London’s ‘perfect recipe’ for Sharia-conscious property investors

LCP launches new PCL PRS fund; reveals trends in Islamic investment

It’s pretty clear that Islamic money plays a significant role in prime London’s property scene, with some of the biggest developments – including The Shard, Battersea Power Station, the Olympic Village and Chelsea Barracks – all sourcing large chunks of finance from the Gulf and Malaysia.

Now London Central Portfolio (LCP), which runs some of the capital’s most successful Sharia-compliant real estate funds, has shared a fascinating global breakdown of where its Sharia-conscious Islamic investors hail from, and how their financial behaviours differ.

  • lcp-sharia-investment-charts17% of total investment in LCP’s Prime London Residential funds has come from Sharia conscious investors. This outstrips the global financial market where Sharia-compliant investment makes up just 1%.
  • Demand for Sharia-compliant residential products is evenly split between corporate investors/ family offices (52%) and individual HNW investors (48%).
  • 63% of Sharia-compliant investment is from international investors in the traditional heartlands of Islamic Finance.
  • The MENA region makes up the largest proportion of Sharia investors at 48%, with 10% of Sharia investment coming from Malaysia.
  • 38% of Sharia investment is from British Muslims.
  • The average individual investment from Sharia-compliant investors is double that of non-Sharia investors (largely due limited Islamic Finance products available in the space and strong projected returns in excess of 10% per annum).
  • The average individual investment from MENA investors is 57% greater than the overall average and 4.5 times higher than from British Muslim.
  • For Malaysian investors, the average individual investment was 7% higher and 3 times higher than from British Muslim.
  • Weak sterling and the search for safe asset-backed investment is fuelling demand from Sharia conscious investors.

Demand for Sharia-compliant investment solutions in UK real estate has grown significantly since the launch of the Government’s Sovereign Sukuk, investing in commercial property, three years ago, says LCP. The firm was the first UK company to offer Sharia-compliant residential funds (investing in central London’s Private Rented Sector), and reports that resi real estate seems to be looking particularly attractive right now – despite a slowing market in Prime Central London – as investors look to diversify portfolios, take advantage of the weak pound, and continue to view London as a safe haven amidst ongoing global economic/political uncertainty.

Riding high on this demand, LCP is soon to launch London Central Apartments IV (LCA IV) which will offer a Sharia-compliant option and some quite appealing tax advantages compared to going it alone (none of the forthcoming reduction in mortgage interest relief, nor the SDLT surcharge on additional properties; the fund is also exempt from non-resident CGT and from the looming non-dom inheritance tax). LCA IV will target a total return on investment of around 100% including annual interim distributions of 5% from year three. The plan is to selectively acquire properties with added value potential across all the prime postcodes, refurb them and then rent them out.

Keith Leach, Chief Commercial Officer for Al Rayan Bank: “Two key objectives for Al Rayan Bank have been to provide bespoke Sharia-compliant investment opportunities and to expand our presence in the real estate sector – particularly in Prime Central London, a favourite of both our Middle Eastern and British clients. We are keen to strengthen our product range by bringing new, innovative products to our clients, so exploring the residential space was an obvious next step. We believe this is an exciting opportunity for investors.”

As a bricks and mortar product, often preferred by Muslim investors, the fund is a perfect recipe for us

Faizal Karbani, CEO of Simply Ethical: “LCP are providing access to a unique and attractive asset class whilst ensuring the fund remains within the bounds of Sharia statute. As a bricks and mortar product, often preferred by Muslim investors, the fund is a perfect recipe for us. The projected returns are excellent and LCP provide a strong track record.”