The flow of Russian money into the capital is slowing as a result of government pressure and a tightening of anti-money laundering rules, experts say.
For several years the story of Russian oligarchs buying up prime real estate in London has been a familiar headline, however, mortgage brokers are saying that this activity may now be cooling down.
Though the political temperature between the UK and Russia has plummeted in recent months following the Salisbury poisonings, experts claim the slowdown in Russian investment has been in the making for several years.
‘There has been some government pressure around lending to foreign nationals and offshore companies, which has been felt in the mortgage community,’ said Lucy Barrett, managing director of broker Vantage Finance.
‘The offshore company and offshore borrower combination is very challenging and this feels to only be getting harder. We are seeing less interest from Russian clients purchasing large assets in Prime London which previously we saw quite a lot.
‘In general there has been a desire by the UK government to try and deter overseas purchasers from buying and holding property which simply sits empty.’
In 2013 estate agency Knight Frank placed Russians as the biggest spenders on properties worth more than £1 million in London.
NGO Transparency International claims that more recently Russian investors are looking outwards as Islington, Clapham and Pimlico showed higher levels of Russian investment, growing from just two to 11 per cent of market share in those areas between 2014 and 2015.
Dmitry Zakirov runs Longrad, a Mayfair-based consultancy firm that specialises in advising wealthy Russians on purchasing what it describes as ‘elite' real estate in London.
According to Zakirov, a range of factors have contributed to the cool down in Russian investment into UK property, not exclusively related to the political climate.
‘It started quite long ago, in late 2015 and early 2016, way before the cooling down in relations we see now,’ he said.
‘Changes to stamp duty were a bigger part of it, and then tightening regulations on anti-money laundering procedures.’
Anti-money laundering rules are deterring the oligarchs
Last year the government made changes to anti-money laundering measures to help prevent both money-laundering and terrorist financing.
‘This is a good thing, but it still has to be reasonable,’ said Zakirov. ‘When you have police searching your pockets, and asking questions in front of neighbours, even if you are innocent you feel uncomfortable.
'So you don’t want to go through that procedure, when you can go elsewhere.’
In addition to tightening the rules around money-laundering, the government has recently introduced a new weapon to combat dirty money, known as an Unexplained Wealth Order, or UWO.
An UWO is a tool that government bodies can use to force a person suspected of involvement in financial crime to disclose assets that appear disproportionate to their known income.
The first UWO, worth £22million, was issued in March against an unnamed central-Asian politician.
Following the Salisbury incident, MPs called for greater use of UWOs against Russian oligarchs as part of the UK's retaliatory measures. However, the proposal was soon shot down by The National Crime Agency, who stated that it would not target people based on their nationality.
‘I've spoke to lawyers and no-one knows how the government is going to implement UWOs,’ said Zakirov. ‘It will be interesting to see how it will work but at the moment it is nothing new, and they’ve already put in place some good barriers.'
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