Anonymous buyers and foreign investors for years have been using the Miami-Dade Condo Market as an investment opportunity for offshore money. But now, tow investigations have put those shadow buyers under the microscope.
Earlier this year, the U.S. Treasure Department announced that it has begun to track illicit cash purchases of luxury condo, both in New York and in Miami, Broward and Palm Beach counties. The Treasury Department’s goal was launching an anti-money laundering program aimed to uncover the true owners of these shell and limited liability companies that were formed to shield the mostly all-cash purchases in New York and Miami.
Hiding in LLCs
“It’s primarily a question with newer construction condominiums, where there may be a significant percentage of non-ownership occupants,” said Landis. “There are people buying the units for investment purposes – which would be a very legitimate reason for someone to be in an LLC, for instance – and they turn around and rent it out. So, if you’re going to a condominium, you’re already making the decision that it’s not a co-op, and you’re not going to have a board that’s voting on and vetting your neighbors in the same way.”
Whereas co-ops are more selective, condos have a lot less red tape around who can buy and occupy them.
Much of the tolerance is due to the relative absence of the owners – if the ultra-rich demographic that buys these units only lives in them for two weeks out of the year, then year-round residents will enjoy nearly zero disturbance from their neighbors.
Bottom line: an empty apartment means no drama. “As your attorney, there’s nothing better than someone buying a building and no one living there, because they’re not going to cause any problems,” said Bailey.
Landis says the regulations are not likely to radically affect the high-end condo market, but may help further slow the demand for luxury condo units, which began before the Treasury’s announcement.
For now, the Treasury chose to focus on two very select markets in New York and Miami that happen to also be the flashiest. The logical conclusion, said Landis, is to expand the tracking of cash purchases to more markets. For instance, the suburbs. “Why not cover houses in Westchester County or Fairfield County in Connecticut or Bergen County in New Jersey? There’s no difference for using it in other places.”
That in fact has occurred, as Treasury has expanded their investigation to include properties in Texas and California, specifically in Los Angeles, San Diego County and counties in and around San Francisco, according to the Times.
But if foreign buyers are looking to bypass some inconvenient restrictions in the first place, the federal order could simply add a new step to the process rather than end it altogether. “Where somebody might have used an LLC to buy a condo, if they want to make sure that their name is not overtly available, they’ll now set up two LLCs. The first LLC will represent the second LLC, and the second LLC will be the condo,” said Landis.
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