New York City Real Estate, Government Edicts And The Inevitable Unintended Consequences!

Most if not all of us have heard the phrase that ‘the road to hell is paved with good intentions’!

Given that, is it also a sad truth that many government policies once implemented, have unintended consequences the majority of which seem to be more painful than helpful for the masses?

For the sake of this argument and assuming this is true, what exactly is an unintended consequence?

Unintended Consequence: ‘…actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it…’ (Source)

Now consider the plan implemented by the Treasury Department (FinCEN) in January 2016 that was apparently inspired by a series of articles in The New York Times, to track down the actual cash buyers in real estate transactions above a certain dollar amount due to be consummated in the cities of New York (purchases above $3MM) and Miami (purchases above $1MM).

To recap…

‘U.S. Will Track Secret Buyers of Luxury Real Estate‘

‘…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 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.

Officials said the new government efforts were inspired in part by a series last year in The New York Times that examined the rising use of shell companies as foreign buyers increasingly sought safe havens for their money in the United States…‘

On its surface as well as from the 35,000 foot view utilized by government bureaucrats, the plan seems as if it would be a good idea and a very noble effort as money laundering is a serious issue.

But now, about 8 months in, what has the impact been in the real world of business rather than in the political world of theory and pandering for votes?

I suppose as well as anyone could have or would have expected with the impact on developers who were blindsided by the initiative and property buyers alike remaining to be seen. But if the data below is any indicator, some are going to no doubt be hurt badly.

From Wolf Street…

‘US Government Mucks up Money-Laundering in Real Estate, Puts Luxury Housing Bubbles at Risk‘

‘…In Manhattan and Miami, the luxury condo markets are already getting mauled. For example, we reported that in Manhattan, condo prices plunged 14% in just three months.

We also reported that foreign investors were pulling back, particularly Chinese investors, the most prolific of all foreign buyers. The number of homes they purchased over the 12-month period had plunged 15%.

So is it just the “strong dollar” and “global uncertainty?” Or could there be more to the story?

Today, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that it would expand a program it had kicked off in January to identify and track secret homebuyers who hide behind shell companies.

The expanded program will “temporarily require US title insurance companies to identify the natural persons behind shell companies used to pay ‘all cash’ for high-end residential real estate in six major metropolitan areas,” up from the two areas designated in January, Manhattan and Miami, among the biggest destinations of global wealth…

…New York: Manhattan with a threshold at $3 million; Brooklyn, Queens, Bronx, and Staten Island at $1.5 million.

Florida: Miami-Dade County, Broward County, and Palm Beach County, all at $1 million.

California: San Diego County and Los Angeles County; plus in the Bay Area, San Francisco, San Mateo County, and Santa Clara County, all at $2 million.

Texas: Bexar County (San Antonio area) with a threshold of $500,000…‘

Read the rest of this article at Wolf Street using the link above.

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com.