Wealth centre: A view of luxury yachts along Dubai’s waterfront. Russians now trail Indian and British nationals in terms of property purchases. — Reuters
Dubai: Two years ago, Dubai became a hot favourite with Russians looking to park money or build new lives after President Vladimir Putin’s invasion of Ukraine.
That allure is now dimming as the cost of living in the glitzy emirate surges and its banks get stricter in enforcing US sanctions.
Russian money flows into the United Arab Emirates (UAE) – which Dubai is part of – are showing signs of slowing, according to bankers, executives and investment professionals.
None of them predict a widespread exodus of cash already in the UAE, yet executives say it seems to have absorbed most of the benefits of Russian money and is unlikely to see more large inflows.
Some Russian arrivals are considering moving to new jurisdictions or even returning home as an expat rush into Dubai drives up rents and daily expenses. Unlike the United States and the European Union, the Gulf country doesn’t have sanctions on Russia.
Still, Russian entities setting up bank accounts are now more likely to face scrutiny from local banks as the UAE comes under increased US pressure to tackle potential sanctions evasion, according to people familiar with the matter, who asked not to be identified in discussing information that is private.
Investment based immigration firm Henley & Partners is seeing fewer Russians establishing in the UAE, “so the trendline is going down”, said Philippe Amarante, its head of the Middle East. “In fact, some of my Russian clients have either downsized their Dubai real estate assets they bought two years ago, maintain still a small base here, but moved back to Moscow or to other available and very attractive jurisdictions like Mauritius.”
Heightened scrutiny
UAE-based banks including Emirates NBD Bank PJSC, Mashreqbank PSC and First Abu Dhabi Bank PJSC have tightened scrutiny of Russian entities and in recent months have attempted to ensure greater compliance with US sanctions, people familiar with the matter said.
Bankers based in Dubai said that although average middle-class Russians who aren’t sanctioned have largely not faced major issues opening accounts, several sanctioned Russians have been rejected by banks.
Some with political affiliations or connections to sanctioned persons have also faced difficulties operating bank accounts, some of the people said.
In a statement, Emirates NBD said that it is committed to combating financial crime and follows “applicable international sanctions”, but declined to comment on details. Mashreqbank and First Abu Dhabi Bank didn’t respond to requests for comment.
MMC Norilsk Nickel PJSC, Russia’s biggest mining company, also decided against starting trading in the UAE due to logistics and banking issues, people familiar with its operations said. Norilsk Nickel’s press service declined to comment.
In the immediate aftermath of the invasion, Dubai real estate agents reported a surge in wealthy Russians hunting for property in the emirate’s swankiest neighbourhoods.
The UAE doesn’t provide statistics on inflows by nationality. Still, in rankings of the real estate buyers, Russian passport holders have now slipped to No. 3 last year, trailing Indian and British nationals, after holding the No. 1 slot in 2022, according to Dubai broker Betterhomes.
Slowing demand
In an interview with CNBC in January, the chairman of real estate developer Damac Properties Dubai Co PJSC said Russian demand was slowing although other buyers were holding up the market.
Meanwhile, even Russian firms that haven’t faced banking problems have grappled with other difficulties. Switzerland-registered fertiliser company EuroChem Group AG – founded by sanctioned Russian billionaire Andrey Melnichenko, who holds a UAE passport – introduced itself to local media at a reception in the glamorous Arts Club Dubai last year.
It’s since cut back on its local staffing, people familiar with the matter said, asking not to be identified in discussing matters that aren’t public.
In recent months, many functions, including public relations, have been shifted back to Moscow partly because maintaining operations in Dubai with record high rents and school bills was proving to be too costly, the people said. The fertiliser company hasn’t had a problem with its UAE bank accounts and continues to operate them, they said.
In a statement, EuroChem said it has reorganised some of its functions in the UAE, cutting some personnel, while adding people in departments like compliance.
“It is a routine business process driven by our internal organisational objectives,” it said.
Several Russians in Dubai who were interviewed by Bloomberg said they are weighing relocation to Europe or other places for the longer term as the war moves into its third year.
Maria, a 42-year-old Russian designer, said Dubai’s high cost of living and the summer desert heat have forced her to consider options like France or Berlin for her family.
She asked to be identified only by her first name to keep her personal details confidential.
Ivan Kozlov, 37, left his job as a derivatives structurer at VTB Capital in Moscow over two years ago, lived with his family in Turkey for about two months and then landed in Dubai in May 2022, where he co-founded Resolv Labs, offering investment products based on crypto.
While the start-up is approaching the end of its fundraising process, Kozlov is considering moving to Europe, possibly to Spain, where one of his business partners lives.
While the UAE is a good place to do business, he struggles with lifestyle issues like the hot summers and limited opportunities to walk in the open, he said. “The main problem is that you don’t feel like it’s a place that you can call your home in the long run.”
In late February, the UAE got removed from a global watchdog’s so-called gray list, and Emirati officials are keen to demonstrate that regulations won’t get relaxed immediately afterwards, some of the people familiar with the matter said.
That has made the UAE and its financial institutions much stricter in dealing with Russian entities or executives, particularly those facing sanctions, the people said.
Marginal impact
The impact on the UAE economy will be relatively marginal given interest from the wealthy in other parts of the world, said Steffen Hertog, an associate professor at the London School of Economics.
“That said, the impact on Dubai will be a bit larger than that on Abu Dhabi given its larger reliance on foreign investment and real estate.”
And Russians aren’t ready to fully abandon the UAE. Aluminium producer United Co Rusal International PJSC moved global trading operations to Dubai at the end of last year.
Oil traders, many of whom relocated from Geneva and London at the outset of the war, also still prefer the UAE, using the dirham as a convenient alternative to the US dollar, according to some of the people familiar with the matter.
But even this cohort has faced tougher scrutiny since October, when the United States ratcheted up enforcement of its price-cap sanctions on crude, the people said.
Despite the pressures, Russians are leaving their mark on Dubai. They now have their own medical facilities, dentists and football academy in the emirate.
All that isn’t convincing people like Kozlov to stay. “This is like an airport cafe where everyone is just waiting for the next flight,” he said. — Bloomberg
