Sold out London: how Britain’s capital became home to the super-rich
London is the destination for foreign cash, often of dubious origin. Property purchased by Russian oligarchs, Middle Eastern oil barons and Chinese investors, means those on lower incomes have been priced out of the capital.
Chasing kleptocrats
Roll up, roll up for the Kleptocracy tour!
I have been invited on an unusual tour of London. It is been a year since I moved to Britain, but I will not be visited Westminster or Buckingham Palace today. I will instead be taken on a journey around extravagantly expensive mansions in the city, owned by billionaires from Russia and the Eastern Bloc.
I meet my guide near Brompton Square, but he is rather indifferent to the Baroque magnificence of the London Oratory. We have come to see another kind of splendor.
Here it is: an enormous town villa with a pale brick columned facade and bronze balustrades. There are three levels above ground, and a further two below.
“This building is a wow stop of our Kleptocracy Tours,” my guide explains. “Apart from main living spaces, there is a garage, staff rooms, a swimming pool and a garden.”
My guide is Roman Borisovich, a former banker and insurance executive, who became an anti-corruption activist. Originally from Russia, he has lived in London for 20 years. For the three years he has organised special Kleptocracy Tours as a part of his “Committee for Legislation Against Money Laundering in Properties by Kleptocrats” campaign, known as “ClampK”. The campaign aims to highlight the billions of dollars washing around the British capital.
The villa Borisovich is showing me is owned by a Ukrainian oligarch Dmytro Firtash who built a half billion pound fortune in the chemical and energy industry; involving brokering numerous gas deals with the Kremlin. Firtash also had ties to a deposed Ukrainian president Viktor Yanukovich: “He is one of Ukraine’s most powerful men and was keeping the whole country in Russia’s control,” Borisovich explains. “Despite all that, the British government allowed him to peacefully settle in London and buy property.” It is unclear how much Firtash paid for his London residence, but its estimated price was £60 million.
Firtash isn’t home when we popped by: he is in Austria fighting extradition to the United States on bribery and money laundering charges.
But this is only the start of his story in this city. Only a few metres away we stop to stare at the red-glazed terracotta facade of a ‘ghost’ London tube station, Brompton Road. It has been out of use since 1934, and during WW2 it served as a command centre to protect London from air raids. Despite proposals to open the station to the public, in 2014 the Ministry of Defence (MoD) sold it for £53 million. The buyer was again Ukraine’s richest man, Dmytro Firtash. Curiously, he was never able to come and examine his new possession, as shortly after acquiring his new abode, Firtash was arrested by the FBI.
If Firtash wanted to extend his first property on Cottage Place to the adjacent empty tube station, it might have been “one of the biggest private houses in London,” Borisovich explains. The sites worth a combined value of £100 million remain empty, as Firtash is still under arrest.
Given the fact the buyer is an oligarch facing corruption charges, I asked the MoD whether a Suspicious Activity Report was sent to the National Crime Agency in relation to Dmytro Firtash or the funds used to purchase the property. Under the Freedom of Information Act, the MOD replied it: “neither confirms nor denies whether it holds any information,” and, “it does not require a public interest test to be conducted.” There are no allegations made in this piece that any of the two properties are bought using corrupt money.
Crisis capital
Rich Russian-speaking investors from post-Soviet countries have their own boutique real estate agency in London. Specialising in high-end properties, Longrad describes the service it offers on its website as: “fast, great and reassuringly expensive.”
Its founder Roman Grigoriev is showing me a map and pointing out “places of interest” for Russians: unsurprisingly it includes Notting Hill, areas near the Russian Embassy and the luxury store Harrods in Knightsbridge. I ask Grigoriev whether it pays off to sell properties to Russians.
“It is a niche market, but it is a huge niche,” he says. “There is no official figure released as to the amount of invested money by investors from the former USSR countries, but we are talking about hundreds of billion pounds over the last two years.”
“No, journalists do not always exaggerate. Russian-speaking investors tend to buy the best and the most expensive properties in London.”
Mere minutes from the royal residence of Buckingham Palace is Belgrave Square, the most expensive and prestigious neighbourhood in London, with its elegant stucco-fronted mansions. It is also known locally as “Red Square” for its association with high-profile Russians. №5 for example is reportedly owned by one of Russia’s wealthiest businessmen, Oleg Deripaska. Former oligarch and government official Boris Berezovsky had several flats at №26. And Chelsea FC owner Roman Abramovich’s home in Chester Square, is a short walk away.
Foreign investors come in London for various reasons; to set up business, send their children to schools and universities, and eventually permanently move there.
Rachel Davies is the Head of Advocacy at Transparency International UK (TI UK), a non-profit organisation investigating and exposesing corruption worldwide. She says the funds involved in the movement of crisis capital are often legitimate, while fleeing from corruption and uncertainty abroad. Problems appear when ill-gotten gains come as a part of these flows.
Using Land Registry data and court records, TI UK identified 140 London properties worth £4.2 billion bought by individuals suspected of money laundering, from all over the world. Sixty people are those who have a prominent public function and access to public money.
“We are not saying that each of these properties was bought with corrupt money, but in many cases, the owners had salaries insufficient to buy those assets. In fact, 36% either have existing convictions of corruption, or face charges,” Davies says. Over half of these properties are within 3 miles of Buckingham Palace.
Luxury London homes for fraudsters
Tired of noisy and cramped central London? I would recommend taking a trip to Hampstead, to the north of the capital. It is a quintessentially English and unimaginably expensive area, with one of the wealthiest streets in London — Bishops Avenue — better known as “Billionaires Row”. In case you are interested in buying a house here, they are on the market for around £65 million.
In a quiet cul-de-sac close to “Billionaires Row”, there is an appalling example of London property being used for money laundering. An eight-bedroom house with an indoor pool and cinema was bought via British Virgin Islands company Capitana Seas Limited for £10 million. Only when the British Treasury intervened it was possible to establish Saadi Gaddafi as the owner of the house. He is son of former Lybian dictator Muammar Gaddafi. In 2012, the High Court in London ruled the property belongs to the Lybian state, as it had been purchased with Libyan state funds.
A sign says it is now let by a popular Hampstead real estate agency. However, after enquiring about the house’s price, I was informed it is now off the market. On the Rightmove property website, you can still find an advert from January last year, describing it as “offering approximately 7,700 sq ft. of perfect living accommodation and incorporates a large carriage driveway with a separate garage and a landscaped rear garden”. All this would cost you £4,500 per week.
Nearby, on the quiet and leafy Westover Hill, is another example of property bought with corrupt cash. Set within a secure gated development, it had once been the base for former Nigerian state governor James Ibori, paying £2.3 million for it in 2001, despite an official annual salary of only £4,000. He was later accused of stealing public funds and sentenced to 13 years for fraud totaling nearly £50 million. All his assets, such as houses and cars in the UK are said to have been repatriated to Nigeria.
These are only two examples of London mansions that were successfully investigated by police. In sum, £180 million of British property has been put under criminal investigation in the last decade as the likely proceeds of corruption. But this could be only the tip of the iceberg, as corrupt money is kept secret and often simply impossible to detect. In fact, 75% of these properties were purchased via offshore companies whose ownership is obscured by secrecy laws.
The scale of offshore ownership is significant. Currently, companies registered offshore own £122 billion worth of property in England and Wales. At the International Anti-Corruption Summit in 2016, the government promised to introduce a register that reveals true owners of foreign companies that owning UK properties. This was supposed to be brought into law by April 2018. But the UK Government announced that primary legislation would not be introduced until 2019.
“Another year without a public register is a new year for corrupt capital enjoying benefits of the best city in the world,” says Naomi Hirst from Global Witness, an independent anti-corruption organisation.
In a press statement the former Business Minister Margot James’ office wrote: “The government is committed to protecting the integrity and reputation of the UK property market and this register would be a valuable measure to increase transparency and investor confidence”.
New developments are sold overseas
Within 100 metres of the National Crime Agency head offices sits the Merano Residences, the new 28-storey building, just opposite Tate Britain. The development includes 40 private apartments, with a starting price at £2 million.
This prices out the majority of Londoners, but not the foreign investor from Saudi Arabia who bought no less than seven apartments at the Merano, according to Land Registry data (as of May 2017). The gentleman appears to be the director of one of the biggest holding companies in Saudi Arabia that includes retail, real estate and trading. The country is known for its high and wide-spread corruption, most prevalent in the form of nepotism.
Not only are many buyers at the Merano overseas investors, some units were purchased using the same exclusive solicitor or via offshore companies, registered in the British Virgin Islands or Jersey, known as secrecy havens. Among the rich foreigners and anonymous companies, I’ve found the name of a British veteran insurance tycoon or the director of a large London City company.
Keen to have a proper look, I arranged a viewing of one of the apartments, a £4.6 million “bungalow in the sky”, as my property consultants called it. This three double bedroom apartment’s interior was very pleasant, with its cutting-edge designs, brace of river-facing balconies and winter garden. The Houses of Parliament and London Eye are visible from the windows.
The original proposals from Merano developers St James (part of The Berkeley Group), included 14 shared ownership flats, but later these affordable units were removed from the scheme. Instead, the developers proposed eight homes for social rent, but not for sale and not at the Merano. My property consultant told me these social homes are now four hundred metres away: “It is off site, so you can enjoy complete privacy here in our exclusive residences”.
According to the London Plan, in exceptional circumstances off site provision is legitimate to: “secure efficient delivery of new affordable housing on sites identified elsewhere where it is possible to secure a higher level of provision, better address priority needs, especially for affordable family housing, secure a more balanced community and better sustain strategically important clusters of economic activity”.
The Merano Residences is far from unusual for being highly popular among foreign investors. In fact analysis by TI UK suggests in 14 new flagship luxury developments, nearly 80% of properties were purchased from overseas, with 40% of flats sold to individuals from highly corrupt countries or to companies based in secrecy havens.
A crisis across the city
Academic and author Anna Minton investigated the housing crisis for her recent book “Big Capital”. For her, London is becoming increasingly unaffordable for those on ordinary or even relatively high incomes, and forcing them to leave the city or live in poor quality living conditions: “Houses need to be places where people live, not financial assets for those who will keep them as their property trophies,” she says.
“People say the high-end property market operates in a parallel universe, so it doesn’t affect the rest of the city. But it’s not true,” Minton explains. She says that when a huge amount of wealth comes to London’s most expensive areas, the original old British elites cannot longer afford living there. As a result, they are forced to move to the areas that were previously considered unfashionable, such as Acton or Forest Gate. This in turn leads to housing and rent prices rising due to increased demand there. As a result, the communities who were living in more affordable places are pushed out. Minton calls it the trickle-down effect that displaces rather than benefits London.
The speed of house price growth has out-paced wage increases: since 1997, the median price paid for a home leapt by 259% in England and Wales, while median individual annual earnings could only manage a 68% rise, according to the Office for National Statistics. This had led many, including key workers, to be priced-out of the capital. A 2016 survey of the Metropolitan Police found that over half of police officers do not live in London due to excessive property prices. Speak to any young people in London and the topic of conversation will eventually focus on house prices, as people are afraid they cannot cope with the extortionate rents. According to the campaign group Generation Rent, record 65,890 people in their thirties have left London in the past three years. This is a 48% rise from the years 2011–2012.
Entire housing estates are demolished and replaced by luxury apartments that are out of reach for the displaced residents. Those people find themselves evicted and relocated to new communities, often outside London.
Demolitions
South London’s Aylesbury Estate has come to symbolise the failure of postwar council housing and urban decay. One of the largest of its kind in the capital, it can be distilled into two words: concrete and glass.
A famous Channel 4 ident was filmed here in 2005. The short clip gives an impression of a deserted and abandoned place: sinister music accompanies a camera tracking through a grey and rain-streaked elevated rubbish-strewn walkway, as decrepit buildings look on.
When I visit, the reality is somewhat different. The lift takes me to the 8th floor of the vast concrete block with a vista of the city only three miles away. At that moment I thought of the strange beauty in Aylesbury’s brutalist expanse.
“Everyone calls us a sink and infamous estate plagued by crime, drugs and prostitution. But you see, I always leave my doors open,” says Aysen Dennis, while inviting me to her cosy living room, full of light, house plants and books.
Originally from Turkey, Aysen came to London three decades ago to escape political repression. As a leftwing activist, she had to flee in the aftermath of the country’s military coup, causing hundreds of thousands of arrests. “If I stayed, I would have been killed or imprisoned for many years,” Aysen explains. She has been a council tenant on the Aylesbury for 24 years, and has been campaigning against its demolition for the past 15.
“I was so happy to find my own place and eventually settled into the community, knowing my neighbours, their children who have grown up before my eyes, knowing all the corner shops,” Aysen lights up her cigarette. “I feel safety and know everyone around the estate. People from different ethnicity, different backgrounds bring their culture here, and it is so rich. This is one of the things I don’t want to lose. And why should I?”
Tony Blair chose the Aylesbury estate as the site for his first speech as prime minister in 1997. He described the tenants as: “the poorest people in our country who have been forgotten by government.” But Southwark council decided to bulldoze the estate and replace it with a mix of private and rented housing-association properties. This decision faced strong opposition from the tenants. In 2001, the estate’s inhabitants were given a vote on this scheme, with 73% voted against. “After the result had been declared and when it was clear that we had won, one of the council people, one of the two fat cats approached me,” Dennis remembered. “And he said, ‘Do you think you won? We are coming back.’” Finally, in 2005, Southwark declared the estate would be knocked down, regardless of the residents’ disapproval of the plan. “I expected that they would accept the result and refurbish our homes. Instead, they made their own decision. This shows that democracy doesn’t work,” Aysen says.
The Aylesbury regeneration scheme includes four phases of demolition, the first of which started in 2015. Working with London housing association Notting Hill Housing, Southwark plans to deliver 3,500 new homes by 2032, when the entire £1.5 billion regeneration project is expected to finish. The council announced that Aylesbury Estate will be transformed into: “a stronger and more vibrant community, living in high quality homes and whose residents enjoy great streets, parks and open spaces, excellent public transport and a wide range of facilities”.
For the Aylesbury residents, this means only just over a third of new homes will include those for social rent; 1,300 less than it currently provides. In addition the Notting Hill Housing website states the weekly rent could rise: a two-bedroom flat in a similar development is £128. — around 20% higher than Aysen’s current council rent.
When the demolition began in 2015, around 300 people took to the streets in The Housing March. During this protest against gentrification, activists occupied some of the empty blocks. After two months, the police forcefully evicted the protesters. Aysen was among them. But after this “successful campaign”, as she calls it, everything has changed. “Twenty years ago, we were alone. Now all different housing campaigning groups come under one umbrella. If they need any support, we’ll be there. I have been going to different cities to talk about the housing campaigns. We work with academics, architects, filmmakers, with various levels of the society that oppose social housing cleansing.”
It is not only about fighting. As I was about to leave, Aysen grabbed my ankle and said: “I still don’t comprehend that I might lose my home. When I moved in, for me it was the place where I was going to die. I thought as long I pay my rent this is my place. Suddenly, some people because of their greediness make a decision on behalf of my life. They will have to drag me from this flat.”
Neither Southwark Council, nor Notting Hill Housing responded to my interview requests.
Generation rent
I met Haziq in one of numerous hostels in San Francisco. We shared the same cheapest room, with this difference that I came to the US as a tourist, while he had to live in a hostel, because he could not afford to rent an apartment. Although Haziq worked full time, he could not make ends meet and pay his sky-high rent.
This story came to mind when I was seeking a room in London. One advert in particular stood out, offering to: “share a room in an apartment with a bunch of amazing young people”. It was located on a popular garden square in the heart of King’s Cross, at £100 a week per person, including all bills. However the shared room was in reality a hostel-like set-up. Joining a brace of bunk beds was a fridge, cupboard and a small desk to shared by all four roommates. The British idiom “not enough room to swing a cat” sprang to mind. Moreover, “a bunch of amazing youngsters” meant ten people crammed into what is essentially a three-bedroom apartment, with only one kitchen and bathroom between them.
Extreme overcrowding in rented flats and so-called “beds in sheds” are illegal. But those who urgently need a place to sleep and can’t afford renting a decent room agree to such substandard accommodation. It is the latest sign of how desperate the London housing market has become. According to Valuation Office Agency data, the average rent in London reached £1,500 per month — more than double than the national average.
England is becoming a nation of renters, with home ownership falling to 64%, the lowest level in thirty years. Among young Londoners this trend is even more dramatic. Data from the London Mayor reveals that while in 1990 over a half of those aged 25 to 34 owned their home, in 2016 these figures had fallen to 27%.
In March, London’s average price was £473,776 according to Nationwide. That is more than five times the estimated average price in early 1970, after adjusting the inflation. The UK Government has admitted the property market is “broken”, with former Secretary of State for Communities Sajid Javid MP blaming the lowest rates of housebuilding in decades.
For Anna Minton, the blame should be attributed to uncontrolled overseas investment, favourable tax regimes for foreigners, bad planning system that inflates land costs and the systematic erasure of social housing. Anti-corruption activists in turn call to stop the influx of illicit wealth into the capital’s housing market.
Building a picture and understanding the reasons behind the crisis is only the first step towards a solution. It is not only about rich and poor; it is about the city’s ability to provide a place to live, regardless of income or background. Around 150 languages are spoken in Lambeth alone, according to the 2011 census data. London’s beauty is not in its buildings alone; it is also in the diverse and mixed communities who inhabit them. However, Britain’s capital is increasingly only a playground for the elite.
