Last year, a company called Flower of Scotland paid $1.13 million in cash for a three-bedroom condo in Sunny Isles Beach and the federal government wanted to know who the real owner was. It seems this is a new trend that the Fed's are looking into. This a Delaware based company has put money down and walked away with new condos before but their secrecy was stripped away in 2016 when the federal government and Treasury Department imposed a transparency rule on Miami-Dade County to look into attractive real estate deals and their dark money.
Basically, it's just asking that these anonymous cash buyers reveal their true self. But a funny thing happened, they stopped buying homes.
In our County, this first of its kind study found a 95% drop in how much cash these companies spend on homes. The decline began immediately after this ruling took effect. This study analyzed millions of home sales nationwide collective from local property appraisers and other real estate sites. This fall in transactions may give the federal officials ammunition to argue that secretive real estate deals can allow criminals to launder stolen money into these condos and home sprouting up around South Florida. Those that started this temporary transparency rule want to see these rules made permanent and expanded nationwide for obvious reasons.
Even though these larger companies are not buying homes at the rate they did before, are residential real estate market didn't drop out too much. Overall sales haven't changed even though prices have risen less rapidly than would otherwise be expected. Surprisingly, there's actually been an increase in cash purchases, which tells officials that they may just have found new ways to buy properties. These "shell companies" use cash to buy homes because those transactions allow buyers to evade certain rules employed by banks. It means that their identities and possible connections to criminal activity could remain secret. Our Miami-Dade County is where this rule has been most pronounced because this County and Manhattan seem to be the most luxury real estate markets that draw foreign money like a magnet.
Before the rule, 29% of all residential transactions were bought by these corporate entities. That number plummeted to just 2% afterward. It has stayed that way since. The change in behavior may reflect buyers seeking to avoid having to reveal their names to the federal government as well. You take away the anonymity and you can see the effect on the market.
It's important to note that this agency also issued a new rule in May of this year, quietly dropping the price threshold that triggers the reporting requirement. Previously, these shell companies had to report their owners when they paid cash for homes priced at $1 million or above. But now the limit is just $300,000, vastly increasing the universe of reportable transactions.
The study marks the first comprehensive attempt to measure the effects of this rule. It examines millions of homes between 2010 and 2017 from 17 different states including Florida. Under this rule, all corporate entities including shell companies, must report their true owners to title insurance companies involved in the sale. The insurers then pass the information on to the feds. The owner's identity is otherwise supposed to say secret. We understand there are legitimate regions to use shell companies including privacy protection, but criminal activity is of course, not one of them.
[Source - Miami Herald]