The US prime property market is reeling after the government announced plans to effectively end buyer anonymity in New York and Miami.
In a bid to clamp down on “corrupt politicians, drug traffickers, and other criminals using shell companies to purchase luxury real estate”, property firms will soon have to disclose the “real” identities of all those buying high-end apartments and houses in cash.
Apparently inspired by an investigation by the New York Times last year, Treasury officials are coming down super-hard on money laundering, and HNW property purchasers using (currently entirely legal) shell companies are first under the microscope.
Wealthy types aren’t known for their desire to broadcast what they’ve just bought – or for how much – and it’s thought the move could affect billions of dollars in transactions.
In Manhattan, those buying above $3m will have to be reported; in Miami-Dade County, the threshold will be $1m. According to PropertyShark, there were 1,045 resi sales of $3m or more in Manhattan during Q2 2015, adding up to some $6.5 billion.
In its investigation, the NYTimes found that nearly 50% of $5m homes across the US are bought via shell companies; in Manhattan it’s believed to be significantly more.
Tough regulations are already in place to govern the mortgage process, but this is the first time title insurance companies will be required to identify the “true beneficial owner” behind all-cash purchases. Details will need to be submitted to the Treasury, before being fed through law enforcement databases so the buyers can be traced and tracked.
“We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money,” said FinCEN Director Jennifer Shasky Calvery. “Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address.”
Speaking to Bloomberg, Jonathan Miller, president of New York-based Miller Samuel Inc. seemed less than impressed by the idea: “Part of the large swath of people who purchase under LLCs do it for privacy – celebrities, the wealthy – and are not doing something illegal. I’m not downplaying that there aren’t people who are using ill-gotten gains to purchase apartments, but it stereotypes the whole segment and it seems to be some kind of overreach by the federal government. In a cooling market, it certainly isn’t helpful.”
Although the regulations are only being brought in on a trial basis from March to August, there’s plans to extend the initiative to other luxury markets across the US and ramp up the scrutiny of real estate agents, lawyers, bankers and L.L.C. formation agents.
The UK prime property industry was rocked by allegations of money laundering last year, after an undercover documentary targeted a number of agents working across PCL. The RICS called the whole thing “a blow to public confidence in the wider property profession” and a “sad indictment of standards in some parts of the industry” but investigations promised by the NAEA and other professional bodies still appear to be ongoing.
Soon after, David Cameron announced plans to increase transparency around top end transactions – including the publication of Land Registry data on the 100,000 UK property titles registered to overseas companies – but stopped short of requesting the names of real people.
Speaking at the time, Ed Heaton of buying agency Heaton & Partners said: “If the government succeeds in being able to identify who the ultimate owner of a property is, then this really could have a fundamental effect on the property market in London.”
Uncle Sam Wants You by James Montgomery Flagg (1916) (CC-BY-PD-MARK)