Tinker, tailor, soldier, property investor: UK takes aim at Russian owners of luxury homes

It’s a stand-off that evokes the drama of the cold war era: the UK and Russia have locked horns over the poisoning of former Russian double agent Sergei Skripal and his daughter in a sleepy English city in March this year.

Unlike during the cold war though, when such events were played out in the shadows, the latest incident has spilled over into a new arena: London’s struggling luxury property market.

For years, Britain has taken a relaxed approach to inbound foreign wealth, much of which has flowed into real estate. Recent estimates from Transparency International suggest £4.4 billion (US$6 billion) of UK properties have been bought with unknown sources of foreign wealth, nearly £1 billion by Russians alone and much of it held in offshore structures.

Responding to calls to clamp down on suspicious wealth, the UK government announced it would review the cases of 700 Russians who were granted entry under the investor visa scheme before 2015. It will also have Unexplained Wealth Orders at its disposal, which allow authorities to freeze assets if they are deemed to have been bought using suspicious funds.

But with London’s luxury property market so intertwined with foreign wealth, there are growing concerns the crackdown on Russian money will cause further damage by weakening sentiment and scaring away international buyers.