The decision by the U.S. government to start examining all-cash buyers has added another problem to luxury-home developers and brokers in Miami and Manhattan who are already challenged with sinking prices and slackening demand. According to Tulsa World, Treasury Department's Financial Crimes Enforcement Network announced Wednesday that it will identify individuals behind limited-liability firms that buy high-end residential real estate with cash in Manhattan and Miami-Dade County.
As part of the process, beginning March, title underwriters will be urged to identify the true "beneficial owner" behind every cash transaction, according to a statement released by FinCen. FinCen believes that these anonymous deals, typically participated by wealthy investors who don't want public attention, may also be used by shady investors who are involved in money laundering.
Speaking about the new disclosure, Jonathan Miller, president of New York-based appraiser Miller Samuel Inc., said, "Part of the large swath of people who purchase under LLCs do it for privacy - celebrities, the wealthy, and are not doing something illegal."
He continued, "I'm not downplaying that there aren't people who are using ill-gotten gains to purchase apartments, but it stereotypes the whole segment and it seems to be some kind of overreach by the federal government. In a cooling market, it certainly isn't helpful."
This is bad news for brokers in Miami and Manhattan in a sense that the new disclosure rules can likely discourage even the legitimate purchases and further weaken interest in the two high-end markets. Demand for Manhattan's priciest homes is dwindling as apartments from a luxurious construction boom for rich investors pile are at risk of oversupply. Resale values for the prime 20 percent of the market that reached its peak in February 2015 and have decreased month-to-month since then, according to an analysis by StreetEasy.
On the other hand, about 36,000 new units are in development in Miami-Dade County, according to South Florida development tracker CraneSpotters.com, but the stronger dollar is discouraging Latin American investors.
The new U.S. government measure could worsen sales and further make these big real estate markets less attractive investors.
