Spring has sprung


Across the US, UK and Europe, the spring bulbs are now in full bloom, the clocks have moved forward and for commuters the days of both leaving and arriving home in the dark are now behind. Spring has most definitely sprung, with nature gearing up for new growth.

Having recently returned from the Middle East, the sentiment among Islamic investors feels the same. While in the last months of 2023 the mood was of getting the year gone and bedding down for the winter, I found the mood far more upbeat, with investors getting ready to reinvest into real estate.

I do not believe that this optimism is misplaced. While I recently wrote an article on how inflation can be a real estate investor’s friend, pushing rents higher, it is more often seen as the foe keeping interest rates high. In this regard, with inflation in the low 3%s and forecasts for this to fall to around 2.5% by year-end in both the US and UK, price growth looks to be back under control.

The next logical step is to consider interest rates, where some caution is required and investors have become rightly sceptical. For the last year, rate cuts have been on the horizon, but never seem to arrive. Early to mid-summer now seems the most likely, but it will take an actual cut before falling rates are believed. For what it is worth, the five year interest rate swaps in the US and UK are both now below 4%, something which could not be said a month ago.

Within the real estate markets, transaction volume is building, showing a wider belief that the bottom of values is close to being achieved, and market analysis is showing increasing stability in investment yields. That said, investors do not buy the market, they buy the deal, and we at 90 North are seeing attractive opportunities where having held on for so long, the interest rate cuts have not come in time to save the current landlords from being motivated sellers.

Intending to invest Islamically or not, the big boys and girls are about to action their acquisition plans. Taking the US as an example, where the numbers are always bigger, Goldman Sachs will resume “active investing” into US commercial property this year, fund manager Schroders have said it plans to buy US property in the billions this year and Blackstone has called the bottom, with an interesting quote from President Jon Gray: “As investors, sometimes, one of the risks is that you miss it by being overly cautious and I think now is probably a good time before rates come down.”

For the cautious there are always risks to consider, with geopolitics far from stable and elections forthcoming on both sides of the Atlantic, but just as Mother Nature starts the cycle of growth again knowing that it won’t all be plain sailing, it seems that Islamic investors are not far behind.

Written by Philip Churchill, first published in Islamic Finance news Volume 21, Issue 15 dated 10th April 2024.