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A Slice of London So Exclusive Even the Owners Are Visitors

Sarah Lyall
Tuesday, 2 Apr 2013 | 9:09 AM ET
Luxury residential properties are seen on Eaton Place, Belgravia, in London, U.K.
Simon Dawson | Bloomberg | Getty Images
Luxury residential properties are seen on Eaton Place, Belgravia, in London, U.K.

An odd thing was happening, or rather not happening, as dusk fell the other day across Belgravia, home to some of the world's most valuable real estate: almost no one seemed to be coming home. Perhaps half the windows were dark.

It seems that practically the only people who can afford to live there don't actually want to. Last year, the real estate firm Savills found that at least 37 percent of people buying property in the most expensive neighborhoods of central London did not intend them to be primary residences.

"Belgravia is becoming a village with fewer and fewer people in it," said Alistair Boscawen, a local real estate agent. He works in "the nuts area" of London, as he put it, "where the house prices are bonkers" — anywhere from $7.5 million to $75 million, he said.

The buyers, increasingly, are superwealthy foreigners from places like Russia, Kazakhstan, Southeast Asia and India. For them, London is just a stop in a peripatetic international existence that might also include New York, Moscow and Monaco.

Along Elizabeth Street, home to a Poilane bakery outlet and tony boutiques, foot traffic the other day was very slow. A Belgravia resident from Colombia, who was shopping at a pet store where dog beds go for $358 and cat blankets for $289, said that there were two English people along her street, and that it was hard to tell whether many of her neighbors were there or not there.

"French, American, Petra Ecclestone" — that would be the daughter of the Formula One impresario Bernie Ecclestone — "and Russians," said the resident, considering those closest to her. She asked that her name not be used because, she said, she was scared of the Russians on the corner.

London is not the only city where the world's richest people leave their expensive properties vacant while they stay in their expensive properties someplace else; the same is true in parts of Manhattan. But the difference is that so many of them here are foreign, and that they look to be buying up entire neighborhoods.

"Many areas of central London have become prohibitively expensive for local residents," a recent report by the Smith Institute, a research group in London, said recently.

Paul Dimoldenberg, leader of the Labour opposition in Westminster Council, said the situation had reached a "tipping point" and was starting to concern lawmakers.

"Some of the richest people in the world are buying property here as an investment," he said. "They may live here for a fortnight in the summer, but for the rest of the year they're contributing nothing to the local economy. The specter of new buildings where there are no lights on is a real problem."

In its report, Savills found that in 2011-12, 34 percent of people buying residential properties in the resale market in prime areas of London — places like Kensington, Chelsea and Mayfair as well as Belgravia — were from overseas, up from 24 percent in pre-crisis 2007. In the most exclusive spots, foreigners accounted for 59 percent of the sales.

This has made parts of London more international, more expensive and more empty. The salesclerk at a Belgravia clothing boutique, who also spoke on the condition of anonymity because she did not want to get in trouble, said that at some times of the year the area was virtually abandoned. "We'll shut for the whole of August," she said.

Many foreign purchasers are buying to rent, said Naomi Heaton, chief executive of London Central Portfolio, which represents high-end buyers. "There is a definite concern about 'lights out London,' " she said, "but the reality is that half of what is bought is bought for rental."

But not at the top end, said Yolande Barnes of Savills.

"The very wealthy won't rent their houses out. Why would they?" she asked rhetorically. "It's more like buying their own private hotel, really — an alternative to living in a suite at the Dorchester."

Meanwhile, prices are rising beyond expectation. For single-family housing in the prime areas of London, British buyers spend an average of $2.25 million, Ms. Barnes said, while foreign buyers spend an average of $3.75 million, which increases to $7.5 million if they are from Russia or the Middle East.

Of newly developed properties in what are considered "ultraprime" apartment complexes, those offering hotel-style amenities and apartments priced at more than $7.5 million, 78 percent of purchases last year were made by foreigners, the report said. Brokers are marketing new properties abroad in places like Hong Kong and Singapore even before advertising in Britain, as they did for Cornwall Terrace, a development at the edge of Regent's Park where houses are priced at $45 million to $87 million.

The most visible, and also the most notorious, of the new developments is One Hyde Park, a $1.7 billion apartment building of stratospheric opulence on a prime corner in Knightsbridge, near Harvey Nichols, the park and the Mandarin Oriental Hotel, which functions as a 24-hour concierge service for residents. Apartments there have been purchased mostly by foreign buyers who hide their identities behind murky offshore companies registered to tax havens like the Isle of Man and the Cayman Islands.

It is rare to see anyone coming to or going from the complex, and British newspapers have been trying since it opened two years ago to discover who lives there. Vanity Fair reported recently that as far as it could discern after a long trawl through records, the owners seem to include a cast of characters who might have come from a poker game in a James Bond movie: a Russian property magnate, a Nigerian telecommunications tycoon, the richest man in Ukraine, a Kazakh copper billionaire, someone who may or may not be a Kazakh singer and the head of finance for the emirate of Sharjah.

One resident, Rinat Akhmetov, the Ukrainian, paid $204 million for two penthouse apartments that he combined into one, at a reported additional cost of some $90 million.

According to The Sunday Times of London, only 17 of 76 apartments, which have been sold for a total of $4 billion, are registered as primary residences, which means that the owners pay only negligible "second home" taxes of a few thousand dollars a year. Mr. Dimoldenberg called the building "London's Mary Celeste" and said it "contributes nothing to local businesses or London's economy."

London's housing market is at odds with that in the rest of the country, floundering since the 2008 crisis and now hit by a new wave of austerity-driven budget cuts. While housing prices outside the city fell by 10 percent in the last five years, inside London they increased by 21 percent. In Mayfair alone, they rose by 30 percent. A house in Chester Square that sold for $2.4 million as a long-term lease in 1987, Mr. Boscawen said, sold last year, as an outright purchase, for $48 million.

An American who lived for 20 years in a multimillion-dollar apartment in Belgrave Place, and who did not want her name used for fear of alienating her old neighbors, said the quiet could become oppressive.

Most of her neighbors seemed to be away most of the time, and she never met any of them. "So I was kind of excited when a Russian family moved in across the street," she said. "I put a welcoming note through their letterbox, introducing myself."

The neighbors invited her to their Christmas party, where she ate caviar, drank vodka and listened to Russian classical music. "I tried to meet people, but they didn't speak much English," she continued. "Anyway, that was the last I saw of my neighbors. I think they spend most of their time in Palm Beach."

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  • A reporter and editor, Robert Frank is a leading authority on the American wealthy for CNBC.