Foreign property buyers plunge after ‘Londongrad’ crackdown

·2 min read
Belgravia's Eaton Square is also known as Red Square due to the amount of Russian-owned property - ANDY RAIN/EPA-EFE/Shutterstock
Belgravia's Eaton Square is also known as Red Square due to the amount of Russian-owned property - ANDY RAIN/EPA-EFE/Shutterstock

A crackdown aimed at stopping criminals from laundering money through British property appears to be working after researchers revealed a drop in purchases by companies based in tax havens.

After Russia’s invasion of Ukraine, the register of overseas entities was sped through Parliament in a bid to stop Kremlin-linked oligarchs and gang kingpins from disguising their assets.

The register came into effect in August and requires anonymous foreign owners of British property, who could previously hide behind shell companies, to be named.

Since its introduction, transactions involving buyers from tax havens that are “popular with the corrupt” such as Russia have plunged significantly, research from the Washington-based Brookings Institute says.

Deals have fallen by roughly one third in volume and by almost 90pc in value, researchers Matthew Collin, David Szakonyi and Florian Hollenbach found.

“Despite the initial scepticism about its effect, our initial findings suggest that the threat of the register immediately began to deter investment in UK property from higher-risk jurisdictions,” they wrote.

“Following the reintroduction of the ECA, new purchases of UK property by companies based in tax havens fell substantially relative to companies based in other countries.

“We know from existing research that people use shell companies in tax havens to hide their identity when purchasing property.

“The drop suggests that the removal of anonymity made the UK a less attractive place to buy.”

Much of the drop was likely to be due to Russians – who typically invest through Cyprus or the Bahamas – turning away from the UK following the outbreak of the war in Ukraine, they added.

But the researchers said there had also been a drop in transactions involving buyers from “places popular with the corrupt, suggesting that the threat of the register has had an impact going beyond the general decrease in Russian investment”.

The launch of the ROE followed years of concerns that London’s real estate sector was awash with illicit cash, with the city dubbed “Londongrad” by experts due to the high number of Russian oligarchs who had bought properties there.

Ministers said the register, introduced as part of the Economic Crime (Transparency and Enforcement) Act, would help to “flush out corrupt elites laundering money through UK property”.

Foreign property owners who fail to register risk fines of £2,500 per day, as well as potential prison sentences. The threshold for what is considered beneficial ownership is 25pc or more.

Transparency campaigners broadly welcomed the move but have warned that some loopholes still remain, with individuals able to potentially evade the requirements by holding property in the name of a nominee company, or sharing the ownership with more than four relatives or friends.