That renewed interest from investors really struck me on my recent visit to the Middle East. Except for Saudi Arabia, where even more focus is on Vision 2030 and the opportunities that spin out of this, there was a noticeable pick up in engagement, with real estate in both the US and UK in demand.
Having been two to three years since most invested, a reminder of the steps and structure used to ensure Shariah compliance was of paramount importance, but then it came back to the favourite discussion of an acceptable net cash yield.
The tickle down in interest rates has certainly helped to fuel this appetite, with cash deposits not earning what they used to, but I would encourage investors to judge opportunities on a risk versus reward basis, rather than just chasing the highest projected return.
While preferred sectors are understandably in the resilient logistics and residential sectors, I was pleasantly surprised that investors were asking about development opportunities, recognising that the volume of new construction has been constrained in recent years and sensing that this relatively restricted supply creates an opportunity.
The availability of Islamic senior funding for acquisitions also looks to be growing, and while the facility to value covenants remains understandably controlled, more importantly the profit rates swaps have been coming down over the last few weeks which really helps to support the returns to investors.
I am not expecting a tsunami of capital to be deployed internationally as soon as the New Year begins, but the desire to invest has certainly returned and 2025 looks set to be a positive turning point in activity.
Written by Philip Churchill, first published in Islamic Finance news Volume 22, Issue 01 dated 8th January.