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BLOG: Russian sanctions and the impact on London’s property market

Naomi Heaton
Written By:
Naomi Heaton

As fresh sanctions are announced against Russia, Naomi Heaton of London Central Portfolio Limited, reflects on the fall out for central London residential property.

As Russia feels the impact of further economic sanctions, London’s army of estate agents cannot seem to agree on the knock-on effect for Prime London residential property.

One camp can barely hold their caviar trays steady, dreading an asset freeze that will see the market tumble. Whilst the other camp is toasting their vodka, proclaiming that sanction fears will accelerate the stream of Russian property investors. The truth is, however, that either outcome will barely be noticed.

Given the increasing trend to globalisation and Central London’s status as a cultural, educational and financial epicentre, it will come as no surprise that demand for real estate is dominated by foreign buyers.

According to London Central Portfolio (LCP), Residential Fund and Asset Managers, they represent 83 per cent of the market. However, London’s metamorphosis into ‘Moscow-upon-Thames’ is greatly exaggerated. It is reported that Russians represent just 2 per cent of all buyers. HM Land Registry recorded just 242 property sales over £5m in 2013, of which only 51 were over £10m – the sector most usually associated with the Oligarchs.

Nowadays, half of the private purchases in prime central London are in the booming private rented sector, prized by investors worldwide. As crises such as the eurozone meltdown, Parisian taxes and Arab Spring have driven the global high net worth community towards London, Russian domination of London is no more than a Putin pipedream.

In fact, it is the Far Eastern buyer who has always been the major player in the London property market. They are sophisticated buy-to-let investors who fulfil a socioeconomic role, unlike lock-up-and-leave Russian buyers.

Far Eastern investors make up 43 per cent of LCP’s clients. In the past few years, more and more have taken advantage of beneficial exchange rates and sought the safety and security of prime London real estate. As rampant speculation has resulted in massive tax hikes in local markets (such as Singapore and Hong Kong) Asian buyers are coming over to London in even greater droves.

With the mainland Chinese locked out of these closer-to-home markets, all eyes are turning to London. Fifteen per cent of Chinese students now come over to the UK and with 3 of the top 10 world universities situated in London, its reputation for a top drawer education has resulted in a matching appetite for a top drawer property.

Last year, well before the annex of Crimea, China overtook Russia as the country granted the most tier one investor visas in the UK, with the highest number issued to a single nationality in one year.

Prime Central London is a market which is too small to satisfy needs, and this drives up prices. Only 6,029 properties changed hands last year, just 16 a day, a fall from 9,627 in 2002.

In fact, with more than 10 million people in the world having over $1m of investable assets, there are a potential 1,500 investors per property for sale.

With the balance of political risk and rule of law still in the UK’s favour it is highly unlikely that there will be any blood shed from a Russian retreat.

Naomi Heaton is chief executive of London Central Portfolio Limited