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Uncertain Prospects for Overseas Mansions Owned by Sanctioned Russian Owners
2022-03-17

  Since the outbreak of the Russia-Ukraine war, Russia has been condemned overwhelmingly by the world. However, because the United States and NATO have repeatedly refused to participate in the establishment of a no-fly zone, and instead resorted to thunderous economic sanctions, the ruble and the Russian stock market have plummeted so far. On Friday, U.S. President Joe Biden announced a ban on imports of diamonds, vodka and seafood from Russia.

  Sanctions have also been extended to some Russian individuals. For example, France and other European countries have seized superyachts owned by Russian oligarchs, and the United Kingdom has introduced new legislation to require overseas entities that hold properties in its territory to fully disclose the identity of the owners and other information. The United States has taken the lead. The Biden administration recently announced sanctions on a number of individuals considered to be "Putin cronies" and their families, including freezing their assets in the United States, including real estate.

  Mickey Alam Khan, president of Luxury Portfolio International, a New York-based luxury real estate agency, said: “The U.S. luxury residential market has historically been the top investment choice for high-net-worth individuals around the world. New York and Miami are popular with Russian oligarchs, often in the name of limited liability companies. Buying condos and new developments.”

  In New York, local politicians are actively exploring the possibility of further legislation to put pressure on assets held by Russian oligarchs. New York Mayor Eric Adams has vowed to assist the Biden administration with planned sanctions on mansions owned by Russian individuals and entities.

  Several prominent figures close to Russian President Vladimir Putin own a number of high-profile New York properties, including three Upper East Side properties worth more than $91 million. The three properties once belonged to Chelsea owner Roman Abramovich, who transferred them to his ex-wife Dasha Zhukova before a new round of sanctions took effect in 2017, according to the New York Post. ).

  Proposals to seize properties owned by Russian oligarchs may appeal to foreign policy hawks and local housing advocates, but the reality is far from simple.

  Michael Romer, co-founder and managing partner of New York-based law firm Romer Debbas LLP, said: “Initially, the U.S. government could only freeze these assets. When the assets are frozen, it’s in a state of stagnation, shelving. The owners. No longer have the right to use, live, sell, lease and mortgage it, this state of suspension often feels helpless and helpless.”

  Romer added that for the purpose of confiscating assets (rather than simply freezing them), the government must prove that the property or the funds used to purchase it were linked to a criminal act. In the U.S., if a property is frozen, the end result could be years of litigation.

  “It’s one thing to freeze an asset, it’s another thing to actually seize it and potentially put it up for auction at a later date,” he said. “Freezing or confiscation of U.S. property held by a Russian owner can raise a complex set of issues. For example, if a condominium is seized by Freeze, who will pay for the management fees incurred during the period? Will the government target properties held by relatives or children of certain individuals? And to what extent the government can or should List sanctioned persons based on nationality?”

  A similar situation could be seen in the UK property market.

  Mark Pollack, co-founding director of London-based luxury agency Aston Chase, said: “A lot of these properties are held by corporate networks or offshore institutions. In my opinion, all issues will be resolved, but it will undoubtedly take time Furthermore, for a property that could easily be worth £40 million (US$52.2 million) or £50 million, the owners must be either rich or expensive, they have the ability to hire the best lawyers, and they will never sit still and let go of the confiscation of the property. ."

  Recently, due to the sanctions, multiple real estate transactions handled by Pollack's companies have been suspended or suspended. He said: “Although the buyer in question is not on any watch list, people with Russian nationality are now apprehensive that the sanctions will spread far beyond the original target group. Therefore, in the current situation In the future, maintaining cash flow is king.”

  In New York, some Russian luxury homeowners are privately considering selling their properties, of course, to improve capital liquidity.

  "In recent weeks, two Russian-owned condos have been listed for $50 million and $41 million, respectively," said Victoria Shtainer, a New York-based broker with Ukrainian-born real estate agency Compass. 1:100, they think it’s safer to sell the house and remit the funds to Switzerland. In terms of the New York market environment, now is a good time to sell, and real estate is one of the valuable assets that can easily be realized.”

  Shtainer said that while some luxury home buyers have recently asked about the opportunity to dip into New York properties that Russian owners are eager to sell, frankly, the impact of sanctions on the real estate market will likely be limited, perhaps limited to a few priceless properties owned by Russian oligarchs. Super mansion.

  Russian buyers made up less than 1 percent of foreign buyers of U.S. homes between April 2015 and March 2021, according to data released last week by the National Association of Realtors. The median and average prices of homes purchased by Russian buyers were $325,000 and $652,915, respectively, while the average price of homes purchased by all foreign buyers was $480,695, indicating a higher proportion of high-end deals made by Russian buyers.

  Shtainer noted that the sanctions that followed during the Obama administration, especially after the 2014 annexation of Crimea, once a Ukrainian territory, had already slowed the influx of Russian buyers into the New York real estate market. "Today, they are a very small percentage of foreign buyers," she said.

  According to a recent report by Aston Chase, north-west London has become a popular investment destination for Russian buyers, who have a combined £8bn of property, business and other investments in the UK.

  Pollack said: “The current situation is that even if they want to make a deal, they have to wait until all the issues are properly resolved, the legal consequences are clearly explained, sanctions are lifted or specific individuals. I don’t think it will affect our real estate market. Huge impact because there are plenty of buyers in the £5m to £15m range."

  According to recent market reports, New York's luxury home market is just as hot, and even more so than last year's white-hot market.

  In addition to confiscating personal properties, broader economic sanctions have caused some potential Russian buyers to shy away from the U.S. market.

  “Individuals who live in the U.S. but still do business in Russia may have paid for new developments in New York and Florida, with closings coming this fall,” Shtainer said. Devaluation, where do they go? It really deserves our attention.”

  "As for the deep-pocketed Russian oligarchs, they will continue to look to invest in property, but look to friendly areas," Khan said. "As these Russian super-rich move to safer and friendlier markets, places like Dubai, UAE, could benefit."

  2.8 million refugees have fled Ukraine since conflict broke out between Russia and Ukraine in late February. According to Reuters estimates, the conflict has caused about 15,000 casualties, including Ukrainian civilians. A new round of talks between Russia and Ukraine was held on Monday but was "technically suspended" until Tuesday.