The United States is still a top destination for foreign real estate buyers despite increasing government scrutiny over the past year.
“Investors we work with from Asia and Latin America are committed to investing in the United States largely because of currency instabilities in their home countries,” said Kailin Zhu, partner at Clarett International.
However, rising prices in the U.S. real estate market have government officials worried about dirty money being funneled into luxury real estate.
In order to prevent money laundering, the Financial Crimes Enforcement Network (FinCEN), an agency of the Treasury Department, announced a new temporary regulation in January. The regulation requires foreign investors who buy high-end residential properties in cash using shell entities, such as limited liability companies (LLCs), to disclose their identities.
The new rule requires the identity of every member of the LLC to be disclosed. In the past, foreign buyers in such transactions could hide behind the companies.
“There is insecurity in this country about illegal money coming into the country, or money coming into the country that can be used for illegal purposes,” said Bruce Feffer, partner at law firm Eaton & Van Winkle.
“As is often the case, however, the government uses a hammer to kill an ant. They just use very broad regulations to deal with a very narrow problem.”
The rule was first launched to cover cash purchases above $3 million in Manhattan and above $1 million in Miami made through shell companies. On Aug. 28, the Treasury expanded the regulation into other markets in New York, Florida, California, and Texas. The rule will last for 180 days initially.
