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  1. Property
September 1, 2007

High Nyet Worth Individuals

By Spear's

Once it was the Arabs, now it’s the Russians. Stewart Lansley on the billionaires who are buying up the hottest properties in Britain.

If you’re after a trophy address in London, there are few streets that can beat Kensington Palace Gardens. Set in the very heart of London’s Royal Borough, it contains some of the capital’s finest mansions, many of them the size of office blocks.
The street oozes wealth, power and privilege, perhaps more than any other in Britain. One side overlooks the gardens of Kensington Palace, the former home of Princess Diana. Only nations and the super-rich can compete for property here, and in 2006, the makers of Monopoly dumped Mayfair as the most expensive square on the board and substituted Kensington Palace Gardens instead.

It is the kind of street where properties very rarely come on the market and when they do, the competition to snap them up is always fierce. In early 2004, such a property did become available, and not just any old property. This one, number 15, had the most coveted position in the street – it was next door to Kensington Palace.

That this was no ordinary property was evident by the fact that before long three of the richest men in the world, all foreign-born multi-billionaires, tried to buy the property. Two of them were Russians, Leonard Blatnavik and Roman Abramovich. The third man in the chain was Lakshmi Mittal, the Indian steel magnate, who since 2005 has been the richest resident in Britain.

In the event, the house went to Blatnavik, Russian-born but with American nationality, a man who made a substantial fortune from post-Communist Russia. Now worth £5 billion, he is Britain’s sixth richest resident, well able to fork out the £41million for the sumptuous ten-bedroom Queen Anne mansion.

Although there is nothing especially new about rich foreigners heading for the UK and buying up prestigious addresses in the process, the current wave of super-rich migration beats anything that has gone before. It is a wave that really began in the 1970s when, enriched by the quadrupling of oil prices, a steady wave of oil sheikhs headed for the UK, colonising whole parts of London and snapping up expensive homes in Bayswater, Earl’s Court and Kensington, taking over hotels and historic mansions and boosting business in Harley Street. As the Guardian reported at the time, ‘1976 will undoubtedly go down as the Year of the Arabs’.

The Arabs were soon followed by other nationalities though not on the same scale, either in numbers or wealth. In the 1970s, other rich foreign buyers included Greeks, Italians, Japanese and Nigerians. In the 1980s, the oil money dropped back a little, and new foreign buyers included Americans, Hong Kong Chinese and Singaporeans.
Today foreign buyers are even more dominant. According to Savills, an extraordinary two-thirds of their London sales over £4 million in 2006 were by international buyers, and only a third were by British-born buyers. In 2004, it was the reverse.

Moreover, the traditional foreign buyers – the Sheikhs, Americans and some South-East Asians – have been joined, indeed overtaken, by an entirely new group on the block: the Russians.

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The golden postcodes

The first of the contemporary wave of rich Russians can be traced to the mid-1990s. Gary Hersham of Beauchamp Estates in Mayfair, a specialist in the top end of the London market, remembers selling, in 1996, ‘two consecutive properties in W14 to Russians within a month of each other. One went for £6.5 million, a record for the area at the time. Nevertheless that was rare, well before today’s Russian influx. It was totally different from what is happening today.’

The real Russian surge – when they ‘started buying en masse’ as one agent describes it – began over five years later. It was a trend started by one Russian who virtually everyone in Britain will have heard of: Roman Abramovich, the ‘stealth oligarch’ who thrust himself into the world’s limelight by buying a heavily indebted Chelsea Football Club.

Before that, in 2000, despite being one of the richest men in Moscow, he slipped quietly into the UK, not by buying in London but by acquiring Fyning Hill, a 420-acre estate in West Sussex which he and his then wife Irina bought from the Australian tycoon Kerry Packer for around £15 million.

The 1920s mock Tudor mansion offered Abramovich two things he most valued: a property with at least one former distinguished owner – King Hussein of Jordan – and, even more vitally, seclusion. The house, set in an area the size of 80 football pitches, is invisible from the road, offers a complete set of surveillance cameras and a helicopter pad. The estate also comes with two of the best polo pitches in the country, a go-kart track, a trout lake and a clay pigeon shoot.

The Sussex mansion was just the start. In a move reminiscent of the traditions of Britain’s landed aristocracy, a few months later Abramovich bought two luxury flats, a basement and ground floor, in Lowndes Square, Knightsbridge, for £1.2 million. Abramovich now had his country pile and two London pads, and not just any old pads. Lowndes Square, just round the corner from Harrods, is one of London’s smartest and most colourful addresses.

He did not stop there. In June 2005, he spent £9.3 million on a Grade-II listed property in Chester Square, Belgravia, and then the same amount on a house behind it in Ebury Mews. A year later he bought two more houses in Chester Square, thus creating an enclave of four houses. He then started spending huge sums converting the two adjacent Georgian townhouses and the two adjoining mews houses into a single grand London townhouse.

While building up a portfolio of four homes in Chester Square, Abramovich also spent £10 million on four apartments in Lowndes Square to add to the two he already owned. Over the course of eighteen months, he had thus spent some £50 million on eight properties to add to the three he already owned.

One of the Abramovich’s near neighbours in Belgravia is Boris Berezovsky, the flamboyant wheeler-dealer who made the crucial mistake of making a bitter enemy of President Putin and escaped to Britain in 2000 before he could be arrested, later gaining political asylum. As well as mounting an expensive propaganda campaign against Putin, he has also built a tidy property portfolio.

Today he also owns two huge flats in Belgrave Square, just a few streets away from Abramovich’s mansion, a £9.5 million home in Chelsea, two flats in Kensington Gardens, a high-security house on the exclusive St George’s Hill estate in Surrey – one favoured by rich Russians – and Hascombe Court, an estate near Godalming in Surrey, which he bought for a reported £10 million from the television and radio celebrity Chris Evans. The current market value of his properties will be close to £100 million.

Abramovich and Berezovsky were just the pioneers. According to Knight Frank, a fifth of the houses they sold costing over £8 million in London in 2006 were bought by Russians. In that year alone, Russians bought 240 homes worth on average more than one million pounds each. The agency has estimated that at the end of 2006, Russians owned £2.2 billion worth of property in London and the home counties, up from £93 million in 2000.

As to location, the wave of Russian buyers has become increasingly concentrated in a small number of elite areas: ‘trophy addresses’ such as Belgravia, Mayfair and Knightsbridge along with parts of Chelsea, Kensington, Hampstead and The Bishop’s Avenue.

Among those who are often recruited to help find properties for their employers are butlers. As one head butler employed by a Russian living in one of the ‘golden postcodes’, but who wishes to remain anonymous, explains: ‘They know what they want and where they want it. Only then will they fork out big money. They like Mayfair, Belgravia and parts of Kensington, but they are very precise. They might target a square such as Eaton or Belgrave, but only parts of the square such as a large single dwelling or the big lateral apartments that go across three or four buildings.

At that point they would be prepared to pay a serious premium. Certain areas are niche, others are not. Take Conrad Black’s old house, a 2,500-square metre mansion, in Cottesmore Gardens. When it went on sale, the Russians were simply not interested. It was in the wrong place, just by two to three streets. That’s how precise it is.’ Cottesmore Gardens might as well have been in Siberia.

The preferred locations are partly a matter of convenience. The favoured areas of the Royal Borough are all close to Battersea heliport, a key transport hub for the super-rich. But the concentration is also, as one agent put it, ‘a snob thing. Certain addresses will be known to foreigners. Typical English Squares like Eaton and Lowndes will be known about in top circles in Moscow.’

The concentration may also be due to a much more old fashioned emotion – the herd instinct, or what Natalie Hirst of the search agency Prime Purchase describes more politely as ‘their comfort zone’. What Abramovich and Berezovsky started, other super-rich Russians have certainly continued. Other Russian arrivals in Belgravia include Oleg and Polina Deripaska, who bought a Grade I-listed, £25 million Regency house in Belgrave Square in late 2004. Like Berezovsky, the Deripaskas also own a house on the St George’s Hill estate in the Surrey stockbroker belt town of Weybridge. He made his money originally through seizing part control of the Russian aluminium industry during the country’s bitter ‘aluminum wars’ and is today worth £3 billion.

Another Belgravia resident is Andrei Vavilov, 41, a former deputy finance minister under President Yeltsin. His wife Mariana is reputed to have a jewellery collection worth £35 million. And then there’s Yevgeny Shvidler, known as ‘Abramovich’s representative on earth’, who runs his empire. He bought a house in Eaton Square for £25 million last year.

Like many rich Russians, he is obsessed with privacy, and the house, a vast new building, is set like a fortress behind high walls, reachable only through a pair of tall, permanently locked and guarded iron gates. In order to build the gated archway, a neighbour was bought out of his home for £1.3 million. The house has an underground swimming pool, sauna, study with leather floors and is five times the size of adjacent houses in the terrace. He keeps a private jet at Farnborough airport in Hampshire and uses it to fly regularly to his Moscow office.

‘Red Square’

Long-term residents of Lowndes Square refer to it as ‘Red Square’. Once popular with oil-rich Arabs, the last couple of years have seen more and more Russians. One concierge who has worked in one block for five years estimates they now make up 10 per cent of residents.

The favoured postcodes are certainly handy, but they also carry great social significance. As the scattering of blue plaques show, they have always been the areas most favoured by the richest and most powerful sections of British society. What the Russians are buying into is a large slice of British history. During the nineteenth century, its residents were an unlikely mix of the English upper class and avant-garde artists and novelists.

As the old landed elites started to lose their remarkable hold on high society and expensive townhouses were auctioned off, the Royal Borough steadily became much more socially mixed. In the 1950s, Notting Hill became one of the first homes to the new migrants from the Caribbean. From the 1960s and 1970s, the area became famous as the spiritual birthplace of the hippies and the punk movement.

The period since the 1980s has seen the steady reversal of these trends. Kensington and Chelsea’s prime locations are once more being colonised by the super-rich taking over the very properties that once housed the landed aristocracy. It is a trend led by foreign buyers, and especially the Russians, with, as one agent has put it, ‘their less than modest demands’.

According to Inessa Falina, who works on the Russian desk at Hamptons, as well as a Knightsbridge or Kensington address the Russians also want ‘space, high ceilings, huge bedrooms, vast hallways. They are used to big houses and apartments in Moscow and want the same in London.’ When it comes to extravagance they are even outgunning their aristocratic predecessors. Not that long ago, 4,000 square feet would have been a big house. Now ‘big’ means 20,000 square feet. Professional Russians in London like to make jokes about the size of houses their compatriots are buying: ‘Oh, my house is so big I have to take a taxi to get from the bathroom to the dining room.’

Size is necessary to accommodate today’s new essentials – an indoor swimming pool, fitted gym, staff accommodation, and extensive garaging. Then there are the state-of-the-art sound and security systems. According to Knight Frank, ‘some clients have been known to spend up to £400,000 just on advanced electronics. One had a system that enabled him to see who was knocking on his door in London from anywhere in the world, via a video clip sent to his mobile phone’.

Many want separate rooms for their growing art collections, a library, a billiard table or a home cinema, or in some cases all of them. If these don’t already exist, then they will be added – often through excavation of the basement – at a cost which may well equal the purchase price of the property.

‘Buying trinkets’

What is happening today is a process of ‘mega-gentrification’ that is reversing a hundred years of history. The effect of foreign demand on London’s super-prime property market has been dramatic. In the early years after the millennium, prices in the prime market rose broadly in line with all property across London. Since then they have taken off.

According to Savills, prices for prime central London properties that they sold for between £2 million and £5 million grew by nearly 28 per cent in the year to March 2007, three times faster than for houses in general. Prices for more expensive properties costing over £5 million grew at an even more rapid pace, at a remarkable 50 per cent.

Part of the explanation for the house-price boom in 2006 and 2007 has been Britain’s own wealth explosion, one driven by record City bonuses. But for houses at the top end, above £5 million, the driving force has undoubtedly been international money. According to Knight Frank, ‘it is the influx of overseas buyers – European, Russian, Indian and Middle Eastern – which is the key to the substantial price growth in many areas of London’.

Liam Bailey, head of research at the agency, says that the top end of the market is today an increasingly international market. ‘The principal European buyers are French, Italians and Germans – typically bankers in financial services, working in the City or Canary Wharf,’ he says, ‘but at the top end it is the Russians who outstrip all other nationalities apart from the British, well ahead of the Indians and Chinese, who are late arrivals in comparison.’

The super-rich have always been able to have their pick of the best. But what distinguishes the post-millennium years from the past is the scale of money involved.

As property consultant Simon Barnes emphasises, ‘the money being spent on property now is greater than it has ever been in the past’. The main reason for this is that the world since 2000 has been experiencing a personal wealth boom never before seen in history.

The Russians are big players in the new worldwide wealth explosion. Andrew Buchanan of John D Wood points out that in the initial stages ‘it was as if they were buying trinkets: they would be here on a short business trip and would have a bit of a look around and think it was nice over here and would be useful to have a base, so they found something that took their fancy and bought it.’ Peter Mackie of Property Vision explains how ‘when they first arrived a lot were jumping in naively, it was more a matter of instant gratification than value. They bought anything, property we certainly wouldn’t have recommended at silly prices.’

A butler who has worked for a variety of foreign families compares the impact of the Russians with the ‘effect the Arabs had when they first came on the scene – with briefcases full of brand new notes and another briefcase full of gold watches to hand out. Now the Arabs have become much more shrewd, they know the prices now and the value of money, they don’t like being ripped off. The Russians are getting more astute but they’re still pretty spendthrift.’

Another agent who works with rich foreigners says the Russians can be especially impatient: ‘If you were dealing today with someone from the Middle East, India or America, they would usually be happy to wait and bide their time. But with the Russians, they are not prepared to wait. If they make an offer, directly or through a representative, and there is no answer within, say, an hour, it is not uncommon for them to increase the offer, even though the first may have been acceptable. If we are acting for a Russian and giving them advice, we would often advise them to hold tight, as they might be able to get a better price, and they have been known to say, “To hell with that, I want the property”. As a result they may end up paying more than they need to. It’s just impatience.’

The Russians are probably more wised-up now. Today they are relying less on ‘runners` and seeking the advice of professionals, ‘someone who will hold their hand on a much more professional basis, rather than someone holding their hand demanding a fee.’ These might include a private banker or the professional property-search agencies which have sprung up off the back of the wave of foreign money.

The knock-out bid

The effect of this wall of cash has been frenetic. In the last year, most properties have had queues of buyers, most of these able to pay cash. As one agent describes it: ‘I had this Chinese buyer wanting to spend £64 million on three properties, two in prime central London and one in the country or in Scotland. I asked him for a banker’s reference, and he said, “No need, I will pay cash”.’ According to Savills’ Tatiana Baker, ‘99 per cent of my customers pay cash’.

Properties have increasingly been bought ‘off-plan’, buying from a brochure without even viewing the property. According to Savills, ‘One foreign buyer bought a house off-plan in Eaton Square, a prime location next to the church, for £17 million. He didn’t view the property, he just liked what he saw in the brochure.’ The most expensive development in London is at One Hyde Park, which when finished will have 80 apartments overlooking Hyde Park. By June 2007, a third of these had been sold even though the development is not due to be complete before 2010.

Gary Hersham explains that ‘what is now common is people who are rich saying to us, “We don’t want to lose this property. What do we have to do to secure it?”’. Natalie Hirst of Prime Purchase tells of how she was representing a Russian client in a competitive bid: ‘The bidding got higher and I advised my client that he was over-paying by a significant amount and he looked me in the eyes and said, “Don’t lose the property, Natalie”, so not wanting to end up in bottom of the Thames, I carried on bidding and made sure I kept bidding until we won it. My client didn’t want to lose it even though we were paying way over the odds. That’s the kind of buyer a seller wants.’

When the right property comes on the market, especially in some of the most exclusive addresses like Chester and Eaton Square, it creates a frenzy of interest. Jonathan Hewlett at Savills explains how ‘in 2007, we took on an un-modernised house in Mayfair and put it on the market for £15 million. Before we even had a floor plan, we had 46 people viewing it in the first week’. Andrew Buchanan gives a simple comparison: ‘In mid-2006, I had seventeen registered buyers wanting to spend over £20 million. In mid-2007, I have 60 buyers willing to pay over £20 million.’

In the last two years, there have been three sure signs of the heat in the property market at the top end. Asking prices have merely meant starting prices. Gazumping has been common. Sealed bids – under which buyers are asked to submit a written bid by a certain date even if the outcome is not legally binding on the seller – have become commonplace.

According to Buchanan, speaking in May of this year, ‘competitive bidding is now the norm. Of our last 25 sales in the Chelsea office, 23 went to sealed bids’. Also increasingly frequent has been the ‘knock-out’ bid, a pre-emptive bid in which one of the competing buyers would make a significantly higher bid than the guide price to try and get it taken out of the market.

Soaring demand is only part of the explanation for the price explosion in the prime property market. Another is that there is so little stock. Andrew Langton of Aylesfords believes the main reason for this is that rich buyers are not just multiple buyers – they are hoarders as well, holding onto what they have bought. ‘In the 1970s, I sold 415 apartments in 6 buildings to a sheikh who is now head of a Gulf state,’ he says. ‘He hasn’t sold one of them and continues to let them out. I contacted him recently to see if he would be willing to sell them and he said, “No, I want to buy more”.’ During the first Gulf war, the Saudi Royal family bought no fewer than 10 of the 66 properties that make up The Bishop’s Avenue in Highgate.

When Dudley House, at 100 Park Lane, came on the market in 2006, Savills, which handled the sale, said the property was only ‘in reach of the top end of the billionaire market’, with Middle Eastern royals and Russian oligarchs the principal targets. The former Regency Mansion was eventually bought by the Emir of Qatar for £37.4 million, despite the fact that he already owns a mansion, the £60-million Beechwood House in Hampstead.

Today, growing competition and limited supply has lifted London to the top of the global property market. According to a study by Knight Frank and Citibank, London has overtaken New York as the most expensive prime market in the world. In the spring of 2007, prime London property would have set you back £2,300 per square foot on average compared to £1,600 in New York. Prime properties in Tokyo, Hong Kong and Dubai are now less than half the cost of London.

Gary Hersham tells how he met a Russian friend over Christmas 2006. ‘“Gary,” he said, “How are you?” I said, “Fine. How are you?” He said, “I’m fine, I’m alive.” “How’s business?” I asked. “Well, I made a couple of billion last year.” So put that in perspective, do you think it makes a blind bit of difference to them whether they spend £20 or £50 million on a unit, £20 million or £22 million, £7 or £10 million. It makes no difference to them.

‘What’s most important to them is time, efficiency of time. They are also very pragmatic people, they realise they may not be able to re-find what they are looking at, and, moreover, they don’t want to come back to look again. “This is what I want I’m not going to be stingy, I’ll pay the price, and if I have to pay a little more, I’ll do that too.” They’re taking that to a different level, but that’s what they are doing.’

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