Apartment buildings and commercial towers at Canary Wharf in London. Fears of a Brexit are influencing the UK property market. Reinhard Krause/Reuters
Apartment buildings and commercial towers at Canary Wharf in London. Fears of a Brexit are influencing the UK property market. Reinhard Krause/Reuters

Brexit clauses in UK property deals as Gulf investors hold back



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.”

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Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea

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Manchester United v Liverpool

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Stars: Ajith Kumar, Arjun Sarja, Trisha Krishnan, Regina Cassandra

Rating: 4/5

 

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Starring: Paul Rudd, Carrie Coon, Finn Wolfhard, Mckenna Grace

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Emergency

Director: Kangana Ranaut

Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry 

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If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.

When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.

How to get there: Emirates currently flies from Dubai to Orlando five times a week.
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Guide to intelligent investing
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Fire and Fury
By Michael Wolff,
Henry Holt

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.”

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Anxiety and work stress major factors

Anxiety, work stress and social isolation are all factors in the recogised rise in mental health problems.

A study UAE Ministry of Health researchers published in the summer also cited struggles with weight and illnesses as major contributors.

Its authors analysed a dozen separate UAE studies between 2007 and 2017. Prevalence was often higher in university students, women and in people on low incomes.

One showed 28 per cent of female students at a Dubai university reported symptoms linked to depression. Another in Al Ain found 22.2 per cent of students had depressive symptoms - five times the global average.

It said the country has made strides to address mental health problems but said: “Our review highlights the overall prevalence of depressive symptoms and depression, which may long have been overlooked."

Prof Samir Al Adawi, of the department of behavioural medicine at Sultan Qaboos University in Oman, who was not involved in the study but is a recognised expert in the Gulf, said how mental health is discussed varies significantly between cultures and nationalities.

“The problem we have in the Gulf is the cross-cultural differences and how people articulate emotional distress," said Prof Al Adawi. 

“Someone will say that I have physical complaints rather than emotional complaints. This is the major problem with any discussion around depression."

Daniel Bardsley

THE SPECS

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Power: 420kW

Torque: 780Nm

Transmission: 8-speed automatic

Price: From Dh1,350,000

On sale: Available for preorder now

Day 4, Abu Dhabi Test: At a glance

Moment of the day Not much was expected – on Sunday or ever – of Hasan Ali as a batsman. And yet he lit up the late overs of the Pakistan innings with a happy cameo of 29 from 25 balls. The highlight was when he launched a six right on top of the netting above the Pakistan players’ viewing area. He was out next ball.

Stat of the day – 1,358 There were 1,358 days between Haris Sohail’s previous first-class match and his Test debut for Pakistan. The lack of practice in the multi-day format did not show, though, as the left-hander made an assured half-century to guide his side through a potentially damaging collapse.

The verdict As is the fashion of Test matches in this country, the draw feels like a dead-cert, before a clatter of wickets on the fourth afternoon puts either side on red alert. With Yasir Shah finding prodigious turn now, Pakistan will be confident of bowling Sri Lanka out. Whether they have enough time to do so and chase the runs required remains to be seen.

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COMPANY PROFILE
Name: ARDH Collective
Based: Dubai
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Sector: Sustainability
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Key facilities
  • Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
  • Premier League-standard football pitch
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  • NBA-spec basketball court with auditorium
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States of Passion by Nihad Sirees,
Pushkin Press

World record transfers

1. Kylian Mbappe - to Real Madrid in 2017/18 - €180 million (Dh770.4m - if a deal goes through)
2. Paul Pogba - to Manchester United in 2016/17 - €105m
3. Gareth Bale - to Real Madrid in 2013/14 - €101m
4. Cristiano Ronaldo - to Real Madrid in 2009/10 - €94m
5. Gonzalo Higuain - to Juventus in 2016/17 - €90m
6. Neymar - to Barcelona in 2013/14 - €88.2m
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8. Luis Suarez - to Barcelona in 2014/15 - €81.72m
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Iran's dirty tricks to dodge sanctions

There’s increased scrutiny on the tricks being used to keep commodities flowing to and from blacklisted countries. Here’s a description of how some work.

1 Going Dark

A common method to transport Iranian oil with stealth is to turn off the Automatic Identification System, an electronic device that pinpoints a ship’s location. Known as going dark, a vessel flicks the switch before berthing and typically reappears days later, masking the location of its load or discharge port.

2. Ship-to-Ship Transfers

A first vessel will take its clandestine cargo away from the country in question before transferring it to a waiting ship, all of this happening out of sight. The vessels will then sail in different directions. For about a third of Iranian exports, more than one tanker typically handles a load before it’s delivered to its final destination, analysts say.

3. Fake Destinations

Signaling the wrong destination to load or unload is another technique. Ships that intend to take cargo from Iran may indicate their loading ports in sanction-free places like Iraq. Ships can keep changing their destinations and end up not berthing at any of them.

4. Rebranded Barrels

Iranian barrels can also be rebranded as oil from a nation free from sanctions such as Iraq. The countries share fields along their border and the crude has similar characteristics. Oil from these deposits can be trucked out to another port and documents forged to hide Iran as the origin.

* Bloomberg

MATCH INFO

Uefa Champions League final:

Who: Real Madrid v Liverpool
Where: NSC Olimpiyskiy Stadium, Kiev, Ukraine
When: Saturday, May 26, 10.45pm (UAE)
TV: Match on BeIN Sports

ENGLAND SQUAD

Goalkeepers: Jack Butland, Jordan Pickford, Nick Pope 
Defenders: John Stones, Harry Maguire, Phil Jones, Kyle Walker, Kieran Trippier, Gary Cahill, Ashley Young, Danny Rose, Trent Alexander-Arnold 
Midfielders: Eric Dier, Jordan Henderson, Dele Alli, Jesse Lingard, Raheem Sterling, Ruben Loftus-Cheek, Fabian Delph 
Forwards: Harry Kane, Jamie Vardy, Marcus Rashford, Danny Welbeck