June 28, 2022

Unlocking Home Prices Series

What are the effects of the Russian-Ukrainian conflict on UK property prices?

Here's what current news headlines look like:

Understanding UK house prices require a thorough study of the economy and the multiple factor sat play. One of those factors is the Russian-Ukrainian conflict. In this brief analysis, we will dive into one of the consequences of this war: sanctions on Russians.

The first official act of war happened on the 24th of February 2022. Yet, tensions began at the start of the year. As tension grew, western powers took actions against Russia and its oligarchs. The UK followed suit. On the 3rd of March 2022, the UK's Foreign Minister announced sanctions against two Russian oligarchs: Alisher Usmanov and Igor Shumanov. This was followed by sanctions on other oligarchs including Roman Abramovich. If Russians take safety measures against sanctions, they will do so sooner than later.

Logically speaking, this war must have an indirect "cooling" effect on UK property prices. On the one hand, war impacts global trade confidence and supply chain. For example, one of the immediate effects of this war is inflated gas and oil prices, which increases average house hold expenses and ultimately decreases demand for properties. But, defying economic conditions, houses keep rising in value because neither inflation nor recent rising interest rates have affected prices.

Before we look at whether Russians took safety measures or not, it is necessary to know where they are on the map.

As of August 2021, over 1127 titles are owned by individuals with an overseas correspondence address in the Russian Federation.1 That number represents a growth rate of 1210% since 2010.Although this looks like a low number at first, the increase is significant vis-à-vis neighbourhoods distribution.

Henceforth, we won't be looking at all the "Russian Neighborhoods" in the UK for this analysis.The study will be based on the district with the most ties to the Russian Federation: The City of Westminster. The City of Westminister has 87 titles registered to Russian Oligarchs.2InNovember 2021, the average house price in the UK was around £256,756. The City of Westminister averaged a sales price of £951,500.

Russians also gather in some surrounding neighbourhoods: Belgravia, Chelsea SW3,Kensington, Hampstead NW3, Highgate N6, etc. In Kensington W8, the average price in November 2021 was £2.3 million (Figure 2). The well-known Roman Abramovich, the owner of the Chelsea club, has a Mansion in Kensington that is estimated to be worth around £150 million.It is rumoured that he is looking to sell the latter

On that note, selling their properties is a precaution Russians could take against sanctions. One way to quantify that is to look at the number of newly listed properties in the previously mentioned neighbourhoods.

For example, newly listed properties increased by 8% in two months in the City of Westminister,from 649 in December 2021 to 700 in February 2022 (Figure 3). That increase by itself is not unordinary. However, if we look at the moving average in the past 12 months, the number of newly listed properties has been stagnant at the 650 mark.

We can see the same trend in other "Russian Neighbourhoods" like Hampstead NW3, Belgravia,and Kensington W8, where the number of newly listed properties increased by 7%, 9% and 6%,respectively. These neighbourhoods have a concentrated population of Russian origin residents.Based on the Data Shine Census, Russian’s concentration in these areas is 6 to 7x above the national average. Almost 5% of residents are of Russian origin. These numbers indicate that Russians are looking to sell their UK properties.

At first glance, a new supply suggests that prices increase in these particular neighbourhoods could slow down. Yet, that is not the case. This new supply on the market is negated by the overall decreasing supply of listed properties. Figure  shows the divergence between the number of newly listed properties and the total number of properties on sale in the City of West minister.

The listed properties have drastically decreased by 48.8% YoY (Figure 1). This decrease in supply explains the constant increase in prices seen in Figure 2

To conclude, the Russian-Ukrainian war will impact the overall market. There are plenty of factors to consider. This short study looked deeper into the outcome of sanctions on Russian individuals and companies. We examined the City of West minister and inferred that the fear of sanctions has led to a growth in newly listed properties. Potentially, this increase could lead to a halt in price increases. However, we found out that the supply in this market decreased. Hence, the projected break in prices increase might not be around the corner just yet.