
U.S. Will Track Secret Buyers of Luxury Real Estate - walterbell
http://www.nytimes.com/2016/01/14/us/us-will-track-secret-buyers-of-luxury-real-estate.html?_r=0
======
pmorici
"Under the U.S.A. Patriot Act, the Treasury is already authorized to require
real estate companies to scrutinize real estate buyers, but the department has
in the past faced fierce lobbying against issuing such rules"

This article leaves out some important background details about why this was
ever a thing to begin with. Real estate professionals have lobbied for and
gotten an exception to the FinCEN reporting requirements that were passed
under the PATRIOT act in 2002. The exception is a 'temporary' one but it has
been continuously renewed since 2002. That is largely why this problem exists
at all.

The 2002 law imposed reporting requirements on businesses that accepted cash
in transactions over $10k. The exemption for real estate left it as one of the
only practical ways to make a large cash transaction that wouldn't end up in a
so called 'suspicious activity report' being submitted to FinCEN.

~~~
marincounty
Real Estate lobbiests have a lot of power, and are surprising effective.

In CA a few years ago they wanted Gov. Schwartzeneger to sign a bill requiring
all Realestae sales persons to be working for a broker for two years before
striking out on their own to become Brokers. He saw the their wasen't a need
to change the system, and vetoed it. He said, "Why decrease supply? We haven't
had one instance where a new broker screwed up."

We all know what it takes to peddle Realestae. Eight courses and a lot of
networking, and a lot of advertising. It's not rocket science. It's such a
joke--I'm astonished the profession haven't been gobbled up my an app yet.

Well, out of stupidity, or lobbying Gov. Brown signed the bill. If you want to
become a broker, and split you commission with the top cheerleader, you need
to work two years in order to peddle houses.

It bother me, because I saw the easy money years ago, but draged my feet on
finishing my last class, and taking the easy test.

------
gPphX
London's Mayfair and other areas are going dark from empty residences and
local retail businesses are suffering from lack of walk-in trade, caused by
foreign officials laundering billions, stolen from their governments.

~~~
eru
How to do something about it:

[http://www.economist.com/blogs/freeexchange/2015/04/land-
val...](http://www.economist.com/blogs/freeexchange/2015/04/land-value-tax)

Of course, keeping an eye on the money flows themselves will help.

~~~
to3m
As an additional interesting (?) link, a (UK-focused) blog featuring rebuttals
of common arguments against a land value tax:
[http://kaalvtn.blogspot.co.uk/p/index.html](http://kaalvtn.blogspot.co.uk/p/index.html)

~~~
eru
Thanks. A very interesting page. Alas, their proposal is too reasonable to
ever get traction.

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ryanmaynard
There are actually plenty of good (and legitimate) reasons to buy property in
such a way the keeps the owner relatively private.

1\. Keep your asset from appearing in a quick asset search. 2\. Keep John Q.
Public from finding your address via Spokeo, or similar data aggregators. 3\.
..?

Same applies to a lease, be it commercial or residential. Most of the cheap
background checks used by property managers are cheap because the company (say
Experian, etc) receive your information for their product in return. The way
around that, is to rent the property through a shell, or to a trust.

~~~
patio11
LLCs in particular are a very convenient minimal-fuss-required way to get "an
entity the system knows how to interface with" spun up abroad. The US economy
welcomes investment by foreigners and foreign corporations. The simplest way
to do so is to establish an LLC. These LLCs are often established by lawyers.
Breathless reports to the contrary, this is actually _very common_ and _not in
itself indicative of money laundering_. This gives you an entity which can
trivially ( _trivially_ \-- fill out a form online, get emailed it in a
minute) get a US tax ID issued and be used to fill in any boxes required by a
bank, secretary of state, county office, etc etc etc.

~~~
ellius
Most articles go out of the way to have some boilerplate agreeing with what
you just said ("of course there are perfectly legitimate uses" etc), but the
fact remains that property bought in this fashion has caused enormous money
laundering issues. I wouldn't call the recent articles on this hysterical at
all. Furthermore this is requiring confidential reporting to the US financial
intelligence unit, not public reporting.

~~~
tptacek
This is a little bit like saying that money has caused enormous money
laundering issues.

------
KannO
Odd,

    
    
      In Manhattan, the initiative requires buyers in sales of 
      more than $3 million to be reported; in Miami-Dade 
      County, it requires reporting on sales of more than $1 
      million. In Manhattan, 1,045 residential sales cost more 
      than $3 million in the second half of 2015, worth some 
     $6.5 billion in aggregate, according to PropertyShark, a 
      real estate data company.
    

So now illicit money laundering in will effectively shift from luxury real
estate into the normal real estate markets..?

    
    
      In its investigation, The Times found that nearly half of 
      homes nationwide worth at least $5 million are purchased 
      using shell companies. In Manhattan and Los Angeles, the 
      figure is higher.

~~~
prostoalex
> nearly half of homes nationwide worth at least $5 million are purchased
> using shell companies

If one does not need a mortgage, this is actually the recommended way to
transact on a high-value property. It makes estate planning easier, it
somewhat protects privacy, and when it's time to sell, one simply sells the
underlying LLC, which ironically is a much simpler business transaction in
most states than selling a piece of real estate.

~~~
hkmurakami
Correct me if I am wrong, but I was under the impression that you can get a
mortgage using a LLC, but you do need to go to a private bank and arrange a
custom deal for it.

(I seem to recall Zuckerberg doing this for his Palo Alto home with a variable
interest rate loan that started with 2% or so)

~~~
ehnto
Interesting, how come he had to get a loan at all? Is all of his wealth tied
up in investments and Facebook stock?

Or is it that the loan is such a low interest rate that it makes more
financial sense to keep making money with his cash through investments, say at
~10% return, to offset the loan interest?

~~~
prostoalex
I doubt it's _all_ tied up, as his last recorded sale (in 2013)
[http://www.secform4.com/insider-
trading/1548760.htm](http://www.secform4.com/insider-trading/1548760.htm) must
have left him with quite a bit of cash. So motives are not perfectly clear.

On a macro level, the government penalizes selling of assets at 23.8% (current
long-term capital gains + ACA surcharge) and on the other hand encourages
borrowing by keeping the rates low and allowing the interest portion to be
deducted as an investment expense, so what's a rational person to do?

~~~
charlesdm
You borrow against your stock, of course, so you don't have to realise the
capital gain yet get access to the cash. If you're worried about downside
protection, you can always buy a put option for the stock you pledged at its
current value.

~~~
sowbug
Many publicly traded companies prohibit their employees from buying puts or
selling calls on their stock, as it misaligns incentives, similarly to how
shorting the stock causes you to benefit from a decline in price.

------
staunch
The biggest problem with the U.S. economy is housing prices. Why not ban
foreign investment in U.S. real estate?

~~~
yummyfajitas
That won't lower the cost of housing (I.e. rent and owner equivalent rent).
All it will do is reduce asset prices and investment in real estate.

The real solution is to allow development. Asset prices are high because its
mostly illegal to build new housing in coastal cities.

~~~
lqdc13
In Manhattan, you can't really do much more development. So what happens is
the foreign investments basically buy out a large portion of available
apartments and the people have to move elsewhere. To other boroughs mostly.

Sometimes this results in very inefficient transportation/location for actual
legitimate companies that operate there and people who live there because of
the dead weight real estate.

~~~
yummyfajitas
Sure you can. Lots of Manhattan is only 3-4 stories tall - its just legally
impossible to build bigger in many places. (E.g. east village, full of the
most entitled activists outside SF.)

Foreign investments in Manhattan are usually rented out and are part of the
housing supply.

~~~
lqdc13
Close to permanently rented out to foreign/domestic investors not living
there.

Also, lots of the medium-height buildings are historic in nature, so
demolishing them is not a very good option.

I agree that there could be some further development, but there should be some
sort of regulation to avoid ghost-town status.

Had all of the apartments been rented out to actual residents, the picture
would have been much better.

~~~
yummyfajitas
Why would an absentee foreigner rent a flat? Unlike buying it, that's not even
an investment. It's just throwing money away.

If this is common we should build more and take the money of these stupid
foreigners. If we build enough, regulation is unnecessary - why prevent
foreigners from giving us their money?

~~~
evgen
Because in some locations (c.f. London) this makes the asset far more liquid.
Having renters requires you to engage a property management company and the
presensce of tennants makes it harder to flip the property quickly if you need
to get access to your stash of ill-gotten gains.

It is not just stories and anecdote, there are large portions of high-end
London real estate sitting empty because foreign buyers often do no want a
tennant.

~~~
yummyfajitas
Until you cite some statistics (specifically the residential vacancy rate),
you are in fact just repeating stories and anecdotes.

------
somberi
Two good articles - One a long form and one One-pager:

[http://www.nytimes.com/2015/02/08/nyregion/stream-of-
foreign...](http://www.nytimes.com/2015/02/08/nyregion/stream-of-foreign-
wealth-flows-to-time-warner-condos.html?_r=0)

One-pager - [http://www.newyorker.com/magazine/2014/05/26/real-estate-
goe...](http://www.newyorker.com/magazine/2014/05/26/real-estate-goes-global)

------
cynusx
London could benefit from anti-money laundering policies around real-estate
transactions as well. There are plenty of stories of corrupt elites parking
their money in London real-estate to keep it safe in case the regime gets
overturned in their country.

------
clientbiller
It will be very difficult unless they change the laws. These properties are
purchased by the attorneys of corporations owned by other corporations with
multiple owners which are other foreign corporations and communicated by a
non-owner party. Is it worth it to spend a lot of money tracking the true
owners down into foreign countries through this complicated web of corporate
companies?

------
DanBlake
Not sure this will accomplish much. The people sheltering this wealth have
attorneys and 'henchmen' who are more than willing to put the assets in their
name. Its a massive thing here in Miami Beach (I think half the sales here are
all cash and of those, half are from foreign investors)

------
nickpsecurity
This is the kind of "bulk collection" they should've been doing in the first
place that might have actually busted some crooks. Instead of red flag
criteria, they seem to be watching everything else most of the time. (rolls
eyes)

------
WalterBright
Absent from the article is any explanation of how buying real estate is money
laundering.

~~~
zatkin
I would assume that it's a quick way to turn cash into an asset. You buy the
house to keep your money safe, then sell the house when you need money.

I'm curious if this could also work in a foreign setting. Like buying a house
in another country.

~~~
WalterBright
Turning cash into an asset is not money laundering, even if the cash is dirty.
Laundering is making it look like you received income from legitimate
activity.

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pluckytree
So instead of buying a $1.1m house in Miami-Dade, I’ll be two at $750k each.
Bravo.

------
tomcam
Henchpeople, you rank sexist

~~~
eru
[https://en.wikipedia.org/wiki/Man_(word)](https://en.wikipedia.org/wiki/Man_\(word\))

~~~
anon4
The meanings of words can change.

