Wealthy Russian homebuyers are vanishing from London after driving a wave of foreign investment that lifted property prices to records. Only the oligarchs persist.
The number of Russians registered through Christie’s International Real Estate to buy homes in the city dropped by 70 percent in a year, said Giles Hannah, the broker’s senior vice president. That has led to a plunge in offers for properties priced at less than 10 million pounds ($16 million) as it becomes more difficult for all but the wealthiest to take money out of their home country.
“The banks are limiting what they can withdraw and we’re expecting further impact as sanctions kick in,” said Hannah, who advised Russian families on 180 million pounds of London property deals in the past two years. “The oligarchs are still spending. They already have banks or lawyers over here that allow them to make purchases.”
Russia is struggling to reverse a rout in the ruble with emergency measures including 7.5 percentage points of interest rate increases and more than $10 billion of ruble purchases as President Vladimir Putin confronts the country’s deepest financial crisis since 1998. A drop in Russian buyers is hitting a London luxury-property market already buffeted by economic uncertainty in the U.K. and taxes introduced by Prime Minister David Cameron’s government this month.
Russian buyers have been “eliminated virtually overnight,” Andrew Langton, chairman of luxury-property broker Aylesford International Estate Agents, said by phone. “Those that are still here have money out of Russia and won’t be taking it back in a hurry.”
Russians were the biggest buyers of London’s luxury homes between January and July 2013, according to Knight Frank LLP. They dropped to third during the first six months of this year, behind Italians and French purchasers, the broker said.
Russia has been hurt by sanctions against businesses run by allies of Putin imposed after the country’s March incursion into Crimea in Ukraine. The latest round of U.S. actions, on Sept. 12, targeted OAO Sberbank, the country’s largest lender, as well as energy firms and five state-owned defense and technology companies.
The ruble has sunk 16 percent against the dollar this month even after posting an 11 percent rebound yesterday, after the Finance Ministry pledged to use as much as $7 billion to support the currency and the central bank announced measures to help companies refinance looming foreign-currency debt. Putin at a news conference today criticized the central bank for not acting faster to support the ruble, which is down 44 percent this year through yesterday.
“You’ll also see a reduction in those trying to buy yachts and smaller items because they’re nervous about their money,” Hannah said. “They’ve got to keep hold of their cash.”
Home prices in London’s wealthiest neighborhoods fell on a monthly basis for the first time in four years in November, according to Knight Frank. Annual price growth slowed to 6.1 percent.
Changes to the U.K.’s stamp-duty sales tax mean buyers of a 5-million-pound home would pay a levy of 513,750 pounds, an increase of almost 164,000 pounds, according to government data.
“The sanctions are really beginning to bite on expensive property in London, on top of all of the tax which the government introduced in the autumn budget,” Langton said. “It’s killed the golden goose.”
The story is different for the oligarchs, a group of the richest Russians who have thrived since the fall of Communism. Russians accounted for 21 percent of home purchases worth more than 10 million pounds during the six months to October, up from 13 percent in the prior six months, Knight Frank LLP said in a report Nov. 25. Those that continue to shop for homes are targeting London, Paris and the French Riviera, according to Hannah at Christie’s.
“The heyday of the Russian buyer was probably two years ago and it’s been declining ever since, although there was a bit of buying as a result of the Ukraine crisis,” said Robert Bartlett, chief executive officer of broker Chestertons. “There’s now a broader influx of Indian and Middle Eastern money that is having a bigger impact on the London market.”