- The Treasury Department, concerned about money-laundering in luxury real estate, has put a call out for title companies to identify the people behind cash-paying companies that buy high-end residential real estate.
- Transactions in Miami and New York City will be the first affected.
Agents may have a bit of explaining to do this week after the federal government has announced that it will be requiring the identities of cash buyers for luxury properties in Miami and New York City.
The Treasury Department, concerned about money-laundering in luxury real estate, has put a call out for title companies to identify the people behind cash-paying companies that buy high-end residential real estate, as reported in the New York Times today.
“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 the Financial Crimes Enforcement Network Jennifer Shasky Calvery in a press release. The order covers 180 days, beginning March 1, 2016, and valid through August 27, 2016.
The response from agents in Miami and New York City is that it might give buyers slight pause, but they will find a way around things.
Speed and estate planning two reasons why cash is popular
Nicole Beauchamp from Engel & Völkers in New York said: “As an agent, I might have to be more inquisitive; I might have to ask a few more questions of my clients.”
Beauchamp said that her cash buyers were both international and domestic and were often buying in cash simply for speed of transaction. She could normally trace the source of the funds.
“My clients are not showing up with a suitcase of cash,” she said.
They were often buying luxury properties through LLCs (limited liability corporations) for estate planning purposes, not to obscure who they were.
“I think if buyers are doing it for tax purposes, (these restrictions) should not be a concern,” she said.
She also wondered how this new wrinkle would affect pricing and transactions, too. “I wonder if we will see more transactions just below the $3 million threshold (assuming we have the inventory …),” said Beauchamp.
New York and Miami first under the microscope
She was not surprised that New York City and Miami had been chosen first. “Based on the flow of foreign capital, it makes sense to me,” she said.
Top Miami agent, Samantha DeBianchi from DeBianchi Real Estate, wondered, “The main question to me is, why is the Government changing things now? And will people move their money elsewhere?
“Even if people are not in a position of doing something wrong, it might scare them — people who just want to be private,” she added.
On the whole, DeBianchi didn’t see her buyers — 25 percent of whom are international, and many of them cash buyers — moving to other markets. As she put it: “People buy in Miami because you like Miami. There’s nothing like Miami.”
The top agent said she usually knows her buyers — but not always.
“My job as an agent is to get the deals done and close the deals for the client,” she said.
“Now it will just be a matter of them changing their systems so they still can’t be identified,” she predicted. “There could be a pause when something like this comes out. I don’t think it will necessarily stop people from buying in Miami. They will just be a bit more strategic on how they are going to go about it.”
What about California?
DeBianchi also wondered why California hadn’t been included in the new regulations.
California agents were asking themselves the same thing today.
“I hope it does not discourage legitimate foreign investors,” said luxury real estate broker Gary Gold in Beverly Hills (the listing agent behind the Playboy Mansion). “It makes sense, as long as the government does not go overboard.”
Gold also asked: “Why is the government telling anyone — why don’t they just do it?”