Londongrad has Fallen

In the wake of the Russian invasion of Ukraine on the 24th February 2022, one aspect of Anglo-Russian interaction which has been highlighted is the large holdings Russians have of British and especially London luxury property. This has inspired the moniker ‘Londongrad’ or ‘Moscow-on-Thames.’

On the 17th of February 2022, before the invasion, Priti Patel, the UK Home Secretary, ended the Tier 1 Investor visa which allowed UK entry and residence for anyone investing over 2 million GBP into the country. These were first introduced in 1994 as ‘Golden Visas’ and facilitated the flow of money from post-soviet states to London. The system was ended specifically due to security concerns.

Michael Gove announced on the 2nd March 2022 that the Department for Levelling Up, Housing and Communities was looking for ways that the UK land and property owned by sanctioned Russian oligarchs would be seized without any compensation. 947 individuals and 73 entities have been sanctioned as of the 15th March 2022, including 386 members of the State Duma, Russia’s parliament. Currently, this is just a proposal that would likely require legislation and could face legal challenges if implementation was attempted.

Moreover, the long-awaited ‘Economic Crime Bill’ was fast-tracked and passed on the 7th March 2022. The main provision of the bill is to force anonymous foreign owners of British property to identify themselves within a 6-month grace period, if not owners face fines and are unable to sell the property. The aim is to identify hidden illicit money. However, the bill has been criticised for its loopholes, if properties are sold within the grace period, the owner will never be known.

The actual extent of Russian ownership of London real estate appears small. London estate agents Benham and Reeves estimate Russian buyers make up only 0.3% of total property sales and only 1% of international purchases in London. They attribute only 286 attributed sales, with a total value of 190 million GBP in 2021 directly to Russian buyers. However, the true extent of Russian ownership of British property is difficult to establish because of standard practises anonymising buyers when selling very high-value properties.

Among the most prevalent international registry locations for the companies or individuals who own 250,000 internationally owned British properties were Jersey, the Isle of Man, and the British Virgin Isles. These are established tax havens and so this can be used as an indicator of the extent of anonymous property ownership. Transparency International identified 1 billion GBP in British real estate owned by individuals with alleged ties to the Putin government whose ownership passes through shell companies in tax havens, two-thirds of the total holdings they identified.

Russian ownership in the British property market has been on a downwards trend. There were 2 booms, one after the end of the Soviet Union, and one in the wake of the 2008 crisis, both facilitated by a willingness to accept money from unknown sources and the offering of visas with investment by the UK. Russians have made up a fifth of Type 1 Investment visas issued since 2008. However, as tax law changed and there were restrictions on money leaving Russia demand fell. As early as 2016, Dmitry Zakirov, director of Russian language property consultants LonGrad, described Russian demand as ‘practically dead.’ Since then, the aftermath of the attempted assassination of Sergei Skripal in Salisbury on the 4th March 2018 and more stringent visa controls have led to further slumps in demand.

Because of the small share Russians make up of the overall property market, the direct effect will likely be small, relegated to micro-markets such as super-prime property in areas such as Knightsbridge, Belgravia, and St Georges Hill. Moreover, direct sanctions are only going to be targeted at a few high profile figures, such as Roman Abramovich. For ordinary Russian owners, there have not been signs of an exodus. Director of Benham and Reeves, Marc von Grundherr, expects a possible rise in Russian ownership as Russians try to invest in London property as a safe haven.

A wider effect could be felt if the new legislation made to combat Russian ownership has repercussions with other nationalities. London has investments from the super-rich from China, Azerbaijan, Saudi Arabia, among others, all of which may be deterred by recent changes in legislation and industry standards. Andrew Langton, chair of high-end estate agency Aylesford International said ‘the severity of these sanctions is the beginning of a new world.’ He also stated threats to seize assets undermines property rights, which will make London less welcoming for people whose money comes from sources that could be impacted by political events in the future. Moreover, companies that facilitate international transactions have increased their checks on potential clients.

In 2021, 59 billion GBP was invested in London property from international buyers, a third of all property transactions in the city. If international trust in British property rights falls, the negative effect of sanctions on the London property market could be far greater than the limited market share of Russian buyers.

The total force of the sanctions placed on Russians is yet to be seen, as well as the changes in regulations this industry spotlight will lead to. It is likely, however, that the era of money entering London with no questions asked is coming to an end.

By James Miller

Sector Head: Charlotte Snell