Miami real estate is melting down

The Miami real estate slowdown is becoming a meltdown — with the most expensive areas getting hit hardest.

The number of sales and prices in posh Miami Beach — home to many of the city's most expensive and highest-profile properties — fell during the first quarter, according to a new report. Meanwhile, inventory soared by roughly a third compared with the prior-year quarter.

The report, released Thursday by Douglas Elliman and Miller Samuel Real Estate Appraisers & Consultants, found the average sale price in Miami Beach and the nearby Barrier Islands fell 7.5 percent year over year to $905,252. The median sale price fell 6.6 percent year over year to $408,750.

The total number of sales in the area also fell during the period, dropping 21.1 percent to 810 properties. Inventory surged nearly 33 percent, and there is now a 21.5-month supply of properties. That pileup means homes are taking longer to sell, with the number of days on market nearly doubling from 53 to 97 days year over year.

Real estate experts said the combination of weaker demand from overseas buyers and a vast crop of luxury condo towers under construction is driving down prices and sales, especially at the top end of the market. Prices for the top 10 percent of condos fell by 14.5 percent, to an average sale price of $3.13 million. Meanwhile, inventory for those properties skyrocketed 58 percent, contributing to a roughly 3½-year supply. 

"The high end is softer than the broader market right now," said Jonathan Miller, president and CEO of Miller Samuel. "We are coming off this unusually strong period for the high end between 2011 and 2014 and now we're seeing normalization of that segment."

Indeed, the broader Miami market fared slightly better. The average sale price in the city's coastal mainland market was up 2.7 percent compared with last year, at $404,020, and the median sale price increased 7.4 percent, to $260,000. Still, the number of sales declined 17.5 percent year over year, to 3,583, and inventory was up 15 percent. The supply of homes jumped to 10.6 months, from 7.6 months last year.

Condos in the hyper-exclusive community of Bal Harbour saw the average sale price fall 38 percent over the year, to $1.02 million. The number of sales there dropped 32 percent, to 30.

Miami's loss, however, may be a gain for communities farther up the coast, as retirees and families increasingly find better value and a quieter lifestyle in Boca Raton, Fort Lauderdale and Palm Beach. Those markets also tend to be less dependent on foreign buyers, Miller said.

The average sale price in Boca Raton jumped 12 percent, to $304,196, while the number of sales increased 21 percent over the prior-year period, to 607.

"Of all the major markets right now in [southern Florida], Boca is the leader," Miller said. "I think it's an area that's less correlated to the foreign buyers and in Boca, the high end of the market is performing as well right now as the broader market."

Source: http://www.cnbc.com/2016/04/14/miami-real-estate-is-melting-down.html

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Fintrac pushes real estate industry to help regulator fight money laundering

The federal agency tasked with curbing money laundering has been stepping up its efforts to educate real estate agents about their obligations to monitor and report suspicious transactions, documents show.

The anti-money laundering watchdog put together a work book and a webinar for real estate agents, and last summer gave a presentation to the Canadian Real Estate Association, according to emails obtained by The Canadian Press through an access-to-information request.

'Shadow flipping' not limited to Vancouver housing

Despite the federal agency's educational efforts, there appears to be some uncertainty on the real estate association's part about some of the regulations.

Private email exchanges show CREA officials peppering the Financial Transactions and Reports Analysis Centre, known as Fintrac, with questions about how the rules should be interpreted.

New rules

Under federal law, real estate agents are required to identify their clients, verify where their money is coming from and report suspicious or large cash transactions to Fintrac.

However, a representative of the Canadian Real Estate Association whose name was redacted notes in an email to Fintrac that compliance in the real estate sector is low.

Meanwhile, the Department of Finance has identified the real estate industry as highly vulnerable to money laundering and terrorist financing given its "very significant" size and the fact that it often involves large sums of money changing hands.

Real estate 'chaos' has millenials scrambling to buy before they're priced out

5 reasons why Toronto house prices won't crash in 2016

Those looking to hide their identities and the source of their funds can do so by conducting transactions through third parties and using complex corporate structures, the department said in an assessment published last year.

Fintrac has dedicated "significant time and effort" to working with the Canadian Real Estate Association, the agency said in an email, including reviewing the association's online training, providing feedback on the group's anti-money laundering manual and helping interpret policies.

"What we have found more generally in the real estate sector are issues with compliance regimes, policies and procedures, training, as well as record-keeping and reporting," Fintrac spokeswoman Renee Bercier said in an email.

"The level of compliance knowledge and resources varies across the sector and is often a function of an entity's size, capacity and access to resources."

Red flags

Randall McCauley, vice-president of government and public relations for the Canadian Real Estate Association, admits that compliance is a challenge within the industry.

One of the reasons is because some of the rules are out of synch with how the industry operates, McCauley says.

For example, under the regulations, an individual who conducts two transactions within several years is considered higher risk and should be subject to additional monitoring, McCauley says.

However, McCauley notes that it's very common for a family to sell a home and then purchase a new one within a very short time frame.

Private label ATMs vulnerable to money laundering
"I think there's room for Fintrac to work with us to understand the nature of the business," McCauley says.

McCauley says CREA has been investing significantly in trying to bring realtors up to speed with federal rules, including sending two representatives on a cross-country tour to deliver presentations to its members.

He says that despite its recent efforts, Fintrac is not doing its part.

"If you were doing nothing and you do something then technically, I guess, yes that's an improvement," McCauley says.

The federal agency has also not been very clear in its answers to CREA's policy questions, McCauley says.

"Any rule, regulation or law is subject to interpretation," he says. "We're asking, 'How would you interpret this regulation?' ... and they won't give us a clear answer."

Source: http://www.cbc.ca/news/business/fintrac-real-estate-1.3533312

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The Hottest Real Estate Markets for the Next Five Years

See where home prices are heading.


Despite the ongoing recovery, the housing market is still dealing with hangovers from the last boom-and-bust cycle. One of the biggest headaches: an inventory squeeze. Millennials are entering their peak nesting years at a time when the construction of single-family homes still hasn’t recovered from the cutbacks that followed the financial crisis. Nationally, inventory is 9% lower than a year ago, and all but four of the 35 largest markets tracked by Zillow now have fewer homes for sale than at the same time last year. “We’re seeing low inventory in places not usually associated with housing shortages—places like Nashville, Raleigh, and even Kansas City,” says NAR chief economist Lawrence Yun.

The tight market is driving up prices. Home values rose 5.7% in 2015, according to the closely watched Case-Shiller 20-city index. And most economists think prices will keep climbing, at least in the short term: The NAR is calling for a 4.4% increase in existing-home prices this year and 3.4% in 2017; other economists and strategists also put 2016 price growth in the 4% to 5% range.

So how will prices fare over the next half decade? The economists at Moody’s Analytics gave MONEY their home price projections going out to 2020 for the 20 biggest metros in the country. Check out the graphic to see the forecasts and economic trends in your area.

Source: http://time.com/money/4285854/real-estate-markets-housing-price-forecast-map/

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Foreign real estate investment jumps 75pc in a year, FIRB report reveals

The value of foreign investment approvals for Australian residential real estate surged 75 per cent last financial year to a record $61 billion and could account for around a quarter of new developments.

Data from the Foreign Investment Review Board show that there were 36,841 applications by non-citizens who were also not permanent residents to buy residential properties.

That was a 60 per cent increase on the previous year, while the value of properties covered by the applications jumped 75 per cent to $60.75 billion.

Approvals to buy Australian residential real estate have more than tripled since 2012-13.

The good news for the real estate sector and housing supply was that almost half the value of foreign investment approved was directed at building new developments.

Foreign investment may be 25pc of property development

Economists at UBS said this represented 81 per cent of the total value of residential building approvals last financial year.

However, they also noted that their own research had suggested just a one-in-three conversion rate between FIRB developer investment approvals and actual investment.

This suggests that around a quarter of all new residential developments in Australia last financial year were funded by offshore investors.

With $28.7 billion worth of investment spread across just 152 developer applications, the data strongly suggest that most were concentrated in the inner-city high-rise markets, particularly in Melbourne, Sydney and Brisbane.

Foreign buyers also accounted for 20,551 approvals for individuals to buy newly built properties worth a total of $14.4 billion - almost double the previous year's figures.

Foreign purchasers bought 9,236 established homes last financial year worth a total of $10.1 billion, although only those living in Australia are eligible to buy an existing property, and only to live in it themselves.

Overseas investors also received approvals to invest a further $36.2 billion in 506 commercial properties.

'Risks to the downside' after overseas investor spike

The UBS economists said that makes Australia quite dependent on foreign money for the health of its real estate market.

"Looking ahead, absent China completely shutting its capital account, the outlook remains more of a moderate downturn, rather than a collapse, albeit the risks are to the downside after such a large spike in recent years," they noted in their analysis.

These figures from FIRB cover the last full financial year before a tightening of foreign investment rules surrounding residential real estate, and an increase in penalties for breaching the law.

In its annual report, FIRB noted that no proposals were rejected in 2014-15, and only one divestment order was made for a Sydney house.

China now dominates foreign real estate investment

There was one clear source for most of last year's overseas investment in Australian real estate, which was China.

The vast bulk of individual purchases of real estate were by Chinese nationals, who accounted for about two-thirds of the total number of FIRB applications across all categories.

Mainland Chinese investors also accounted for around 36 per cent of the value of investment in real estate (commercial and residential combined), more than triple the value of the next biggest investor in that sector, the United States.

These figures coincide with a new report from KPMG and Sydney University showing that Chinese investment in Australia surged by almost 60 per cent last year, with nearly half that new investment coming from the commercial property sector.

The report specifically excluded an examination of Chinese residential real estate investment.

It found agribusiness and infrastructure projects were also popular with Chinese investors.

The co-author of the report, Hans Hendrischke, told Radio National that Chinese investors have been pouring money into Australian office buildings, hotels and other tourism facilities.

"It's largely a result of growth in commercial real estate," he said.

"That has taken over and essentially made up for the decline that we saw over the last two years in mining investment from China."

Source: http://www.abc.net.au/news/2016-04-11/foreign-real-estate-investment-jumps-75pc/7317102

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How Two New York Real-Estate Families Parted With Grace

The real-estate industry was buzzing over a testy exchange between developers Stephen Ross and Rob Speyer at a Real Estate Board of New York lunch meeting that got so heated some attendees worried they might come to blows.

What few noticed was that two other developers—who arguably had even more cause for ill will—were sitting together at the same lunch last month, talking amicably.

The families of Douglas Durst, 71 years old, and Harold Fetner, 55, had just spent three years going through a divorce of their residential-development business. The split of Durst Fetner Residential, which concluded a few weeks ago, meant divvying up more than $740 million worth of properties including the luxury rental buildings at 125 W. 31st St. and 855 Sixth Ave.

Other comparable business breakups have ended in court. “Everyone had to be reasonable,” said Jody Durst, 59, president of the Durst Organization and Douglas’s cousin. “If not, that’s when things get ugly and attorneys get large fees.”

People involved say there were a few challenging moments but level heads prevailed. “When we were breaking up, there was utmost trust by both parties that we would do this the correct way,” said Mr. Fetner, chief executive of Fetner Properties.

Both sides in the breakup credit its success in part to the ties their families have developed over the generations.

To be sure, that’s not always the case in the world of New York real-estate dynasties. There have been some nasty feuds between and within some families over the years.

But in the case of the Fetners and the Dursts, the family orientation worked in their favor, they say. “We were part of a much larger real-estate community and we both value our own reputation as well as their reputation long term,” said Mr. Fetner. “Who knows. Maybe we’ll do something again together. Why would I forgo that opportunity by being a jerk?”

In the last generation, Seymour Durst, Douglas’s father and Jody’s uncle, was friendly with Sidney Fetner, Harold’s father, who was an active New York builder and investor. When Jody and Harold were younger and before Durst Fetner was formed, they used to ride the Metro-North train together, discussing real estate on their way to work.

The two families joined together about a decade ago because they each had something the other wanted. The Dursts, who historically focused on office buildings, coveted the Fetners’ skill in residential development, recognizing that demand was becoming stronger for apartments than office space.

Meanwhile, the Dursts were wealthier than the Fetners and had more capital to invest in projects.

Over the years, Durst Fetner Residential’s projects have also included the rental development at 1214 Fifth Ave. and a gut conversion of 1212 Fifth from a rental building into a condominium.

The two families began discussing breaking up in 2013, partly because they weren’t enjoying working with each other. “Neither group became comfortable with not being able to call all the shots all the time,” Jody Durst said.

Also, the Dursts got the residential expertise they wanted from the partnership. The Fetners’ reputation had grown to the point they no longer needed the Dursts’ cash for future deals. Other equity partners were knocking at their door.

The partnership agreements between the two families provided a road map known as a “buy-sell” process for how the two sides could unravel their interests. The way it works is that one side can go to the other offering a buyout price; then the other side can either agree to sell or buy out the side that made the offer at the same price.

“I’ve always thought that structure was very creative,” said Jody Durst. “It’s like allowing your brother to cut the pie. Then you decide which piece you want.”

But the buy-sell only provided the families a framework. “In the end the real deal was done by sitting and discussing fairness for both families,” Mr. Fetner said.

The separation also took time partly because some of the projects were still under way when the two families decided to part ways. Eventually, the Durst family agreed to buy the Fetners’ stake in 855 Sixth, and the Fetners agreed to buy out the Dursts in 125 W. 31st St., which is named the Epic, bringing in a new financial partner, Rockpoint Group LLC.

“We took a long-term view,” said Damon Pazzaglini, 45, chief operating officer of Fetner Properties. “Being adversarial would not have done either of us any good.

Meanwhile, Messrs. Ross and Speyer, both of whom have strong New York ties, made up quickly after their tense exchange over a tax-exemption program at the Real Estate Board event. As they were leaving, they gave each other a hug outside on the corner, according to a person familiar with the matter.

Messrs. Speyer and Ross also issued a joint news release after the incident, pointing out that “passionate and frank exchanges” often are a feature of board meetings. “At the end, we always depart as friends and respected colleagues,” they said.

Write to Peter Grant at peter.grant@wsj.com

http://www.wsj.com/articles/how-two-new-york-real-estate-families-parted-with-grace-1460337471

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Here Is Rothschild's Primer How To Launder Money In U.S. Real Estate And Avoid "Blacklists"

Anyone closely following the Panama Papers tax haven story, is by now familiar with the role that Rothschild plays in providing virtually identical services right inside the US by the Rothschild Trust, as explained in our recent article "Rothschild Humiliates Obama, Reveals That "America Is The Biggest Tax Haven In The World."

They are also probably familiar with the name Andrew Penney profiled in January by Bloomberg as follows:

Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.

* * *

For financial advisers, the current state of play is simply a good business opportunity. In a draft of his San Francisco presentation, Rothschild’s Penney wrote that the U.S. "is effectively the biggest tax haven in the world." The U.S., he added in language later excised from his prepared remarks, lacks “the resources to enforce foreign tax laws and has little appetite to do so.”

So for all those now former Mossack Fonseca clients, or their "Panamanian" peers who have not been rooted out yet, or for anyone else who wishes to open a domestic "trust", here is the primer straight from Rothschild Trust.

Key highlights:

• In the year since we opened Rothschild Trust North America in Reno, Nevada, we have discovered the versatility of Nevada trusts and their usefulness within the context of our international business.
• Rothschild Trust has long embraced clients with US connections and the complexity this brings to planning. Our new US offering has enabled us to offer creative solutions not only to anticipated situations, but also to unusual or complex scenarios that require bespoke structures.
• In our experience, Nevada trusts can be useful planning tools not only for onshore or first generation American families, but also for  foreign offshore families looking to invest in the US.
• Such structures maintain privacy and block US estate tax liability, but are subject to two layers of income tax (at both the corporate and shareholder level) as well as high levels of both income and capital gains tax, making them inefficient for appreciating or income-generating property.

Worried about FATCA exposure abroad? Just use Rothschild domestically:

• In the build-up to FATCA implementation, some US clients who had assets in offshore trusts for historic reasons have decided to domesticate these structures to lower the burden of reporting. These domestications form part of the general trend we have seen towards moving structures onshore.
• The US, and Nevada in particular with its favourable trust laws and attractive state tax regime, offers a variety of planning opportunities that can achieve complex planning aims with simplified reporting obligations and compliance concerns.

Here Rothschild explains to foreigners how to launder money using U.S. real estate:

• The foreign company contributes its shares to the US LLC and then liquidates, and the US corporate subsidiary it owns elects to be treated as a qualifying sub-chapter “S” subsidiary. The end result is a single layer of US income tax and reduced rates on income and capital gains tax, though in the case of property that has appreciated greatly in value – such as, for example, prime New York condominiums – there can be a significant tax cost to the liquidation.
• We have recently seen the usefulness of “foreign” Nevada trusts for offshore foreign investors in US real estate. The appointment of a foreign protector to a trust that would otherwise qualify as a US domestic trust causes the trust to fail the “control” prong of the US court and control test for trust situs, and therefore prevents the trust from qualifying as tax-resident for US federal income tax.
• Generally, this type of structure is useful for foreign offshore investors in US real estate (or other US situate assets) who do not wish to file US tax returns in their own name and who, having no personal US nexus, would like to minimize the amount of US tax payable on the investments

This, of course, would not be possible if the National Association of Realtors was not complicit. Which it is, as we have covered since 2012:

Many of you reading this will undoubtedly have spent time in an international bank and been forced to sit through countless hours of “know your client” and AML training. Fascinating to note that the National Association of Realtors lobbied for and received a waiver from such regulation. That’s right, realtors actually went to the U.S. government and said: we want to be able to help foreign business oligarchs and other nefarious business people launder money through the real estate markets of the United States – and prevailed.

Here's their official position:

"NAR supports continued efforts to combat money laundering and the financing of terrorism through the regulation of entities using a risk-based analysis. Any risk-based assessment would likely find very little risk of money laundering involving real estate agents or brokers. Regulations that would require real estate agents and brokers to adopt anti-money laundering programs may prove to be burdensome and unnecessary given the existing ML/TF regulations that already apply to United States financial institutions."

So far, regulations that prevent foreigners from laundering money in the US have indeed proven "burdenseome." The result: record high luxury real estate prices which is now used by foreign oligarchs and money launderers as the modern day "Swiss bank account", and which make this particular sector of US housing accessible only to other foreigners.

If you are still not convinced to use Rothschild, here is one more reason: to avoid a "blacklists" - after all, everyone is anonymous:

• Nevada “foreign” trusts may also prove attractive to settlors from politically sensitive countries who are grappling with blacklists and strict CFC regulations as they seek to structure their assets.

And here is where Rothschild comes as close as it possibly could to putting that US-based tax havens are used for tax evasion:

The use of Nevada “foreign” trusts avoids blacklists and the stigma that can come with placing assets in jurisdictions typically viewed as tax havens, without creating exposure to US income tax on non-US income. As more countries adopt blacklists, strict CFC regimes and other measures designed to shut-down perceived tax havens, the flexibility and higher degree of certainty afforded by US trusts may become increasingly attractive.

The question, then, is why does the US not adopt such a regime which makes money laundering impossible for both foreigners and in more limited instances, residents? For now, however, it hasn't and probably won't, despite Obama's heartfelt appeal on Tuesday that "Tax avoidance is a big, global problem."

So for all those who can't wait to use Rothschild for all their "Trust" needs, here is your contact:

Watergate to Real Estate: The Tangled Web of the Panama Papers

The web of hidden money and offshore shell companies documented in the Panama Papers reveals an alternate financial universe that links a single law firm with a globe-spanning rogue's gallery of politicians, moguls, criminals and shady agents.

While much attention has focused on links to Russian President Vladimir Putin, whose name doesn't appear in the documents, the leaked files — reported by The International Consortium of Investigative Journalists — also expose new details about far-flung capers dating back decades.

The cases have little in common other than the involvement of the law firm,Mossack Fonseca. The connections are sometimes tangential, and the firm insists it did nothing illegal.

Ramon Fonseca, a co-founder of Mossack Fonseca, said the people connected to the companies were not the law firm's clients.

"They are clients of bank intermediaries, that bought one of our incorporated companies, sold it, and those people used it for who knows what," Fonseca told Panamanian television.

But the documents illustrate the breadth of the underground economic network exploited by the extravagantly wealthy.

Here are a few examples:

Britain's 'Crime of the Century'

In November 1983, a team of masked robbers committed one of the most brazen and lucrative heists in modern history, stealing three tons of gold — worth about over $100 million today — two boxes of diamonds and stacks of cash from a Brink's-Mat warehouse near London's Heathrow Airport. The bandits were caught, but most of the loot was never recovered. The proceeds were allegedly laundered to cover conspirators' tracks.

That's where the Panama Papers come in. The leaked documents show that the law firm Mossack Fonseca and one of its founders, Jurgen Mossack, helped protect a shell company belonging to one of the men who handled the Brink's-Mat haul, ICIJ member BBC reported.

Mossack Fonseca set up a company called Feberion Inc. and installed Mossack as a nominal director, with no actual say in its operations. At the time, Mossack wrote in a memo that the company was "apparently involved in the management of money from the famous theft from Brink's Mat," according to the ICIJ. Nevertheless, Mossack Fonseca blocked authorities from seizing the company, the Panama Papers show. Only after the launderer, Gordon Parry, was imprisoned did the firm cut ties to the Feberion, the ICIJ reported.

Watergate

As his law firm tried to protect Feberion from Brink's-Mat investigators, Jurgen Mossack stepped down from the company's board of directors, with plans for his replacement to be named by another Panama-based company, this one run by an American named Gilbert R.J. Straub, the ICIJ reported.

The ICIJ interviewed a former U.S. Drug Enforcement Administration agent who said he investigated Straub in an unrelated money-laundering case. The former agent, Robert Mazur, told the consortium that while he was working undercover, Straub boasted of illegally funneling $50,000 to pay the burglars who broke into the Democratic National Committee's offices at the Watergate complex in Washington in June 1972. The infamous crime sparked a scandal that forced President Richard Nixon to resign.

Miami's luxury real estate

Authorities have long suspected that foreign criminals hide ill-gotten gains by secretly buying high-priced homes in America, including the booming Miami skyline. The Panama Papers provided potential evidence: documents showing that Paulo Octávio Alves Pereira, a Brazilian politician under indictment for corruption, was the owner of an offshore company, formed with help from Mossack Fonseca, that bought a $3 million oceanfront condominium in 2011.

The Miami Herald, which is part of the ICIJ, reported that the leaked documents also revealed 18 other foreign nationals — including eight linked to crimes in their home countries — who'd created shell companies in order to buy luxury Miami real estate. The newspaper stressed that the documents did not contain proof that any dirty money was used to buy the homes.

Fugitive drug kingpin

Rafael Caro Quintero, once one of Mexico's most powerful drug lords, was convicted in 1989 of the torture and murder of U.S. DEA agent Enrique "Kiki" Camarena. When authorities seized his property, the holdings included an estate in Costa Rica owned by an offshore company set up by Mossack Fonseca, according to the ICIJ.

Costa Rican authorities asked Mossack Fonseca for help, according to the Australian Financial Review, a member of the consortium. The law firm declined, saying they could do nothing without the help of the company's shareholders. The firm told authorities that they didn't know who those shareholders were. But in an email exchange included in the Panama Papers leak, a Mossack Fonseca lawyer acknowledged that Caro Quintero was the assumed owner.

Jurgan Mossack, one of three directors listed on the company's paperwork, wrote about his fear of Caro Quinero's power. Notorious Colombian drug lord Pablo Escobar paled in comparison to Quintero, he said. "I don't want to be among those Quintero visits after jail," Mossack wrote, according to the AFR.

Caro Quintano did leave prison — after serving 28 years of a 40-year sentence. In 2013, an appeals court overturned his sentence on a procedural issue. Now under indictment in the United States, he remains one of the DEA's most wanted fugitives.

Sunken ferry

In 2005, a boat loaded with elderly tourists sank in Lake George in upstate New York, killing 20. The survivors sued the ferry company, which, it turned out, had bought a bogus insurance policy from con men. An investigation led to an accountant in St. Kitts, who'd helped the swindlers launder their profits — and had served as a on-paper-only director for 30 shell companies created by Mossack Fonseca, according to the ICIJ. The accountant, Malchus Irvin Boncamper,pleaded guilty in 2011.

Mossack Fonseca, meanwhile, rushed to replace Boncamper on the companies' leadership, and backdated the records to make it look like it had been done years earlier, the ICIJ reported.

Source: http://www.nbcnews.com/storyline/panama-papers/watergate-real-estate-tangled-web-panama-papers-n550416

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