How the new US Treasury Bill Could Affect Luxury Markets

How the new US Treasury Bill Could Affect Luxury Markets

The US Treasury is campaigning to tighten up regulations on cash real estate transfers once again in an effort to mitigate money laundering from overseas. But will it work?

In the video below, see the synopsis of the proposed new rules, requiring real estate brokers to report more information on their cash transactions for both residential and commercial transactions over a certain dollar amount.

Many of you might recall the tightened guidelines back in 2016 that targeted shell companies purchasing real estate of over $1M in Miami and New York, hoping to discover the identities of the end buyers, but a workaround was quickly discovered. If an investor or buyer simply takes out a small loan on the asset, they were relieved of the burden from Uncle Sam. Alternatively, the buyer could purchase in the name of a person and then transfer the asset to an LLC after closing.

Since 2016 and the new regulations, all-cash transfers remain incredibly popular in the luxury and commercial real estate markets. In luxury areas of California, cash purchases still account for over 60% of luxury transactions. Despite the claims that over $2.3 billion has been laundered in the United States over the last 5 years, only 1/3 of the transactions were actually investigated and only 50 prosecutions came down from those investigations, so the amount of perceived laundering is either grossly inflated by the news media or the government would have prosecuted more white collar criminals. You would think that with that amount of legislation, the outcome would have been more fruitful. But here we are… and I digress.

The new regulations would require EVERY cash real estate transaction to be scrutinized. This amounts to over $400 billion per year and would affect both the commercial and residential sectors, mostly in Los Angeles, New York and Miami.

How do you think that everything will pan out? Will this affect the all-cash purchases that we have been seeing? Will prices drop? Will savvy investors find another workaround? Let us know in the comments section.

Our bet is on the latter.

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