July 22, 2018

The Great Grandmother Of All Scandals

A weekend topic starting with the Miami Herald in Florida. “When a company called the Flower of Scotland paid $1.13 million — in cash — for a three-bedroom condo in Sunny Isles Beach last year, it had to do something unusual: tell the federal government who its real owner was. In years past, the Delaware-based shell company could have put down the money and walked away with a new condo — and a boat slip on Dumbfoundling Bay — no questions asked. But a temporary rule imposed in early 2016 by the U.S. Treasury Department on Miami-Dade County and Manhattan, two of the nation’s most attractive real estate markets to dark money, began to strip away that kind of secrecy.”

“Now, a new working paper from economists at the Federal Reserve Bank of New York and the University of Miami offers one answer: The anonymous cash buyers stopped buying homes — at least using the method targeted by regulators. In Miami-Dade, the first-of-its-kind study found a 95 percent drop in how much cash shell companies and other corporate entities spent on homes. The decline began immediately after the rule took effect in March 2016.”

“Such devotion to the luxury real estate industry as a financial driver has led to economic inequality, researchers say.’We’ve had artificial drivers that have pushed up the prices of the overall housing market, to the point where many people are going to look to leave the area for a better standard of living,’ said Jack McCabe, a Florida real estate analyst and consultant. ‘The expenses eat up too much of their income.’”

The South China Morning Post. “Unit 78B of the 90-storey Trump World Tower in Manhattan offers breathtaking views of the East River and the United Nations plaza through floor-to-ceiling windows in its living and dining areas. The residence, available for rent for US$15,000 per month since May, is among 89 worldwide real estate assets owned by the company of Ye Jianming, a mysterious businessman who amassed one of China’s biggest fortunes – and the country’s largest non-state oil conglomerate – in less than a decade from out of nowhere.”

“Ye has been missing from public view since the start of Lunar New Year celebrations on February 16. Although he hasn’t yet been charged with any crime, Ye is believed to be under detention to help Chinese regulators with unspecified investigations into the debt incurred by his China Energy Finance Corp (CEFC). The list of assets, valued at a combined 21.64 billion yuan (US$3.19 billion) as of March 1, include the Upper East Side apartment, a mountainside villa in Lisbon, Wan Chai offices, luxury flats at Hong Kong’s Cyberport and CEFC’s corporate headquarters in the former French Concession in Shanghai, according to an inventory obtained by the South China Morning Post.”

“The properties were the results of CEFC’s global shopping spree, which only ended in 2017 when Chinese financial regulators brought the boom down to crimp runaway borrowings and stem capital flight in the country. The first cracks in the CEFC empire began to appear in November 2017 when Patrick Ho Chi-ping, Hong Kong’s former Home Affairs Secretary, was arrested in New York on charges of routing money meant for bribing politicians through US financial institutions.”

“‘The debt crisis of CEFC was caused by US pressure, after CEFC began extensive cooperations with Rosneft,’ according to a memo in May that summarised the Chinese company’s debt levels for creditors, obtained by the Post. ‘Media reports led to panic among investors, which ultimately led to a break in the credit line that has been extended to the group.’”

From Casino.org on Canada. “In British Columbia, an ongoing casino money laundering investigation is about to enter its second phase, and the province’s overheated housing market will be the target. ‘Dirty Money’ report author Peter German has estimated that more than $100 million has been ‘cleaned’ at BC casinos over the past decade. German will now begin work on a new report looking at a potential secondary effect of the money-laundering scandal: BC’s housing market bubble.”

From Better Dwellings in Canada. “Canadian real estate sales are slowing in the country’s biggest markets. Canadian Real Estate Association (CREA) numbers show June 2018 saw large declines compared to last year. Most of Canada’s major markets faced declines, but British Columbia bared the brunt of them. Fraser Valley reported 1,380 sales in June, a 44.11% decline from last year. Vancouver came in at 2,467 sales, a 37.59% decline from last year. Victoria reported 678 sales, a 29.52% decline from last year. The industry is blaming a policy measure that cracks down on second homes, but seriously? We thought the industry was saying there’s no empty homes in BC? Strange that it would be so impactful.”

From The Guardian on the UK. “A surge in homeowners putting their property on the market – just as buyers melt away in summer – is depressing house prices, according to the biggest property website, Rightmove. The number of properties coming on to the market in July rose by 8.6% but there has been ‘no corresponding increase in buyer numbers to soak up the new seller influx,’ Rightmove said. After a long period in which estate agents decried the lack of properties on the market, they have more on their books than at any time since September 2015. As a result, sellers are having to cut overly optimistic asking prices to find buyers.”

“Rightmove said: ‘The proportion of sellers already on the market that are reducing their asking prices is the highest at this time of the year since 2011, indicating initial over-optimism on price.’”

From The Monitor on Uganda. “The Financial Intelligence Authority (FIA) has cited real estate as the most attractive investment for money launderers. Mr Sydney Asubo the FIA executive director, said a National Risk Assessment survey conducted by the Authority found that real estate was responsible for moving ‘dirty money’ because of its profitability and lax regulation. ‘Most of the land in Uganda is untitled and rules around transfer are not stringently enforced. Land is also not registered and rarely loses value. It usually appreciates [which makes it attractive to money launderers],’ he said.”

From Edge Prop on Malaysia. “A new front into the 1MDB inquiries has opened up. Already under investigation in the US, Switzerland, and Singapore; there is now the possibility of Chinese involvement. This new development in the financial scandal around the 1MDB investment fund has led to the government suspending three major construction projects with Chinese firms. Tony Pua, special officer to the Finance Minister Lim Guan Eng, tasked with sifting through the masses of documentation linked to 1MDB calls it ‘the great grandmother of all scandals.’”

“The new administration has been astounded by what it had found, Pua told the BBC. ‘The entire project smelt like a scam. [There were] clearly elements of money laundering taking place,’ he said to the BBC. ‘We were giving money out — to a Chinese company — and we suspect this money is being funnelled to parties related to the previous administration.’”

From ECNS on China. “Hainan’s latest tough cooling measures are timely and necessary to prevent the market becoming overheated once more, and reflect its resolve not to rely on property any more for development, according to governor Shen. But he said real estate is unsustainable as a pillar industry in Hainan. ‘We will never let Hainan become a real estate processing plant,’ the governor said.”

The Sydney Morning Herald in Australia. “A surge in ’shadow’ lending to property developers to fill a gap left by nervous banks has sparked warnings that a wave of unregulated finance could leave the property market exposed to new risks. After a decade of booming, Australia’s housing market is slowing down fast, as banks tighten their new lending, and investors retreat from the market, especially in Sydney and Melbourne.”

“Property developers have no choice but to turn elsewhere for finance because banks have slashed how much they are willing to lend, say financiers Wingate. Whereas a bank previously may have lent at a loan to value ratio of up to 65 per cent, this has been slashed to 50 per cent or, in some cases, lower, the group’s head of property Mark Harrison said. And the result? ‘Demand has probably doubled in the last 18 months,’ he says.”

“‘I would not suggest the market is going crazy in terms of its risk appetite,’ says Steve Bulloch, head of PGIM Real Estate’s Australian business. ‘There are few signs of widespread distress at the moment, but a challenge is likely to arise for some developers who have paid a lot of money for their land and need to refinance their acquisitions. That’s probably where the squeeze will come.’”

From Domain News on Australia. “Nobody knows how many billions of dollars in dirty money is pouring into Australia’s housing market, but global authorities describe local real estate as a prime target for money laundering – and you may have paid more for your house because of it. The likelihood of cashed up crooks increasing house prices is much greater than many people realise, given the hidden nature of the problem, a lack of regulation in the Australian real estate industry and the staggering sums involved.”

“Real estate agents say corrupt money can also influence average house prices, because criminals paying more than market value for one house are likely to encourage higher asking prices for similar properties in the same street. Estimates vary, however an International Monetary Fund calculation converted to local currency shows up to $5 trillion in corrupt money – more than three times Australia’s GDP – flowing into global financial systems last year. Only 0.2 per cent of the illegal transfers were likely to be seized or frozen, according to a UN report.”

“No official estimate of how much tainted money is laundered through Australian housing has been publicly released, but there’s no shortage of warning signs. Australia’s financial crime intelligence authority, Austrac, reported $1 billion in suspicious transactions flowing into the nation’s housing from China alone during 2015, but some analysts believe that’s just the start.”

“A Transparency International report last year found Australia’s housing market is more open to laundering than the US, Britain or Canada, failing in all ten areas that allow criminals to easily purchase properties anonymously to hide stolen money. Professor Jason Sharman of Cambridge University, a global money-laundering expert whose views are included in the OECD report, says Australia already has extremely powerful laws against money laundering. ‘The problem is that in most cases the government chooses not to enforce them,’ he says.”

“Laws governing UK real estate agents were introduced last year after investigations showed a huge flow of corrupt money, estimated to be tens of billions of pounds, had driven up housing prices. In London, the National Association of Estate Agents says its members have already been fined millions of pounds for failing to comply with the new anti-money-laundering laws, with some facing bankruptcy as a result.”