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While there has been lots of finger pointing about how real estate prices in Vancouver could be so celestial that local people could not afford to purchase here, a panel has estimated that $5 billion dollars in “dirty money” went through the housing market last year.

Overall in the Province it is estimated that real estate prices increased by five percent due to this tinkering, but remember that will be more in some places (like in Metro Vancouver) than others. And surprise! As reported by Global News most of these questionable transactions  examined took place in Vancouver.

The report just  released  discusses B.C. Lawyers and B.C. Realtors  being part of the challenge. While there are rules in places for lawyers there is no need for external reporting of large amount transactions and no oversight of monies in a lawyer’s trust account.

The report also asked that only verifiable funds be used for purchasing real estate and that only verifiable funds be allowed in all transactions. It also recommended that mandatory courses be required for all real estate industry people to understand what money laundering is and how to deal with it.

The German Report confirms what many have assumed~it appears crime proceeds were used to buy several  properties.  “One example in the report is from 2001, ‘a student’ purchasing in access of 15 properties in the same Vancouver condo building for $2.9 million. Those properties are now worth $11 million. Another example is a ‘homemaker’ purchasing five luxury homes over a four year period worth $21 million.”

Add in expensive vehicles and betting at the race track and the report estimates that $7.4 billion dollars has been laundered in  this province in 2018 alone, with a suggested $47 billion dollars laundered nationally in 2018.

The report also recommends real estate developers be licensed under a regulatory regime and that the province establish an intelligence unit to collect data on transactions.

You can hear  more about the report  just released  in the CBC News YouTube video below.

Comments

  1. The new 2% so called speculation tax for non-residents and satellite families will properly monetize this, as it tracks SIN numbers for the first time. That is the real game changer. We can actually tie real estate ownership in six BC sub-markets to SIN numbers and enforce taxes quite readily.

    It is very hard to track source of money if it is wired into a bank account from abroad. Is that $25,000 or $1.2M wire clean money, grey, legit, stolen or dirty ? Who knows.

    The bigger issue is rampant tax evasion. The article mentions a wealthy student buying 11 condos. Good for him. Did he pay taxes when he sold them, though as he ought to? How many satellite families or non-residents fill out the form incorrectly to avoid paying the 2%? I bet quite a few. How many folks flipping condos declare their gain?

    The main issue is the extremely weak staffing of the white collar crime division at RCMP or CRA. Has the new B.C. government changed that?

    Where are the high profile arrests to prove a point that B.C. is serious about tax evasion ?

    1. “It is very hard to track source of money if it is wired into a bank account from abroad. Is that $25,000 or $1.2M wire clean money, grey, legit, stolen or dirty ? Who knows.”

      ‘Accounting is hard’ is a funny answer when we know it is absolutely possible to assign a unique id number to every measurable unit of currency.

      Who fears transparency in their finances? People who desire to game the system or hide their situation, for whatever reason.

      People live on the streets while jillionaires laugh and hire a smart accountant so they can avoid taxes that might alleviate some of society’s ills. But being honest is too tough for them. Give me a break. My sympathy for their plight couldn’t fill a thimble.

      1. “gaming the system” is also referred to as tax avoidance is totally legal ie buy a big house as a personal residence whose gain is tax free, and have your spouse’s income declared abroad. That is now properly monetized though with the annual 2% spec tax, if properly declared. The issue is “if”. Much cheating going on, and much non-declaration of properties owned when sold with a sizable gain, or condos flipped with no one knowing who flipped what paper assignment for a quick undeclared $250,000. That is referred to as tax evasion, and it is rampant here in BC as the enforcement is so weak. We shall see if the white collar crime unit – utterly useless today in BC – is being staffed up significantly.

  2. Does this “report” pass the sniff test?
    Quotes (with bold for emphasis):
    “a panel has ESTIMATED”
    “it is ESTIMATED”
    “it APPEARS that crime proceeds were used”
    “and the report ESTIMATES”
    -deleted as per editorial policy-
    I’ve dined with some of these supposed evildoers – nefarious types that have bought a couple of houses and a couple of Teutonic money pits – for cash – while flying back and forth to their country of origin. None were, in fact, criminals. They were successful individuals who appreciate what this corner of the globe has to offer.
    -deleted as per editorial policy-

    1. Indeed.

      It’s very hard to trace origin of money. Very. If clearly dirty then yes seize assets bought with it. But if money is wired in how do you know it clean, grey or dirty? Just tax it here. The 2% annual “speculation” aka non-resident or satellite family tax does that as does the vacancy tax as does the 20% foreign buyer tax.

      With high immigration comes access to cash from the immigrants’ own cash resources, often considerable, and his/her network, often even more considerable, too. As such, much legal or grey cash, tough to trace how it was derived.

      -deleted as per editorial policy-

    2. The report was very heavily caveated with models of suggestion and supposition in front of every tentative assertion. ‘It could be as high as 5%. It could be more’.

      Reporting on the report is less uncertain. People who want this to be true have dropped the caveats and replaced all the “might”s and “maybe”s. It IS 5%. It IS probably higher. There must always be someone else to blame.

  3. “It is very hard to track source of money if it is wired into a bank account from abroad. Is that $25,000 or $1.2M wire clean money, grey, legit, stolen or dirty ? Who knows.”

    ‘Accounting is hard’ is a funny answer when we know it is absolutely possible to assign a unique id number to every measurable unit of currency.

    Who fears transparency in their finances? People who desire to game the system or hide their situation, for whatever reason.

    People live on the streets while jillionaires laugh and hire a smart accountant so they can avoid taxes that might alleviate some of society’s ills. But being honest is too tough for them. Give me a break. My sympathy for their plight couldn’t fill a thimble.

    1. A desired side-effect of high immigration to Canada is money that follows immigrants. Much of BC’s wealth creation over teh last 30 years has to do with (mainly Asian) immigration.

      A new condo doesn;t fall out of teh sky. It creates many jobs, for planners, architects, plumbers, painters, crane operators, interior designers, lawyers, realtors, .. billions in annual activity .. plus associated CACs, DCCs, prop taxes, incoem atxes, PST, GST etc

      Much of immigrants’ cash is their own cash, but also relatives’, friends’ or biz associates’ ! Properties are (until very recently) taxed VERY LOW in MetroVan, and incomes VERY HIGH. As such, the rational choice of affluent immigrants (and locals for that matter, and former immigarnst, now locals) is to buy as big a property as they can afford, as the gain is tax free if a personal residence, and even if an investment its gain can easily be hidden, until now.

      So what if a person buys 10 properties that go from $4M to $15M ? Good for BC if the gains are actually declared and taxes are actually paid. That doesn’t mean the $4M is “grey money” or “proceeds of crime”. Sometimes it is, many times it is not. It’s just a good investment.

      The core issue, utterly unaddressed by all this virtue signalling (and blaming the former BC Liberals, of course) is the lack of white collar crime enforcement personal. Will the federal government staff up ? Or BC? The tools are all in place now incl FinTrac, SIN tracking of property purchases, condo flipping database, 2% satellite family spec tax, 1% vacancy tax, SIN number tracking of spec tax in 6 regions of BC. Will we see high profile arrests and fines to send a message ? Will we see real enforcement or just more lip service ?

  4. What the report says “The data limitations that make it difficult to estimate the level of money laundering make it even more challenging to estimate the allocation of money laundering to specific economic sectors, such as real estate and the impact of that investment on house prices. The Panel cautiously estimates that almost 5 percent of the value of real estate transactions in the province result from money laundering investment. The estimated impact of that would be to increase housing prices by about 5
    percent”

    So across the province, prices might have been 5% higher than if there were no money laundering. There are no immediately available BC House Price indexes as far as I know, but CREA data show the Lower Mainland benchmark price rose 66% in five years to March 2019, and Vancouver Island 65%. The Okanagan Valley went up 47%. That suggests that purchasers using funds whose source is not readily traceable may have had a modest effect on the overall price change, and other factors (low finance costs and ‘Fear Of Missing Out’ among them) had a much greater impact.

    1. It occurs to me that “Fear of Missing Out” is a multiplier. If prices aren’t rising, there is no fear of missing out. The fear increases in some proportion to the rate of price increase. If that’s the case, then demand from money laundering has an additional impact through a FOMO multiplier.

      My gut instinct is that FOMO is a non-linear response. Small increase – no FOMO. Moderate increase – some FOMO. Large increase – exponential FOMO.

      In general, I would not expect prices in the market to respond linearly to increases in demand. In other markets, substitutions are easy. If you miss one movie, you can go to another; if you can’t buy this car, you can get that one. Housing’s substitutions come with high costs: downgrading from house to townhouse to condo (we’ve seen how the boundary of affordability for the typical family has rippled outward through the region, or burdening every day with long commutes.

      I think of it like musical chairs: so long as there’s a surplus of chairs, players have no need to hurry. The instant there is one chair too few, everyone has to rush; as more chairs disappear, the intensity increases exponentially. Imagine instead of chairs in a game, we’re dealing with something that really matters, like food. When the consequence of missing out is catastrophic, small shortages result in big price increases. Obviously houses are not food, but missing out can have a life-long impact, so I think the comparison is instructive.

    2. Indeed. Consider many baby boomer in Lower Mainland downsizing, but staying here, inheriting $s to their kids who want to buy or upsize from a 2BR condo to a small house or TH and the retiring parents buying a second home on the Sunshine Coast, Okanagan or V Island. It’s called demographics. Couple that with high immigration of 25-35,00 people per year into Lower Mainland, tight land supply, low property taxes, high buildng costs incl regs plus CACs, DCCs or permit fees with long delays and cheap mortgage rates and of course prices respond upwards.

      it will moderate for another year or 2 to 2021 then prices will go UP again, and be at 2016 peak levels in 2023 again.

      More on this here, for example https://www.vancouverrealestatepodcast.com/podcast/will-vancouver-condo-prices-drop-in-2019-with-dane-eitel-from-eitel-insights/

    3. The appropriate question should be “why don’t we have better data” on this. Given how actively engaged all levels of government are in housing/real estate why is data so hard to come by?

    4. Remember this is 5% in *one year* only … not 5% total … and this misses out on 2016 and 2017 which saw larger increases in prices … but for some reason the data from those years wasn’t good enough to support an estimate of price differential.

      Also to note that apparently that 5% does not include money from China or Iran.

      1. I didn’t see that the report was clear about the period that the panel estimated prices increased by 5%. It doesn’t seem to make sense that it only refers to 2018, because average prices in Greater Vancouver – easily the largest market in BC – actually fell 2.7% year-on-year in 2018, and prices only increased 2.5% overall in the Fraser Valley that year. Unless the report is suggesting that prices would have fallen an additional 5% in Greater Vancouver in 2018, it seems more likely that they are referring to a longer timeframe.

  5. Who has profited most from the moolah spent by these alleged miscreants?
    West Side home owners? Luxo car dealerships? Fancy stores? Local billionaires? Agents? Lawyers? … How do they feel about profiting from the supposed proceeds of crime? Pretty damn good I should think. Would they want to give back the cash if they knew it was ‘dirty’? Hah!

    I recall a prison documentary interview with a soft spoken very sad Black man – a victim of California’s three strikes you’re out. I don‘t know what his earlier convictions were for, but the heinous act that got him jailed for life was stealing something from Walmart. Who knew Walmart had something worth stealing?

    He stole something from people so rich they can’t afford the time to pick up thousand dollar bills. People so rich they wouldn’t notice if million dollar bills were falling from their back pockets.

    Jailed for life at taxpayer expense in the corporate American prison system.

    Who is the miscreant here?

    ‘Money Laundering’ – pshaw. How about tax havens and crafty accounting – if you have a boodle.

  6. No one should be surprised to see that money laundering has had an effect on our housing prices over the last several years. Similarly, no one should be surprised to hear nearly dead silence on other effects on prices, namely cheap money, too few people living on so much land in most R zones, which comprise nearly 80% of all residential land in a place where there ain’t no more land in play, demographic growth, and simple urban expansion.

    What is very surprising is that, according to the Globe and Mail review of the report (Saturday May 11th), all of Canada was subjected to tonnes of laundering from the US with comparatively less from China. Tonnes of money laundering also went from Canada to the EU and beyond. We ourselves aren’t angels. Another shocker was that Alberta received twice as manhy wash cycles as BC, and BC was fairly even with Manitoba, and Quebec in overall sums.

    This begs the question: Why are Vancouver’s housing prices so high when other places were subjected to as much or more laundering? My guess goes back to Vancouver’s historically restrictive zoning that effectively locked up the land supply in sprawl, and that was greased by cheap money (see Geof’s comment above on panic buying of mortgages too) with the proof so obviously in the form of record household debt, with the price of living in an attractive community and standard urban multipliers kicking in.

    I think these facts will tend to complicate the work of those who analyze such data but who have so far, for whatever reason, left out exclusionary zoning, land supply crunch, cheap credit and so forth.

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