I lived in Vancouver from 2009-2018 and saw the insane price appreciation from money laundering.
The main question people asked about the appreciation was: "is appreciation really being driven up by foreign buyers".
Many came to the answer "no", because foreign home ownership was "only" in the 5-10% range depending on the neighbourhood.
This article lays out the case why foreign ownership % isn't the right thing to be looking at:
1. The goal of a money launderer is to launder as much as possible
2. The goal of a home seller is to sell for as much as possible
3. If the asset being purchased is a home, incentives between buyer and seller are aligned and prices are higher than the non-laundering market would support (esp if there's another launderer who's interested).
4. Since the market for home prices is based on comps, a few launderers can raise market prices substantially
5. Lather, rinse, repeat
The foreigner question was the wrong one to ask, though certainly a large part of the market was driven by foreign investment. The right question to ask -- and the problem to guard against -- was: "what's the impact of laundered money on the market".
BC added the foreign buyer's tax of 15% in 2016[1]. But beneficial ownership laws come into effect on November 30 of this year[2]. The former created a slight disincentive for foreigners laundering $$ to buy. But turns out what was really needed to slow the tide of illegal money flowing into housing was more transparency and disclosure rules.
From what I heard that and having a investment from which the money might shrink but but randomly disappear lead to super unrealistic inflated prices in NY (not all areas) where it's not uncommon that store spaces are left empty for years (even before covid) because they are to expensive but still don't lower the rent. (Because they don't want to rent it out, they only want to pretend that intend to do so.)
> 3. If the asset being purchased is a home, incentives between buyer and seller are aligned and prices are higher than the non-laundering market would support (esp if there's another launderer who's interested).
This is true but misleading. The money launderer doesn't want to throw away money. They want to launder money as cheaply as possible. That said, they are willing to pay far more than an asset is "worth" if they expect to be able to resell it for a price equal to or even slightly lower than they paid. The loss is the "price" of laundering. This supports higher prices for real estate, but not arbitrarily high prices, because if the launderer pays too much, they will simply have to resell for less, leaving money on the table that they could have kept.
The UK has Unexplained Wealth Orders, which can be used if a person cannot explain where they got the funds to purchase property. It's been in the news a few times but I'm not sure how effective it is:
Quote:
3)An unexplained wealth order is an order requiring the respondent to provide a statement—
(a)setting out the nature and extent of the respondent’s interest in the property in respect of which the order is made,
(b)explaining how the respondent obtained the property (including, in particular, how any costs incurred in obtaining it were met),
(c)where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and
(d)setting out such other information in connection with the property as may be so specified.
It's like how the market cap of a cryptoasset can be massive and yet a small amount of wash trading can pump the price because the market order books are thin
> The goal of a money launderer is to launder as much as possible
When does that goal compete with the equally efficient method of just lighting the cash on fire?
The goal is also a place to store that laundered cash. When the time comes to take it out of storages, it's only worth 10 cents on the dollar, the whole the higher the price the better thesis falls apart.
"...because foreign home ownership was "only" in the 5-10% range..."
Such a weird rationalization.
Even very non-economist me "knows" that small changes in supply (<1%) leads to big changes in price. Either up or down. More so when factoring demand.
Some things add friction to efficient price discovery, like rent control and landlords servicing debts. But the first order factor is supply and demand.
This is how my sale went a few years ago in Toronto. One contractor, one couple with their realtor, and one realtor on the phone representing a remote client.
Everyone put in a bid. The realtor representing the remote client gave an offer 200k over asking. Never saw the buyer. Drove by months later and still no one living there. Neighbor told me a young Chinese couple showed up a few weeks after purchase, got out and looked at the property for a minute and drove off, didn't even go in. Property was still empty 2 years later.
Extended family remember sells house in Toronto (Bloor West Village). House is at least 100 years old and in rough shape. Gets an offer for 1.4 million (about 150k over asking) as is from a 20 something year old Chinese University of Toronto Student. The student tells family member not to be alarmed if the name on the contract is different from hers. House was rented out a few months after sale.
I have dealt with many Chinese factories in a previous life. Many were State factories and everyone from the sales person to the accountant to the factory floor supervisor is on the take. They skim and over time accumulate some serious money. This money leaves the country in capital outflows into the real estate market in Canada. The thinking is I don't care if it makes any money as an investment, I just got to get it out of China so the CCP can't take it away. Banks are no good, so lets just put it in real estate. Who cares if we lose 200k on property, better than losing it all to the Chinese Gov.
Another interesting story, real estate agent representing me tells me this story. He's on the phone with an agent representing a Chinese client who wants to buy a Condo in a new development in downtown Toronto. Realtor says client will take one. My Realtor asks him what kind of unit? Chinese buyers tells him not a unit but the whole 8th floor.
The average price of a house in Toronto will be in the millions in the next decade. Anyone earning less than 200-300 k a year will not be able to afford one, unless they have a windfall inheritance. Now with a possible Hong Kong exodus, there is no limit to the insanity. Young Canadians in major cities are screwed. Renters for life.
I grew up in an extremely remote part of Southern California and for years there were rumors of "land banking" investments being made by Asian investors. This was back in the 90's, so it was extremely difficult to verify these types of rumors.
Fast forward 15 years and an article pops in their local paper (I had long since moved away), and it turns out it was true!
From the Daily Press [1]:
> Lured by the prospect of massive transportation projects that could skyrocket land values, the Victor Valley has become a jewel for foreign and domestic investors looking to make a fortune in a practice called land banking. In land banking, investors buy raw land and hold onto it until the value goes up because of inflation or development.
For those who aren't familiar with the area, it's a remote and extremely low-income, low-education area of California. Anyone making investments in property there is looking for them to pay off a generation or two from now.
Easy fix- have very high property taxes, but they are deductible or waived for locally earned income. If it costs the owner 25% a year to hold the property, won't be nearly as attractive.
Unfortunately at this point a large amount of the Canadian and Australian real estate markets (and thus national wealth) are driven by Chinese money, so there's little chance of this happening.
Those is why China started limiting the outflow of capital several years ago.
It has an immediate effect in LA, where a number of buildings under construction were financed by Chinese investors. In one case, the developer itself couldn't get it's own money out, and now they have a giant unfinished hulk right across from Staples Center.
Question for people more knowledgeable than me? Why doesn't this result in dirt-cheap rents across Canada?
Sure a bunch of hot-money can easily bid up asset prices. But at the same time it should also drive down yields on those assets. Like you say, the vast majority of these houses aren't being lived in. Nor are the owners sensitive to returns. Why don't more of them put their dwellings up for rent, flooding the rental market and driving down prices?
Parallels the dodgy wangling going on in Australia for the past decade or more.
"Pending" legislation to prevent money laundering via real estate has gathered dust in Canberra for well over a decade!
Lawyers, accountants and real estate agents are still exempted from reporting anything suspicious (including briefcases full of cash), providing an easy avenue for foreign buyers to launder funds through property.
On the surface we are a western nation, but lift the covers and we are enabling money laundering into real estate, to the tune of billions and billions every year.
Real estate agents report unprecedented numbers of overseas’ buyers of residential and commercial property in Melbourne and Sydney paying cash…
An estimated 70 per cent of Chinese buyers pay in cash
The real estate market in Canada needs better regulation too. My wife and were trying to buy a home in Toronto. We bid on a home that had no movement all summer and made an offer. Later that evening the selling agent found a mysterious second bidder, who they were also representing and that buyer kept overbidding us. Our agent wasn't privy to the bids we were making but I am sure that agent was sharing them with their buyer. They tried to get us to bid almost 20% over asking but but we walked away after 1%. I don't see how it is ethical for an agent to represent the buyer and seller in a home selling situation but I suppose if they ban it those agents will just get someone else in their company or some sort of friend to do the same thing.
Millennials are screwed twice: once by having the boomers scoop up all the cheap property decades ago, and then again by unrestricted globalism where foreign people with no stakes whatsoever in the local community use housing to park their money and hide it from the CCP.
This isn’t a particularly clever insight, yet many still don’t seem to get it and draw the right conclusions.
> The average price of a house in Toronto will be in the millions in the next decade. Anyone earning less than 200-300 k a year will not be able to afford one, unless they have a windfall inheritance. Now with a possible Hong Kong exodus, there is no limit to the insanity. Young Canadians in major cities are screwed. Renters for life.
Something I'm wondering: Why then are young Canadians overwhelmingly voting for a party that supports these sky high immigration quotas and lax policies around foreign ownership?
>everyone from the sales person to the accountant to the factory floor supervisor is on the take. They skim and over time accumulate some serious money.
Seems that Canada is also more generally known for money laundering internationally, to the point that there is a specific verb for it:
> Snow washing refers to hiding illegitimate financial transactions often for purposes of tax evasion in Canada.[1] The term is an amalgam of the words snow meaning purity as well as the cold Canadian climate and washing referring to money laundering. It is easy under Canadian law to set up a company, even for a fee as low as $200 (Canadian), while shielding the identities of the firm's real owners from the eyes of tax authorities.[2] The global elite, as well as criminals and foreigners avoiding economic sanctions, can set up shell companies to "make suspect transactions seem legitimate" under the cover of Canada's reputation for fiscal integrity.[1]
>> Properly laundered money should be extremely difficult to tell from legitimate business.
Fine point: The goal is not to make it indistinguishable from legitimate business. Rather it is to keep it distinguishable from illegitimate business long enough that police look elsewhere.
The money launderer isn't trying to hid as a legitimate profit-seeking business. The goal is to add so many layers that the burden of investigation dissuades prosecution. So they aren't going to setup false cash-based storefronts so as to mix the bad money with the good (ie the laundromat joke in Archer). Such concrete actions are too dangerous. What they will do is bounce money across as many jurisdictions as possible. There may be no legitimate reason for doing this but they aren't really trying to seem legitimate. They just want to look like a very difficult target so that the cops will go after easier prey. That burden increase is more effective and less dangerous than the lies required to hide.
Vancouver is an extra special case because of all the Chinese/HK money parked there. A planeful of middle-aged Asian gentlemen in suits would land in the morning, take a private bus tour around open properties, pay the asking, board the plane and leave. Developers were literally building high-rises to give foreign "investors" something valuable to buy. This all but priced every normal family the fuck out of the market. It was completely insanely bananas. Not "a little money laundering" by any measure.
Lovely city though, beautiful nature, excellent restaurants.
I'm sorry, but does that article offer ANY evidence at all for the impact of money laundering, except for the "just so" story in the middle? ("money launderers beat up prices, and the rest of the market just runs with it" - as if people were able or willing to pay arbitrary prices).
Yes, prices are set by the margin, so small changes in supply and demand can have outsized effects on prices.
But the article completely falls apart here:
> If you are money laundering... The objective is to move as much cash, as fast as possible. This often involves large assets, and the bigger the price – the better... Both the seller and the money laundering buyer want the highest acceptable price... Competition between interests align, and there’s minimal friction preventing prices from going higher.
This gets it completely opposite and wrong. It doesn't matter if you're laundering money or not -- you still want the best deal on an asset. You still want to sell eventually, and the lower your buying price, the more profit you'll make later. Everybody still wants to make a profit.
A launderer will always prefer to buy 2 properties at a market value of $1 million each, over buying one of those at an inflated $2 million. Always. The laws of supply and demand don't disappear just because you're laundering money.
The idea that "the objective is to move as much cash, as fast as possible" is totally made-up and totally ludicrous. The idea is to move the amount you have, in a reasonable timeframe, at the most profitable price.
The only reason money launderers can have an outsized effect on the real estate market is because they generate more demand. Period. But that demand is no different from legitimate buyers. Demand is demand. That's the entire story.
(Of course, if laws around LLC's and scrutiny around real estate deals were changed then that demand might dry up. But that doesn't have anything to do with the laws of economics.)
One way to look at this is that money launderers are happy to pay a higher price because the house provides more value to them that it does to other buyers: it is both a real estate asset and a tool to launder their money. It's sort of like putting an offer down on a house with a pool when you can't swim. You rationally won't pay as much as the Olympic swimmer also bidding on the house because they get more value from it than you do.
The first-order obvious rational solution is to "learn to swim". If you're going to buy a house, figure out a way to also launder some money with the purchase. That way you're competing on a level playing field with other money launderers.
The second-order observation is that there is a business opportunity here. Shortly, I expect to see a Y-combinator funded startup developing an AI-driven mobile app that connects BC home buyers with criminals looking to launder their illicit gains. The market becomes more efficient and everyone wins.
A lot of modern "problem markets" ultimately show us (IMO) some of the limits of economics.
Economic theorising and/or "storytelling," as my econ professor termed it, can create plausible explanations. They're not strongly predictive though. In-context (say, a stock market) these theories can be somewhat dependable. "Predictive" is a strong term, but it's less wrong within highly similar contexts... that's how trading algorithms (non NN ones) work. They theorize within highly limited contexts.
In practice, these theories can be predictive enough to be successful trading strategies. In most cases, to be investably predictive a theory needs to be narrow. Certain asset classes, certain epochs, etc. Certain market conditions.
Even though they use similar concepts (supply, demand, price, and their marginal determinations), a theory about energy bonds cannot be applied to urban real estate. More academic theories go for generality. Broader theory, but not tradable predictive.
"Government and academics are still debating how much money is needed to distort a market. The truth is, not a whole lot is required to distort any asset market. This is a problem the stock market has been dealing with since the 1920s"
Sure. Not much is required, but that just makes it plausible. I'd wager some real estate markets are much harder to nudge than others. The highly sensitive marginal dynamics this article is theorising aren't a feature of all real estate markets at all times. They're almost certainly very linked to bubble/bull markets.
One rare example of broader theory being applied to actual trading is Soros. I think his concepts probably apply here. "Reflexivity," specifically.
Now, it's another matter for people in the modern day to actually know about and use these theories, instead of the reductive "land = capital" model...
(Might be anecdotal or even have changed, but it is worth telling this story)
I once remember seeing a video where people described the steps needed to buy a property in Canada, obtain a mortgage, etc
Some banks allowed college students to get a mortgage (wink), and depending on the country, there were different KYC/AML regulations that had to be followed. Notably, China was not in the list of countries with additional KYC requirements (double wink)
Anecdotally, this happened in Denver when marijuana was legalized. Since the pot shops couldn’t store money with banks, many bought homes with cash. This led to a huge increase in cash buyers and a major spike in prices.
Maybe it's time we admit that without a thorough reform, the idea of a "housing market" is completely fictional. Furthermore, at least with the way our current laws are written, we prefer having a large homeless population because it maintains the wealth of some group of people.
I find it strange that no one mentions London, property prices have soared in the past 20 years [1] with money laundering playing a key role [2][3][4][5].
Nowadays, football clubs appear to be a better option, as they allow easy laundering of billions instead of millions...
I'd be more interested in hearing about how people trying to move money out of governments and areas affects local real estate prices. I think Canada has more of a problem with wealthy Chinese trying to park their money outside of China than money laundering.
I am dumb enough to understand this. Can someone tell me how money laundering is done in real estate?
Doesn’t the buyer have to deposit the money in a bank for the title company to transfer it? Or May be in cash transactions they don’t care as long as the buyer is ok with it. So the money is transferred outside the cpu Rey or through shell accounts and the asset changes hands?
FinTech Idea: Create a website whereby foreign capital can be sent to a local for the purchase of real estate. Maybe even allow said local to live inside of the dwelling provided they pay a small service fee of sorts.... /s
Perhaps though there is something here. If only there was a means of connecting these two groups, keeping in mind the additional parameters of those with the cash.
After all, nobody likes a haircut. I'm sure the 'big' boys are doing this - I'm really targeting the rich (not the RICH) supervisor that has enough to buy one to two properties. Might be after the fact - as others have pointed out, there are a number of additional controls in place.) Still...
It makes much more sense when you imagine money launderer's money and your money having the same value in those dealers, but having different value for their holders.
You, a law-abiding, legitimate buyer, have paid all your taxes and committed no crimes on that money. You can do with it whatever you want to, so for you, it's one to one, a dollar for a dollar.
For a money launderer, however, the money is a hot potato. There's still a probability that it left a trail going back, so, he's not so free to use it as he pleases. It's basically very similar to counterfeit money in that regard: it's value to it's holder (who knows about the risks) is much less than a "real" dollar for dirty money dollar.
Why would a launderer buy an overpriced apt in Vancouver when they could by something sensibly priced elsewhere? Maybe its easier if there are agents that speak foreign languages, but I'd hate to own a $2mil 2br apartment as a safe haven for my money stash.
Liquidity. You can list your apartment in Vancouver in the morning and accept an offer by the afternoon. You try that in middle of nowhere-ville and you might have a property on the market for a year. Plus these investors aren't living in them. They don't give a shit about how many toilets there are. They just care about it being an asset.
Wow this is something I was thinking about... then the money launderer turns around and sells the house they just bought “for quick close” and that sets another precedent in the market... and so the process repeats.
“All of a sudden, a money launderer shows up, and offers the owner 10% over ask for a “quick close.” You’re not too worried, your agent told you the place a few doors down is going to be on the market next week.
Unfortunately, the new place now uses the home owned by the money launder as a comp. Now the ask is 10% more than you were expecting, because the marginal buyer set the price down the street. Someone else bites, and buys it before it “goes too high.” Now the money launderer’s buy was just validated in the system.”
This article doesn't pass the smell test, it is pure speculation. Their theory is basically that 1) quick successive buying and selling always drives real estate prices up and 2) money launderers always engage in such activity because they want cash. If 1) was true, the profit seeking motive would ensure that everyone would be doing it, not only money launderers. As for 2), I don't see a reason why criminals wouldn't also be long term investors. If a criminal successfully acquires real estate without raising flags, why risk immediately cashing it out? If they need cash for their criminal activity, why bother "cleaning" it?
At least for Chinese buyers, they like BC for the weather, and east coast for convenience of flying back to China, and Canada in general for the now defunct investor VISA programs that made PR/Citizenship relatively simple.
>money launderers
I wonder if evading Chinese capital control is technically money laundering if such capital controls does not exist in Canada. That's like punishing Chinese dissidents for speech in Canada because said speech is illegal in China. Rich people get to escape repressive governments too amirite?
[+] [-] kareemm|5 years ago|reply
The main question people asked about the appreciation was: "is appreciation really being driven up by foreign buyers".
Many came to the answer "no", because foreign home ownership was "only" in the 5-10% range depending on the neighbourhood.
This article lays out the case why foreign ownership % isn't the right thing to be looking at:
1. The goal of a money launderer is to launder as much as possible
2. The goal of a home seller is to sell for as much as possible
3. If the asset being purchased is a home, incentives between buyer and seller are aligned and prices are higher than the non-laundering market would support (esp if there's another launderer who's interested).
4. Since the market for home prices is based on comps, a few launderers can raise market prices substantially
5. Lather, rinse, repeat
The foreigner question was the wrong one to ask, though certainly a large part of the market was driven by foreign investment. The right question to ask -- and the problem to guard against -- was: "what's the impact of laundered money on the market".
BC added the foreign buyer's tax of 15% in 2016[1]. But beneficial ownership laws come into effect on November 30 of this year[2]. The former created a slight disincentive for foreigners laundering $$ to buy. But turns out what was really needed to slow the tide of illegal money flowing into housing was more transparency and disclosure rules.
[1] - https://financialpost.com/personal-finance/mortgages-real-es...
[2] - https://www.mondaq.com/canada/real-estate/988830/bc-real-est...
[+] [-] dathinab|5 years ago|reply
[+] [-] three14|5 years ago|reply
This is true but misleading. The money launderer doesn't want to throw away money. They want to launder money as cheaply as possible. That said, they are willing to pay far more than an asset is "worth" if they expect to be able to resell it for a price equal to or even slightly lower than they paid. The loss is the "price" of laundering. This supports higher prices for real estate, but not arbitrarily high prices, because if the launderer pays too much, they will simply have to resell for less, leaving money on the table that they could have kept.
[+] [-] fartcannon|5 years ago|reply
[+] [-] secondcoming|5 years ago|reply
Quote:
3)An unexplained wealth order is an order requiring the respondent to provide a statement—
(a)setting out the nature and extent of the respondent’s interest in the property in respect of which the order is made,
(b)explaining how the respondent obtained the property (including, in particular, how any costs incurred in obtaining it were met),
(c)where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and
(d)setting out such other information in connection with the property as may be so specified.
https://www.legislation.gov.uk/ukpga/2017/22/part/1/chapter/...
[+] [-] 55555|5 years ago|reply
[+] [-] itsoktocry|5 years ago|reply
How many foreigners are able to obfuscate "true" ownership is also a huge question.
[+] [-] jgalt212|5 years ago|reply
When does that goal compete with the equally efficient method of just lighting the cash on fire?
The goal is also a place to store that laundered cash. When the time comes to take it out of storages, it's only worth 10 cents on the dollar, the whole the higher the price the better thesis falls apart.
[+] [-] specialist|5 years ago|reply
Such a weird rationalization.
Even very non-economist me "knows" that small changes in supply (<1%) leads to big changes in price. Either up or down. More so when factoring demand.
Some things add friction to efficient price discovery, like rent control and landlords servicing debts. But the first order factor is supply and demand.
Right?
[+] [-] dahdum|5 years ago|reply
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] hourislate|5 years ago|reply
Everyone put in a bid. The realtor representing the remote client gave an offer 200k over asking. Never saw the buyer. Drove by months later and still no one living there. Neighbor told me a young Chinese couple showed up a few weeks after purchase, got out and looked at the property for a minute and drove off, didn't even go in. Property was still empty 2 years later.
Extended family remember sells house in Toronto (Bloor West Village). House is at least 100 years old and in rough shape. Gets an offer for 1.4 million (about 150k over asking) as is from a 20 something year old Chinese University of Toronto Student. The student tells family member not to be alarmed if the name on the contract is different from hers. House was rented out a few months after sale.
I have dealt with many Chinese factories in a previous life. Many were State factories and everyone from the sales person to the accountant to the factory floor supervisor is on the take. They skim and over time accumulate some serious money. This money leaves the country in capital outflows into the real estate market in Canada. The thinking is I don't care if it makes any money as an investment, I just got to get it out of China so the CCP can't take it away. Banks are no good, so lets just put it in real estate. Who cares if we lose 200k on property, better than losing it all to the Chinese Gov.
Another interesting story, real estate agent representing me tells me this story. He's on the phone with an agent representing a Chinese client who wants to buy a Condo in a new development in downtown Toronto. Realtor says client will take one. My Realtor asks him what kind of unit? Chinese buyers tells him not a unit but the whole 8th floor.
The average price of a house in Toronto will be in the millions in the next decade. Anyone earning less than 200-300 k a year will not be able to afford one, unless they have a windfall inheritance. Now with a possible Hong Kong exodus, there is no limit to the insanity. Young Canadians in major cities are screwed. Renters for life.
[+] [-] robbyking|5 years ago|reply
Fast forward 15 years and an article pops in their local paper (I had long since moved away), and it turns out it was true!
From the Daily Press [1]:
> Lured by the prospect of massive transportation projects that could skyrocket land values, the Victor Valley has become a jewel for foreign and domestic investors looking to make a fortune in a practice called land banking. In land banking, investors buy raw land and hold onto it until the value goes up because of inflation or development.
For those who aren't familiar with the area, it's a remote and extremely low-income, low-education area of California. Anyone making investments in property there is looking for them to pay off a generation or two from now.
[1] https://www.vvdailypress.com/article/20121001/BUSINESS/31001...
[+] [-] medium_burrito|5 years ago|reply
Unfortunately at this point a large amount of the Canadian and Australian real estate markets (and thus national wealth) are driven by Chinese money, so there's little chance of this happening.
[+] [-] gamblor956|5 years ago|reply
It has an immediate effect in LA, where a number of buildings under construction were financed by Chinese investors. In one case, the developer itself couldn't get it's own money out, and now they have a giant unfinished hulk right across from Staples Center.
[+] [-] dcolkitt|5 years ago|reply
Sure a bunch of hot-money can easily bid up asset prices. But at the same time it should also drive down yields on those assets. Like you say, the vast majority of these houses aren't being lived in. Nor are the owners sensitive to returns. Why don't more of them put their dwellings up for rent, flooding the rental market and driving down prices?
[+] [-] mmerlin|5 years ago|reply
"Pending" legislation to prevent money laundering via real estate has gathered dust in Canberra for well over a decade!
Lawyers, accountants and real estate agents are still exempted from reporting anything suspicious (including briefcases full of cash), providing an easy avenue for foreign buyers to launder funds through property.
https://www.macrobusiness.com.au/2017/10/us-expert-slams-aus...
On the surface we are a western nation, but lift the covers and we are enabling money laundering into real estate, to the tune of billions and billions every year.
Real estate agents report unprecedented numbers of overseas’ buyers of residential and commercial property in Melbourne and Sydney paying cash…
An estimated 70 per cent of Chinese buyers pay in cash
[+] [-] apta|5 years ago|reply
[+] [-] gww|5 years ago|reply
[+] [-] MrBuddyCasino|5 years ago|reply
This isn’t a particularly clever insight, yet many still don’t seem to get it and draw the right conclusions.
[+] [-] 908B64B197|5 years ago|reply
Something I'm wondering: Why then are young Canadians overwhelmingly voting for a party that supports these sky high immigration quotas and lax policies around foreign ownership?
[+] [-] vmception|5 years ago|reply
[+] [-] hammock|5 years ago|reply
How exactly does this part work?
[+] [-] throw0101a|5 years ago|reply
> Snow washing refers to hiding illegitimate financial transactions often for purposes of tax evasion in Canada.[1] The term is an amalgam of the words snow meaning purity as well as the cold Canadian climate and washing referring to money laundering. It is easy under Canadian law to set up a company, even for a fee as low as $200 (Canadian), while shielding the identities of the firm's real owners from the eyes of tax authorities.[2] The global elite, as well as criminals and foreigners avoiding economic sanctions, can set up shell companies to "make suspect transactions seem legitimate" under the cover of Canada's reputation for fiscal integrity.[1]
* https://en.wikipedia.org/wiki/Snow_washing
[+] [-] sandworm101|5 years ago|reply
Fine point: The goal is not to make it indistinguishable from legitimate business. Rather it is to keep it distinguishable from illegitimate business long enough that police look elsewhere.
The money launderer isn't trying to hid as a legitimate profit-seeking business. The goal is to add so many layers that the burden of investigation dissuades prosecution. So they aren't going to setup false cash-based storefronts so as to mix the bad money with the good (ie the laundromat joke in Archer). Such concrete actions are too dangerous. What they will do is bounce money across as many jurisdictions as possible. There may be no legitimate reason for doing this but they aren't really trying to seem legitimate. They just want to look like a very difficult target so that the cops will go after easier prey. That burden increase is more effective and less dangerous than the lies required to hide.
[+] [-] huhtenberg|5 years ago|reply
Lovely city though, beautiful nature, excellent restaurants.
[+] [-] eisbaar|5 years ago|reply
[+] [-] crazygringo|5 years ago|reply
Yes, prices are set by the margin, so small changes in supply and demand can have outsized effects on prices.
But the article completely falls apart here:
> If you are money laundering... The objective is to move as much cash, as fast as possible. This often involves large assets, and the bigger the price – the better... Both the seller and the money laundering buyer want the highest acceptable price... Competition between interests align, and there’s minimal friction preventing prices from going higher.
This gets it completely opposite and wrong. It doesn't matter if you're laundering money or not -- you still want the best deal on an asset. You still want to sell eventually, and the lower your buying price, the more profit you'll make later. Everybody still wants to make a profit.
A launderer will always prefer to buy 2 properties at a market value of $1 million each, over buying one of those at an inflated $2 million. Always. The laws of supply and demand don't disappear just because you're laundering money.
The idea that "the objective is to move as much cash, as fast as possible" is totally made-up and totally ludicrous. The idea is to move the amount you have, in a reasonable timeframe, at the most profitable price.
The only reason money launderers can have an outsized effect on the real estate market is because they generate more demand. Period. But that demand is no different from legitimate buyers. Demand is demand. That's the entire story.
(Of course, if laws around LLC's and scrutiny around real estate deals were changed then that demand might dry up. But that doesn't have anything to do with the laws of economics.)
[+] [-] munificent|5 years ago|reply
The first-order obvious rational solution is to "learn to swim". If you're going to buy a house, figure out a way to also launder some money with the purchase. That way you're competing on a level playing field with other money launderers.
The second-order observation is that there is a business opportunity here. Shortly, I expect to see a Y-combinator funded startup developing an AI-driven mobile app that connects BC home buyers with criminals looking to launder their illicit gains. The market becomes more efficient and everyone wins.
[+] [-] dalbasal|5 years ago|reply
Economic theorising and/or "storytelling," as my econ professor termed it, can create plausible explanations. They're not strongly predictive though. In-context (say, a stock market) these theories can be somewhat dependable. "Predictive" is a strong term, but it's less wrong within highly similar contexts... that's how trading algorithms (non NN ones) work. They theorize within highly limited contexts.
In practice, these theories can be predictive enough to be successful trading strategies. In most cases, to be investably predictive a theory needs to be narrow. Certain asset classes, certain epochs, etc. Certain market conditions.
Even though they use similar concepts (supply, demand, price, and their marginal determinations), a theory about energy bonds cannot be applied to urban real estate. More academic theories go for generality. Broader theory, but not tradable predictive.
"Government and academics are still debating how much money is needed to distort a market. The truth is, not a whole lot is required to distort any asset market. This is a problem the stock market has been dealing with since the 1920s"
Sure. Not much is required, but that just makes it plausible. I'd wager some real estate markets are much harder to nudge than others. The highly sensitive marginal dynamics this article is theorising aren't a feature of all real estate markets at all times. They're almost certainly very linked to bubble/bull markets.
One rare example of broader theory being applied to actual trading is Soros. I think his concepts probably apply here. "Reflexivity," specifically.
[+] [-] neilparikh|5 years ago|reply
> a theory about energy bonds cannot be applied to urban real estate
That's why capitalist thinkers like Smith and Ricardo came up with separate theories for land. See https://en.wikipedia.org/wiki/Law_of_rent and https://en.wikipedia.org/wiki/Rack-rent
Now, it's another matter for people in the modern day to actually know about and use these theories, instead of the reductive "land = capital" model...
[+] [-] raverbashing|5 years ago|reply
I once remember seeing a video where people described the steps needed to buy a property in Canada, obtain a mortgage, etc
Some banks allowed college students to get a mortgage (wink), and depending on the country, there were different KYC/AML regulations that had to be followed. Notably, China was not in the list of countries with additional KYC requirements (double wink)
Interpret this as you want.
[+] [-] zackkatz|5 years ago|reply
[+] [-] germinalphrase|5 years ago|reply
[+] [-] swiley|5 years ago|reply
[+] [-] privateprofile|5 years ago|reply
Nowadays, football clubs appear to be a better option, as they allow easy laundering of billions instead of millions...
[1] https://www.bloomberg.com/graphics/property-prices/london/
[2] https://www.independent.co.uk/news/uk/home-news/london-prope...
[3] https://money.cnn.com/2015/07/28/news/london-real-estate-mon...
[4] https://www.theguardian.com/business/2019/may/20/uk-foreign-...
[5] https://www.newsweek.com/how-russians-launder-stolen-money-r...
[+] [-] aNoob7000|5 years ago|reply
[+] [-] ar7hur|5 years ago|reply
[+] [-] cool_dude85|5 years ago|reply
[+] [-] yalogin|5 years ago|reply
Doesn’t the buyer have to deposit the money in a bank for the title company to transfer it? Or May be in cash transactions they don’t care as long as the buyer is ok with it. So the money is transferred outside the cpu Rey or through shell accounts and the asset changes hands?
[+] [-] greesil|5 years ago|reply
https://www.lexology.com/library/detail.aspx?g=4242839e-373c....
https://pastebin.com/GTfxANd4
[+] [-] flowersjeff|5 years ago|reply
Perhaps though there is something here. If only there was a means of connecting these two groups, keeping in mind the additional parameters of those with the cash.
After all, nobody likes a haircut. I'm sure the 'big' boys are doing this - I'm really targeting the rich (not the RICH) supervisor that has enough to buy one to two properties. Might be after the fact - as others have pointed out, there are a number of additional controls in place.) Still...
[+] [-] golergka|5 years ago|reply
You, a law-abiding, legitimate buyer, have paid all your taxes and committed no crimes on that money. You can do with it whatever you want to, so for you, it's one to one, a dollar for a dollar.
For a money launderer, however, the money is a hot potato. There's still a probability that it left a trail going back, so, he's not so free to use it as he pleases. It's basically very similar to counterfeit money in that regard: it's value to it's holder (who knows about the risks) is much less than a "real" dollar for dirty money dollar.
[+] [-] x87678r|5 years ago|reply
[+] [-] asdff|5 years ago|reply
[+] [-] Spooky23|5 years ago|reply
[+] [-] sumedh|5 years ago|reply
[+] [-] Cancan82|5 years ago|reply
“All of a sudden, a money launderer shows up, and offers the owner 10% over ask for a “quick close.” You’re not too worried, your agent told you the place a few doors down is going to be on the market next week.
Unfortunately, the new place now uses the home owned by the money launder as a comp. Now the ask is 10% more than you were expecting, because the marginal buyer set the price down the street. Someone else bites, and buys it before it “goes too high.” Now the money launderer’s buy was just validated in the system.”
[+] [-] olalonde|5 years ago|reply
[+] [-] dirtyid|5 years ago|reply
>money launderers
I wonder if evading Chinese capital control is technically money laundering if such capital controls does not exist in Canada. That's like punishing Chinese dissidents for speech in Canada because said speech is illegal in China. Rich people get to escape repressive governments too amirite?