised will go towards rebuilding houses for the families that were impacted by the explosion.”
If you go…
Emirates launched a new daily service to Mexico City this week, flying via Barcelona from Dh3,995.
Emirati citizens are among 67 nationalities who do not require a visa to Mexico. Entry is granted on arrival for stays of up to 180 days.
From Europe to the Middle East, economic success brings wealth - and lifestyle diseases
A rise in obesity figures and the need for more public spending is a familiar trend in the developing world as western lifestyles are adopted.
One in five deaths around the world is now caused by bad diet, with obesity the fastest growing global risk. A high body mass index is also the top cause of metabolic diseases relating to death and disability in Kuwait, Qatar and Oman – and second on the list in Bahrain.
In Britain, heart disease, lung cancer and Alzheimer’s remain among the leading causes of death, and people there are spending more time suffering from health problems.
The UK is expected to spend $421.4 billion on healthcare by 2040, up from $239.3 billion in 2014.
And development assistance for health is talking about the financial aid given to governments to support social, environmental development of developing countries.
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
MATCH INFO
South Africa 66 (Tries: De Allende, Nkosi, Reinach (3), Gelant, Steyn, Brits, Willemse; Cons: Jantjies 8)
Canada 7 (Tries: Heaton; Cons: Nelson)
The more serious side of specialty coffee
While the taste of beans and freshness of roast is paramount to the specialty coffee scene, so is sustainability and workers’ rights.
The bulk of genuine specialty coffee companies aim to improve on these elements in every stage of production via direct relationships with farmers. For instance, Mokha 1450 on Al Wasl Road strives to work predominantly with women-owned and -operated coffee organisations, including female farmers in the Sabree mountains of Yemen.
Because, as the boutique’s owner, Garfield Kerr, points out: “women represent over 90 per cent of the coffee value chain, but are woefully underrepresented in less than 10 per cent of ownership and management throughout the global coffee industry.”
One of the UAE’s largest suppliers of green (meaning not-yet-roasted) beans, Raw Coffee, is a founding member of the Partnership of Gender Equity, which aims to empower female coffee farmers and harvesters.
Also, globally, many companies have found the perfect way to recycle old coffee grounds: they create the perfect fertile soil in which to grow mushrooms.
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
Expert advice
“Join in with a group like Cycle Safe Dubai or TrainYAS, where you’ll meet like-minded people and always have support on hand.”
Stewart Howison, co-founder of Cycle Safe Dubai and owner of Revolution Cycles
“When you sweat a lot, you lose a lot of salt and other electrolytes from your body. If your electrolytes drop enough, you will be at risk of cramping. To prevent salt deficiency, simply add an electrolyte mix to your water.”
Cornelia Gloor, head of RAK Hospital’s Rehabilitation and Physiotherapy Centre
“Don’t make the mistake of thinking you can ride as fast or as far during the summer as you do in cooler weather. The heat will make you expend more energy to maintain a speed that might normally be comfortable, so pace yourself when riding during the hotter parts of the day.”
Chandrashekar Nandi, physiotherapist at Burjeel Hospital in Dubai
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
A State of Passion
Directors: Carol Mansour and Muna Khalidi
Stars: Dr Ghassan Abu-Sittah
Rating: 4/5
Full list of Emmy 2020 nominations
LEAD ACTOR IN A COMEDY SERIES
Anthony Anderson, Black-ish
Don Cheadle, Black Monday
Ted Danson, The Good Place
Michael Douglas, The Kominsky Method
Eugene Levy, Schitt’s Creek
Ramy Youssef, Ramy
LEAD ACTRESS IN A COMEDY SERIES
Christina Applegate, Dead to Me
Rachel Brosnahan, The Marvelous Mrs. Maisel
Linda Cardellini, Dead to Me
Catherine O’Hara, Schitt’s Creek
Issa Rae, Insecure
Tracee Ellis Ross, Black-ish
OUTSTANDING VARIETY/TALK SERIES
The Daily Show with Trevor Noah
Full Frontal with Samantha Bee
Jimmy Kimmel Live
Last Week Tonight with John Oliver
The Late Show with Stephen Colbert
LEAD ACTOR IN A DRAMA SERIES
Jason Bateman, Ozark
Sterling K. Brown, This Is Us
Steve Carell, The Morning Show
Brian Cox, Succession
Billy Porter, Pose
Jeremy Strong, Succession
LEAD ACTRESS IN A DRAMA SERIES
Jennifer Aniston, The Morning Show
Olivia Colman, The Crown
Jodie Comer, Killing Eve
Laura Linney, Ozark
Sandra Oh, Killing Eve
Zendaya, Euphoria
OUTSTANDING REALITY/COMPETITION PROGRAM
The Masked Singer
Nailed It!
RuPaul’s Drag Race
Top Chef
The Voice
LEAD ACTOR IN A LIMITED SERIES/TV MOVIE
Jeremy Irons, Watchmen
Hugh Jackman, Bad Education
Paul Mescal, Normal People
Jeremy Pope, Hollywood
Mark Ruffalo, I Know This Much Is True
LEAD ACTRESS IN A LIMITED SERIES/TV MOVIE
Cate Blanchett, Mrs. America
Shira Haas, Unorthodox
Regina King, Watchmen
Octavia Spencer, Self Made
Kerry Washington, Little Fires Everywhere
OUTSTANDING LIMITED SERIES
Little Fires Everywhere
Mrs. America
Unbelievable
Unorthodox
Watchmen
OUTSTANDING COMEDY SERIES
Curb Your Enthusiasm
Dead to Me
The Good Place
Insecure
The Kominsky Method
The Marvelous Mrs. Maisel
Schitt’s Creek
What We Do In The Shadows
OUTSTANDING DRAMA SERIES
Better Call Saul
The Crown
The Handmaid’s Tale
Killing Eve
The Mandalorian
Ozark
Stranger Things
Succession
Buy farm-fresh food
The UAE is stepping up its game when it comes to platforms for local farms to show off and sell their produce.
In Dubai, visit Emirati Farmers Souq at The Pointe every Saturday from 8am to 2pm, which has produce from Al Ammar Farm, Omar Al Katri Farm, Hikarivege Vegetables, Rashed Farms and Al Khaleej Honey Trading, among others.
In Sharjah, the Aljada residential community will launch a new outdoor farmers’ market every Friday starting this weekend. Manbat will be held from 3pm to 8pm, and will host 30 farmers, local home-grown entrepreneurs and food stalls from the teams behind Badia Farms; Emirates Hydroponics Farms; Modern Organic Farm; Revolution Real; Astraea Farms; and Al Khaleej Food.
In Abu Dhabi, order farm produce from Food Crowd, an online grocery platform that supplies fresh and organic ingredients directly from farms such as Emirates Bio Farm, TFC, Armela Farms and mother company Al Dahra.
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Salah in numbers
€39 million: Liverpool agreed a fee, including add-ons, in the region of €39m (nearly Dh176m) to sign Salah from Roma last year. The exchange rate at the time meant that cost the Reds £34.3m - a bargain given his performances since.
13: The 25-year-old player was not a complete stranger to the Premier League when he arrived at Liverpool this summer. However, during his previous stint at Chelsea, he made just 13 Premier League appearances, seven of which were off the bench, and scored only twice.
57: It was in the 57th minute of his Liverpool bow when Salah opened his account for the Reds in the 3-3 draw with Watford back in August. The Egyptian prodded the ball over the line from close range after latching onto Roberto Firmino's attempted lob.
7: Salah's best scoring streak of the season occurred between an FA Cup tie against West Brom on January 27 and a Premier League win over Newcastle on March 3. He scored for seven games running in all competitions and struck twice against Tottenham.
3: This season Salah became the first player in Premier League history to win the player of the month award three times during a term. He was voted as the division's best player in November, February and March.
40: Salah joined Roger Hunt and Ian Rush as the only players in Liverpool's history to have scored 40 times in a single season when he headed home against Bournemouth at Anfield earlier this month.
30: The goal against Bournemouth ensured the Egyptian achieved another milestone in becoming the first African player to score 30 times across one Premier League campaign.
8: As well as his fine form in England, Salah has also scored eight times in the tournament phase of this season's Champions League. Only Real Madrid's Cristiano Ronaldo, with 15 to his credit, has found the net more often in the group stages and knockout rounds of Europe's premier club competition.
