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March 1, 2022
Jeremy McGivern
Posted in: What’s happening in the market?

Will the market be flooded with Oligarch’s properties?

“Have you got any properties that Russians need to sell urgently?”

Amazingly, an estate agent I was talking to yesterday has already been asked this.

So, will we see a deluge of properties bought with “dirty money” flood the market?

Well, let’s have a look at what is being reported:

“Transparency International, an anti-corruption group, has identified £1.5bn ($2bn) of Russian money in London property, the majority of which is held by shell companies in offshore havens. In the borough of Kensington & Chelsea alone, some 6,000 properties are registered in the name of anonymously owned companies; many of these are thought to belong to Russians.”

The Economist

What I am about to say will anger many, but then the truth often does…

There is a considerable amount of racism/stupidity involved in much of the commentary about money-laundering in London. Does it happen? I am 100% confident it does. Just as I am 100% confident that it happens in New York, Hong Kong, Milan, Paris, Frankfurt and any other city where you can find a reasonable number of human beings.

(As an amusing factoid, do you know which country has the highest crime rate per capita in the world? I’ll come back to this later but take a guess now.)

And London may well see more money-laundering than most, but what really irks me is the conviction that it is all being done by Russians. As Transparency International points out – these companies are “anonymously owned” and yet the best they can say is “many of these are thought to belong to Russians”.

Brilliant. Women were thought to be intellectually inferior, so weren’t allowed the vote. There is a whole universe between thinking something is true and it actually being the case.

Anyway, let’s look at the figures.

There is apparently £1.5 billion of Russian money in London property. Let’s assume that every Russian who has ever dared to set foot in Britain is a criminal mastermind, so all this money is “dirty” despite the extraordinary amount of due diligence that estate agents, lawyers, tax advisers and banks have to do.

It seems like a large sum until you consider that in 2021, “Almost £2bn was spent on properties worth £5m or more in the last three months of the year. There were 51 transactions over £20m compared to 32 in 2020”. (Savills)

Of course, press reports suggesting that the London property market will implode, if all the money-laundering stopped, are nothing new. The same happened after the Panama Papers in 2016 which is more interesting as it looked at the entire scope of “corrupt” property purchases rather than assuming that the Russians had cornered the market in crime… I was interviewed on LBC Radio about it and then wrote the following at the time:

Global Witness have said that over £170 billion of UK property (including residential, commercial and agricultural) is held offshore, the majority of which is in UK tax havens. This seems like a very big figure but consider this:

“Six Trillion, one hundred and sixty five billion is our best estimate of the total value of housing stock across the UK at the end of 2015… London’s residential property is now worth £1.6 trillion”. (Savills)

So even if all the property held offshore was in London then this equates to just 10% of the London residential market. Of course a large number of these properties are commercial so the figure for the residential market is significantly smaller.

More importantly though, how much of this money is actually being “laundered”? Now I can guarantee that there are several properties that have been bought with illicit funds…

However, anyone who suggests that even 25% of that £170 billion is illegal is clearly confusing legal tax avoidance with drug smuggling. Indeed, as numerous experts have pointed out, the focus should not be on the legal use of tax planning but the source of the money. If the money has been produced through nefarious means then the full force of the law should come crashing down…

The key point to realise is that the London property market is not going to collapse because of stricter anti money laundering rules. It is simply not as widespread as the popular press would have you believe. Indeed the stricter rules are good because it should give people more confidence.

In short, there could well be some properties confiscated in the coming months and years. Who knows how many and how the government will dispose of them? I expect there will be quite a lot of legal wrangling before any of them become available and, even then, the number will be relatively small, so the chances of this having any serious impact on the prime London property market is small.

Clamping down on money-laundering is definitely a good thing. However, in terms of affecting the property market, there are far larger forces at play including global money supply, the availability of credit and the velocity of money which dwarf any impact corruption has.

Unfortunately, pointing the finger at corruption is a useful way for politicians to distract from the real issues in the housing market, so expect to hear a lot more about this. Please do not be waylaid by the noise.

Two final facts for you:

  1. Stamp duty receipts for October to December were £348mn up on the previous quarterly record of £2.6bn in 2017 (i.e. the tax receipts on property transactions for just 3 months in the UK are double the amount of Russian money quoted by Transparency International)
  2. The country with the highest crime rate per capita is Vatican City!

In the meantime, let’s hope that the war in Ukraine is over quickly with as little loss of life as possible.

About the author, Jeremy McGivern

My name is Jeremy McGivern. I am the founder of Mercury Homesearch, the internationally renowned property search consultancy, and author of The Insider’s Guide To Acquiring Luxury Property in Prime Central London. I have been acquiring property in prime central London for clients for over 13 years.

Having physically viewed over 22,000 properties in prime central London, studied the details of over 153,400 apartments, houses and investment opportunities and spoken to 232+ estate agents every week for over a decade.

My advice is in high demand and has featured everywhere from Bloomberg Television, The Financial Times and The Daily Telegraph to Forbes India and Bahrain Confidential.

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