Goodbye Londongrad: Russian oligarchs put pressure on UK property market

Now the British government has practically told wealthy Russians they are no longer welcome. The move could hit the upper end of the real estate market, which is already on edge due to war in Europe and a massive stock sell-off.

The government has introduced a series of measures targeting the Russian elite. He froze all assets linked to several Russian oligarchs owning mansions in the city, while some lawmakers called on the government to seize and sell those homes. He ended a visa scheme that gave wealthy foreigners a fast track to citizenship and introduced rules that made it harder for property buyers to remain anonymous, a feature that had been a London attraction.

A bigger risk to London’s high-end property market is the widespread aversion to dealing with Russian money that is sweeping Western finance. Companies in the energy to accounting sectors have already gone beyond government sanctions and shut down Russian businesses or cut off customers. If banks, brokers or vendors stop dealing with the Russians – either to send a message about war or to avoid getting caught up in future sanctions – it could further reduce the flow.

Mark Pollack, co-founder of high-end real estate brokerage Ashton Chase, said a sale his firm was working on with a Russian buyer recently fell apart and he is aware of at least two other deals with Russians who collapsed due to the Ukrainian invasion.

At the start of the year, he said, the buyer “seemed really engaged and happy to proceed,” until he abruptly backed out of a purchase.

“There’s definitely a pause” in the overall market thanks to the war, Mr Pollack said. Buyers and sellers are full of “uncertainty as to what the future may or may not hold.”

Sanctions are beginning to show their effects in other ways. A court on Friday froze bank accounts held by property manager Graham Bonham-Carter after the UK’s National Crime Agency said they were being used to help Russian commodities tycoon Oleg Deripaska avoid sanctions, according to an NCA spokesperson. Mr Deripaska, who is on the US sanctions list, fought the designation in federal court. Mr Bonham-Carter said he was going through a very difficult time and could not comment on the account being frozen.

London’s super-prime property market has skyrocketed over the past two decades as the global super-rich have stashed their money in high-end properties considered safe bets in a stable country. Russians never made up a huge share of the market – they were usually estimated at less than 10% of the high end – but they have become a symbol of the global rush for wealth into the city from China, the Middle- East and countries like Ukraine.

Prices for high-end homes and penthouses have soared to previously unimaginable levels, as local brokers tap into Russian-speakers.

Roman Abramovich, who made his fortune running an energy company, bought a 15-bedroom house on land leased from the British crown in 2011 for around $140million. The property once belonged to an English baron who was an arms manufacturer, and later became part of the Soviet Embassy. In 2016, Mr Abramovich undertook an extensive renovation that replaced a large swimming pool under the property’s garden, although local authorities rejected his appeal for a tree house.

Mikhail Fridman, one of Russia’s richest men as the founder of conglomerate Alfa Group, paid an estimated $100 million in 2016 for an abandoned 35,000 square foot Victorian mansion on the edge of sprawling Hampstead Heath north of London. He restored a garden by design legend Gertrude Jekyll, rallying neighbors who backed his local planning request to move a protected meadow onto a lawn. Mr Fridman was recently slapped with sanctions by the European Union, but said he would challenge the designation.

Transparency International, an advocacy group founded by former World Bank officials, says around $9 billion has been invested in UK properties since 2016 from suspicious sources, and that Russians allegedly linked to the regime Putin or corruption spent at least $2 billion.

Estate agents have become accustomed to cash purchases of multimillion-dollar homes by wives, children and associates through shell companies in Cyprus and the British Virgin Islands. The scheme which granted UK visas in return for property investment has welcomed more than 2,000 wealthy Russians to the country since 2008. The UK tightened the scheme after Russia allegedly poisoned a former spy living in England in 2018 and ended it in February.

This week Prime Minister Boris Johnson accelerated legislation for a new register recording landlords by name and said more oligarchs would join the sanctions list. Mr Abramovich, who is not on any sanctions list, said he would sell his football club Chelsea FC.

Others are feeling the sting of sanctions and frozen accounts. Mr. Fridman resigned from his Luxembourg-based investment company, which froze his minority stake. A neighbor near his Hampstead estate, Alisher Usmanov, is on the UK and EU sanctions list and owns a 16th-century property south of London in Surrey that once belonged to oil tycoon J. Paul Getty.

The sanctions will make any sale nearly impossible in the short term, but even managing these massive properties will be difficult.

Michael O’Kane, senior partner at law firm Peters & Peters, said the asset freeze was preventing sales or even maintenance of the properties. Paying an emergency plumber to fix a leaky pipe means getting a license from the UK sanctions office, he said.

“You can have a £15m house in Hampstead and you can’t pay to mow the grass, sweep the driveway or clean the windows,” Mr O’Kane said.

Write to Margot Patrick at [email protected] and Eliot Brown at [email protected]