Ambassador To U.S. Links Qatari Real Estate Investment To Terrorism, Country's Spending Likely To Pause

The United Arab Emirates ambassador to Washington directly linked Qatar’s massive global real estate investment spree to the funding of terrorism on Tuesday.

Over the past decade Qatar, mainly via the Qatar Investment Authority, has been the ultimate big-game trophy hunter in global real estate. But its massive overseas real estate investment program is likely to be on hold for now.

The country will be concentrating its time and money on ensuring its domestic economy is not affected by the row with its Gulf neighbours over whether a ransom payment of $1B was a front to fund terrorist organizations.

And now one of these countries has brought into the open the question of whether places like the U.S. and U.K. should welcome investment from a state it says is funding terrorism and promoting extremism.

“It is a striking and dangerous contradiction: Qatar invests billions of dollars in the U.S. and Europe and then recycles the profits to support Hamas, the Muslim Brotherhood and groups linked to al Qaeda,” Yousef Al Otaiba, UAE ambassador to Washington, wrote in an op-ed piece in the Wall Street Journal.

“With terrorists rampaging through the streets of European cities and hatching plots against targets in the U.S., there can be no equivocation, no hedging and no delay in taking on the radical menace,” he wrote. “Qatar cannot own stakes in the Empire State Building and the London Shard and use the profits to write checks to affiliates of al Qaeda.”

Middle East analysts pointed out to Bisnow in confidence that this argument was ambiguous — it criticizes Qatar, but also the countries, cities and companies that accept investment from the country and its institutions.

There is no evidence that any of the deals Al Otaiba mentions have in any way been linked to terrorism. Nor is he an unbiased observer — his country has lined up against Qatar in a major diplomatic row, and questioning the legitimacy of overseas Qatari investment is a way of the UAE putting pressure on its rival.

The UAE, Saudi Arabia, Egypt and Bahrain published a list on June 9 of 59 individuals and 12 organizations they say are linked to terrorism. None have any known links to major overseas real estate deals.

In the real estate world, there is no feeling that Qatari money would be any less welcome than before.

“I don’t see the U.S. or EU governments halting outbound investment from Qatar, given the wobbly state of the global economy,” Faisal Durrani, global head of research at Cluttons, one of the largest brokers in the Middle East, told Bisnow.

Even though there is no pushback yet on Qatari capital, the effect of the diplomatic blockade of Qatar is likely to stymie investment in the short to medium term.

Qatari outbound investment had already been tailing off before the row broke out.

Data from Real Capital Analytics show Qatari real estate investment more than halved from $15.6B in 2015 to $7.6B in 2016. In the first quarter of 2017, its investors bought just $293M of real estate.

It is important to take this with a pinch of salt, as Qatari investments tend to be large scale and therefore lumpy. But in the wake of recent events, outbound investment is very unlikely to increase from these low levels.

“As the government looks at what could be a stand-off with the rest of the Gulf Cooperation Council countries, then Qatar will have to source food and other goods from outside the GCC,” said Allison Wood, Middle East and Africa analyst at economic and political risk consultancy Control Risks. “That may be more expensive, and the government may have to step in and bridge the gap. Until things settle, you won’t see huge amounts of activity.”

Wood said there had been questions about the liquidity of Qatari banks before the list was published, and that QIA had been looking to diversify its investments beyond real estate. S&P downgraded the long-term outlook for the country’s banks, but said they could survive a situation where all Gulf countries withdrew capital from Qatar.

Wood said Qatar still had huge foreign reserves, and that it would take many months of significantly higher import costs and liquidity issues before it had to draw down on QIA’s funds and start selling its assets, a situation she did not anticipate.

If and when an entente between feuding states in the Gulf is reached, Qatar is expected to continue to target London and New York as its key global investment destinations. It has spent $17.8B on real estate in London and $5.5B in New York, RCA data show.

For now, it would be a surprise to see QIA’s name emerge as the top bidder on a blockbuster deal in either London or New York.