Islamic finance captures real estate market in UK

London’s iconic Battersea Power Station, now key part of an urban redevelopment project. The purchase by a Malaysian consortium was partly financed by a Shariah-compliant syndicated loan of £467mn, the largest Islamic finance transaction in the UK so far.By Arno Maierbrugger/Gulf Times Correspondent /BangkokWith Islamic finance entering London’s financial market and billions of dollars of investment in the UK and global real estate coming from Gulf Cooperation Council (GCC) countries and other Muslim jurisdictions, the UK government was one of the first in the West that started propelling initiatives on Islamic financing vehicles for property purchases as early as in 2013. Meanwhile, Islamic financing facilities have become so popular for real estate transactions in the UK undertaken by Arab investors that the next International Real Estate Finance (IREF) Summit, the premier real estate event in the UK scheduled to take place on December 1 and 2, 2015, in London, will entirely focus on the opportunities Shariah-compliant finance vehicles entail for property financing.Since the UK government’s initiatives, a number of Islamic finance property deals have been closed in the country, with the culmination point so far having been the financing of the purchase of London’s iconic Battersea Power Station by a Malaysian consortium. The huge urban redevelopment project secured a Shariah-compliant syndicated loan of £467mn, a step widely seen crucial towards developing the UK as an Islamic finance centre. The loan, one of the largest Islamic transactions ever conducted in the UK, was part of a £1.35bn financing for the project.Two dedicated Islamic banks in the UK, in fact, got the ball in the property financing field rolling. The then Islamic Bank of Britain, renamed Al Rayan Bank in 2014, completed its first commercial Islamic finance property deal in December 2013 valued at £0.4mn for an Islamic educational institution, Al Meezan, in Glasgow. Meanwhile, the bank has widened its range of Shariah-compliant Buy-to-Let Purchase Plans in response to growing demand for Shariah-compliant finance in the private housing market.Another Islamic bank in the UK, Kuwait-owned Gatehouse Bank, a wholesale Shariah-compliant investment bank based in London, has set up a co-financed £100mn joint-venture with Edinburgh-based property investor and developer Sigma Capital to finance the roll-out of an initial 927 new residential rental properties in Liverpool and Manchester, the next foray of Islamic finance in the UK’s profitable build-to-rent market and one of the largest projects in this sector. Overall, Gatehouse Bank currently has a real estate portfolio worth in excess of £1bn across the UK and the US. It also issued two sukuk secured by existing real estate assets-under-management, arranged following a refinancing of a major headquarters building let to British Telecom until September 2020.Several other large UK property deals using Islamic finance vehicles followed, among them Abu Dhabi Islamic Bank’s arrangement of a £20mn structured Islamic financing facility for a consortium of GCC investors. It was the bank’s debut deal in the UK real estate sector and was used to finance the development of Westbourne House, a mixed-use property in Central London, with the aim of converting it into luxury residential apartments.Another big deal was the purchase of Crossley Retail Park in Worcestershire by Dubai-based wealth management firm Arzan Wealth which spent £41.5mn on the property on behalf of a consortium including major GCC investors such as International Finance Company and other prominent institutions, as well as and high-net worth investors. The transaction was financed through a Shariah-compliant debt facility.Seeking to attract more Islamic financial business, the UK issued in June 2014 its first sovereign sukuk worth £200mn. Earlier this year, the UK government was the first Western country to do so through its export credit guarantee agency provided cover for a £617mn Islamic bond issued by Dubai’s Emirates airline to purchase aircraft including the giant Airbus A380.The Bank of England has started a feasibility study to develop a Shariah-compliant liquidity management tool for Islamic banks to use and develop more Islamic financing products, including property financing. More than 20 banks currently offer Islamic financial products and services in the UK, more than any other Western country.