The biggest high-end housing risk may be money laundering (tol, nvr) _ investopedia india money laundering

The biggest high-end housing risk may be money laundering (tol, nvr) _ investopedia india money laundering

An ongoing federal investigation into the high-end U.S. Housing market has yielded some rather shocking results. According to a report recently released by the treasury department, more than 25% of buyers using limited liability companies (llcs) who purchased high-end homes in manhattan (over $3 million) and miami (over $1 million) were linked to a “suspicious activity report,” an “indication of possible criminal activity.”

That’s no small potatoes.

The U.S. Government has long suspected that anonymous shell companies are being used to purchase multi-million dollar homes, an as-of-yet undetermined portion of which were merely fronts for money laundering or criminal activity. Now we have actual proof.

This investigation is being expanded to include additional affluent localities throughout the U.S., including san francisco, counties north of miami and los angeles county among others. The outcome of this investigation could have major widespread ramifications for investors.India money laundering

once the government finds out just how endemic this problem is, the resulting crackdown could be sharp.

In a nutshell, the next 12 to 24 months could be rocky for bullish housing investors, especially for those long high-end homebuilders. Here’s why.

According to the national association of realtors (NAR), international buyers purchased $103 billion in U.S. Real estate last year, accounting for 7% of the total value of homes sold. Of these foreign buyers, 50% of purchases were paid in all cash. Furthermore, an investigation conducted by the new york times found that nearly half of homes nationwide worth $5 million or more were purchased using shell companies. In manhattan and los angeles that figure is even higher.

Who cares? Well, homebuilders do. Particularly homebuilders selling high-end homes in major U.S. Metropolitan areas. The average home price paid by international buyers is $477,500 versus $266,700 for domestic purchasers.India money laundering that means foreign buyers paid 56% more than domestic buyers.

To make matters worse, most of this foreign investment was heavily concentrated in major metropolitan areas. In 2016, the top five state recipients of foreign investment were:

Florida (22%)

California (15%)

Texas (10%)

Arizona (4%)

New york (4%)

These states accounted for 55%, or $57 billion of international investment in U.S. Residential homes. In other words, a pullback in international buyer home purchases would most heavily impact cities like dallas, houston, los angeles, orlando, miami, new york, phoenix, san antonio and san francisco.

(note: within the weighting of the case shiller 20- city index, localities such as new york city (22%), los angeles (15%), san francisco (7%), chicago (6%) and dallas (4%) make up more than 50% of the index. Increased scrutiny would obviously negatively impact home prices in these areas and nationwide.)

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There’s reason to believe a pullback is already happening. Segmenting home prices nationwide into thirds, high-end price growth is the weakest among the three tiers. Year-over-year price growth for the high-end is up just 5% and steadily declining, versus 7% and 10% for the mid-tier and low-tier categories respectively. Meanwhile, high-end housing supply is also rising.

Furthermore, foreign homebuyers have seen the cost of purchasing a home in the U.S. Rise significantly in the past year. Venezuelans, for instance, have seen home prices go up 45%, taking into account currency appreciation in the last 12 months. For brazilian and chinese buyers, that number is up 24% and 10% respectively.

Clearly, the result of the treasury department’s investigation has proven its hypothesis that there is criminal activity being masked by multi-million dollar home purchases.India money laundering within a year or two, it’s not that difficult to imagine a national program scrutinizing all transactions above a certain monetary threshold. The coming federal crackdown could add yet another wrinkle for foreign buyers of high-end real estate in a housing environment which is already showing signs of exhaustion.

All of this spells trouble for high-end homebuilders like toll brothers ( TOL) and NVR ( NVR). Shares of these companies could get hit like a ton of bricks. Investors need to be ever mindful of this development and their exposure to the housing market, particularly homebuilders at the high-end.