LONDON, 17 May 2004 — Next month the City of London Corporation is hosting a groundbreaking workshop titled “Creating Liquid Instruments in Real Estate” at the historic Grocer’s Hall. Also, Kuwait Finance House, a leading Kuwaiti commercial bank, has acquired an 80 million pounds portfolio of prime office and industrial property in the outskirts of London through its Al-Manar UK Property Fund.
What do these two events have in common? They are both aimed at and involve Middle East investors, especially Islamic institutional investors. Indeed, London, in a post 9/11 era, has become a magnet for Middle East property investors. According to London-headquartered international property consultants, DTZ, “investors from the Middle East invested 2.6 billion euros in European real estate in 2003, a 15 percent increase on 2002 levels. Of this amount, some 80 percent was invested in the UK.
Over the last few years international banks and property advisers have leveraged their relations with Arab banks, especially Islamic financial institutions (IFIs), and have subsequently benefited from millions of dollars of investment inflows into the UK and European real estate market from the Islamic world. In fact, investment from IFIs in particular into UK and European real estate asset classes such as multi-family development, commercial property, student accommodation, health care facilities, logistic and warehousing, and distribution facilities, has increased dramatically post 9/11, as investors were seeking to diversify their portfolios.
Why this huge interest in UK and European real estate asset classes? Nick Edmondes, lead partner at internal law firm Trowers & Hamlins, which acted for Kuwait Finance House’s latest UK acquisition, stresses that “Gulf investors are looking to the UK commercial property market to outperform its US counterpart and have regained little of their historical confidence in US equities.”
Real estate as an investment class is very popular in the Middle East. The region is currently experiencing an unprecedented boom, which some analysts stress must have a correction sooner than later. Kuwait, Dubai, and Saudi Arabia are the main markets. In Kuwait, according to Almal Investment Company’s Kuwait Shariah-Compatible Index for the Real Estate Sector (albeit the Kuwaiti real estate sector), the only real estate index of its kind in the Middle East, the 1-year return at end March 2004 was 50.44 percent; and the 2-year return a spectacular 152.52 percent.
The Dubai International Financial Market and the Bahrain Financial Harbor are two of the such mega projects. There are others in luxury developments in Dubai, Bahrain, and Jeddah. Islam also encourages the ownership of property, which is an asset and against which securities or Sukuk can be issued to create liquidity.
However, the returns on investment in the Middle East may not be as attractive as the US and the UK. The US is a major market. First Islamic Investment Bank alone, for instance, has a real estate investment portfolio in the US of over $1.2 billion. However, the perceived discriminatory treatment by US immigration officials of Arabs and Muslims entering the country; and the fear of their investment being frozen due to Washington’s over-zealous so-called “financial war on terrorism”, has stunted the inflow of new Arab and Islamic investment into the US, although such deals are now slowly re-emerging there.
In fact the theme of the City of London Corporation’s workshop on June 28, stresses a value-added approach to traditional real estate investments — securitization, REITS (real estate investment trusts), mortgages, buy-to-let, and so on. In fact, the Lord Mayor of London, Alderman Robert Finch, the workshop host who is also a real estate expert, will inaugurate the Second Islamic Real Estate Finance Conference (IREF 2004), of which the workshop is indeed a part, and which will be held at the Park Lane Sheraton Hotel on June 29-30.
The conference is being organized by the London-based Islamic Conferences Group (IC Group) with the support of the City of London Corporation and major players in the Islamic finance and in the real estate market per se.
The conference and workshop will bring together UK government representatives, City of London officials; representatives of the United Nations and the IMF; Islamic bankers; legal experts; conventional bankers involved in the Islamic real estate sector; property advisers; Shariah scholars; and others. Topics will include the current developments in various global markets including Europe, North America, Middle East and South East Asia; regulatory issues; commercial property market dynamics; retail property market; Islamic mortgages; non-banking Islamic real estate products such as Waqfs; the utilization of Zakah and Waqf funds to develop real estate assets for the benefit of communities and societies; outperformance in real estate; benchmarking and valuation.