London’s Oligarch Ghost Town
Russians are buying up London property as a way to protect their money against the instability at home. But they have little interest in actually living in their luxury investments.
A friend of mine was recently invited to a party, hosted by a Russian socialite, at One Hyde Park, the luxury block of flats located just a stone’s throw from Harrod’s, Marble Arch, Sloane Square, and a host of other London landmarks. As the twentysomething hostess mixed and mingled her guests like a-modern day Anna Pavlovna (the St. Petersburg socialite whose party opens Tolstoy’s epic War and Peace), she told my friend that this was only the second time she had been in the apartment, which her family had bought two years ago.
“So, who lives here?” my friend asked somewhat naively.
“No one,” the Tom Ford-clad woman replied. “It’s an investment.”
At the end of the evening, the hostess departed at the same time as her guests, leaving the caterers to clean up the mess. The party continued late into the night at the bar of the nearby Mandarin Oriental, where the hostess was staying while she was in London.
With money clearly no object, it was easier for her to stay in a hotel with room service rather than mess up the “ghost apartment,” my friend surmised.
This, in a nutshell, is the extraordinary new reality of London’s super-luxury property market. Thousands of the city’s most desirable (and expensive) apartments and houses are being snapped up by wealthy non-nationals—Russians, Greeks, and Cypriots among them—who, spooked by financial or political instability at home, have dumped their money on the London property market as a haven.
But they have no need, or desire, to live in the properties they have bought at such great expense. They are simply repositories of capital, like so many gold bars in the vault of a bank.
Sheikh Hamad bin Jassim bin Jaber Al Thani, the former Prime Minister of Qatar, Rinat Akhmetov, a Ukrainian business oligarch, and Vladimir Kim, the Kazakh copper magnate, are among those who own apartments in One Hyde Park.
“Rich Russians” have become convenient whipping boys for angry Londoners who can’t afford to buy because of the city’s current housing price boom. And its not just working- and middle-class citizens being kept out of the club; I know one city trader, who, despite a six-figure deposit and a healthy annual salary, was unable to buy a house in Homerton.
Despite some recent suggestions that prices in London are looking “toppy,” they have been racing up by over 10 percent a year in places, with even modest semi-detached family houses in outlying (and formerly no-go) areas like Peckham and Walthamstow fetching over a million pounds.
And yet, drive though Knightsbridge at night, and the lights are on in just three or four of the apartments in properties like One Hyde Park.
The problem has gotten so bad that the Mayor of London, Boris Johnson, recently floated the idea of a punitive tax regime, which would multiply local property taxes by 10 times on empty homes.
“What is certainly not acceptable is people buying homes as assets and then keeping them empty in Kensington and Chelsea or Westminster or wherever as a sort of bank balance in the sky,” Johnson said. “That is no good. What we are saying to councils, who have powers to impose punitive council taxes on such people, is do so. Whack up the council tax.”
Tom Mundy, Head of Research at international realtor Jones Lang LaSalle in Russia, told The Daily Beast, that the impact of Russian buyers on the London market—especially at the super-prime $20 million price point, is “huge.”
“Do they live in London full-time? No. And that is not a revelation,” he said. “London has always been a magnet for the super rich.”
Mundy says that, although Russians are “more apparent” now because of the commodities boom, they aren’t the only ones who are pumping up London property prices.
“Of the prime London market—which comprises houses over £1m—in 2012, 7 percent was bought by Russians—which is the same as the proportion bought by buyers from the USA and India.”
Earlier this year, the Guardian newspaper highlighted the issues of empty housing in property hotspots when it found that a third of homes on a London street known as Billionaire’s Row were standing empty, with some left vacant for more than 20 years.
Property worth £350m was unoccupied on The Bishops Avenue, an exclusive street in a north London enclave.
The empty buildings include a row of 10 mansions worth £73m, which have stood largely unused since they were bought between 1989 and 1993, on behalf of members of the Saudi royal family.
The owners of these ghost apartments may be rich, but surely even rich people like free money, so why aren’t they renting them out?
Roarie Scarisbrick, a partner at London property agents Property Vision, which advises buyers and helps them with their search, says, “Rental yields in central London can be less than 2 percent once you net everything back. Money is money, but the proposition is not all that compelling once you are taxed on the income. So, for many investors in super-prime London property, the safety of their money, parked in property under our relatively robust legal system, is enough.”
While it is the flashy new developments in the center of town like One Hyde Park that have become the lightning rod for public anger, there is, quietly and behind the scenes, a potentially much more far-reaching shift in the London property market taking place thanks to foreign investors.
Increasingly, it is not the super-rich Russians, but the wealthy middle class who are changing the shape of London property.
Mundy says that post-Crimea, many of these Russians are now thinking about purchasing humbler properties in London to protect their hard-earned “tax-paid” rubles from the political instability sweeping the region.
“They are growing in number in line with the development of the Russian economy,” says Mundy.
If the Russian middle classes really do start buying up London property too, it seems inevitable that Londoners will only be further priced out of their own city.
Eventually, of course, the bubble will burst. But to misquote an old financial adage, the property market can remain irrational longer than you are prepared to remain homeless.