[Continued from yesterday’s Part 8 and the preceding Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, and Part 7.]
By: David A. Smith
I do notice that, when I’ve been away and I come back to London, people look at you. People are ready to pick arguments.
Colin Firth
In London, manners maketh man
As the micro implies and macro, the previous Part 8 of this post had long since broken free of the excellently focused work by author Ed Caesar, published in the New Yorker (1 June 2015), to unmask the buyer of Highgate’s Witanhurst, the largest single private residence in London. Mayor Boris Johnson, himself descended from Russian emigres (or so he says), thinks it’s just ducky for billionaires to be exiling themselves and domiciling their money in London, and on balance I agree with him, some others do not:
Chris Hamnett, a professor of geography at King’s College London, has studied the effect of foreign money on the city’s property market, and likens it to a three-bowl fountain of the type often found in London parks.
With books such as Cities, Housing and Profits (1989), Shrinking the State: the political underpinnings of privatization (1998), Winners and Losers: Home Ownership in Modern Britain (1999), Unequal City: London in the Global Arena (2003), and with Tim Butler Ethnicity, Class and Aspiration: remaking London’s New East End (2011), I have some faint idea of his overall perspectives ….
Why is your framing zero-sum, Mr. Hamnett?
A jet of water fills the topmost and smallest bowl; overflow spills into the middle bowl and, eventually, into the bottom, largest bowl.
In Hamnett’s analysis, the constant pump of water is money flowing into the most expensive parts of London. Residents who might have hoped to live in Kensington are priced out, and thus look farther from the center—say, in Islington.
Is there enough water for everybody?
It’s certainly true that in rising cities, rising per-capita wealth boosts housing prices – it’s one of the three fundamental laws of urbanization – but with rising wealth, incomes rise as well, as do taxes:
There has been some windfall from the foreign-property boom. New laws have increased taxes on high-value houses: if Witanhurst is sold for three hundred million pounds, the buyer will owe about thirty-six million in taxes.
In other words, each time a mega-home is sold, a council house is born?
The mayor of London, Boris Johnson, is ambivalent about the rise in foreign-owned property. In a recent radio interview, he said, “The success of London is having the weird effect of making it very hard for Londoners to afford to live there.” However, he did not want to scare off the private jets. “London is to the billionaire as the jungles of Sumatra are to the orangutan,” [Boris] Johnson said. “We’re proud of that.”
Bring us your billions, bozhe moi! Boris with Mikhail Prokhorov
Not everyone is proud of its immigrant billionaires:
In 2011, Michael Hammerson, a local councillor, complained to the Daily Mail about the changes at Witanhurst, noting, “We don’t want limos with smoked windows and men in dark glasses with bulging breast pockets, and the place surrounded by CCTV. That’s not Highgate.”
Mr. Hammerson holding an ancient oak tree
Some of it is Highgate now, tradition be damned, and there will be more in the future, because if the oligarchs’ behavior signals anything, it implies that Russia will collapse faster than expected, worse than expected.
The Central Bank of Russia has estimated that GDP will fall by as much as 4% this year, a product of falling oil prices and ongoing conflict in Ukraine.
Mr. Putin, like many a dictator before him, started wars he couldn’t readily end because he assumed the money would run forever.
At the same time, inflation soared to 16.7% in the year to March 10.
Falling oil prices, falling ruble, rising inflation, mean a rapidly impoverishing Russia. But as demonstrated by Castro, Chavez, and three generations of Kims (Il-sung, Jong-il, and Jong-un), even financially suicidal dictators can stay in power for decades, depending on how rich and diverse the country was when they arrived (thanks, Robert Mugabe!).
“I’m 91, and I just need this country to make it longer than I do. Apres moi, who gives a crap?”
For this purpose, it doesn’t matter whether the dictator is oblivious or evil, because the behavior is the same: seize all productive assets; expel, arrest, or murder all dissenters; maintain a praetorian guard of pampered loyalists willing to do whatever they are told; and periodically shrink said circle both because the resources are running out and to remind those left the penalty for any misstep. (Normally the dictator will also prepare a convenient stash of external money – Chavez’s daughter is the richest person in Venezuela, all in assets held offshore – for the moment when the jig is up.)
Daddy’s girl gets what daddy gives her
The warning signs are plain:
The ruble’s swift depreciation, losing more than 45% of its value against the dollar since the start of 2014, may result in an M&A spree. On average, the oligarchs profiled in the report have segregated 48% of their wealth from their business assets, and said they intended to segregate more of their personal wealth over the next 12 months.
In other words, they want to convert ownership in rotten Russian companies into rotten Russian rubles, and then to convert the rotten Russian rubles into strong currency before the rubles collapse. One excellent use for rubles converted into sterling is the aforementioned Tier 1 visa.
Data showed a 69% increase in Russian applications for UK investor visas in the first nine months of 2014, compared to 2013.
Seeing the trend, HMG reacted appropriately: they raised the price.
I’m just reacting to the market
Last November [i.e. 2014], the minimum investments for such visas was doubled to £2m.
If the UK represents an efficient market (which would be quite niftily capitalist of Her Majesty’s dedicated public servants in the UK Visas and Immigration Office of the Home Office, but is probably beyond their remit), then the changing price of and demand for Tier 1 investor visas could in fact be an Iowa Futures Market on the collapse of the Russian economy (and with it, the collapse of Russian property values). Indeed, aside from raising revenue for the exchequer, she could also sell the big data to the Foreign Office. Home Secretary Theresa May, take note; the flow will continue.
Of those living in Russia, more than one in four said they had plans to leave within five years. Participants in the Campden study jointly control $2.5bn (£1.7bn) of personal wealth, and businesses with turnover of $6.5bn last year.
Even assuming that the business are worth 2x their gross sales (‘turnover’ in English-speak), these 30 oligarchs have net worths no greater than £500 million apiece – and while that’s plenty for you and me, it suggests that having harvested all the deca-billionaires, Mr. Putin will soon be scraped for the hemi-billionaires – practically starving:
Russian entrepreneurs maintain a higher risk appetite than their western European peers. About half of participants’ private portfolios are made up of cash and real estate.
Economically, that is, not nutritiously:
For some, sanctions over Ukraine have created business opportunities. As imports have been blocked, food prices have soared and presented investment opportunities in the agricultural sector.
That tidbit is a useful reminder: those who rise within Crookedstan cannot themselves be paragons of virtue. Perhaps their children or grandchildren will be so, but they themselves are of the split-knuckle school of persuasion.
Even with the occasional machine-gun pruning, it’s a bloody family tree
It’s hard to square the competing impulses of the Guryevs. They seem to need other people to know they are rich, but only the right people.
The only member of the family who has seemed eager to share the details of her life publicly is Valeria, the wife of Andrey Guryev, Jr. Valeria, who studied at the London College of Fashion, is on Facebook, and her banner image shows her posing on a motorcycle in a black miniskirt. On Instagram, her avatar bears the slogan “I’m too pretty to work.”
Russian-Anglo Princess?
So while bored twentysomethings read Le Corbusier over and over again in roundtable discussions led by professors who would rather be elsewhere, the underworld of London is calling.
Perhaps Mr. Manaugh’s use of ‘underworld’ was his sub-conscious calling to him:
Despite this gilded life, very few people in Moscow high society appear to have heard of Valeria Gurieva or her family.
Who needs to win Wimbledon when you can win Tatler?
Ksenia Solovieva, the editor of Russian Tatler, which assiduously documents the lives of the oligarchs, looked blank when I mentioned Gurieva’s name. “I will put her on my radar,” she said.
My radar link to Putin’s radar? Perish the thought!
In the end, Mr. Caesar, like Mr. Manaugh, missed what was really driving the renovation of Witanhurst:
If the family really wanted to live undetected in London, they could have bought a five-bedroom terrace house in Richmond.
Not this family, not with Vladimir Putin’s wrath or greed always a possibility.
Instead, Guryev bought a palace.
No. Mr. Guryev bought a shell – one that had been unoccupied for decades – and built it into a twenty-first century fortress.
Unlike the Crosfields, who built Witanhurst to show off their wealth, the Guryevs are not going to be hosting tennis tournaments.
Any social activity is likely to move indoors.
Where it’s safer.
How long will we be stuck in Putin’s doghouse?
