The truth is that for all of the tough talk from Li Xinping about stopping the massive outflows of capital from China, some of it probably dark money obtained from dubious enterprises and kickbacks, nothing has changed in China or in the Western cities eager to share in the wealth. Rich, Young “Fuerdai” Chinese Are Buying Overseas Properties on Their Smartphones. Millennials acquire real estate in other countries as hedge against a weakening currency, homes for their own children when they study abroad
The truth is that for all of the tough talk from Li Xinping about stopping the massive outflows of capital from China, some of it probably dark money obtained from dubious enterprises and kickbacks, nothing has changed in China or in the Western cities eager to share in the wealth.
Rich, Young “Fuerdai” Chinese Are Buying Overseas Properties on Their Smartphones
Millennials acquire real estate in other countries as hedge against a weakening currency, homes for their own children when they study abroad
An increasingly larger group of Chinese millennials are looking to buy property abroad. Above, a potential buyer inspects a house for sale in Australia.
Reblogged from The Wall Street Journal, Real Estate
By Dominique Fong
Updated May 9, 2017 10:59 p.m. ET
BEIJING— Zheng Xiaohei, a marketer from Urumqi in western China, made his first overseas property investment without so much as a visit.
Mr. Zheng, 29 years old, in March purchased a studio apartment in Thailand for about 650,000 yuan ($94,255) using his smartphone and an app called Uoolu that connects users to overseas property listings.
“Investing in overseas real estate was mainly due to my good impression of Thailand,” Mr. Zheng said.
Founded two years ago, Beijing-based Uoolu is focused on tapping a specific group of home buyers: Chinese millennials looking for foreign properties.
About 70% of Chinese millennials, those born between 1981 and 1998, own a home, the highest share of respondents from nine countries and regions who were surveyed in a recent HSBC study. Chinese parents often register home purchases under their child’s name to prepare the child for marriage and raising a family, which likely boosts the percentage.
Still, a growing sliver of Chinese millennials are looking to buy property abroad. Kevin Lee, chief operating officer of Beijing-based consulting firm Youthology, put the percentage in the low single digits but said it would continue to increase.
Uoolu said about 80% of its monthly active users are between the ages of 20 and 39, and that 20,000 customers have bought or are in the process of purchasing overseas property. A similar real-estate platform, Juwai.com, estimates that roughly 30% to 40% of its buyers are millennials.
Cherubic Ventures, a venture-capital firm with offices in Beijing and San Francisco, invested an undisclosed sum in Uoolu. One selling point, said the firm’s founder, Matt Cheng, was Uoolu’s target of reaching young Chinese buyers who are tech savvy and interested in cross-border investments, “but don’t know where to begin.”
Overseas investing isn’t easy at a time when the Chinese government is clamping down on capital flight amid concerns about a weakening currency. Chinese citizens aren’t allowed to transfer more than $50,000 a year out of the country or use those funds to buy overseas property.
However, this increased government scrutiny is “slowing but not cutting off” the surge of investment in U.S. property, said Arthur Margon, partner at Rosen Consulting Group.
“The more the government limits people, the more they want to invest overseas,” said Wang Hao, Uoolu’s 33-year-old chief operating officer.
People often skirt the foreign-exchange rules by, for example, pooling money among family members and friends and separately sending it into overseas bank accounts. Also, Chinese citizens who have studied or worked abroad for a few years might already have bank accounts in other countries and those overseas funds are beyond the Chinese government’s control.
Alan Wang, a 19-year-old college student in Toronto who comes from Shenzhen, said he opened a bank account in Canada for education expenses. Now it is useful for buying property, too. He and his family are thinking about purchasing a home on a budget of about 1 million Canadian dollars (US$730,600) this summer. To do so, he will have relatives send money to his bank account, he said.
Uoolu helps buyers open bank accounts in other countries and apply for mortgages there. Users pay a deposit to reserve the right to purchase a home. The money is sent directly from a buyer’s bank account to the overseas developer—Uoolu says it doesn’t handle the cross-border transaction within the mobile app.
Chris Daish, a real-estate agent at Triplemint in New York, said one of his Chinese clients, an accountant in her mid-20s who works in New York, earlier this year pooled $110,000 from five family members to help buy her a condo in the city.
“It’s a really arduous task even to get a couple hundred grand out,” said Mr. Daish, who emphasized that he doesn’t help clients with money transfers.
A 28-year-old who works in finance in Beijing in February bought two apartments in Bangkok for a total of 5 million yuan ($725,000), one for a vacation home and the other for rental income. She declined to disclose her name out of fear of government retaliation for violating capital controls.
As for some of her friends, she said, “They wish to buy but dare not.”
Despite all of the revelations of the sources and methods of the Vancouver housing bubble over the last two years, the situation remains largely unresolved. Ditto in Toronto. The foreign buyers’ tax has had only a limited effect and has problems. Fueled by dark foreign money housed in anonymous offshore shell companies like those disclosed in the Panama Papers, the money is managed by local financial manipulators at the behest of unidentifiable persons overseas. The foreign buyers continue to enjoy the weakest enforcement jurisdiction in Canada
Despite all of the revelations of the sources and methods of the Vancouver housing bubble over the last two years, the situation remains largely unresolved. Ditto in Toronto. The foreign buyers’ tax has had only a limited effect and has problems. Fueled by dark foreign money housed in anonymous offshore shell companies like those disclosed in the Panama Papers, the money is managed by local financial manipulators at the behest of unidentifiable persons overseas. The foreign buyers continue to enjoy the weakest enforcement jurisdiction in Canada
‘Corrupt Elite’ Still Laundering Money In Canadian Housing: Transparency International Report
British Columbia’s gleaming gem, Vancouver, is found to still be the worst case example
Reblogged: The Huffington Post Canada | By Daniel Tencer
Posted: 03/31/2017 12:16 pm EDT Updated: 5 hours ago
Loopholes in Canadian law are allowing a “corrupt elite” to use the housing market for money-laundering, says a new report from Transparency International (TI).
The report found 10 problem areas with the laws related to real estate transactions in Canada, Australia, the U.K. and the U.S. — four countries it identifies as being hot-spots for real estate-related money laundering.
“Canada’s legal framework has severe deficiencies under four of the 10 identified areas,” TI stated in the report. “In the other six, there are either significant loopholes that increase risks of money laundering through the real estate sector or severe problems in implementation and enforcement of the law.”
This Grey’s Point “tear down” property shown here, recently sold for over $9 Million, more than $1 Million over the asking price of $7.8 Million. There were 11 offers, all cash, and no offer included any contingencies.
One glaring problem is a lack of rules requiring that the actual owner (or “beneficial owner”) of a property be identified. In Canada “there are no requirements for any person involved in real estate closings to identify the beneficial owner,” the TI report stated.
The report found that 29 of the homes were owned by shell companies, either Canadian or offshore.
“Offshore companies pose a serious risk … because they are able to purchase property without needing to disclose any information relating to who ultimately owns and controls them to any government authority,” TI said in the report published Wednesday.
The report noted that money-laundering through real estate is growing increasingly popular.
“Large amounts of money can be legitimized at once, maintaining or increasing its value. Investments in real estate are seen as an alternative for those who fear having offshore accounts frozen.”
This chart from Transparency International shows what is known, and not known, about the ownership of Vancouver’s 100 most expensive homes.
Because of over-reliance on banks to spot money-laundering activities, and because banks aren’t involved in cash purchases of homes, money-laundering is going unnoticed, the report said.
And like in the other countries studied, in Canada “there are no data on prosecutions against real estate agents or other professionals for facilitating money laundering.”
Canada has “the best model” for enforcement of money-laundering laws among the four countries studied, the report said, but Canada’s financial intelligence agency, FINTRAC, investigates relatively few real estate transactions.
The report lays out a series of recommendations for governments, including requiring all professionals involved in a real estate transaction to disclose the actual buyer. This should also be required of companies that are buying real estate, the report said.
It also suggested that professionals involved in real estate transactions, such as lawyers and realtors, be registered with a country’s anti-money laundering authorities before they are allowed to practice.
“Governments must close the loopholes that allow corrupt politicians, civil servants and business executives to be able to hide stolen wealth through the purchase of expensive houses in London, New York, Sydney and Vancouver,” TI chair José Ugaz said in a statement.
“The failure to deliver on their anti-corruption commitments feeds poverty and inequality while the corrupt enjoy lives of luxury.”
This is pathetic. It is closing the barn door after the cows have fled. It is a wild west industry. The most bemusing example was the Asian agent in Vancouver who threatened retaliation from Tongs for interfering with her. If Li Jinping can’t control his own “fuerdai” then it must be done here.
This is pathetic. It is closing the barn door after the cows have fled. It is a wild west industry. The most bemusing example was the Asian agent in Vancouver who threatened retaliation from Tongs for interfering with her. If Li Jinping can’t control his own “fuerdai” then it must be done here.
B.C. Regulation is a day late and a dollar short. The U.S. did it more than a year ago.
“The real estate sector has had 10 years to get it right and they haven’t.” (quote Christy Clark)
So where has she been on this issue since elected? As recently as this month, Clark traveled to China on a trade mission that included BC real estate agents.
By Jason Proctor, Karin Larsen, CBC NewsPosted: Jun 29, 2016 12:25 PM PT Last Updated: Jun 29, 2016 1:31 PM PT
B.C. Premier Christy Clark promised to crack down on the real estate practice of ‘shadow flipping,’ at a Friday morning announcement in Vancouver’s Stanley Park.
B.C. Premier Christy Clark says the government is ending self-regulation for the B.C. real estate industry.
“The real estate sector has had 10 years to get it right on self-regulation and they haven’t,” said Clark at a Vancouver new conference.
Clark said the right to regulate the industry will be taken away from the Real Estate Council of B.C.and put into the hands of a newly established and dedicated superintendent of real estate.
“The point of regulation is to protect people, to protect consumers,” she said. “Self-regulation is a privilege.”
The announcement comes a day after a special advisory group issued a damning report on a decade of self-regulation, which recommended several measures, including raising maximum fines for misconduct from $10,000 to $250,000 for agents.
The panel made 28 recommendations aimed at recognizing the public interest, but they were not asked to consider independent regulation.
In announcing the move towards an independent regulator, Clark said the plan was part of a series of steps her government will be making towards addressing what has been viewed as a crisis of both affordability and speculation in the real estate market.
She said the hiring process for a new superintendent of real estate has already begun. The position of Real Estate Superintendent currently exists, but is one of several titles held by the head of the Financial Institutions Commission of B.C.
“It is primarily important that we protect consumers,” she said. “But the role of the real estate council and regulation is also to protect the vast majority of realtors who are honest, hard working people from having their reputations tarnished by a few shady operators.”
Allegations of questionable practices in the industry have been growing in B.C.’s hot market, including those of real estate agents “double-ending” deals in which an agent represents both buyer and seller and reselling or ‘”shadow flipping” contract assignments without the homeowner’s knowledge
Speaking shortly before Clark’s announcement, Finance Minister Michael de Jong said the public was right to ask why the industry should still have the right to self-regulate.
The issues of housing supply and real estate regulation promise to be crucial ones with an election looming in B.C. next year.
Clark said the government plans to introduce a number of measures to address both concerns in the coming months, focusing on increasing housing supply, helping first-time home buyers get into the market and “making sure that the dream of home ownership in British Columbia remains in the realm of possibility for the middle class.”
The release of the Panama Papers is of such potential significance and magnitude that it is difficult to know where to begin. I have decided that I will begin with the most interesting and relevant topic for me, the Canadian angle: possible links from Mossack Fonseca’s tax haven shell companies to the Vancouver BC real estate market, the current Canada Revenue Agency investigation of KPMG’s Canadian offshore tax haven scheme, and potential conflicts of interest within CRA. The KPMG and CRA issues have been extensively investigated and reported by CBC News, and also discussed on this site.
UPDATE May 5, 2106: National Public Radio’s Takeaway news analysis program, today interviewed James Henry, senior adviser at the Tax Justice Network and a senior fellow at the Columbia Center for Sustainable Investment. James’ interview specifically discusses the foreign dark money driving the Vancouver housing market, providing further confirmation of my points in this post. Audio of the interview begins at 19:45 in the podcast below.
Kleptocrats
The release of the Panama Papers is of such potential significance and magnitude that it is difficult to know where to begin. I have decided that I will begin with the most interesting and relevant topic for me, the Canadian angle: possible links from Mossack Fonseca‘s tax haven shell companies to the Vancouver BC real estate market, the current Canada Revenue Agency investigation of KPMG‘s Canadian offshore tax haven scheme, and potential conflicts of interest within CRA. The KPMG and CRA issues have been extensively investigated and reported by CBC News, and also discussed on this site.
London, Miami, New York City, San Francisco and Vancouver: Similar Market Dynamics
With regard to the Vancouver housing bubble and links to shell companies in offshore tax havens, the probability of such links has already been suggested by other overheated real estate markets, notably in Miami, New York City and San Francisco. The high-end Manhattan real estate market has been overheated by a dramatic influx of foreign shell companies, as first reported by The New York Times in February 2015. The U.S. Treasury announced later in 2015 that it would begin identifying and tracking secret shell company buyers of New York and Florida real estate, which would likely expand to include the San Francisco market.
National Public Radio in the United States, recently interviewed the vice president of Transparency International, on the subject of shadow money in real estate markets. The guest talked about how the offshore deals impact ordinary people – and the first thing discussed was housing in cities like New York and San Francisco. The shadowy banking system allows people with illegal money – money from arms trading, money from drug sales, money stolen from the people of a struggling country – to launder it and use it, among other things, to buy real estate.
So the bidding wars that are driving up the cost of housing in cities, and the mega-priced condos that are shoving out other types of housing in places with scarce real estate, are directly linked to this dark money.
“Money from people linked to wrongdoing abroad is helping to power the gleaming condo towers rising on South Florida’s waterfront and pushing home prices far beyond what most locals can afford.”
The Vancouver Real Estate Connection
Anyone familiar with the Vancouver real estate market would be naive to assume that the same dynamics at work in the United States are not at work in Vancouver.
This Grey’s Point “tear down” property shown here, recently sold for over $9 Million, more than $1 Million over the asking price of $7.8 Million. There were 11 offers, all cash, and no offer included any contingencies.
While the U.S. Treasury and the New York Housing Authority took action nearly a year ago to stem the offshore secret shell company real estate activity, Canadian authorities have been much slower to act. B.C. Premier Christy Clark has been sharply criticized for her failure to act, which may be linked to political payments to Clark related to the B.C. real estate industry.
The Dark Foreign Money Connections
It is, therefore, now no secret that foreigners, keen to avoid publicity, are behind many of these real estate transactions. The New York Times noted that the Manhattan market has been significantly influenced by money from Russian oligarchs, one of whom was denied entry to Canada for suspected organized crime connections. The Miami market, not surprisingly, is seen to be influenced by drug cartel money and corrupt Latin American Billionaires.
The San Francisco Bay Area, while also influenced by Silicon Valley money, has seen its own influx of dark money in the real estate market. At first, the money was aimed at Silicon Valley and suspected to be focused on industrial espionage. The People’s Liberation Army has massive financial resources of its own from its ownership of a mobile phone network, and international weapons trading by PLA companies like Norinco. It is suspected of involvement in Silicon Valley espionage, and the establishment of “front” companies. In one particular case, a California high-tech startup without any apparent external funding was led by the son of a prominent PLA General. Think of the PLA as its own venture capital firm. Today, the emphasis seems to have shifted to cyber espionage, and the dark money has grown exponentially, evolving into real estate as elsewhere.
Vancouver and China
Vancouver’s connection to Asia is perhaps now greater than that of the San Francisco Bay Area, which was formerly seen as the West Coast’s top Asian cultural metropolis. The Vancouver connection goes back generations, as with San Francisco. Vancouver’s importance has been enhanced recently by two major events: the 1997 return of Hong Kong to China, and the dramatic rise of Chinese capitalism, wherein lie the seeds of Vancouver’s real estate dilemma. As Deng Zhao Ping said many years ago, “To get rich is glorious.”
The Panama Papers have exposed the names of numerous members of Chinese Premier Li Xinping’s family with Mossack Fonseca secret offshore accounts. This is only the outermost layer of the onion. Recent investigative reports in The New Yorker (February 22, 2016) “The Golden Generation,” and in The New York Times (April 12, 2016), have identified a significant local Vancouver population of billionaire Chinese “fuerdai,” or “second generation of the rich,” many are the children of officials from the outlying provinces in China, not the Beijing or Shanghai elite. The numbers support the notion that the influence of dark Chinese money on the Vancouver economy is much larger than previously understood. We have also seen how real estate firms and others have been only too eager to serve this money, and to engage in their own “shadow flipping” schemes to drive up real estate prices even further.
Anyone who has seen the Lamborghini dealership near Granville Island may ask themselves rhetorically how many cities in the World can support a Lamborghini dealership. When combined with the publicly disclosed $1 Trillion (U.S. dollars) that fled China in 2015 alone, and the artificially low value of the renminbi, you have a frenzy to buy hard assets offshore and the makings of a real estate nightmare in Vancouver. Li Xinping has personally expressed his displeasure with both the capital flight and the “fuerdai” living abroad, but despite his extraordinary personal power as the “new Mao”, he seems powerless to stop the trend, even the offshore secret accounts among his own family. Since the release of the Panama Papers revelations about Li Xinping’s family, Chinese Internet censors have blocked all access to this information at the “Great Firewall.”
The Offshore Tax Haven Market and the Canadian Connection
The other important aspect of the Canadian connection to the Panama Papers and Mossack Fonseca is the huge market opportunity to offer offshore tax havens. This opportunity has grown ever larger as the 1% has solidified its control of global wealth. Even assuming that there is no direct connection between Canadian firms and Mossack Fonseca, there is likely immense market pressure to compete or lose wealthy clients. On the other hand, a direct connection is not impossible, though not yet proven. We are about to learn of substantial links from global banks like HSBC, UBS, Credit Suisse and others to Mossack Fonseca. By way of example, Vladimir Putin and his Russian oligarch friends did not directly set up their secret offshore tax havens. They hired their financial institutions and friends to do it for them, secretly. What is clear is that at least one Canadian accounting firm, KPMG, has in fact set up its own offshore tax haven on the Isle of Man, which is now being formally investigated by the Canada Revenue Agency. In a separate but related matter, four KPMG senior partners were arrested in the UK, for their part in another tax evasion scheme.
History Of Offshore Tax Havens
The offshore tax haven market has been around for decades in other forms, and as some like to point out, is not always illegal or designed for dark criminal money. That said, it is undeniable that secret tax evasion schemes have an obvious appeal to those with dark money. Long before the Panama Papers revelations, there were the Swiss banks, which became famous for such secret accounts. The Swiss system was not immune from illegal and unsavory clients and their money, but the Swiss banks were immune from any exposure thanks to their policy of absolute secrecy for their clients. However, eventually, the Swiss banks were prosecuted by the U.S. government and the European Union, wealthy clients were exposed and prosecuted for tax evasion and worse. UBS was the most prominent Swiss bank to be prosecuted and paid a $1.5 Billion fine for its sophisticated tax evasion scheme for corporations and individuals. At the time, former U.S. Senator Phil Gramm, and former Chairman of the Senate Banking Committee was Vice-Chairman of UBS. The global links to tax evasion fraud became apparent, and Swiss banking secrecy became a thing of the past.
At the same time, as the sheer amount of plutocrat, drug cartel, and political oligarch money skyrocketed, the need for such tax evasion schemes also skyrocketed. For corporations, obliging countries like Ireland, for example, established highly favorable tax laws to attract corporations to base their operations there. Google, Facebook, and LinkedIn have operations there explicitly designed to evade taxation, and as the corporate location for much of their intellectual property, also to avoid taxes. Elaborate tax evasion schemes with colorful names like the “Dutch Sandwich,” or the “Double Irish” became popular with accounting firms. In the case of Ireland, the culmination was the announcement that Pfizer would acquire Allergan, an Irish pharmaceutical company, and transfer its corporate headquarters from New Jersey to Ireland, in a tax evasion scheme known as “corporate tax inversion.” The public outrage was so vociferous that this week the Obama Administration announced strict regulation against “tax inversions,” which led Pfizer to abandon its plan. In the case of Canada, we have had Burger King acquiring Tim Horton’s and relocating to Canada for the same reason.
In the case of wealthy individual tax evasion schemes, this is where UBS and Mossack Fonseca come into play as the global market opportunity for tax evasion grew exponentially. In Canada, the first hint of that something might be wrong, driven by the global market for tax evasion schemes, has been CBC News ongoing investigation into KPMG, its Isle of Man tax haven scheme, and the formal Canada Revenue Agency investigation and probable criminal charges against KPMG. This story has been extensively reported in a number of CBC News investigative stories and reported here on this blog.
In the last two weeks, we have seen new developments in the Canadian offshore tax haven melodrama that include CBC News revelation of a secret CRA amnesty offer to wealthy KPMG clients, conflicts of interest with CRA officials and accounting firms, and further delays in the CRA’s prosecution of the case against KPMG. It is worth noting that KPMG’s key defense argument is their right to client confidentiality, as with the Swiss banks. The argument failed in Switzerland and is likely to fail in Canada. The CRA case also languished under the Harper government, as both Joe Oliver and Stephen Harper engaged in activities with KPMG that have been seen as inappropriate and potential conflicts of interest. In a rather strange development this week, the CRA requested a copy of the Panama Papers from CBC News, which was refused. The CRA request seems to me more like a classic case of “a day late, and a dollar short.”
My summary assessment is that the Panama Papers Canadian Connection will not go away, and there are likely to be more revelations.
mayo615 