New US rule on pricey properties is downplayed

Updated: 2016-01-15 12:52

By Amy He in New York(China Daily USA)

  Print Mail Large Medium  Small 分享按钮 0

The US Treasury Department's move to identify and track buyers of high-priced real estate in New York City and Miami-Dade County in Florida over money-laundering concerns is not expected to have a major impact on those markets, according to real estate professionals.

"What the government is requesting in terms of the title companies

providing information on beneficial owners, we've been doing that already," said Edward Mermelstein, international real estate attorney with Rheem Bell & Mermelstein LLP. "This is not something that is new in our market, especially in Manhattan."

In a press release on Wednesday, the Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department said that its Geographic Targeting Orders (GTO) "will temporarily require certain US title insurance companies to identify the natural persons behind companies used to pay 'all cash' for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida".

"FinCEN is concerned that all-cash purchases - i.e., those without bank financing - may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability," the release said.

The GTOs will be in effect for 180 days, from March 1 to Aug 27.

Mermelstein said the initiative is not a timely response to anything specific, just "background noise" from the media and possibly a reaction to pressure from other countries' governments looking to slow the pace of real estate investment into the US.

"It's not something that is timely in the same way that banking regulations with respect to mortgages came in after the market collapsed," he said. "If you're looking to do something, do it in real time when it's happening, rather than after the fact.

"Based on all the due diligence that we've been doing - and the brokers in the business have been doing, as well as banks where the money has to be deposited into - all of this has been addressed for many years," he continued. "We're not all of a sudden changing the way we do business in our market because of what the government is proposing - it's just another form that's being filled out, and it doesn't really affect us in any way whatsoever."

Buyers purchasing properties for more than $1 million in Miami and more than $3 million in New York will need to be identified, according to a spokesperson at FinCEN.

Liz Gagliardi, senior vice-president of Jones Lang LaSalle's capital markets division, said that disclosures are already happening with the real estate firm's clients.

"The vast majority of Chinese buyers - and in particular our clients - are legitimate buyers," she said. "We anticipate these buyers will understand that this is part of the acquisition process for purchasing properties in the US, and we'll comply as needed."

"As we are marketing properties into Asia Pacific and into China, we're encouraging them to consult with both legal and tax advisers in their home countries and in the US as part of the acquisition process so they can determine what holding real estate assets mean, and doing that typically leads to those types of disclosures that are being required as part of those initiatives," she said.

Gagliardi also said that the majority of the firm's clients purchase properties at prices between $750,000 and $2 million, so she does not expect the announcement to have any impact in the New York market.

Government officials were motivated by a New York Times investigation that looked at shell companies being used by foreign buyers to hide their money in the US, according to the paper.

New US rule on pricey properties is downplayed

"We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium US real estate to secretly invest millions in dirty money," said Jennifer Shasky Calvery, FinCEN director, in the release.

"Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering," she said. "But cash purchases present a more complex gap that we seek to address.."

Chinese buyers make up the largest group of foreign buyers of US real estate, according to the National Association of Realtors, and buy every one in 14 homes worth over $1 million. In the year ending March 2015, Chinese buyers spent $28.6 billion on US homes.

In total, Chinese have spent about $6 billion on real estate in the US last year, $4.5 billion of which was in New York.

Miami is a market of interest for Chinese buyers looking beyoned US gateway cities, although only 2 percent of international buyers in Miami are from China, according to the Miami Association of Realtors.

(China Daily USA 01/15/2016 page1)