End of the affair: London’s super-prime market breaks up with Russian money

Alisa Zotimova was looking forward this March to completing a typical transaction for her estate agency business, which caters mainly to Russian speakers. Her Moscow-based client was buying a flat in Westminster, central London, for his two children, who are studying in the UK. Then the other side started stalling on the £2mn sale.

At her Marylebone office, near streets where Russians have invested billions of pounds in Mayfair town houses and luxury flats, Zotimova recalls how the sellers expressed unhappiness about her client’s source of funds statement — his account of the money’s origins.

The atmosphere around Russians’ market participation has transformed since Russia launched its assault on neighbouring Ukraine on February 24. The UK and other governments have since imposed sanctions on hundreds more Russians, on top of those previously under restrictions because of their links to corruption or the Russian state.

Zotimova’s story illustrates the ending — or at least cooling — of a decades-long mutual love affair between Russians’ money and the grand, white neoclassical town houses of Belgravia, the mansions of Highgate and other exclusive London properties.

“They said, ‘We don’t want to sell to you; we’re not happy with your source of funds,’” Zotimova, a long-term London resident originally from Russia, says of the sellers.

In March, protesters occupied a Belgrave Square mansion owned by sanctioned Russian industrialist Oleg Deripaska © Tom Bowles/Story Picture Agency/Shutterstock

Sanctions on many of the country’s banks are making it hard for even Russians not on any sanctions lists to move money to the UK, according to people active in the market. The crisis has reinforced the growing pressure on estate agents to scrutinise the identities — and funds — of those seeking to buy or sell UK property.

The shift has heightened anxiety among Russian would-be buyers. Zotimova’s transaction eventually fell through, she says, after the client, a banker, started to have his own worries.

“He said, ‘I’m not sure I want to do this now either’, even though his funds were already here,” Zotimova recalls. “[What if it’s] like ‘buy it now, have it confiscated two weeks later?’”

The question is how deep and long-lasting the effect of the current crackdown will be.

Grant Alexson, founder of GA Residential, a specialist in high-end properties in Hampstead and Highgate, says the effect has been confined mostly to properties worth £10mn or more — the “super-prime” category.

“I’d say there has been less activity with the glitzy kind of Russian sale at the super-prime level,” he says.

Henry Pryor, a London estate agent who has long campaigned to end the use of the UK capital’s property market as a repository for “dodgy” money, insists many professional advisers are currently unwilling to work with Russians altogether.

“If you were a Russian national or passport holder who owned property in London, you would find it incredibly difficult to find anybody who will help you to buy or sell should you put your head above the parapet,” Pryor says.

Some market participants nevertheless insist that Russians have been unfairly tarnished. One of London’s best-known high-end estate agents, Gary Hersham, founder of Beauchamp Estates, decries how recent rhetoric has portrayed most property investment in London by Russians as illegitimate.

“I think this whole business of sanctions is misconceived and really wrong,” he says.

Sergey Lavrov’s stepdaughter’s apartment at 22 Hollandgreen Place, Kensington, London, UK
Polina Kovaleva, stepdaughter of Russia’s foreign minister Sergei Lavrov, bought a £4.4mn flat in this west London building in 2016. After the attack on Ukraine, the UK froze her assets and banned her from visiting © Jeff Gilbert/Shutterstock

There is no doubt, however, that London’s residential market has attracted billions of pounds owned by beneficiaries of Russia’s corrupt post-Communist transition and figures closely associated with the Ukraine war. A report published on June 30 by the UK’s House of Commons foreign affairs committee said the country’s property market had become a “personal safety-deposit box” for dirty money.

Many of the issues are summed up by the story of a single flat in Hollandgreen Place in west London. Land Registry documents show that Polina Kovaleva paid £4.4mn for a 999-year lease on a ground-floor flat in the luxury development in 2016, the year the limestone-and-glass complex was completed.

Even though Kovaleva, then a 21-year-old student, paid for the property without a mortgage, the purchase attracted no public attention until campaigners last year revealed that she was the stepdaughter of Sergei Lavrov, Russia’s foreign minister, a key lieutenant of Russian President Vladimir Putin. Following the attack on Ukraine, protesters gathered outside Hollandgreen Place with placards denouncing her. Shortly afterwards, the UK froze all of Kovaleva’s UK assets and banned her from visiting.

Sergei Lavrov with Russian President Vladimir Putin
Sergei Lavrov with Russian President Vladimir Putin © Sean Gallup/Getty

Transparency International, the anti-corruption campaign, has identified £6.7bn of UK property that it says was bought with “suspect wealth”. It has separately estimated that people close to the current Russian government own £1.5bn worth of property in the UK.

Anthony Payne, managing director of Lonres, which compiles information about London’s high-end property market, says that Kovaleva’s case was brought to light by a particularly determined campaign. She also drew attention to herself via an Instagram account that flaunted her extravagant lifestyle. Kovaleva has not commented after the FT left a message with the concierge at the property.

Payne suspects that there are many other less well-known people connected to the Russian government living in London who are better at staying out of the limelight. Many of them even hold British passports.

“Those people who have UK citizenship, who will have been flying under the radar, they’ll continue to live in London,” he says. “They’ll have quite a low profile. The case will only be highlighted if they try to sell the property.”

At the heart of many of the issues is a renewed focus not only on sanctions but on estate agents’ obligations. Agents have been required since 2017 to register with HM Revenue & Customs (HMRC) and notify them of any activity that might indicate money-laundering. They must inform the National Crime Agency of any suspicious activity.

Alexson attributes the current lack of high-end property deals to some Russians’ caution about submitting themselves to that process.

“There are many who are not sanctioned and who may or may not want to sell,” he says. “But what I’m seeing is they aren’t coming to the market.”

According to Alexson, the perception among estate agents is that HMRC monitors their handling of issues relating to anti money-laundering rules especially strictly. He says the body seems to expect estate agents, through their regular meetings with clients, to learn more than other professionals about who they really are.

“The agents have finally learned you can’t just do deals with anybody,” Alexson says. “It’s not just about the money.”

Alexson says that earlier this year he had to turn away one customer — a non-Russian who declined to reveal the ultimate — or beneficial — ownership of a large Hampstead property he wanted to sell. The Economic Crime Act, passed earlier this year, provides for a new register of all UK properties owned by overseas companies — but June’s foreign affairs committee report noted that the provisions had not yet come into force. It also expressed concern that the obligation would be easily evaded.

Beechwood House, Highgate, home of sanctioned businessman Alisher Usmanov
Beechwood House, Highgate, home of sanctioned businessman Alisher Usmanov © Jeff Gilbert/Alamy

Alexson says the registered owner of the house was a company registered in an offshore jurisdiction.

“The property has since come on the market, so I only assume that he’s relented and officially confirmed who the beneficial owner is,” he says.

On one exclusive residential road in Highgate, where many of the large, brick-built houses fetch around £10mn, extensive renovation work was under way until recently on a property that, Alexson says, is owned by a Russian close to Putin’s government.

“All work on the development has stopped,” Alexson says. “Obviously the rush of cash has been stemmed.”

In the case of people now under UK sanctions, law firms, estate agents, freeholders and individuals are all barred from taking their money without special permission. The restrictions have forced the dismissal of all the staff previously employed by Alisher Us­manov, an Uzbekistan-born businessman close to the Russian government, at his Beechwood House mansion in Highgate, according to Alexson. Sanctions were imposed on Usmanov in March.

Andrew Langton, chair of Aylesford International, a Chelsea-based estate agency that for more than 50 years has served high-end international clients, points out that those affected can no longer pay for the upkeep or even insurance of their London properties.

“I think they’ll start to rot, in the sense that we’ll see buddleia growing out of guttering,” he says. “If your house isn’t maintained, everything starts to grow very quickly.”

Langton has expressed public remorse since the Russian attack about his past role in selling properties to some of the most prominent Russians with residences in London.

Yet the picture is not straightforward. Zotimova says that Russians’ significance to the London property market was overstated in the past.

“Previously, Russians seemed to be making a bigger splash because I think it was just more fun to write about them,” she says. “There were lots of other rich people buying lots of property and they were just not written about.”

A superyacht owned by Russian businessman Vitaly Vasilievich Kochetkov, which was detained in Canary Wharf in March. Kochetkov is not on any sanctions list.
In March this superyacht owned by Russian businessman Vitaly Vasilievich Kochetkov was detained in Canary Wharf. Kochetkov is not on any sanctions list © PA

In the two weeks immediately following Russia’s attack, about 80 per cent of Zotimova’s business disappeared. Zotimova — who expresses horror at Russia’s attack on its neighbour — contemplated dismissing all her staff or closing down in the face of threatened draconian restrictions. Among them was a shortlived proposal that all UK bank accounts held by Russians and holding more than £50,000 should be frozen.

However, business has partially recovered. “We’ve made some adjustments,” she says. “We see now life seems to go on in this marketplace. I think if all of China closed its doors, the impact would be more dramatic.”

Hersham insists that current know-your-customer (KYC) procedures are “very very very strict” and that many Russian buyers continue to be approved after investigation.

“Either they’re OK under KYC or they’re not OK,” he says. “Many Russians who come to buy £10mn to £20mn houses are whiter than white. They have an income. They have a job. They make money legitimately.”

Money coming from Russia now is far less problematic than when Russians were spending freely 20 years ago, according to Hersham. “If you think Russians’ money is ill-gotten gains, the ill-gotten gains came about at the end of the century. Everyone was running to grab as much as they could, from MPs and landlords to peers of the realm. If anything, the money is much cleaner now than it was then.”

Some Russians resident in the UK, unable to access their Russian bank accounts, are being forced to sell property to raise liquidity, he adds.

“They may be forced . . . to resort to selling one of their properties or their property and downgrading to get money to live off,” Hersham says. “I’ve seen it in a few cases.”

A street sign near the Russian embassy in London was defaced with fake blood
A street sign near the Russian embassy in London was defaced with fake blood by antiwar protesters in February © Tolga Akmen/AFP/Getty

The change of mood is clear on Belgrave Square, near Hyde Park Corner. On the square’s north side, paint is already beginning to peel on the mansion owned by Oleg Deripaska, a Russian industrialist first placed under US sanctions in 2018 and put under new restrictions in the UK in March. The front door has been replaced by wooden hoarding and a makeshift security door installed. In March, protesters briefly occupied the building before being removed by the police. Two bay trees by the front door are dying.

Michael Gove, before he was dismissed as the UK’s housing secretary on Wednesday, mooted a plan to house Ukrainian refugees in such frozen, Russian-owned properties, although no concrete proposals on how to do so have emerged. Foreign secretary Liz Truss in late June told MPs she was looking “very closely” at ways to use the proceeds of selling the frozen assets of people under sanctions to compensate victims of the war in Ukraine.

Lonres’s Payne acknowledges that the climate will be keeping some Russians out of the London market. But he insists that other groups — such as people from the Middle East, many of whom have benefited from the rising oil price that the Ukraine war has prompted — will provide new capital to keep London’s high-end property prices buoyant.

The overall market will withstand the decline in demand from Russians, he predicts. Although the number of property sales in prime central London is more than 30 per cent down on the boom levels of 2021, transaction volumes in the market for properties worth more than £5mn have held up better than other price bands, declining only 12.1 per cent.

“In any market you get abuse and flaws but the top end of the London market has been an international playground for decades,” Payne says.

Pryor, meanwhile, regards the shift in sentiment against accepting Russian and other questionable money as welcome. He believes the London property market grew too accustomed over decades to the presence of billions of pounds worth of questionably obtained funds.

“My clients and those involved in the buying and selling of high-end property are positively rejoicing at the removal of dodgy money that wasn’t earned at the same sort of cost as clean money,” Pryor says. “Therefore we’re not having to compete with people who are sitting there printing their own money.”

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