A second Cold War could lead to a significant number of Russians retreating from their British property investments, presenting both challenges and opportunities for British investors.
It comes after a crackdown on Russian business activities following the Salisbury spy poisoning scandal.
The withdrawal of Russian investors could result in a shortfall in funding on forthcoming construction projects, but it could also increase the number of highly desirable properties on the UK property market, according to InvestorSquare.
“Kensington, for example, has become known as Londongrad because so much of the area is owned by Russian nationals,” InvestorSquare said. “A large scale Russian retreat could have a significant impact on this market.”
The website, which connects real estate developers with potential investors, suggested a number of extremely desirable London properties could return to the market as Russian investors cut their losses in what some analysts are describing as the second Cold War.
Although Prime Minister Theresa May has said she is not targeting Russian private citizens in the UK, plans are underway for greater monitoring of private jets and freight, alongside new powers to stop people at borders.
The UK has also announced a review of 700 visas granted to wealthy Russians. Bloomberg revealed in March that Home Secretary Amber Rudd said her officials will be investigating the cases of 700 Russians who were given permission to come to the UK before 2015 under the investor visa scheme, in which they promised to invest £2 million or more.
“This new Cold War chill in what was previously a warm relationship between the UK and wealthy Russian investors looks highly unlikely to thaw anytime soon, and wealthy Russians are already looking to new markets, and in particular Germany, as a safer place to invest,” said InvestorSquare.
Real estate and investment management company JLL estimates that in early 2014 almost 10% of all money spent in property in London was Russian.
In the luxury residential market, numbers were even higher. According to Knight Frank, more than 20% of London homes with asking prices in excess of £10 million were purchased by Russians.
Russians are also significant investors in ongoing property developments across the UK.
“Their potential withdrawal from these investments is both a threat to some much-needed developments, and an opportunity for UK and other non-Russian investors to pick up on these investment prospects,” InvestorSquare said.
There is also the question of less straightforward transactions. A fifth of suspicious property purchases from 2008 to 2015, equating to £729 million in total, were made by Russians, according to anti-corruption watchdog Transparency International. There is a growing call on Russian politicians and oligarchs to disclose their property assets in the UK and face sanctions if they cannot explain where their money has come from.
InvestorSquare said the result of retreating roubles may go in two ways: Britain could lose some cash-rich investors funding much-needed new property developments; and there may also be some significant opportunities to snap up unexpected properties at lower than usual prices.
DealMakerz reckons eager investors should watch the market closely in order to be in with a chance of snapping up hot properties that come up for sale.
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