With stock markets the world over recording huge losses over the last week and the volatility in the markets set to continue due to the euro zone sovereign debt crisis, concerns over the down grading of the US credit rating and the weak US and EU growth figures, investors are pondering which asset class to seek refuge in. Do they place safe by moving their funds into cash or commodities such as gold, or do they stay put in bonds and equities, or go for investments in “bricks and mortar” property investments?
In the UK, mired in recession with increasing inflation and flatline GDP growth figures which do not even feign to reach 1 percent, the prospects are not different. But in the Islamic finance space, property is emerging as a glimmer of hope for investors, albeit highly selective and refined niche opportunities such as the high-end luxury residential market; student accommodation and logistics and warehousing.
In the luxury residential market, UK-based asset manager, London Central Portfolio (LCP) last week launched a Shariah-compliant residential London property fund, the London Central Apartments Fund, which is aimed at both domestic and overseas investors and which is targeting average annual returns or 10-13 percent per annum. For overseas investors there is added advantage of paying no capital gains tax.
According to Naomi Heaton, chief executive of LCP, “recent world events have shown that assets displaying less of a ‘knee-jerk’ reaction can provide valuable diversification in a volatile investment environment. Prime bricks and mortar look set to become the asset of choice during these testing times.”
She maintains that the London Central Apartments Fund would appeal to wealthy clients, both domestic and overseas investors, who are looking to invest in property in the capital. “The world’s super-rich are viewing prime London residential property the same way as they do Gold and there is a limited supply of both. Even taking into account the effect of the credit crisis, prices in this tiny six-square mile area have risen by an average of 8.2 percent each year over the past 15 years. Rental yields run at approximately 4.5 percent a year. Our new fund will offer institutional and private investors access to a professionally managed and diversified portfolio in all of the recognized postcodes.”
HM Land Registry quarterly sales statistics also show a continued de-coupling from the domestic UK market as prime London Central residential property continues to surge ahead.
However, the bigger opportunities may lie in the student accommodation market where one Shariah-compliant bank, Gatehouse Bank, a London-based Kuwaiti-owned wholesale Islamic investment bank, has completed its latest acquisition — a 30 million-pound newly built student accommodation property in Glasgow, Scotland.
This is the bank’s fourth acquisition of a student accommodation property, thus bringing the total value of Gatehouse Bank’s real estate portfolio to 280 million pounds.
The Glasgow purchase, according to Gatehouse Bank, represents a net initial yield of 7.06 percent and delivers a cash yield of 8.0 percent per annum and follows the acquisition of two earlier student accommodation properties in Loughborough and Liverpool, as well as a third student accommodation property in Oxford.
Last year in the UK, Gatehouse acquired two student accommodation properties, the Europa building in Liverpool and the Optima building in Loughborough. The properties, developed by and leased to Watkin Jones Group, are well located in the university towns of Liverpool and Loughborough. This latest Glasgow acquisition is similarly developed by and leased to Watkin Jones Group and is well located in the center of Glasgow close to three of the city’s major universities including the University of Strathclyde, the Glasgow Caledonian University and Glasgow University.
Fahed Boodai, chairman of the board of directors at Gatehouse Bank, is confident that “student accommodation is a sector of great importance that we believe will deliver strong investment opportunities for the maximum benefit of our GCC clients. This is an excellent acquisition that recognizes the importance investors are placing in student accommodation as an investment opportunity that delivers outstanding returns. I am pleased to report that the latest Watkin Jones acquisition has proven Gatehouse Bank’s position as a market leader in the development of commercial real estate solutions for a savvy GCC investor audience. As the fourth student accommodation property acquisition to date, Gatehouse Bank demonstrates the exceptional performance of a Real Estate team, which has consistently brought to market high performing transactions with solid yields and long term income for the benefit of our investors.”
The purpose built student accommodation sector is already a well-established real estate sector in the UK worth approximately 6.5 billion pounds, and is one of few asset classes experiencing rental growth. According to Adam Cavanagh, head of real estate at Gatehouse Bank, “an inherent supply and demand imbalance in Scotland has consistently delivered close to 100 percent occupancy rates and, with student numbers forecast to grow at 10 times the rate of new completions, we can expect to see sustaining rental growth as well as increasing capital values in the sector.”
The UK remains an attractive market for student accommodation given that student numbers continue to increase and demand for university places is at a premium. This, despite the fact that local student fees in England is set to increase substantially for the next academic year, starting in September 2011. The latest figures, according Ethical Asset Management (EAM) Limited, suggest that demand for higher education in the UK remains strong, with 2.4 million full time students.
Applications for 2010/11 jumped to 688,310, which is up 22.9 percent over the previous year with overseas applicants registering a healthy 28.7 percent increase. In fact, according to one property consultant, some 140,000 applicants missed out last year due to shortage of student accommodation spaces.
Student accommodation experts stress that there are several demand rivers that will see the sector sustaining strong growth over the next few years. This despite the combined impact of coalition Conservative/Liberal Democrat government’s spending and the impact of the Browne Review on university education funding.
The demand drivers include the possibility of ceilings removed on “Home” and “EU” students, which means that the top universities would be able to expand; student numbers are projected to increase by over 10 percent over the next decade or so; similarly, the number of overseas students are projected to increase even more - well beyond the 350,000 currently studying at UK universities; many of the top universities tend to guarantee accommodation especially for overseas students and first year home students, which makes the market even more sustainable; there is a huge shortage of purpose_built student accommodation in many university towns; many universities also grant leases or nominations agreements, which means that the rental income streams are secure; and there is also a low delivery of new affordable council and private housing stock in general which means supply is severely depressed and has resulted in upward rental growth is many university towns and cities.
The student accommodation sector has also performed well despite the downturn in the UK economy and the commercial and residential property sectors in general.
In the warehousing and logistics sector, another UK-based Islamic investment bank, Bank of London and The Middle East (BLME) has launched a 200 million-pound Light Industrial Building Fund (LIBF) which specializes in the light industrial and warehouse sector, and last month acquired its first light industrial unit, Interserve House Christchurch, Bournemouth. The fund is targeting annual cash distributions to investors in excess of 8 percent.
According to Derek Weist, director, asset management, at BLME, “Middle Eastern investors are increasingly looking to diversify their UK property investments outside of London residential and commercial property. The LIBF provides our clients with the opportunity to expand their UK investment portfolio. Investing in the LIBF can complement a general strategy of buying large assets let to single tenants in central London, as light industrial buildings provide further tenant diversification, geographical spread, and a higher level of income. We also believe that this sector is set to experience a recovery in value similar to Central London.”
In June also Gatehouse Bank completed the 51.7 million pounds acquisition of a core manufacturing and logistics facility let to Rolls Royce, in Glasgow. The fact that the industrial market has also shown resilience in 2010, stressed Gatehouse Bank, makes this a solid investment opportunity with significant capital growth potential and secure current income returns.
“We believe this demand is set to continue, resulting in increases in capital values over the projected hold period to generate strong returns for our investors. There is considerable demand at the moment for properties let to strong tenants on leases of 10 years or more, and it’s interesting to note that investors are starting to look at locations outside of central London where properties have better pricing levels. The Western sector of the M25 motorway is a key strategic location for corporate occupiers, due in part to its proximity to national and international transport links, and the InterContinental Hotels deal is a prime example of the way in which interest is shifting away from the capital,” said the bank in a statement.
source Arab News