UK-Russia sanctions and the property market

London’s choice

London Mayor Sadiq Khan has stated that he supports the seizure of Russian property held by the allies of Vladimir Putin in London, Transparency international estimates that there are 100 Properties owned by elites linked to the Kremlin worth £1.1 billion.

Khan, who was critical of the governments previous course of action with regards to foreign property in London, Is asking for the government to press further than simply taking these Kremlin owned properties. Khan wants to see more pressure put on Russia.

Firstly he wants a register of all overseas property owners. A seizure of all properties owned by allies of and by President Vladimir Putin. Raising the amount of money that overseas owners have to pay for leaving their properties empty by increasing the council, tax this is called the ’empty homes premium’, raising capital gains tax on overseas buyers from 28% to 40%. And finally by increasing the taxes paid by overseas companies investing in property by increasing the yearly tax on enveloped dwellings.

Khan claims, that in addition to the initial seizure of £1.1 billion, this could generate up to £370 million a year. Which would then be used to either build more council homes or diverted towards social services and healthcare.

What does this mean?

Lets break down and analyse each point. We’ll start with the first action to be taken, that being the seizure of foreign property assets and what this means for the UK. The properties being seized are a total of £1.1 billion in value, this is a sizable chunk of the London property market which may now find its way into the hands of UK based investors at base rate rather than at profit. Which may lead to a slight dip in property prices overall, including rental prices. (It should also be mentioned that Khan also would like to see his suggested measures be applied to all properties across the UK, not just London.)
This dip would however be temporary as the demand for property especially in large cities such as London, will always remain high due to being large financial and industrial sectors.

Secondly, the measures that khan suggested bringing in such as higher capital gains tax on overseas buyers and higher ’empty homes premiums’ are quite clearly designed to be anti-foreign investment measures. A restriction in the number of buyers will mean less demand for properties, meaning a dip in property prices.

It is however predicted that such measures would only be targeted towards Russian citizens despite demands for these measures to target all foreign investors as is currently being proposed. However, the mere possibility of such restrictions being thrust onto the market Is likely to send some investors into a panic and decide to sell.
This is why we predict that the property prices will take a slight downturn before beginning their usual inexorable rise.

Though the chances are likely quite low, given that some options are always required to be left on the table in terms of sanctions, If all that is being suggested were to be put into effect, including the triple threat of seizing properties and selling them to UK investors at base rate, Unfavorable conditions for foreign property investors and the building of council houses. It is quite likely, we may experience a 2008 style property market collapse.

In summary

Russian properties are to be seized by the UK government, this property seizure means there are more properties on the market. The mayor of London proposed restricting the number of foreign buyers by the measures mentioned above, this means there’s now more properties on the market and less buyers on the market. According to supply and demand, this means the property prices must come down. But due to the nature of the property market in the UK, expect prices to rise to prior levels soon after the drop.

This however is purely speculative at this point in time as the facts on the ground are constantly in flux, we aim to provide accurate and up to date information regarding the property market to the best of our ability, however there may be times such as now where the information coming in is at a rapid pace, what may be relevant and correct for 1 day may be totally unfeasible the next.