New real estate regulations go into effect this year. Will those laws drive billions more in international capital to sunny Southern California’s sizzling property market?
The Feds have announced new rules that will dig deeper into the identities and real estate transactions of luxury buyers in two of America’s top markets. So just how much will it cramp high end buyers in these cities? Will it be a good or bad thing for the US? Will SoCal real estate be the biggest winner?
New Rules to Hit the Market in 2016
Starting on March 1st, 2016 the US Treasury department has announced that the Financial Crimes Enforcement Network will begin targeting high end homeowners in New York City and Miami. The plan as of now is to run in these fraud hotspots through August 2016. Depending on the results, it is possible that the program will be made permanent and may expand across the United States.
For now, the program is targeting those paying cash for properties on the market for one million dollars or more in Miami, FL and those selling for three million or more in New York, NY. Specifically, the government is seeking title companies to obtain and report on the identities of individuals purchasing these properties who often use LLCs and other entities to shield who they really are.
This move is being heralded as a solution to crackdown on money laundering and tax evasion through real estate. At least one notable case of an international drug lord hiding money in US assets has been given as cause to pursue this action. However, major media outlets like Fortune have likened it more to being a witch hunt. What we do know however, is that buyers of real estate in these cities will no longer be able to hide their identities, even if they are doing nothing wrong. While this may not directly hurt those with nothing to hide from the government, many certainly do not believe the government has proven to be the best keeper of personal information.
How Will the New Rules Impact the US Housing Market?
These new regulations could certainly kill off any high end deals in the works by criminals and those that hoped to hide money from the tax man. Preserving the housing market and taking a bite out of terrorists’ funds is definitely a good thing. However, those that really value their privacy or are concerned that a decline in transactions could soften the NYC and Miami market might also hold off on buying – or might sell up and cash out of their holdings in these cities. That would create a substantial amount of liquid capital looking for a home to invest in. At the same time, surveys show that over 60% of foreign investors plan to increase their investment in US property this year. Traditionally, much of this money goes to New York and Miami properties. That could change. And this year, there could be a lot more money seeking real estate investments due to poor stock market performance.
The logical next step for most would appear to be to funnel that capital into other prime US markets. San Francisco, Los Angeles, and San Diego, California are all obvious choices. Of course, San Diego appears to offer a lot more value than the others, especially for those seeking yields and future growth potential.
Best Practices for Protecting Privacy & Financial Gains
What can those who aren’t laundering money or illegally evading taxes do in order to maintain their privacy and minimize tax liability?
Note that there is already little privacy left in the world. Just because title companies and government agencies get their hands on your information and put you in a database doesn’t mean those details will be broadcasted across the web or public records. So LLCs, trusts, and other corporate entities are still a smart move. For those concerned about data breaches and hackers; additional insurance, secure communications, and increasing personal and property security are all smart moves. There are also plenty of legal tax breaks, deductions, and tax saving vehicles that can be used by buyers, sellers, and investors. This certainly includes self-directed IRAs and 1031 exchanges.
In summary, because big pocketed investors will be moving away from the higher end markets, there is a good chance that Southern California will be considered one of the top places for investment opportunity.