QATAR has put its biggest single investment in London on hold because of concerns about the ailing British economy.
The gas and oil-rich state has placed the £3 billion ($4.53 billion) Chelsea Barracks housing development under review and a source close to the project said one option was to sell the site without building what has been dubbed a "Gucci ghetto" of 450 luxurious residences and 123 affordable homes.
Qatari Diar, the emirate's property arm, has planning permission for the scheme, which includes seven-bedroom mansions as well as one-bedroom flats. But today the £1 billion site stands empty with weeds growing through the concrete.
"It now seems a huge gamble," a Qatari source said. "[The developers] will take their time and see how the numbers stack up." He added that while the houses could still be built, "they could sell [the site] any time".
The latest economic data shows Britain heading for a triple-dip recession. Qatar is now the richest country in the world per capita and already owns 80 per cent of London's Shard, the tallest building in western Europe, all of Harrods and the US embassy in Mayfair, and is joint owner of the Olympic village.
But no office lettings have yet been announced in the Shard, and concerns about the appetite for luxury homes in London mean the risk of pouring a further £2 billion into construction in a stagnant economy has caused concern in Doha. The recent economic data has compounded fears that the emirate overpaid when it gave Britain's Ministry of Defence £959 million for the site in 2007.
Qatar's purchase of the site in the oligarchs' playgrounds of Belgravia and Chelsea was made for geopolitical gain as well diversifying its wealth - Qatar has said it is part of a strategy of using property investments to redefine the emirate and "create a sphere of influence in London".
When Qatar published its original designs by the modernist architect Richard Rogers in 2009, Prince Charles personally wrote to the Prime Minister of Qatar, Sheikh Hamad bin Jassim bin Jaber al-Thani, complaining the scheme was a "gigantic experiment with the very soul of this city" carried out by "brutalists". He urged Qatar instead to "bequeath a unique and enduring legacy to London" and the letter was published as part of a bruising high court battle that was uncomfortably high -profile for the secretive emirate.
Mr Rogers was fired and the prince's architectural advisers were appointed to help draw up a brief to select a more traditional design, which royal aides have endorsed.
With the replacement designs remaining controversial and Qatar counting Britain as an important ally in the volatile Gulf, Doha does not want to cause further problems with powerful neighbours.
Politicians had hoped the development would help alleviate London's acute shortage of affordable housing. When the site was being sold by the Ministry of Defence, it was hoped the affordable housing units would contribute to solving "the enormous housing stresses in London".
But this week the site was desolate. Instead of bustling construction, weeds sprouted from concrete and guard dogs prowled behind hoardings topped with barbed wire. "I'm not sure anyone outside the Gulf knows [what's going on]," a consultant working on the scheme said. "When I ask the guys from Qatari Diar [in London], they just shrug their shoulders. It doesn't make sense to me. I look at what is on offer at Chelsea and I think people would snap it up."
Located in what estate agents call the "super-prime" SW1 postcode area of west London, many of the flats would sell for more than £10 million each. Prices in this bracket have risen 40 per cent in the past few years.
The Chelsea Barracks site is in a very wealthy area that has been largely insulated from economic decline. Luxury cars such as Ferraris with Swiss number plates cruise past exclusive furniture boutiques and Michelin-starred restaurants.
In the past two years, a third of properties sold in the SW1 area were purchased by British citizens, while 34 per cent were bought by people from Russia, former Soviet republics and the Middle East.