Russian Buyers Scarce in the Global Luxury Real Estate Market

After 22 years living in Moscow and promoting overseas real estate to wealthy Russians, Kim Waddoup is unfazed by the recent plunge in the ruble’s value, which has made many Russians much less wealthy.

“I’ve been through three or four of these crises,” said Mr. Waddoup, chief executive of aiGroup, which stages exhibitions and conferences. “Nobody keeps their money in rubles. Are you stupid?”

But many real estate executives around the world are worried. From the sunny resorts of Spain to the desert villas of Dubai, developers and agents have been reporting far fewer Russian buyers over the last year as the ruble declined and the West imposed sanctions on Russia in the wake of its takeover of Crimea. (As of Jan. 20, a ruble was worth about one U.S. cent, more than 40 percent less than its value a year ago.)

The wealthiest Russian buyers “have all but disappeared” from some areas in the south of France, said Mark Harvey, the country’s residential expert for Knight Frank, the real estate agency. In St.-Tropez, for example, Russian demand for luxury villa rentals was down 20 percent from a year earlier, he said. “Their absence has left quite a void,” Mr. Harvey said.

Russians, along with wealthy residents of some countries in Asia and the Middle East, play a prominent role in many luxury markets, notably London, where they have helped drive up prices in the wealthiest areas more than 50 percent in the last five years. The average price of a home sold in the prime areas of central London was about 4 million pounds, or $6 million, last year.

Russians bought 3.5 percent of all homes sold in central London last year, according to data compiled by Knight Frank. That was down from 5.2 percent of sales in 2013.

Inquiries from Russia have dropped 70 percent since December 2013, said Giles Hannah, senior vice president at Christie’s International, who is based in its London office. And, he added, sales to Russians are at their lowest point in six years for homes priced at less than £10 million.

But ultrahigh-net worth Russians still are buying in the British capital. They accounted for more than 20 percent of home sales of more than £10 million from April to October of last year, after the sanctions were introduced, Knight Frank reported.

(While Knight Frank would not specify how many such homes were sold, a spokesman said the 140 to 150 homes reported recently by The Financial Times was roughly correct.)

And the number of fast-track visas granted to Russians who made investments, including real estate, of more than £2 million in Britain in the first three quarters of 2014 rose 69 percent from the period a year earlier, to 162 from 96.

“There are two clear Russian buyer markets in London, the uber-wealthy and the mainstream buyer,” Mr. Hannah said. “The wealthiest Russians still have the ability and desire to buy, and have their infrastructure in place in London to keep purchasing.”

In the French Alpine ski village of Courchevel, Russians buyers often represent as much as 30 percent of the sales in high-end projects, said Nic Brennan, associate director of Savills International Residential.

In December, the agency began pre-construction sales of 44 freehold apartments in a spa resort called One Courchevel in the village. The units were priced at 750,000 euros to 9 million euros, or about $883,000 to $10.6 million. “There was a certain amount of nervousness” about potential sales, Mr. Brennan said.

But interest from Russia has remained strong, he said; one of the first five sales went to a Russian buyer. Nevertheless, Savills is changing its marketing strategy, shifting part of the advertising budget away from Russia. “We’re taking a more international approach,” Mr. Brennan said.

In Spain, Russians are typically the third-largest international buying group, behind buyers from Britain and France. But the developer Taylor Wimpey España is also reviewing its marketing plans, after five buyers from Russia pulled out of deals to buy condos in a development on the Costa del Sol, according to Marc Pritchard, the developer’s sales and marketing director.

“In the next couple of years we still will have Russian buyers, but I’m pretty sure” their numbers will decline, Mr. Pritchard said.

Yet many real estate veterans are not writing off Russian buyers. They argue that if anything, the decline in the ruble and increased turmoil in the country may prod more Russians to move more money out of Russia. Overseas property is seen as a relatively safe investment, compared with alternatives within Russia.

In the Middle East hub of Dubai, where developers rely on international buyers and investors, there has been only a small shift in Russian interest in the last year, said Ryan Mahoney, chief executive of Better Homes Real Estate, one of the largest real estate agencies in the emirate.

Since sanctions were imposed on Russia in March, his agency has recorded a small drop in sales to Russians — and a slight increase in the number of Russians selling — but not enough, he said, to raise concerns.

Before the sanctions, Russians represented about 3 percent of the firm’s buyers and only 1 percent of sellers; now, they are 2 percent of buyers and 3 percent of sellers.

“I see this minor drop in Russian property buyer activity as a temporary trend that will right itself once Russia’s domestic issues find a resolution,” Mr. Mahoney said.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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