Oil-fueled Islamic Real Estate


Whilst the link between the oil price and the propensity of Islamic investors to partake in global real estate investment isn’t as correlated as many would think, with the sovereign wealth funds investing such oil revenue being one of a wide range of investor groups, there is no doubt that a higher oil price helps.

With so much of the commentary during 2016 being focused on depressed oil prices and OPEC not limiting production, I hope I can be excused for missing that since the lows of $30 back in January, even before the latest OPEC announcement the price had recovered to $50. Still materially below the glory days of $100 plus, but a 67% increase nonetheless.

So, whilst earlier in the year I was of the view that whilst sovereign wealth funds were slowing their international real estate acquisitions as they had both less money to invest and a focus on domestic needs, that is no longer the case. A recent transaction that helped to change my view was Abu Dhabi Investment Authority’s £130 million acquisition of two shopping centres and adjacent office building in Slough, a town to the west of London’s Heathrow airport.

No doubt looking to gain from the planned future growth of Heathrow, this is a very large investment for Slough and only the first stage as the acquisition comes with planning consent for 675 homes and a significant extension to one of the shopping centres. The sovereign wealth funds are definitely back in the game.

All of this before OPEC announced restrictions on future production and sent the oil price even higher, peaking at $57 at the time of writing. This can only fuel even greater interest in Islamic real estate, both from the Middle East and Malaysia, hopefully including some support for the Ringgit which looked to have strengthened on the news.

The question is where will the monies head? As I’ve previously reported Islamic investors have already put Brexit and Trump behind them, but so have other investor groups, with competition for properties remaining strong. Should the oil price be maintained or even grow further, perhaps we’ll see more transactions like ADIA’s Slough investment during 2017, that is, investors having to be increasingly creative to achieve the returns they seek.

A fitting end to 2016. Best wishes to all for 2017.

Original article in Islamic Finance News