London's enduring appeal to Gulf royals

"Thank you for reminding me about Christie's," one of the world's richest monarchs, the Emir of Qatar, said casually on the eve of his state visit to Britain, which began on Wednesday with a spectacular horse-drawn carriage procession to Windsor Castle.

It is easy to forget about something as trivial as buying one of the world's top auction houses when you have an investment portfolio as big as Sheikh Hamad bin Khalifa al-Thani.

The Qatari monarch, who owns one third of the world's natural gas reserves, is five times richer than the Queen. He has been using considerable quantities of that wealth to buy trophy assets in London.

Christie's - if he does decide to buy it - will be added to Harrods, the US embassy building in Grosvenor Square and the capital's most expensive property development, One Hyde in Knightsbridge. The Emir acquired the Chelsea Barracks site for a record-breaking price and also owns considerable chunks of Barclays, Sainsburys and Canary Wharf.

But if Sheikh Hamad is the most aggressive and adventurous buyer of British property, he is far from alone. Arabs, primarily from the Gulf states, have tripled their share of investment in UK commercial property in the past five years. Last year they spent £1.48 billion ($3.12 billion) - representing 16 per cent of all foreign investment in the sector.

The most prolific Gulf shoppers are:

* Prince Alwaleed bin Talal of the Saudi royal family, who owns the Savoy Hotel, which reopened last week after a three-year, £220 million refurbishment.

* The biggest of the Arab sovereign wealth funds, the Abu Dhabi Investment Authority, which has assets of £553 billion and owns Berkeley Square, and the ExCel exhibition centre in the Royal Docks, and has recently spent £640 million on three blocks in Knightsbridge.

* Sheikh Mansour bin Zayed al-Nahyan of the Abu Dhabi United Group, who last year bought Manchester City for £210 million. His fresh investment in the club has reached £570 million. He can afford it. Around the same time as he bought the club he purchased £2.2 billion-worth of Barclays Bank, and spent £1.7 billion acquiring a 9.1 per cent stake in Daimler.

Investors from the Gulf states have been among the most prolific deal-makers. British household names such as Madame Tussaud's, Aston Martin and the hotel chain Travelodge are now in their hands.

So many billions have been splashed around that whenever another trophy asset comes up for sale - or even when one is rumoured, in the case of football clubs - shadowy sheikhs are perceived to be hovering in the background.

The emir of Qatar, and his £54 billion sovereign wealth fund, were said to be behind a takeover bid for Everton FC last year.

Another Saudi royal, Prince Faisal bin Abdullah, was linked with Liverpool. And various Gulf royal families and sovereign wealth funds from Dubai, Abu Dhabi and Kuwait were said to have made an offer for Manchester United this year.

Dubai International Capital has tried to buy Liverpool and Newcastle United.

Behind all this activity lie three factors. Over the past two years oil prices have doubled, bolstering the wealth of Arab families and states.

At the same time, since the global financial crisis, there have been sharp falls in the price of British property and companies. Britain looks a good place to invest, given its low tax rates, its expertise in financial services and its handy time zone, midway between the Middle East and the US.

The British horse-racing summer season, from the Derby to Royal Ascot, panders to an Arab obsession and takes place when the Gulf sun is at its unpleasant hottest.

More than that, as the third factor, oil-rich investors have learned from their earlier mistakes.

In the past they did not diversify their national and household economies sufficiently, and found themselves at the mercy of wild fluctuations in oil price. Even Qatar was almost bankrupted.

They have not focused only on Britain. The Emir of Qatar last year ploughed £6.3 billion into Volkswagen and Porsche. He reopened another grand hotel, the iconic Le Royal Monceau in Paris, last week. He has just bought the Raffles Hotel in Singapore, famed for its colonial grandeur and the Singapore Sling cocktail.

The Emir says that his various funds invest "everywhere" - with a £3.2 billion real estate for energy deal with Malaysia, a £632 million joint venture with Indonesia and a £1.7 billion investment in the Brazilian arm of the Santander banking group. "We are investing in a big deal with China, with India, Taiwan and Japan," he said recently.

"Actually we are going anywhere anybody has good projects and approaches us ... We are trying to create a Qatari standard: You win, we win, and we go for the long term."

London is particularly attractive to Arab investors because of sterling's slide against the US dollar. So it has become the prime target for the investments the oil sheikhs know their children will need to sustain their lifestyles when the oil runs out.

"Real estate in London may get sick but it doesn't die," said the Emir. One of those who manage his funds, Stephen Barter, chief executive of Qatari Diar, said: "There is no shortage of opportunities. The UK is attractive and probably over the worst of the downturn."

London is bucking the trend on a falling pattern of foreign direct investment elsewhere in Europe, with the US, China and India also investing big in the UK capital. The same is not true of many other British cities.

The recession is widening the gap between the capital and cities like Belfast, Liverpool and Sheffield, which are now among the least-favoured places in Europe to invest.

Even so, the British Government is pleased with the development. Expanding UK business and political ties with the Gulf states was an early priority set out by the Coalition Government. Qatar invested more than £2 billion in Britain last year, and ministers hope to persuade Arabs to buy more to help an export-led recovery. They also hope that this week's state visit will bring more secure energy supplies to the UK. Qatar helped rescue Britain from energy shortages during last winter's exceptional cold by supplying more than 10 per cent of the country's gas needs.

Ministers also see the tiny Gulf state as having a strategic role in bringing peace to the Middle East. The Emir, 58 and educated at Sandhurst, has built a reputation as a canny statesman, maintaining good relations with the US, which has bases in Qatar, and with Israel - but also with Iran and Syria. He is even trusted by the Palestinian Hamas and Lebanese Hizbollah groups. As a mediator he has already played a key role in bringing Lebanon back from the brink of civil war.

A decade ago he also launched the Arabic television station Al Jazeera, which has brought much freer speech to the Arab world, and annoyed the Americans in equal measure. As he buys up great swathes of London it is not hard to see why everyone is comparatively relaxed about the idea.

- INDEPENDENT