The vote by Britain to leave the European Union has shocked and confused the world to say the least. In addition to the political ramifications (Prime Minister David Cameron announced he will step down in October), the financial outcomes are staggering. The pound has already plummeted to its lowest level since 1985, with investors turning to the dollar and the yen and the entire European stock market dropping, according to reports from the Times. Though the Bank of England has earmarked roughly $344 million for potential stability measures, the world seems unsure of how the Brexit decision will affect international markets long term.
London is currently one of the top locations for foreign real estate investment, but in the face of an uncertain future, Crain’s presents the assertion that the vote could drive up real estate in New York City as “investors look for safe havens against the threat of a global recession.”
Will new federal regulations aimed at clamping down on shell companies buying luxury real estate send a chill through Manhattan’s high-end real estate market? The reaction to a page one article in the New York Times last month suggests fear is in the air. But that fear may be misplaced for two reasons: firstly, the Treasury Department’s database of buyers’ names will not be public, as many have inferred; and secondly, in New York, title insurance is not mandatory when you’re making an all-cash deal.
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The Time Warner Center, one of NYC’s most notorious buildings for secret foreign investment
For the first time ever, the U.S. federal government will start identifying and tracking secret buyers of high-end real estate, requiring those making all-cash transactions or hiding behind an LLC to disclose their names for entry into a law enforcement database. The regulation is kicking off in Manhattan and Miami-Dade County, two hotbeds of foreign investment, according to the New York Times. “The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities,” the paper explains.
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, Wed, September 30, 2015
Skyline image via Joey Lax-Salinas/Flickr
Talk around foreign real estate buyers in New York City has been centered around the Chinese in recent months, but as it turns out, investors from China are only the third largest nationality represented in the market. The top spot goes to our neighbors to the north, according to the Post, as Canadians have poured $15.37 billion into the city’s commercial property market over the past decade. This is almost double the $8.8 billion that came from runner up the United Arab Emirates and third-place China’s $8.1 billion.
Earlier this year the Times made waves in the real estate industry with a lengthy exposé zooming in on the growing trend of foreigners—many the subject of government inquiries ranging from environmental violations to financial fraud—using LLCs as a way to scoop up luxury properties and stash their cash while avoiding taxes. Now the paper reports that the De Blasio administration has imposed new disclosure requirements on those who intend to use shell companies as a vehicle to buy and sell property in the city. Under the new rules, these shell companies must now provide to the city both the names and tax IDs of all members involved in a transaction.
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A midtown apartment filled with modern art designed by Robert Couturier
Laurence D. Fink, chairman of Blackrock Inc., the world’s biggest asset manager, said at a conference today in Singapore that luxury apartments in cities like New York, as well as modern art, have trumped gold as a store of wealth.
According to Bloomberg, Fink said, “Gold has lost its luster and there’s other mechanisms in which you can store wealth that are inflation-adjusted…The two greatest stores of wealth internationally today is contemporary art… and I don’t mean that as a joke, I mean that as a serious asset class. And two, the other store of wealth today is apartments in Manhattan, apartments in Vancouver, in London.”
The Time Warner Center, a hotbed of anonymous foreign investment
The media has been abuzz lately with talk of international mystery property buyers and the shell companies they use to hide their real names. Tired of the shady tactics, a group of 17 nonprofits is calling upon the U.S. Treasury Department to harder scrutinize foreign real estate buyers by verifying their actual identities and screening them for any risk of money laundering.
The request came in the form of a letter sent to the Treasury Department’s Financial Crimes Enforcement Network on Tuesday that asks for a repeal of a 2002 exemption from the Patriot Act that was granted to the real estate industry. The Patriot Act was signed into law in 2001 following 9/11 to heighten security and allow for broader means of investigation. Under the act, real estate professionals would be required to “conduct due diligence checks on their customers,” according to the Times. But after the industry lobbied against this, they were exempted from the regulations.
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The Time Warner Center
We’ve been talking a lot lately about foreign investors with their hands in the NYC real estate market, but a story in the Times took the investigating one step further by uncovering the secrecy of more than 200 shell companies at the Time Warner Center, documenting “a decade of ownership in this iconic Manhattan way station for global money transforming the city’s real estate market.” Though most of these were simply wealthy Americans, at least 16 were rich foreigners who “have been the subject of government inquiries around the world, either personally or as heads of companies,” ranging from environmental violations to financial fraud.
In 2014, around 50 percent of all $5 million+ sales were to shell companies, but at the Time Warner Center it was 80 percent. With this growing trend, however, the government hasn’t taken a closer look at the money being used to buy luxury real estate, allowing shell companies to make the movement of foreign funds largely untraceable.
Find out more about Mr. Low and this real estate trend