The Panama papers, the Miami real estate market and the news story that makes an impact across countries. When the story of the Panama Papers broke out, the entire planet was shocked by the tricks of wealthy people across the world to cover their wealth and avoid taxes. The story emerged after a group of investigative journalists from influential newspapers went to great lengths to unearth the scandal.
When they finally got their story, many were left astounded. The Panama Papers story involved unearthing data related to the secret dealings of a Panamanian firm known as Mossack Fonseca. The company was the favourite of the world billionaire and millionaire clients who wanted to create shell companies and offshore accounts to hide money from their governments.
There is a famous saying that wealthy people from around the world speak the same language. The release of the data from the Panamanian firm proved the point. The list of clients featured leading entrepreneurs, politicians, celebrities and criminal network heads. When the full extent of the dealings was absorbed, a European leader was forced to vacate office; governments launched investigations, and others chose to initiate damage control measures.
Closer home, the US Treasury Department immediately swung into action and started drafting rules for banks to reveal the identities of people behind shell companies. The department also set standards to stop the opening of offshore accounts.
The Miami real estate industry was one of the most affected. Reports were detailing that some of the money used to buy overpriced condos came from people named in the list. It is notable that even before the mention in the Panama papers, Miami real estate industry was under the scrutiny of the US government over money laundering claims. The authorities were not comfortable that people were buying a substantial number of condos and luxury properties in Miami in cash without any trace. Considering that some of the listings cost millions, it was curious how the buyers could afford such as cash transactions without any legal documentation.
The US government raised a red flag in the type of investments in Miami-Dade county and set up measures to track the origin of money from buyer paying more than $1 million in cash. The primary concern of the authorities was that since the money did not pass through the formal banking sector, it was deemed to be suspicious. In 2015, about 53% of the properties in the area showed registered as cash sales.
When foreigners bought property worth $6.1 billion in Palm Beach, Broward, and Miami-Dade, there was a lot of suspicion about the source of the funds. Most of the money was thought to represent a capital flight from Latin American companies. When the actual identity of the owners of the properties emerged, it was a shock to industry players. Paulo Alves Pereira, a Brazilian politician, and property developer was one of the names. He was discovered to be Mateus 5’s real owner. Paulo resigned as governor of Brasilia some years ago after being accused of corruption. When Miami Herald decided to investigate the report further, it found at least nineteen foreign nationals that own property in Miami featured in the Panama papers. These nineteen individuals are suspects of being involved in fraud, bribery and tax evasion back home. The investigation also discovered that many clients from Brazil that used services of a particular local real estate attorney were of questionable background. Most were politicians, politically connected individuals, and judges. The newspaper found that Miami Association of Realtors organized an event to advise its investors about the ways how to go around the new tax rules introduced by the government.
It is easy for foreigners to buy property in Miami using shadow legal entities. Secret trusts, limited liability corporations, and offshore companies can buy any property in Miami without any problem. There is nothing illegal about the arrangement as long as the businesses pay taxes and declare their assets. The fact that foreign nationals that invest between $500 to $1 million in a US project have a chance of becoming US citizens through the EB-5 visa program has also been of much interest to the Latin American nationals.
Although many factors have contributed to the recent slowdown of the Miami Condo market, one of the reasons must be the release of the Panama papers. Foreign buyers can no longer do business as usual. They find that there are many more questions being asked compared to last year deals. At the same time, many Latin American companies are going through a rough patch economically and also politically.
Panama papers may affect the condo prices in Miami that can come down to affordable levels. At some point, the massive inflows pushed property prices to such high prices that they were not accessible to the locals. Rental prices may come down to affordable levels as well when owners of empty condos choose to lower their rates to lure tenants. 2016 has seen the completion of many new developments and the market is about to reach saturation point.
Investors in new developments are now choosing to convert them to rental properties until the market readjusts itself. For the moment, it seems the impact of the Panama papers has dented the image of Miami and its luxurious condos. Whether the revelations will have a significant effect on the industry remains to be seen. The authorities will certainly take a closer look at the property deals completed in Miami that involve foreigners and cash. The effect of Panama papers has left its mark for the years to come.