A broader scope: Qatari developers continue to invest in major international projects

Wealth generated from Qatar’s newfound hydrocarbons has not only been put toward the development of the local economy, but has also been invested abroad through the country’s sovereign wealth funds. This move, which aims to ensure long-term revenues from the latest oil and gas windfall, has led Qatari sovereign wealth funds to eye overseas property investments. While the government, private investors and developers have been building the country at home, they have also been looking for bargains in distressed foreign markets.

VERSATILE INVESTMENTS: The main vehicle for the government’s foray into foreign real estate markets has been Qatari Diar, the real estate arm of the country’s main sovereign wealth fund, the Qatar Investment Authority (QIA). Barwa Real Estate, which focuses mainly on the domestic market, has also begun looking at the prospects for international investment. The company’s chairman, Hitmi Ali Khalifa Al Hitmi, informed shareholders at the company’s annual general assembly in March 2012 that, “We will pursue selective diversification internationally to leverage opportunities in the Middle East, Turkey, the UK, North America and South-east Asia.”

However, with a mandate to meet national social and economic development goals, Barwa is likely to continue focusing primarily on the domestic front, while Qatari Diar looks to international markets. As of January 2012, Qatari Diar had a global portfolio of 49 projects with a combined value of over $35bn. The firm been responsible for a number of domestic projects, including Lusail City, Sheraton Park, and the 90,000-sq-metre Doha Exhibition and Convention Centre. However, its drive in recent years to expand internationally has led to its involvement in the renovation and construction of a number of hotels, resorts and convention centres around the world, particularly in Europe.

FOREIGN FORAY: The latest addition to its European portfolio was the $906m acquisition of the London Olympic Village alongside the UK developer Delancey Estates. The August 2011 deal included the purchase of 1439 units and permission to build 2000 further residential units for sale or lease. Its partner in the deal was Canary Wharf Group, whose major shareholder, Songbird Estates, is part-owned (28%) by Qatar Holding, bought most of Royal Dutch Shell’s headquarter site near Waterloo in London in a deal worth £300m.

These recent investments bolster Qatar’s already substantial portfolio in the UK’s capital. Qatari Diar already has investments in the Chelsea Barracks; the Shard Skyscraper, which became Europe’s tallest building upon completion in 2012; and the former US embassy located in Grosvenor Square. Such acquisitions made Qatar the largest overseas property investor in the world in 2010, according to a report by Jones Lang LaSalle, a global commercial real estate firm, and firmly placed the country on the international real estate map.

In an interview with the UK’s Guardian newspaper, Fadi Moussalli, a director at Jones Lang LaSalle’s international capital group, said that the UK has long been a popular destination for Qatari investors due to personal connections. “For the Gulf countries, the UK has always been the favourite destination.

It’s where people spend their holidays and people go to study. There are very strong political, social and historical ties. Qatar has windfall revenues from exporting gas, and the local economy is small enough for the government to be able to take its excess cash and put it overseas," Moussalli said.

THE UK: Individual Qatari investors also look to the UK market. Shirley Humphrey, sales and marketing director for the UK-based Harrods Estates, told the Gulf Times in April 2012 that Qatari investors are increasingly important for the London and UK real estate market. Humphrey stated that Qatari buyers made up 17% of all Harrods Estates’ sales and lettings transactions in 2011. While the established ties between the two countries have undoubtedly played a part, investors from Qatar are also profiting from uniquely favourable conditions. In a March 2009 interview with the German magazine Der Spiegel, the emir of Qatar, Sheikh Hamad bin Khalifa Al Thani, noted, “With the current crisis, many countries prefer to keep their money instead of investing it abroad. For us, though, this is an opportunity that will not be repeated in the next 20 years.”

ADVANTAGES FOR INVESTORS: A number of factors, such as excess liquidity, a favourable exchange rate and depressed property markets, have been driving Qatari overseas property acquisitions in the last three years. With the Dubai market dropping precipitously, many investors within the region have been looking further afield. With the eurozone crisis showing no signs of resolution there should be substantial opportunities for GCC investment in the region at discounted prices.

The opportunities in Qatari property investors’ favourite market, however, have started to look a little less desirable. In the latest UK budget, released in March 2012, stamp duty on properties valued at £2m or more was increased to 7% from 5%. Furthermore, properties valued in the same price bracket acquired by offshore companies face a stamp duty of 15%. While this policy may be a deliberate attempt to either profit off of foreign investment trends or curb overseas ownership of UK properties, some may be more sanguine about its potential effect.

Camilla Dell, managing partner at the residential buying agency Black Brick, told the UAE-based Gulf News that there are still a large number of enquiries coming from clients in the Gulf. “We still have plenty of clients from the Middle East concerned about the Arab Spring and political instability wanting to find a safe haven for their money,” she said. “London property remains at the top of their priority list for safe cities in which to buy.”

EVEN MORE: For a company like Qatari Diar, acting as the property investment arm of the state of Qatar, such regulations will likely have little impact on its investment strategy. Nevertheless, the company has already begun looking at other markets. In April 2011 it announced a $700m deal to build a 41,000-sq-metre mixed-use development in the centre of Washington, DC. Qatari Diar is the primary investor in a fund established to finance the development, which will be overseen by the US developer Hines and the residential operator and investor Archstone.

The first phase of the development will comprise of six buildings including 458 rental apartments, 216 condominiums, 48,000 sq metres of office space and over 17,000 sq metres of retail space. The equity financing was organised by Barwa Bank. The vice-chairman and managing director of the bank, Mohammed Al Saad, told the Financial Times, “We were very interested in the DC market. The risk profile in the city is more controlled. The economics work well. It was the right place to start.” The investment seems to fit the Qatari Diar profile of entering well established, safe markets with “attractive fundamentals”, as Al Saad describes it.

BRANCHING OUT: However, it would appear that the company is set to branch out in its investment strategy. “We are always looking for opportunities around the world,” Mohammed Al Hedfa, group CEO of Qatari Diar, told journalists in March 2012. “I can say that we are now looking into the emerging markets.” Although Al Hedfa declined to specify which new markets the company will be examining, the announcement suggests that the Qatari investor is looking to broaden its growth strategy. The company already has projects in Yemen, Tajikistan and Palestine in Asia, and in Sudan, Morocco and Egypt in Africa. It would now appear that is looking to add to this list with new projects in potentially higher-risk, high-reward infant markets. Whether this becomes a central strategy for the country is yet to be determined. It is clear, however, that Qatar will continue to be a leading player in international real estate acquisitions.

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