If ever there was any doubts about the narrative of freedom-seeking China capital outflows driving the irrationally exuberant prices of homes in some of the world's largest cities to record highs, the following two charts will extinguish them entirely. As China continues to strengthen (as quietly as possible) its capital controls to slow the leak of money from the devaluing currency nation, and US authorities clamp-down on the anonymity of cash-only transactions, realtors in NYC, Miami, and London better hope that correlation is not causation.
Over three years ago, in August 2012, we described how while US regulators and authorities were cracking down on such "illegal" banks as Standard Chartered and HSBC, they were allowing the non-corporate shielded entities, the actual individuals who benefited from the bank crimes, slip through the cracks simply by allowing them to park billions of ill-gotten gains in US real estate:
When it comes to the true elephant in the room, which is not foreign and is fully domestic, they continue to ignore events such as this one just described by the Wall Street Journal: "A Florida home that originally listed for $60 million has sold for $47 million, a record for a single-family house in Miami-Dade County. The home, in Indian Creek Village, had been on the market since early 2011, when construction was still being completed. The asking price was reduced to $52 million this year." And the punchline: "The identity of the buyer, a foreigner who purchased the home in the name of a U.S.-based limited-liability company, couldn't be learned."
In other words a foreigner who may or may not have engaged in massive criminal activity and/or dealt with Iran, Afghanistan, or any other bogeyman du jour at some point in their past, and is using US real estate merely as a money-laundering front perhaps? Sadly, we will never know. Why? As explained before, it is all thanks to the National Association of Realtors - those wonderful people who bring you the existing home sales update every month (with a documented upward bias every single time) - which just so happens is the only organization that actively lobbied for and received an exemption from AML regulation compliance. In other words, unlike HSBC, the NAR is untouchable, even if it were to sell a triplex to Ahmedinejad on West 57th street.
If after skimming the above, as we detailed recently, readers are still confused what the reason is for the luxury segment of the US housing market continuing to rise in price and hit record highs, even as all other segments of the quadruplicate US housing market as explained here languish, the explanation was very simple (and explained most recently back in October): the "hot money" belonging to Chinese and all other global oligarchs would be laundered by parking into the new "Swiss bank account" that U.S. real estate has become.
Still not convinced? Here are the two most important charts in the world if you are a realtor in NYC or London...
London home prices have soared on the back of this illicit capital outflow desperate for hard non-Yuan assets to bury itself in (within property rights protecting nations)
And even more so in New York City homes...
However, as we detailed here, just like Swiss bank accounts lost all their anonymity shortly after the Global Financial Crisis, and led to massive fund outflows from Switzerland (and ironically, into luxury US real estate), so after many years of us explaining how the ultra luxury segment of the US real estate market was being used as a money laundry vehicle, the US government has finally decided to crack down on these "secret" buyers.
As the NYT reports, "concerned about illicit money flowing into luxury real estate, the Treasury Department said Wednesday that it would begin identifying and tracking secret buyers of high-end properties."
The initiative will start in two of the nation’s major destinations for global wealth: Manhattan and Miami-Dade County. It will shine a light on the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities.
It is the first time the federal government has required real estate companies to disclose names behind all-cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers.
The logic behind the move is clear: "this 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."
... a top Treasury official, Jennifer Shasky Calvery, said her agency had seen instances in which multimillion-dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque by the use of anonymous shell companies.
“We are concerned about the possibility that dirty money is being put into luxury real estate,” said Ms. Calvery, the director of the Financial Crimes Enforcement Network, the Treasury unit running the initiative. “We think some of the bigger risk is around the least transparent transactions.”
Our only question is what took so long?
What happens next remains to be seen, but now that the buyer anonymity of luxury real estate buyers is gone, and with it the opportunity to launder illegal money in the US, much to the chagrin of the NAR, we would expect a substantial drop in both demand and prices for the one segment that has so far been the most stable support of the entire U.S. housing market.