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Rich and super-rich Russians are urgently withdrawing their savings from Europe to avoid freezing because of sanctions, and investing in the UAE’s "safe" assets.
Content:
The current situation
Western sanctions are the result of the armed conflict between Russia and Ukraine (Russia uses the term “special military operation”).
Dubai, like the UAE as a whole, has always tried to stay out of the politics of the major world powers. The Emirate has also been creating its image of an "ideal" investment destination for wealthy people from all over the world for years.
In the current situation, the country remains neutral in the situation with Europe. Nor has it made any statement about the introduction of Western sanctions against Russia. The Central Bank of the United Arab Emirates remained silent.
Moreover, the United Arab Emirates has been strengthening ties with the Russian economy and business for years. Now this business considers Dubai the safest place to store funds.
Where does the money come from?
We are talking about the withdrawal of both traditional assets and cryptocurrencies from Western countries. Wealthy Russian citizens kept most of their savings in financial institutions and banks in Switzerland and London.
The volume of such savings was impressive. For example, cryptocurrency conversion requests from brokers in Switzerland and London are associated with crypto accounts for over $2 billion.
Requests for all kinds of transactions come to the UAE in significant numbers, and almost every one of them concerns hundreds and hundreds of millions of dollars.
Where the money goes
The State Press Service of Dubai, the Ministry of Foreign Affairs of the UAE and the Central Bank did not comment on the situation, including the actual amount of funds sent.
Sources in private banks indicate that many Russian clients withdraw funds from the central offices of Swiss and UK banks and transfer them to the accounts of the same banks in regional offices in the UAE.
Others are breaking ties with international banks and transferring savings to the accounts of local institutions.
Since receiving Russian money from sanctioned citizens could damage the reputation of regional financial organizations, many of them, especially the big banks, are trying to deal with this situation cautiously.
The UAE has experience of "punitive measures" by Western countries for working with clients from the sanctions lists. In the past, this has concerned sanctions against Iran and Sudan.
The Intergovernmental Organization FATF (Financial Action Task Force on Money Laundering) has included the UAE in the gray list of countries to be carefully monitored.
Sources in the UAE government indicate that local authorities and financial institutions are engaged in a thorough analysis of the sources of funds entering the country. Until this process is completed, it is unlikely that officials will make any statements.
Other information indicates that Russian money is not accepted in companies related to private capital management, but it is possible to open deposit accounts.
How it will affect the real estate market
The Russian economy cannot provide market assets of such volumes, so the super-rich choose for deposits neutral countries with large premium sectors.
Dubai has a premium and expensive property, especially:
- Villas;
- Penthouses;
- Mansions;
- Luxury apartments.
But the fact is that the supply of premium-class housing on the market is extremely limited – this is a consequence of the rapid market growth in 2021.
The villa sector is small, as foreign investors began buying up the most popular and expensive housing in last spring, during the so-called "villa rally".
We should expect a sharp rise in prices for luxury real estate, as the market will have to adapt to the new currency.
There is a chance that Russians will start investing in local real estate not through the "quality" of assets but their "quantity". Money can be invested to cheaper villas, the apartment segment, and commercial real estate.
It is necessary to understand that the money is not the subject of planned and balanced investments. Russian citizens can invest in anything cheap, expensive, with a margin or overpayment where there is no threat of money freezing. All goes with it.
In addition to direct investments in real estate, Russians also invest in funds with confidential sources of such financing and the names of those who own these finances.
In general economic terms, experts also note that Dubai’s financial sector is young and unable to accumulate assets comparable to Switzerland, the United Kingdom, and other European countries.
Thus, it becomes obvious that this money flow may stop suddenly and unexpectedly, as local banks, foundations, and other organizations will be unable to manage it effectively.
