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Sanctions won’t dampen Dubai property allure for Russians

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Wally Adeyemo, deputy secretary of the US Treasury, warns UAE banks about assisting Russians
  • Many Russian buyers deal only in cash or cryptocurrencies 
  • If buyers squeezed out it could put brakes on Dubai property boom

The popularity of Dubai among Russian property buyers is unlikely to be dented by a US threat to impose sanctions on UAE banks who process their financial transactions, as most payments are made using cash or cryptocurrency.

Dubai-based Mira Estate said its property sales to customers from Russia and the 11 other Commonwealth of Independent States (CIS) countries doubled in the first half of this year to around two billion dirhams ($540 million).

“The war in Ukraine and the impact of sanctions on Russian-speaking individuals and their establishments have led wealthy CIS investors to flee their countries and find a haven in Dubai,” Tamara Getigezheva, CEO and partner at Mira Estate, said. 

“CIS billionaires and entrepreneurs have been flocking to the UAE in record numbers, leading to a surge in demand for real estate,” she added.

The rise in Dubai sales to Russian property buyers led the US last month to warn UAE banks that they faced sanctions if they were found to be processing financial payments for those close to the Kremlin government.

Addressing a round-table of the United Arab Emirates Banks Federation during a two-day visit to the country, Wally Adeyemo, deputy secretary of the US Treasury, warned the country’s lenders that “failing to do the sufficient due diligence needed to know your customers is not a defence”. 

He also pointed out that non-US entities may be subject to sanctions themselves by the US Office of Foreign Assets Control (OFAC) if they provide any assistance or support to Russian clients attempting to circumvent the sanctions in place since the start of the Ukraine war.

Mira Estate, which said it recently sold an entire building in Dubai to a single Russian investor for 250 million dirhams ($68 million), said it was aware of the restrictions imposed by the US and more than 30 countries around the world since Vladimir Putin, the Russian president, launched the Ukraine invasion.

“However, many Russian investors in Dubai have had some of their capital in other countries,” Getigezheva told AGBI.

“Others have invested heavily in cryptocurrencies, which may be less liquid than other asset classes, but are not subject to the same restrictions as bank accounts and other assets.

“This means they could turn it into cashflow hassle-free. Also, a lot of Russian investors had already transferred money out of Russia at the onset of the war, when banking channels were still open.”

Many Russian buyers deal only in cash or cryptocurrencies and one broker, who declined to be named, said: “It is actually harder for Americans to get their dollars out of the USA to Dubai than the Russian to get their money from Moscow to Dubai.”

However, another agent, who said the number of Russians set to flood into the Dubai market was only “the tip of the iceberg”, believed that some restrictions had begun to be put in place in recent weeks. 

And another, who declined to be named, observed that some restrictions were being seen and it was starting to take longer to process Russian sales using cryptocurrencies, due to the increased number of checks and due diligence involved.

One real estate research analyst warned that if Russian buyers were squeezed out of the Dubai property market it could put the brakes on the post-Expo 2020 boom the city has enjoyed in the last few months.

However, this claim was refuted by other agents, who pointed out that a lot of other potential source markets, such as China, were already opening up.

“Dubai is a safe haven to invest,” Niall McLoughlin, senior vice president of real estate developer Damac Connectivity, said.

“Safety, security, trusted governance and regulated laws are all attracting people in droves, from all over the world.

“There are Russians coming but not to the extent people talk about.

“We do have demand however from Europe, like Germany, France, the UK, Romania, the Scandinavians, and Eastern Europe.”

The Henley Global Citizens Report last month forecast that the UAE will record the largest net inflow of millionaires in 2022, adding an additional 4,000 high net worth individuals or HNWIs – those classed as having wealth of more than $1 million – this year, overtaking traditional havens such as the US and UK.

Russia tops the list of countries expected to see a net outflow of millionaires in 2022. It is followed by China, India, Hong Kong, Ukraine, Brazil, the UK, Mexico, Saudi Arabia and Indonesia.

Luke Remington, managing director of Haus and Haus, the real estate firm which was the subject of the BBC series Dubai Hustle, said any potential slowdown, due to the retreat of Russian buyers or a market slowdown in general, would likely only hit the lower end of the market.

“The UAE is experiencing an influx of wealth it’s not seen in some time so could continue on this trajectory for some time,” he said.

“Saying that, markets are down, crypto is down, luxury watches are down – in my opinion, the high-end property market is protected from these factors, but we may see the mid-range to low-range property market suffering as a result.”

Despite the threats by the US Treasury, most agents AGBI spoke to were not overly concerned about the clampdown on wealthy Russian buyers and were content to keep processing sales for as long as they can.

“Before it gets ultra-serious and ultra-threats of sanctions or punishments come out of the US directly at us, there’s a lot more hoops [for Washington] to jump through,” one agent said.

“In the meantime, we’ll just crack on and make hay while the sun shines,”

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