Real Estate

GCC investors unfazed by UK real estate crackdown

August 2, 2022, 11:50 AM

The law clamps down on kleptocrats using UK land to hide illicit wealth

A crackdown on anonymous foreign investments in UK real estate will not put off GCC buyers and may even increase deals in the long term, experts say.

The Register of Overseas Entities will require anonymous foreign companies owning or seeking to buy UK land to reveal their true owners, ensuring criminals cannot hide behind secretive chains of shell companies.

The list, the first of its kind which came into force yesterday, it is designed to root out corrupt oligarchs and elites attempting to hide ill-gotten gains through UK property.

Vic Chhabria, founder and managing director of London Real Estate Office, whose client base largely comprises overseas buyers from MENA and more specifically GCC, told AGBI: “The introduction [of the register] is a great step forward for corporate transparency in Britain.

“Naturally, conversations have begun around how much it could affect the prime central London property market, which experiences a high take-up from wealthy overseas individuals that, like many here in the UK, value privacy as a matter of personal security.

“For the overwhelming majority of people looking to buy property in London from the GCC and MENA region, the introduction of this new register will be irrelevant and won’t impact their investment decisions. It hasn’t raised any concerns with clients since it was announced.”

Chhabria said the appeal of anonymity in the UK market may have been overestimated.

“Many of my clients are from MENA, specifically GCC, and a handful have acquired properties through companies, thoroughly legitimately, going through the many stringent checks the industry has had in place for the last few years,” he added.

Henry Faun, partner, head of Middle East Private Office at real estate consultancy Knight Frank, said: “In recent years the UK government has taken several steps to create more transparency around the beneficial ownership of UK real estate.

“The Economic Crime Act 2022 is the latest step, which will start a register of overseas entities owning UK property. We do not foresee this greatly impacting the buying decision of GCC nationals in the UK.

“Greater transparency steps will assist markets longer term, whether in the UK or elsewhere globally.”

He added: “Whether it be regulatory changes like these, the buying process or taxation, it is essential that the investment is as easy and transparent as possible.”

The reforms aim to support government efforts to root out Russian oligarchs and kleptocrats using UK land to hide illicit wealth.

From Monday, any foreign company wishing to buy UK property has to identify its beneficial owner and present verified information to Companies House before any application to the UK’s land registries can be made.

Those overseas entities that already own land in the UK will have a six-month transitional period to register their beneficial owners or managing officers.

To ensure criminals are targeted effectively, the register applies retrospectively to property bought since January 1999 in England and Wales, and since December 2014 in Scotland.

Foreign companies that do not comply with the new obligations could face severe criminal sanctions, including fines of up to £2,500 per day or a prison sentence of up to five years.

London has long been a hotspot for international investment, with GCC buyers prominent in the luxury market. In 2019, 42.4 percent of foreign direct investment into the UK was channelled into London.

Kathryn Westmore, senior research fellow at the Royal United Services Institute for Defence and Security Studies, said: “The launch of the ROE is an important and welcome step forward in the UK’s fight against dirty money.

“The increased transparency that it will bring should help to make the UK’s property market a much less appealing destination for stolen and corrupt wealth.”

Rachel Davies Teka, advocacy director, Transparency International, added: “Transparency over the property sector is vital to help tackle criminals and the corrupt using Britain as a haven for their dirty money.

“This register should help start to lift the veil of secrecy over offshore companies that own real estate in the UK – a loophole that has been exploited by oligarchs and kleptocrats for too long.”

UK business minister Lord Callanan said: “We have been clear that the UK is a place for legitimate business only, and to ensure we are free of corrupt elites with suspicious wealth, we need to know who owns what.

“By getting this first of its kind register up and running at breakneck speed, we are lifting the curtain and cracking down on those criminals attempting to hide their illicitly obtained wealth.”

The register was announced as part of the Economic Crime (Transparency and Enforcement) Bill in February, as part of the UK’s immediate response to Russia’s invasion of Ukraine.