Russians retreat from London's prime property market

Published 12th Jan 2009

What will happen to London’s prime property market now the oligarchs are no longer buying?

They came with money rather than with love, but after helping to fuel a boom in the prices of London’s most expensive houses, wealthy Russians and eastern Europeans hit by the dire economic climate back home have stopped buying, removing one of the last props for the prime property market.

“They literally were the market,” says Andrew Langton, chairman of the estate agency Aylesford, which sells some of the most expensive homes in the capital. “There must have been up to a dozen wealthy Russians looking to buy about a year ago. With their departure, some of the prime properties have come down by up to 50% as a result.

“They’ve stopped looking altogether. There are one or two left, but those still here are the walking wounded from events back home.” Langton cites the case of a senior Ukrainian politician (whom he declines to name) who, in September, pulled out of a deal Langton was brokering for an £80m home in Chelsea, for financial reasons.

“The house, an important, unique property, was not on sale, but she wanted it and we convinced the owner to sell,” he says. “Then we received a call from the buyer saying, ‘Sorry, it’s absolute turmoil. I’ve just arrived home and I didn’t realise we had a cash crisis. I will no longer be able to proceed.’”

So far, Langton and his rivals have not heard of any eastern European owners forced to sell up – presumably because, in most cases, the London property is a relatively small part of a portfolio of assets. “We haven’t seen panic selling yet, but maybe that will happen as January moves on,” says Charles McDowell, a top-end buying agent.

Super-rich businessmen such as Roman Abramovich and Oleg Deripaska have been hit especially hard by the collapse in the Russian economy, which saw the benchmark RTS stock index end last year down by 72% – one of the worst performances on the world market – and the rouble slide against both the euro and the dollar (but not against the pound, against which it has risen by 13% over the past 12 months).

Research for this year’s forthcoming Sunday Times Rich List shows the 1,000 wealthiest people in the UK (nine of the top 50 are Russians) have seen their fortunes more than halve, from a combined £412.8 billion in 2008 to about £200 billion. In October, Bloomberg, the financial news service, estimated that Russia’s 25 richest men had lost a total of £141 billion.

It is all a far cry from 2003, when Abramovich bought Chelsea Football Club for £150m and spent £28m on an imposing six-storey classical house on Eaton Square, round the corner from Charles Saatchi and Nigella Lawson. Some of his wealthier fellow countrymen quickly followed, among them Deripaska, who bought a £25m house in Belgrave Square the following year.

Suddenly, a house in Knightsbridge, Mayfair, Belgravia, Chelsea or, later, Marylebone became a must for the successful oligarch. The leading estate agencies set up specialist Russian-speaking desks to sell to them, while high-end developers and designers such as Nicholas and Christian Candy made fortunes catering to their expensive tastes.

Last summer, in what was possibly the last big sale of the boom, a young Russian – whose name has not been released – paid a reported £50m for Witanhurst, a 90-room mansion in Highgate, north London. The setting for the BBC talent contest Fame Academy, it is the largest house in Britain in private ownership after Buckingham Palace.

All that is now history. Not that the Russians are pulling out completely. “Whereas some have lost interest in the London housing market altogether, other wealthy Russians are weathering the financial storm and have switched to renting instead of buying,” says Martin Bikhit, managing director of Kay & Co, another top-end estate agency. He tells of one Russian family who were initially looking to spend up to £1.2m on a two-bedroom flat for their son, who is studying at the London School of Economics. They ended up renting one in Marylebone for £1,100 per week instead, and will decide at the end of the 12-month contract whether to extend it or buy.

Others, though, appear to be looking elsewhere. “Over August, getting our Russian clients’ attention on London began to be difficult,” says Simon Barnes, a buying agent. “Several turned their attention to the south of France or Sardinia instead.” Paris has also become increasingly popular. Barnes is not sure whether they will return. “They have been firmly off the radar,” he says. “Although I am still in touch with some Russian clients, whether they will buy in London again, I cannot say.”

All of this is potentially bad news for those who had been hoping to sell their property to a wealthy buyer from the former Soviet Union. One homeowner recently withdrew his Belgravia property, bought two years ago for £20m, from the market after an auction between four interested bidders produced a top offer of just £12m. Many who can’t sell are letting out their houses instead – adding to the downward pressure on top-end rents, which the estate agency Knight Frank says fell by 9.6% in the last three months of 2008.

Anecdotal evidence suggests signs of buyers from the eurozone and America, for whom, thanks to falling prices and the weaker pound, London property is beginning to look like an opportunity. The buying agent Property Vision noted in a report published last month that interest from dollar buyers has increased significantly, as their money now goes at least 25% further than it did six months ago. A few wealthy Chinese buyers have also been sighted. Whether they will take the place of the free-spending Russians, though, remains to be seen.

Big spenders

July 2008 - A mystery Russian buys Witanhurst, Highgate, for £50m

Mar 2008 - Alisher Usmanov pays £48m for Beechwood, Hampstead

Feb 2008 - Elena Franchuk, a Ukrainian businesswoman, buys a house in Kensington for £80m

Dec 2004 - Oleg Deripaska pays £25m for a Belgrave Square home

Mar 2004 - Leonard Blavatnik spends £41m in Kensington

Oct 2003 - Roman Abramovich pays £28m for a house on Eaton Square

Source: ' times '

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