City firms raking in the work as Saudi investors plough cash into UK property

MIDDLE EAST: tensions between Arab businesses and US create opportunities for lawyers

Middle Eastern money is flowing into the UK and creating work for City firms as a result of the Arab world's deteriorating relationship with the US, lawyers said this week.

A recent report by US think tank The Council on Foreign Relations claims that Saudi-based investors have withdrawn about $200 billion (131 billion) from the US in the wake of 11 September.

Middle Eastern investment in UK property has risen to 875 million in the first three quarters of this year, up by 15% from last year's total of 750 million.

In 2000, just 210 million was invested.

Nick Edmondes, a partner at City firm Trowers & Hamlins, said there had been a 'seismic shift' in the investment strategy of Arab institutions.

'Since 11 September, many Islamic businesses have had their US bank accounts mistakenly frozen for alleged support for terrorist activities, and Middle Eastern businessmen are routinely body searched at customs and have their financial affairs investigated,' he said.

The UK property market is particularly attractive to Middle Eastern capital, according to Mr Edmondes, because of its 'liquidity and transparency, and the ability to structure deals on a tax-efficient basis'.

He added that it was relatively easy to develop structures in the UK compliant with shari'ah law, which prohibits the payment and receipt of interest in financial transactions.

Meanwhile, City firm Norton Rose is involved with the development of an 'Islamic mortgage' compliant with shari'ah law in an effort to promote work in the field.

Asset finance associate Mohammed Paracha is assisting an independent working party - headed by former Barclays Bank chairman Andrew Buxton - looking to develop simpler and cheaper Islamic mortgage products.

Mr Paracha said: 'Islamic mortgages are not competitive with conventional mortgages for a number of reasons, but mainly due to additional stamp duty costs.'

Because interest payments are forbidden, Islamic mortgages are usually lease-based, with the lender taking the title of the property and leasing it to the customer in return for rental payments.

The property is transferred to the customer once all payments are completed - however, this system leads to three potential liabilities for stamp duty, which makes the product very expensive.

Victoria MacCallum