Behind London's Boom, Billionaires From Abroad

Eastern Europe in his private jet for work, he likes to pile the family into his vintage Aston Martin convertible and head off to their country house in Oxfordshire for the weekend. Other days, he prefers to be chauffeured around town in his silver Maserati.

The 40-year-old Icelandic billionaire, who runs a private-equity firm, represents a big shift occurring here: an influx of wealthy foreigners. They are helping transform the city by injecting cash into its neighborhoods, companies, restaurants and art scene.

The United Kingdom is home to 17% of Europe's high net-worth individuals, defined as anyone with more than $1 million in financial assets, such as private-equity holdings, stocks and bonds, according to a survey by Merrill Lynch and Capgemini. The group is growing. Last year, the number of high net-worth people in the U.K. surged 8.1% to 484,580, faster than Germany or France.

Of the U.K.'s 10 richest people, just three are originally from here, according to the Sunday Times newspaper's annual list. The country's two wealthiest individuals are the Indian-born chief executive of ArcelorMittal, Lakshmi Mittal, who paid $141 million for his London mansion, and Russian oil magnate Roman Abramovich. About 65% of houses sold in central London for $8 million or more last year were purchased by people born outside the U.K., estimates British real-estate company Savills PLC.

Behind the surge of money pouring into London is the globalization of wealth. As new multimillionaires are minted in Russia, India, the Middle East and Europe, many are coming to London, drawn by a combination of low taxes, historical ties and a geographical location that makes the city attractive for people doing business in Eastern Europe, Asia and the Middle East.

The U.K. taxes foreigners who claim their true home, or "domicile," is elsewhere only on the money they earn in, or bring into, Britain. All assets elsewhere aren't taxed. The U.S., by contrast, taxes residents on their world-wide income.

Many rich foreigners settle in London because of the ease of doing business in both U.S. and Asian time zones, a key consideration as developing markets gain in economic importance. Mr. Bjorgolfsson, who has bought and sold stakes in Bulgarian and Czech companies among his ventures, says it's a breeze to hop over to Eastern Europe from London: "Everything is three to five hours from here....You can go in the morning and come back the same day."

Historical Ties

Historical ties also play a role. Ajay Goyal is an Indian multimillionaire who lives here but has homes in several cities including in Washington, D.C., Delhi, and Moscow. "For Indians, West India and much of Africa, London is a natural destination" because of the historical and colonial connection, Mr. Goyal says.

London now rivals New York as a center of international finance. In a nod to London's success, the Partnership for New York City, a nonprofit group that promotes New York as a financial center, recently hired a Briton to run a new office dedicated to maintaining New York's competitiveness in financial services.

Some people question whether the bubble in London is starting to show signs of cracks. British consumers are taking on more debt and interest rates are rising. Financial and business services account for a third of London's jobs. There are some signs that the boom is slowing down. Some bankers say the current turmoil on financial markets is making them brace for layoffs and low bonus payments in the year to come. Last month, the Royal Institution of Chartered Surveyors reported the first drop in British housing prices in 22 months, and said there was a 20% chance of a 10% drop in London house prices over the next year.

Still, London's wealth has a range of sources -- from Russian oligarchs and Indian billionaires, to American and European financiers as well as Arab oil sheiks -- which could help cushion any downturn, observers say. London's property market cooled after the financial crashes in Asia and Russia in 1998 and after September 11, 2001, but recovered quickly in both cases.

For now, signs of the new wealth engulfing London abound. Consider One Hyde Park, a building due to be completed in 2010 that will overlook Hyde Park and be steps from Harrods department store. It will have a swimming pool, movie screening room, and a concierge service run by the nearby luxury Mandarin Oriental hotel. It will include four penthouse apartments, one of which recently sold for about $163 million.

Such super high-end apartment buildings are relatively new for London, where the rich traditionally have lived in townhouses and escaped to country estates on weekends. In another new luxury apartment building nearby called the Knightsbridge, wealthy people from overseas own at least half of the more than 200 apartments, real-estate agents say.

Private-jet use has increased so much that Farnborough Airport, an airfield just outside London, is struggling to find enough takeoff and landing slots. At art-auction house Christie's International PLC, sales are packed. Events in London used to bring in about 30% of a typical New York sale, but now the two cities are pulling even, says Jussi Pylkkanen, president of Christie's Europe.

Competing for a Painting

At one recent auction, two Russian men competing for a painting jumped out of their seats and started shouting prices at the auctioneer, Mr. Pylkkanen said. Christie's is hiring more sales representatives who speak Russian and German and has added the Russian ruble to the currencies on the scoreboard where it lists bids during auctions.

At a new nightclub in central London, Crystal, manager Fraser Donaldson says a customer from the Middle East recently spent $216,400 in one evening. The customer ordered dozens of bottles of champagne, including a $19,400 bottle of Dom Pérignon in a white-gold case. For one round, he ordered two Jeroboams -- which hold four regular bottles -- and a $61,200 Methuselah -- the equivalent of eight bottles -- of Cristal champagne, which required two people to carry it.

Members of Britain's establishment view this brash new excess with "mild disgust," says Philip Vallance, chairman of the exclusive Travellers Club, which was founded in 1819. "It's 'Look at me, I've got money, I'm going to spend £3,000 on a bottle of champagne,'" Mr. Vallance says of the new nightclubs. "Absolutely none of it would be welcome here. If this club stands for anything it stands for the rapidly dwindling British qualities of modesty, reticence and a degree of self-deprecating humor."

Rising Tide

Britain's less well-off are also taking aim at the rising tide of wealth. An April headline in the tabloid Evening Standard declared: "BLAIR'S REAL LEGACY IS A TAX BOLT-HOLE FOR THE WORLD'S FAT CATS." Spiraling house prices are forcing young professionals out of central London, and some local government councils are implementing programs to retain teachers and nurses by helping them buy homes. "If you are on £35,000 to £45,000 [$71,000 to $92,000] a year, you can't afford to live here," says Terry Stacy, a council official in Islington, a once working-class neighborhood now dotted with trendy restaurants and Pilates studios.

Others, however, are wooing the foreign-born wealthy.

British real-estate company Savills set up a team of London-based agents earlier this year to target rich Indians. Sheetell Halai, who heads the team, spent two weeks in India courting potential clients. She helped throw a dinner party for 90 on a hotel rooftop terrace in Mumbai.

Ms. Halai says her April trip to India already has led to at least two sales, including a $4.1 million apartment in a period building near Sloane Square in South Kensington.

To further win companies and people from overseas, London Mayor Ken Livingstone recently established offices in Beijing and Shanghai and is opening others in Mumbai and New Delhi this autumn. Starting in July, he hosted a three-month celebration of Indian culture in London. At the opening party, Mr. Livingstone invited Bollywood stars, India's cricket team, and business executives for mini poppadoms, lamb brochettes and other canapés catered by London-based Michelin-starred Indian chef Atul Kochhar. The champagne reception, which took place on a boat moored on the river Thames, overlooked the Houses of Parliament and a floating, giant replica of the Taj Mahal which the mayor had built for the occasion.

One of many new high-end restaurants, Zuma counts among its popular items a $196 10-course tasting menu and Japanese sake with gold leaf. At the Cuckoo Club nightclub, to reserve a table by the dance floor on weekend nights, customers must rack up bar tabs of about $1,600 to $6,100. To cater to wealthy Chinese here and other tea connoisseurs, Harrods stocks the rare Tieguanyin -- translated as Iron Goddess of Mercy tea -- that is sold loose for $3,500 a kilo, or about $18 a cup.

Mr. Bjorgolfsson, from Iceland, is certainly doing well. He made his first millions in Russia selling a brewery to Heineken NV. He moved to London a few years ago to set up a private-equity firm, called Novator Partners LLP.

London's tax breaks helped entice him to move. Britain's "incredibly benign tax structure helps. That's the practical reason why everyone's here," said Mr. Bjorgolfsson, slouched in a bright orange armchair in his office on the top floor of a building overlooking Hyde Park.

Mr. Bjorgolfsson, who lives in Holland Park, a neighborhood known for its large white stucco mansions, recently finished renovating his period home. He gutted the interior and redecorated it in a chic modern style, flying in most of the furniture from Italy. On Friday nights, he and friends from work like to drive their custom-built motorcycles -- his own collection includes a $100,000 low-riding chopper from Thunder Struck Custom Bikes -- around leafy Hyde Park. For his 40th birthday recently, he flew 120 friends to Jamaica for an all-night party on a remote beach, where he had bars and dance floors built on the sand.

Polish-born Steffen Gruschka, a 34-year old hedge-fund manager, moved to London last year in part because he enjoys the tax break for foreigners. A managing partner at Explorer Capital, Mr. Gruschka also likes London's proximity to the Eastern European markets where he invests.

Late one Thursday evening, he returned here from a finance conference in Barcelona, Spain, and caught a taxi from the airport to his favorite nightspot. At the Cuckoo Club in Mayfair, Mr. Gruschka drank $29 mojito cocktails with friends and danced on a packed dance floor until 2 a.m.

'International Society'

"I have a lot of French friends, Russian friends," said Mr. Gruschka. "I find myself more comfortable in international society."

With him was his friend Yuliya Zakharenko, who works as a personal shopper at the store of English designer Alexander McQueen. Ms. Zakharenko moved to London four years ago from Donetsk, an industrial town in Ukraine. She says her biggest networking event of the year is the Russian Economic Forum, a high-profile conference that takes place in London each spring and attracts hundreds of Russians who now live in London as well as attendees from Russia.

London also is a draw for many Americans. Morgan Maloney, 36, moved to London from New York last year with her banker husband and two young children. She lives in a house in Chelsea, a well-heeled neighborhood in southwest London known for its grand houses and proximity to the shops of Knightsbridge.

Ms. Maloney jokes with her husband about the number of Aston Martins, Maseratis and other flashy cars they see when strolling around the city. "New York is definitely a wealthy city but you encounter another stratosphere of wealth in London," she says. "I never thought I'd look back at New York and think what a bargain."

Article from: http://online.wsj.com