
Why New York Real Estate Is the New Swiss Bank Account - wallflower
http://nymag.com/news/features/foreigners-hiding-money-new-york-real-estate-2014-6/
======
jzwinck
About five years ago I saw a chalkboard outside a trendy SoHo NYC apartment.
For sale: 2 million euros.

The same story is playing out in London as well, with the consequence that
many central flats lay empty most of the time, owned by foreigners who would
rather lose out on some rental income than risk the hoi polloi damaging their
artwork.

By the way, in NYC it is usually not as hard to find the true, human owner(s)
of apartments purchased by "corporations" as the article implies. It takes
more than a quick Google search, but the information is usually around if
someone wants to know about a particular unit.

~~~
benjaminwootton
On similar lines, I was in Hong Kong a few months ago and saw quite a few
adverts for investing in London property. Global markets really do exist for
top tier property.

It's really quite depressing being in the top few % income wise but not having
a hope in hell of competing with the global market and the people taking on
reckless levels of debt. Our housing markets are broken on so many levels.

~~~
BSousa
For me, it was even more surprising when I was driving out of Algarve recently
(South of Portugal) and saw a billboard about buying and selling Hotels. Not
villas, full blown Hotels like it was freaking Monopoly.

~~~
sgift
It is - with the difference that playing Monopoly doesn't disturb the life of
non-players.

------
pessimizer
Interest rates are too low, the stock market is overvalued, and the financial
system is untrustworthy. There's nowhere to put money and get a decent return
on it with _no_ prospect of completely getting wiped out other than real
estate.

Also, if you can buy in or near a "fortress" area like Manhattan or San
Francisco, and you'll never need the cash, you can just wait for the next
bubble if prices/rents collapse.

edit: reading more of this, I'd say the dumb money is going towards
extravagant luxury, though. Those $30M apartments could fall to $3M and never
rise again. I'm talking more single-family housing, and those buyers have
actually slowed down considerably lately because prices have gotten too high.

edit2: I've been drawn in - this is a very good article. The tl;dr is that
world scum is using NYC luxury real estate to launder money and avoid taxes.
What I thought was "dumb money" is dictators, oligarchs, etc., who aren't
looking for profit, just trying to get their ill-gotten gains out of their
home countries.

------
JacobAldridge
_" The latest [Knight Frank report] produces the curiously precise estimate
that there are 167,669 individuals in the world who are “ultrahigh net worth,”
with assets exceeding $30 million."_

I'm amazed at how few people sit in that strata - $30 million gets you into
the Top 0.0024% of the world's population. While it's twice my (inflation-
adjusted) financial goal, I still would have thought a larger number of people
would be there.

Perhaps this fails to account for assets spread across a number of corporate
entities?

~~~
chillingeffect
You identified what I call an interesting "mid-band" of wealth, so I'd like to
swizzle the numbers a bit more for perspective:

$30 Million is certainly "fuck you" money. Assuming anyone with that amount
has 30-60 more years to live (e.g. is 40-70 years old), that means they could
spend at least $500,000 per year, or $1,369 PER DAY for the rest of their
life.

That is more than my monthly rent. They can spend that per day. And, AND they
don't have to work all day. They could volunteer, run propaganda campaigns,
get high, research stocks, play guitar, learn Swift, paint, ANYTHING.

Well, except buy a new car every day. If you want a Lamborghini, at ~$120k,
you'll still have to "save up" for 85 days! So it's not the absolutely, mind-
bogglingly, helicopter-dogfight rich. And you certainly couldn't go nuts with
art:

You couldn't even buy the cheapest painting on Wikipedia's "most expensive
paintings" list. [0].

[0]
[http://en.wikipedia.org/wiki/List_of_most_expensive_painting...](http://en.wikipedia.org/wiki/List_of_most_expensive_paintings)

Anyway, I'm glad there are less than 170,000 people who don't have to do
anything at all to live.

~~~
pessimizer
>Anyway, I'm glad there are less than 170,000 people who don't have to do
anything at all to live.

Don't have to do anything at all to live better than everyone else in the
world, that is. There are a lot more who are dependent on various safety nets.
We're cutting food stamps, because we think they shouldn't eat as much.

------
sanmon3186
In India, we witness both new as well old/real Swiss Bank being used to stash
illegal money. Given land/capita availability, real estate is skyrocketing in
most parts. A descent independent house in tier-2 cities in India is costlier
than what one would pay in NYC (I don't mean Manhattan). Middle class, say a
school teacher, just can't afford a house in most of cities while rich are
investing in lands, houses and other forms of real-estate.

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cpwright
As an NYS (but not NYC resident), I find the following quote the most
offensive part of the entire article:

>In New York, by contrast, buyers of new construction often qualify for a tax
abatement. At One57, currently the city’s most expensive new address, the tax
break amounts to around 94 percent. A Times analysis estimated that its
priciest penthouse, which is reportedly in contract for more than $90 million,
would initially be billed less than $1,500 a month.

So basically, the foreign absentee buyers of these luxury buildings are able
to avoid paying property taxes on most of the assessed value, forcing the
"regular" residents or landlords to pay more than they would otherwise have to
if these apartments were taxed at the same rate.

~~~
jcampbell1
I agree it is a problem, but the foreign buyers did fund the construction of
"affordable housing".

I think the policy of granting tax abatements for developing affordable
housing is nuts, but some of that $90 million was used to help the working
class.

~~~
hyperliner
I agree. This is no different than state governments granting companies
generous tax relief for the "creation of jobs," which more times than not are
a few hundreds of minimum wage jobs. Doing the math, it does not make sense,
but I guess the rationale is that you get $1500 or zero. I am not really sure
at what cost though.

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JacobAldridge
Single Page: [http://nymag.com/news/features/foreigners-hiding-money-
new-y...](http://nymag.com/news/features/foreigners-hiding-money-new-york-
real-estate-2014-6/#print)

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djb_hackernews
It's not just New York. In Boston lots of foreign investors, mostly Chinese.
They are coming in over asking prices, with cash. Basically impossible to
compete with.

Redfin recently released a housing report[0] that acknowledged the recent
"recovery" as fueled by investors, regular home buyers are still on the
sidelines. This is clear to me via anecdote, I've heard from friends and
online forums from people in the JP area where multi-families are being bought
in droves by corporate landlords. It seems to me that the historical pattern
of real estate transactions being between generations and socio-economic
classes will be no more. If the corporate landlords want to sell, they'll be
selling their portfolios to other investor types. I wonder if in another 20
years we will have an exodus to the 'burbs similar to the 50's and 60's.

[0] [http://www.redfin.com/research/reports/real-time-price-
track...](http://www.redfin.com/research/reports/real-time-price-
tracker#.U7F6hUBDuA-)

------
imgabe
I think this is the beginning of the end for New York and other cities where
this is happening.

Why is New York real estate valuable in the first place? Because a lot of
people want to live there.

Why do they want to live there? Because there's a lot of other people there,
and those people can afford them various opportunities in their chosen field.

If New York becomes a wasteland of empty apartments held by overseas
billionaires, none of the people that make New York a desirable place to live
(and thus, a valuable apartment to own) are going to be there making it
desirable (and thus, making the apartments valuable).

Everyone I know who's living in New York can't wait to leave. It's a miserable
place to be unless you're a billionaire. These people are destroying the value
of their own investments just by making the investment in the first place.

~~~
cddotdotslash
"A miserable place to be unless you're a billionaire." This is such a vast
exaggeration, it's difficult to take your comment seriously. Is New York
expensive? Yes. Is it impossible to live here, and have an enjoyable
experience on $60,000/yr (even less with some sacrifices)? Not in the
slightest.

~~~
imgabe
"not impossible" isn't nearly the same thing as "desirable" or "worthwhile".
If the strongest endorsement you can make is that it's possible to live there,
that really isn't much of a recommendation.

~~~
cddotdotslash
I'm not trying to make a pro/con debate; I'm only pointing out that there are
8 million people living here, the vast majority of which are assuredly not
billionaires. The original comment really provides no value by stating "I know
some people in New York and they want to leave because they can't enjoy it
without being billionaires."

~~~
imgabe
That was really a throwaway line tacked onto the end. You could try reading
the rest of the comment.

------
wiradikusuma
Shouldn't a huge cash transaction trigger suspicion from IRS/whatever agency
interested in knowing the whereabouts of the money? E.g. in Malaysia, the
reason why people buy cars (let alone properties) in installments (even they
can afford cash) is to avoid tax dept come knocking their door.

~~~
pessimizer
"It's a sophisticated, well-oiled system that rarely requires crude
subterfuge. Though U.S. authorities track all transfers over $10,000, a wire
into a real-estate lawyer’s escrow account should look perfectly routine. 'A
lot of times, I don’t even know where my clients are from,' says the lawyer
Bruce Cohen. 'But I know that certain countries are very careful about the
money that leaves their country.'

"There is nothing illegal—at least from the destination nation’s
perspective—about sending money from an anonymous offshore bank account to
purchase property in America. On the contrary, it’s an everyday occurrence.
That is precisely why experts say that property investment is a favored route
for money laundering, a crime that depends on the outward appearance of
legitimacy. The laundering process typically happens in stages: Illegal cash
enters the world financial system somewhere and is funneled into a maze of
accounts and shell companies, a process called 'layering.' Finally, at the
other end, funds are integrated into a seemingly respectable investment—like a
luxury condo."

(TFA)

------
jhonovich
This will burst as it is based simply and obviously on the greater fool theory
and is devoid of any fundamental cash flow generation (i.e. rents).

~~~
michaelochurch
_This will burst as it is based simply and obviously on the greater fool
theory and is devoid of any fundamental cash flow generation (i.e. rents)._

The 2014-era housing bubble is driven not by runaway money-printing as in
2008, but by foreign corruption. Silicon Valley is expensive because every
thieving Chinese official has a house out there in case things go seriously
wrong (corruption is a death-penalty offense in China). As it turns out, rich
people will pay a nearly-infinite amount of money to not die.

We're not talking about tulip bulbs. We're talking about _personal safety_ for
some seriously bad people who are at risk of being killed by their own people
(who they've been robbing for decades) and who, quite frankly, deserve to die.

~~~
erehweb
Interesting theory, but why buy the house in SV rather than more affordable
L.A.?

~~~
michaelochurch
Because when shit goes bad, it gets hard to move money. Your liquid assets are
frozen. You have to change countries, move your family, change names, in order
to avoid reprisal and extradition. Your contacts, excluding a few equally
scummy people you trust (because they're as deep in the dirt as you are) are
all gone. Your new name means nothing. You won't totally start over (you have
a few scumbag contacts who can get your kids into top MBA schools, and you'll
be able to buy a resume in time) but it will be a while before you can work
again.

You'll need to buy a resume and references, for your new identity, in order to
get an upper-middle-class management job, but that is much harder than it
might seem when you're on the run from the law and possibly being hunted
internationally (by vigilante bounty hunters if not governments). The buying-
a-resume takes 3 years and in the mean time, you'll have living expenses. How
do you get money to cover those? Your old-country money _est perdu_. Rental
income from a couple buildings you "just happened to have" might float you,
but for short-term needs you'll want to borrow against your house. One house
(two would draw attention). Best if that house is "worth" $1.5 million. You
can borrow a lot more against that than against a $400k L.A. bungalow.

Owning $1.5-10 million of real estate doesn't stick out as much in an area
that is already horribly expensive.

~~~
qohen
_Best if that house is "worth" $1.5 million. You can borrow a lot more against
that than against a $400k L.A. bungalow._

Your understanding of LA-area real-estate -- and its appeal to Chinese buyers
-- appears to be...incomplete:

"Wealthy Chinese home buyers boost suburban L.A. housing markets" [1]

"Housing crisis hasn't touched San Marino" [2]

In San Marino -- a former WASP bastion, now about 50% Chinese -- $2 - $10
million homes are readily found [3]. (And there are other, cheaper cities with
large Chinese populations close by, so one can pick one's price-point).

In the city itself, in or near West LA for example, the market has been hot
for a while -- it's not hard to find areas with median house prices over $1
million (e.g. [4]) -- a $1.5 million house would not be hard to find.

Or, for (much) more expensive places, one could go to Beverly Hills, Santa
Monica, Rolling Hills, Malibu, etc. [5].

So, your putative fugitive would have little problem finding an expensive
house -- for most of values of "expensive" \-- in the greater LA area, either
in a Chinese enclave or, if they needed to stay away from people who might
recognize them, etc., in other nice areas.

[1] [http://www.latimes.com/business/la-fi-chinese-
homebuyers-201...](http://www.latimes.com/business/la-fi-chinese-
homebuyers-20140324-story.html#page=1)

[2] [http://articles.latimes.com/2011/jan/31/business/la-fi-
san-m...](http://articles.latimes.com/2011/jan/31/business/la-fi-san-marino-
housing-20110131)

[3] [http://www.zillow.com/san-marino-ca/expensive-
homes/](http://www.zillow.com/san-marino-ca/expensive-homes/)

[4] [http://www.zillow.com/mid-city-west-los-angeles-ca/home-
valu...](http://www.zillow.com/mid-city-west-los-angeles-ca/home-values/)

[5]
[http://la.curbed.com/archives/2012/10/10_pricey_houses_in_so...](http://la.curbed.com/archives/2012/10/10_pricey_houses_in_socals_10_most_expensive_zip_codes.php)

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supahfly_remix
Do these purchases affect the NY real estate market as a whole (other than
say, skewing statistics)?

For lower end housing stock, homeowners usually "jump" up to more expensive
properties as they become more financially stable or as they need the room.
This market seems entirely disconnected from that, but I'm not sure.

~~~
michaelochurch
Price inelasticity is worth noting. A small amount of supply destruction will
make prices spike significantly. That's why NYC's legacy rent control system
is such an issue. It only affects about 1-2% of apartments, but that probably
pushes rents up 50% or more.

So, yes, the fact that global-elite billionaire scumbags use our real estate
to launder their drug/blood money is a huge issue.

 _For lower end housing stock, homeowners usually "jump" up to more expensive
properties as they become more financially stable or as they need the room._

That seems to be a Boomer thing. They bought the 3000 SF houses that are
impossible to maintain unless you hire maids (which Americans don't like to
do, even though at $20/h they're still cheaper than doing your own cleaning).
I think the young generation values freedom and experiences (e.g. travel) more
than stuff and space. Frankly, I find McMansions depressing.

Unfortunately, in many cities it's impossible to get a 1000 SF place at an
appropriate price. You end up buying or renting 2000+ because that's all there
is, unless you're talking about seriously defective housing (e.g. no laundry
in the building, no dishwasher.)

~~~
pierrealexandre
Isn't the phenomenon you describe extreme price elasticity rather than
inelasticity?

Also, any source for your assertion about the effect of rent control on rents
in NYC? I'm very interested in this if you have it.

~~~
kyllo
The term "inelasticity" describes consumer demand, rather than the price. As a
good becomes increasingly scarce, the price will rise. But when demand is
highly "elastic," the price rise will be mitigated by consumers changing their
behavior or seeking a substitute good (in this scenario, by relocating their
residence away from NYC). In other words, demand elasticity means that
consumers can decide not to pay the higher price because they have alternative
options.

In the case of NYC housing, the demand is inelastic, meaning that the price
increases stick because enough people do not have any acceptable alternative
to paying it (likely because employment in their chosen profession requires
being physically located in or near Manhattan).

------
yummyfajitas
People are investing money in housing for the same reason they invest in gold:
they aren't making more of it.

There is a simple solution to this. NY could allow as much new housing to be
built as the market would bear. They could allow existing stock to be properly
utilized, rather than giving long term tenants quasi-property rights (which
also hinders new construction of anything other than luxury condos).

The more money those evil foreign devils pour into the market, the more money
local construction workers will happily take from them.

~~~
pjc50
Which unused corner of Manhattan do you propose building on?

~~~
yummyfajitas
Whichever corner contains buildings owned by people willing to sell to
developers.

------
restalis
_" And so New Yorkers with garden-variety affluence—the kind of buyers who
require mortgages—are facing disheartening price wars..."

"Competition will continue to drive the wealthy—foreign and domestic—to
Brooklyn and middle-class buyers to despair."_

Add to that the fact that a young middle-class lads and gals start out having
already an high debt from the acquired education...

------
a8da6b0c91d
LOL, the feds browbeat the Swiss into coughing up account information but then
allow blatant tax evasion on a grander scale inside American borders. Might
makes right, I guess.

~~~
Scoundreller
Didn't you know? Paying taxes is for Americans.

------
stephenitis
They should buy SF real estate and further skew things here...

~~~
swang
Most likely, they are already here buying up property.

