Press Article

The Russians are coming

The Russians are coming

Jonathan Este
22 october 2005

REVOLUTION is in the air. But it's not the salons of Moscow or St Petersburg that are in turmoil but the British capital - or, as it is fast becoming known among Russian expats, "Londongrad".

For the past two years, London has been in the grip of a peculiarly capitalist revolution as an influx of hugely wealthy Russian oligarchs and their entourages has descended, snapping up big-ticket properties and commandeering public spaces for their grand balls and parties.

Just over three hours in a private jet from Moscow, London is ideally placed as a second home for the new Russian elite, cash-rich oil and resource barons who have made their pile in the past decade and want to diversify offshore.

Britain provides the perfect haven: a sympathetic tax regime, fine shopping, good schools, stable economy and strong property market. In the past year, the London Stock Exchange has attracted listings by six leading Russian companies. The LSE has more Russian-based companies listed than New York, while the London Metals Exchange reports a high volume of trading by Russian companies.

Meanwhile, the jewellers and fashion palaces of Bond Street and Knightsbridge are reaping the benefit. Luxury department store Harvey Nichols reportedly has hired six Russian-speaking sales assistants to help cope. Marketing manager Richard Gray says: "The Russians are to this decade what the Japanese were to the 1990s and the Arabs were to the '80s. They have a lot of money and are prepared to spend it ... it is not unusual to see people regularly spending five-figure sums in one trip."

The store's food hall recently reported that it had doubled its regular order of Beluga caviar, which sells for pound stg. 146 ($342) for 50g.

Stories of oligarch extravagance abound. It was reported earlier this year that, after the Russian Economic Forum in London, a group of delegates spent pound stg. 500,000 on a post-conference dinner, flying in Liza Minnelli to provide entertainment for the evening.

Expat Russians are also taking the opportunity to reacquire some of the treasures that were lost in the aftermath of 1917: a sale of mainly pre-revolution Russian art raised about pound stg. 15 million at Sotheby's in May, mainly from Russian private collectors.

The most prominent of the oligarchs to have made Britain his home is Roman Abramovich, the billionaire who recently disposed of his remaining holdings in the Sibneft oil firm to the state-owned conglomerate, Gazprom for pound stg. 7.4 billion, bringing his net worth to an estimated pound stg. 12.5 billion and making him, according to the compilers of The Sunday Times rich list, the most liquid person in Britain and one of the most liquid in the world.

Abramovich is a household name in Britain, thanks to his pound stg. 240 million purchase of Chelsea Football Club, into which he proceeded to sink millions more as he and his managers went on a spending spree, buying some of Europe's biggest names and propelling the club - known to the tabloid press as "Chelski" - to the top of the Premier League.

He also has invested heavily in residential property: in June the tycoon snapped up a five-storey Georgian house in posh Belgravia for pound stg. 11 million to add to his 182ha country estate in Sussex.

Top London real estate agency Knight Frank estimates that one in every 15 properties worth more than pound stg. 500,000 sold last year went to a Russian buyer. One-third of properties worth more than pound stg. 5 million are bought by Russians, who make up 30per cent of foreign buyers of London residential real estate, says the agency.

"We are getting to the stage that most of the prime streets in London have a Russian living on them now," Knight Frank's Stephen Mallen says. "It has been a gradual trend over the past five years but has seen an upturn in the past two."

Such is the appetite for British property among the Russian uber-rich that Knight Frank and fellow estate agent Savills have opened offices in Moscow, while others have hired Russian speakers to bolster their London operations.

Abramovich's mentor, Boris Berezovsky, once the richest man in Russia until he fell foul of the Putin Government and fled to London, has a pound stg. 10million house in Chelsea, a flat in Belgravia, a house on the Wentworth estate in Surrey and recently bought Hascombe Court estate for pound stg. 10 million from television presenter Chris Evans.

Oil and gas oligarch Leonid Blavatnik paid pound stg. 40 million for a mansion at 15 Kensington Palace Gardens, next door to Princess Di's old home at Kensington Palace. Aluminium trader Oleg Deripaska paid a reported pound stg. 20million for a central London property to live in while he attends English classes at the London School of Economics. Eugene Svhidler, an associate of Abramovich, spent a reported pound stg. 20 million on a newly built property in Belgravia in April while another wealthy Russian expat with links to Abramovich, Eugene Tenenbaum, has bought a large property at Walton-on-Thames.

These are not all expats; during the past few years there has been an increase in voskresnuy muzh, or Sunday husbands, who maintain a Moscow or St Petersburg office and a residence for their families in Britain and commute between the two.

However, for most of these people, the news this week that jailed Russian tycoon Mikhail Khodorkovsky has been sent to outer Siberia to complete an eight-year sentence for tax evasion is a clue to the avidity with which they have pursued offshore assets. Khodorkovsky, who started as a banker in the first years of perestroika before moving into oil and gas, was Russia's richest man and an intimate of former president Boris Yeltsin before falling foul of Vladimir Putin.

Khodorkovsky was arrested at gunpoint in 2003 and the assets of his company, Yukos, were stripped and taken into state hands in lieu of unpaid taxes. He has provided a salutary lesson for his fellow oligarchs of the potentially temporal nature of wealth and power in the new Russia.

Marina Starkova, who runs London-based PR firm Red Square Projects, says the recent flood of Russians to Britain - there are believed to be upwards of 40,000 living in London and the southeast - is the third wave of immigration in the past 100 years.

"At the beginning of the 20th century people escaped the revolution and went to Paris, which became the most popular bolthole for Russians," Starkova says. "Then in the 1970s a huge number of people went to Israel and the US to escape communism. Now Britain is the favourite place. Russians like the shops, the culture, the public schools and the houses."

They also like the tax regime. Most European countries require residents to pay tax on money made offshore. Britain allows the setting up of offshore accounts that avoid this problem. And while this happy situation remains, Russia's super-rich are expected to keep London as their home away from home or, as the Moscow Times recently dubbed it: "Moscow-on-Thames".