Sterling opportunity: UAE investors cherry-pick in the UK

dubai - Slide in the pound opens up attractive investments for dollar-based investment institutions

The British pound has resumed its slide against the UAE dirham of late, making the UK market more attractive for investments for UAE investors, especially for expats from the United Kingdom residing in the UAE.

The real estate investment activity in the UAE from UK investors has reduced compared to previous years in terms of total value, primarily due to the devaluation of the British pound since Brexit. Moreover, the UK market has also become more attractive for investment specifically for expats from the United Kingdom residing in the UAE, said Ryan Fansa, director - head of real estate, Al Masah Capital.

"Regional buyers also have been active in the UK market as the weakened pound has enabled dollar-based investment institutions in the region to acquire real estate assets at a 10 to 15 per cent discount compared to the pre-Brexit market," Fansa added.

Schon Properties COO Noorul Asif doesn't see much impact of the decline in the value of the British pound on investments in the UAE, claiming that it's merely psychological.

"Price of properties vary depending mostly on the demand-supply situation. When the British pound loses value, properties become cheaper in Britain, regardless of any other development. Investors take advantage of the situation mostly through buying and selling of currency," he said, adding that "real estate is a long-term investment - it's not a stock market and an investor should not treat real estate like one. If you have money and a long-term goal, then invest in real estate in Dubai - simply because the property price is at the right level. And hold it for three years at least. Then exit - if you have to benefit from capital gains. Otherwise, enjoy the rent windfall since Dubai offers some of the best rental returns," he added.

As per a recent report from real estate advisory Savills, Middle East and Far Eastern investors nearly doubled their capital investment in the UK's regional markets in 2016 to around £1.9 billion (Dh8.92 billion).

The UAE and Britain are keen to take bilateral trade to £25 billion per annum by 2020. There are more than 200,000 British passport holders working in the UAE. In 2016, Dubai attracted Dh25.5 billion in foreign direct investment (FDI) inflows in 247 projects. UK, Canada, France, Spain and the US were among the leading sources of capital and together, the US, UK, India, Germany and Italy accounted for 152 FDI projects, which was 59 per cent of the total.

In H1 2017, Indian, Pakistani, British, Chinese and Canadian nationals took the first five places in terms of investment in Dubai, with 15,062 investors generating a total value of Dh28.6 billion.

According to the Dubai Land Department, investments by 3,372 British nationals in Dubai's real estate reached Dh5.8 billion last year.

Promoth Manghat, CEO, UAE Exchange, said property in the UK is still a reliable segment to invest in. Since the stock market is expected to stay volatile right through 2017, it's better to stay cautious there. Meanwhile, investors can explore the possibilities of investing in various avenues worldwide, including the UAE. They can also transfer funds to get more pounds back home, though there is a risk that it could trigger inflation.

Sudhesh Giriyan, COO, Xpress Money, noted that a fall in the price of the pound is making the UK a less expensive market to buy into from overseas.

"So, for British expats and other investors in the UAE, the period leading up to Brexit will yield opportunities for investment in assets. There has also been a cooling of house prices in the UK, which means opportunities will be thrown up. A favourable exchange rate between the dirham and pound also means it's a good time for expatriates to top up their pensions and saving plans back home."

Pound outlook
Adeeb Ahamed, managing director, Lulu Exchange Holdings, said the sterling pound has already taken its hardest hit since the EU referendum on Brexit was announced and he does not see any radical fluctuations and expects the pound to move between 4.50 and 4.95 range against the dirham in the coming months.

"With no major movement in the currency expected, this is an ideal time for British expats to remit money home. As mentioned earlier, the choice remains with the sender and their needs. According to the trend noticed in the GCC, there is a slight surge in remittances when the home currency weakens. If opportunities are available for British expats to invest back home, I do not see the reason why they should not," he added.

Manghat explained that a weaker British currency means more pounds for less dirhams, which is advantageous, therefore, UK expats in the UAE should think of remitting more.

"However, cheaper currency could lead to inflation. Its negative effects will take time to impact, whereas currency exchange gain is instant. And the pressure on the GBP is expected to continue for some time to come. So, it should be favourable for UK expats residing in the UAE to remit more," he added.

Giriyan said the forecast remains subdued for the GBP, which is expected to shed more of its value in the build-up to Brexit being completed.

When Britain decided to divorce the European Union on June 26, 2016 in a referendum, it shook not just Britain but also the whole global financial community and international markets, with the British pound plunging over 8.2 per cent from 5.474 to 5.025 against the UAE dirham in a single day on June 24. The trouble didn't stop there for Brits as currencies slipped further to 4.734 against the Emirati currency on July 7 last year.

It recovered a bit over the next few months before its slide resumed when Theresa May became prime minister on July 13, hitting a low of 4.478 against the dirham on October 28. It hit a record low of 4.424 on January 16, 2017. Since August 1, it has slid from 4.849 to 4.731 against the dirham on Friday.

"More weakness in GBP is possible. But it's best to be vigilant. The UAE dirham is pegged to the dollar, which has seen a very strong run over the last few months on the back of positive economic views. But bad news from the source market could send the dollar lower, which would make GBP more expensive in dirham terms."

Remittances
Giriyan said remittances can be quite resilient to currency fluctuations because they're based around financial plans, mortgages and the needs of families back home.

"While the GBP might lose a little more value against the dirham in the medium turn, we're not going to see the precipitous crashes that happened just after the referendum result," he noted.

For regular remitters sending money home every month, there's no need to change their schedule but power remitters waiting for the right moment to send large sums might want to adopt a wait-and-watch approach, he elaborated.

- waheedabbas@khaleejtimes.com