10 March 2004 02:02
Russian invasion of the UK: Many property market investors are counting on their input, says Lisa Urquhart
Led by the highly visible Roman Abramovich, the Russian invasion of the UK
residential property market is the stuff of headlines. It seems barely a week
passes without some billionaire snapping up a multi-million pound show home
in Chelsea, Mayfair or Knightsbridge.
Russian money may be keeping some of the heat in London's residential
market and gossip pages, but many believe that the Russian billionaires,
replete with trophy postcodes, will turn their attention to UK commercial
property.
"Our gut feeling is that they will invest in real estate, because they
will begin to understand the fundamentals of the UK commercial market,"
says Chris Bell, managing director Europe of Knight Frank.
Gary Hersham owner of Beauchamp Estates, believes that the Russians will
follow the same route as historic newcomers to the UK market. "Like
Middle Eastern investors Russians will start with residential, move to
residential for investment and move into small and then bigger commercial
investments."
However, given yields of about 15 per cent in the Moscow office market and
vacancy rates of only 3 per cent, it seems hard to see why Russians would
bother with the more sedate UK market and its yields of 5 per cent.
"It's all about security," says Jeremy Waters, commercial
investment partner at Knight Frank. "Here they will have a tenant for at
least 10 years and can increase the rent every five years and it can't
go down. London is a way of balancing their portfolios and offsetting the
risk at home."
Political upheaval that saw president Vladimir Putin sack his entire cabinet
could also act as a driver for investment outside of Russia, argues Mr
Hersham.
The promise of new money has seen a flurry of investment agents setting up in
partnership with local agents in Moscow.
"We opened Russian offices because we know that it is going to be a big
market and we see the potential of Russian money coming to the UK. So we are
going to Russia to understand the market," says Mr Waters.
In Knight Frank's Moscow office Natasha Reteyum, development director,
believes that even if Russian money is successfully accessed it will be
difficult to tell who is investing, and where, given that many investors are
reluctant to let people know where they are putting their money.
The trend for privacy in business matters, although typically Russian, says
Ms Reteyum, has been exacerbated by the Russian government's decision to
arrest Mikhail Khodorkovsky, the former Yukos chief executive, on suspicion
of fraud and tax evasion.
The desire for privacy, coupled with the increased investment in the property
market by Russian billionaires, has, however, raised concerns about money
laundering.
Property investment is an easy way of laundering so-called dirty money, as a
commercial property in a legitimate economy like the UK provides a clean
income stream that can in future be sold to create legitimate profits.
It's a process that has not escaped the attention of the Russian
authorities. Viktor Zubkov, Russia's first deputy finance minister and
chairman of the financial monitoring committee of Russia, is stepping up
efforts to combat money laundering with new co-operation and information
exchange agreements with various European governments.
Mr Zubkov says: "If there are suspicions that property is being bought
with 'dirty' money, we will work on the information of our opposite
numbers. And if there is, for example, a request from British financial
agencies, then we are sure to conduct our own financial investigation
too."
The focus on money laundering has also been intensified by the introduction
this month of Money Laundering Regulations 2003 legislation.
Agents can now face jail sentences and fines if they assist clients in money
laundering. Mr West of DTZ says: "It is a genuine concern, and now if
anyone has suspicions that money is being laundered they will have to report
it immediately."
Mr Waters, however, says there are steps agents can take to protect
themselves. "Ask as many questions as possible up front. If you are
worried about the financing, speak to bankers or any other financial sources
you have. Check that they have lawyers acting for them, as it is their
solicitors who are responsible for signing off the deal for them."
Notwithstanding worries about money laundering, many in the industry are
counting on the fact that the Russians are coming.
[FT REPORT - PROPERTY] |
RUSSIA IN FACTS
