BERLIN — Western sanctions imposed after the start of Russia’s war against Ukraine have made financial outflows from Russia much more difficult — and paradoxically have also helped to strengthen Russia’s economy, as the renowned economist Ruben Enikolopov recently noted in an interview for the online media “The Bell“.
So while sanctions have not completely prevented these financial flows, they played a role in changing their direction.
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It was notable in real estate purchases during the first year of the war: as Russian buyers moved away from the previously coveted European market to the United Arab Emirates (UAE), as well as to Turkey or the South Caucasus and even Southeast Asia.
Instead of “Londongrad”, where the high- to middle-income earners from Vladimir Putin’s empire turned for the previous two decades, people suddenly started talking about “Dubaigrad.”
But this trend now seems to have peaked, with unexpected signs that Russians are back on the European real estate market.
Dropping rubles
The United Arab Emirates — little appreciated by the West as a hub for circumventing sanctions, but untouched due to their geostrategic relevance, as various law firms emphasized in conversations with Die Welt — are not yet out of favor with the Russians. Still they are losing their centrality as an investment location. And alongside other countries, some Western European countries are noticeably gaining importance.
As Russia’s Forbes magazine and Bloomberg news agency recently revealed, following interviews with real estate agents, the Russian boom in Dubai real estate is coming to an end. While Russians were still the leading foreign buyers of real estate in Dubai in 2022, they fell back to fifth place in the third quarter (behind the Chinese, Indians and British, among others). Demand has fallen by 40%.
The reasons for this are the strong devaluation of the ruble in the summer months, and the 30% increase in real estate prices in Dubai over the previous two years. Some Russians have bought in other countries in the Gulf, and some have also returned to Russia.
But real estate in Europe is also back on the radar of wealthy Russians.
Golden visas in Cyprus
According to a presentation by the Russian consulting firm NF (formerly part of the global real estate consultancy Knight Frank), which was published by the Russian business medium RBC, most inquiries in 2023 are made for properties in the EU member states Hungary and Cyprus, instead of the previous year’s favorites, Turkey and the UAE. In 2023, Turkey remained in third place, followed by Indonesia and — as in the previous year — Greece.
Golden visas were already an important criterion before the sanctions. And even more so now.
The NF Group, one of the market leaders in Russia, says that the main motive for Russians to buy real estate abroad is obtaining a residence permit or second citizenship (61% of customers).
This is also the reason why Hungary has become so popular — after all, it is particularly generous when it comes to granting residence permits, even for five years.
In Cyprus, a minimum investment of 300,000 euros is required to obtain a permanent residence permit. But the country has an advantage because it offers so-called “golden visas”, which controversially enable those who pay a high price for a residence permit to obtain citizenship. This was already an important criterion for Russians before the sanctions. And even more so now.
Since the beginning of the year, the number of property purchases from third countries (i.e. primarily from Russia) has increased by one and a half times, according to data from Cyprus. Experts also link this to the extreme price increases in Turkey, which have been caused by the Russians in particular since the start of the war.
Hungary and Spain, open for business
Hungary, following the example of Cyprus, is also in the process of reinstating its “golden visa” program, which was closed six years ago. Entry fee: 500,000 euros for a property.
This is also the price paid in Spain, which continues to offer “golden visas” in return for investments.
A strong return flow of Russians is also being observed in the Mediterranean country, according to the Statistical Information Center for Notaries: property purchases by Russians in the first half of the current year rose by 50% year-on-year to 2,137 purchases, which is close to the record set at the end of 2013 and beginning of 2014.
Even so, Russians only account for around 3% of all property purchases in Spain — significantly less than the British (just under 10%) and Germans (8%). But while these and other foreigners made 7.5% fewer property purchases in Spain in the first half of 2023, Russians bucked the trend. The same applies to Ukrainians and Americans, who bought respectively 42% and 14% more properties in Spain.
