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Selling Bread For Less Than The Price Of Flour

A report from the Boston Globe in Massachusetts. “Secret buyers of luxury real estate in Greater Boston will soon get extra scrutiny. The US Treasury Department has added Suffolk and Middlesex Counties to a program that requires people who buy homes with cash through shell companies to share their name with the government. It’s a bid to combat money laundering in high-end real estate, which critics say is becoming increasingly popular with buyers who can hide their identity behind a limited liability company or other shell entity.”

“Such shell-company deals are legal, and there are no state or federal laws requiring public disclosure of an owner’s name. The rules, however, would require title companies to disclose to the government the identity of people who make all-cash purchases through a shell company. That enables prosecutors of financial crimes to screen for people they’re investigating for potential criminal activity.”

“The Treasury launched the program in 2016 in New York and Miami and has gradually expanded by adding more cities and less-expensive purchases. The latest expansion, announced Thursday, will bring the review to 12 housing markets and all deals worth $300,000 or more — which would cover nearly all cash sales in Suffolk and Middlesex counties. The government also, for the first time, will review deals in ‘virtual currencies’ such as Bitcoin.”

“The issue of shell-company purchases in recent years has become more relevant in Boston, as a wave of luxury condo buildings have drawn high-end investors and wealthy buyers who want to remain discreet. A report in September by the Institute for Policy Studies looked at 12 high-end condo buildings in Boston and found that 35 percent of the units are owned by LLCs, trusts, and other kinds of shell companies. Study author Chuck Collins said adding Boston to the program was ‘a positive outcome’ from the report.”

“‘The issue of illicit funds and secrecy really touched a nerve around Boston,’ Collins said. ‘No one wants Boston to become Miami or New York City as a center of money laundering.'”

The Vancouver Courier in Canada. ” People with inside information about shady goings-on in real estate and other luxury sectors now have a way to share it anonymously with the B.C. government’s investigative team. A new online tip portal was launched November 18 to give B.C. residents a safe avenue to report what they know about money laundering in the real estate, horse racing and luxury automobile markets.”

“Attorney-General David Eby, who is leading the money laundering crackdown, said in a media statement, ‘British Columbians want their government to crack down on money laundering, wherever it takes place. We agree and we also believe that British Columbians can help. That’s why we’re providing people in B.C. with a secure and anonymous way to share what they know.'”

“The launch of the tip portal follows a call from the B.C. government for the public’s insights and suggested solutions on money laundering in real estate, in a public consultation launched November 9.”

“Both initiatives are part of the part of the province’s official review of the role dirty money plays in the housing market and other sectors, following a damning report by Dr Peter German, who is now working on a follow-up investigative report.”

From Mingtiandi. “Demand for homes is slipping in mainland China and state-owned China Jinmao Holdings seems to be finding out how low prices can go as the developer has begun selling homes at a project in Xiamen for less than the price that it paid to acquire the site, according to a local media report.”

“China Jinmao has been ‘selling bread for less than the price of flour’ in industry terms since mid-October, with the apartments in the Xiang’an Jinmao Yue project now selling for an average of RMB 28,000 ($3,575) per square metre, or five percent less than the RMB 29,451 per square metre of built area that the developer had paid when it acquired the site last year.”

“While the discounts on China Jinmao’s project in the Xiang’an area of Xiamen are dramatic, the drama is based on an increasingly common theme, as the city of 3.5 million people in Fujian province has gone from having some of China’s fastest growing home prices to seeing housing prices drop in two of the past three months, after central authorities began a policy enforcement campaign in the second half of this year.”

“Jinmao’s current selling price at its suburban project is now 32 percent less than the planned RMB 41,244 per square metre price that the developer had received government permission for before the 71,000 square metre development was launched.”

“The reality of Jinmao’s RMB 28,000 per square metre Xiamen sales stands in contrast to the optimism that the developer displayed fourteen months ago, when it bid 40.2 percent above the auction minimum to acquire the 25,436 square metre waterfront site for RMB 2.09 billion in September 2017.”

“Xiamen had been a star performer in China’s housing markets as recently as 2016, when average home prices in the city of 3.5 million people rose more than 45 percent during the 12 month period. Since 2007, Xiamen has seen the highest increase in prices among China’s major cities, with prices having surged by nine times from RMB 5,000 per square metre at the beginning of 2007 to RMB 45,000 per square metre in May of this year.”

“However, when China’s central government implemented a fresh crackdown on housing speculators starting from July, Xiamen was one of the first 30 cities targeted for inspections and stricter enforcement.”

“The regulatory shift has caused timing issues for developers in Xiamen, with research by 58 Anjuke Institute showing that, in September, the supply of unsold new homes in Xiamen increased by 207 percent to 213,400 square metres.”

“During that same month, the volume of homes sold in terms of area decreased by 11 percent to 41,800 square metres. The second-hand housing market also experienced a downturn as the number of transactions and the amount of space sold both fell by around 15 percent in September.”

“The resulting market pain has been felt most acutely in the suburban districts of the southeastern China city, which are now home to a number of underperforming projects by some of the country’s largest developers.”

“China Vanke’s Bailujun project, which is located northeast of the city centre in suburban Xiang’an district, became the target of consumer complaints in September after the developer cut prices for its villas in the development by 44 percent to an average of RMB 2.8 million.”

“According to real estate website Fang.com, China Evergrande has followed a similar strategy at its Dijing project, which is 30 minutes from the city centre in Jimei district, slicing prices by 11 percent from RMB 36,000 per square metre when sales started in December 2017 to RMB 32,000 per square metre this month.”

“Sunac China Holdings’ Datong Fu project, located in the suburbs of Tong’an District in the north part of the city, has been the most aggressive in cutting prices, slicing its asking rates by 50 percent from RMB 50,000 per square metre to RMB 25,000 per square metre between August and November of this year.”

“At least ten developers of suburban projects in Xiamen are now said to be cutting prices as the real estate market in the city, and in the rest of China, heads into winter.”

This Post Has 30 Comments
  1. Another day, another round of muppet slaughter on Wall Street. Did you follow your financial advisor’s instructions to buy stocks and HODL?

      1. You are, in real terms. The dollar is strong, inflation is tame, and returns on savings and bonds are up. There’s never been a better time to own cash!

  2. Here in Orange County (Irvine) my gut has always told me that R/E money laundering is a lot more common than most people think.

    One thing I have never understood is how owners pay their property taxes? I think it is legal to literally pay in cash, but these days would be a bit awkward. Seems to me that payer of property / local taxes would be one way to ID the owner. Comments from those who know more about R/E finance than I do?

    1. Property taxes are typically paid twice a year in installments in CA. So probably transactions under $10k each ? Even if not, the amounts are easier to gather up and are small potatoes to the $Millions that are being laundered through R/E. Basically the equivalent of credit card fees to the house’s purchase price. They probably don’t care much as long as they can move the bulk of their money into legitimate transactions and have a new ‘clean’ trail for it.

  3. Any thoughts on who will win the cryptocurrency civil war?

    Nov 20, 2018, 3:24 am
    Stellar Overtakes Bitcoin Cash As Civil War Rolls On And Bitcoin Falls Further
    Billy Bambrough, Contributor
    Crypto & Blockchain
    I write about how bitcoin, crypto, and fintech are changing the world.

    Bitcoin cash has lost its position as the world’s fourth-largest cryptocurrency as its civil war over the direction of the bitcoin rival rolls on, allowing stellar lumens (XLM) to make its break into the big leagues.

    Stellar overtook bitcoin cash despite losing some 13% in value over the last 24 hours in a rout that saw bitcoin, the world’s largest cryptocurrency by a considerable margin, tank 15% and fall under $5,000 for the first time since October last year. Bitcoin is again falling rapidly, moving towards the psychological $4,000 mark.

    Bitcoin cash could now be heading out of the top five largest cryptocurrencies due to its more than 40% price falls over the last 24 hours, adding to a wipeout that’s seen it lose more than half its value over the last week. Bitcoin cash is trading at $209, with a market cap of $3.8 billion—down from highs of $630 in early November.

    1. “Bitcoin is again falling rapidly, moving towards the psychological $4,000 mark.”

      “Psychological level?” Who makes this crap up? And, what the hell does some “psychological level” have to do with anything? This stuff is worthless and can’t go to zero fast enough. What a joke.

    2. “As bitcoin nosedives, regulators said to be investigating whether it was propped up illegally

      The U.S. Justice Department is reportedly looking into whether traders used another cryptocurrency called tether to bid up bitcoin prices during its 1,300 percent rally last year.”

      https://www.cnbc.com/2018/11/20/regulators-investigate-whether-bitcoin-price-was-propped-up-illegally.html
      ===========================
      Gee, I’m SHOCKED at the suggestion that there was any hanky-panky involved in last year’s rally. /sarc

      1. Did the SEC go short?

        Are they talking their book?

        Did Alison Warren buy the high?

        Stay looney tunes!

        da bear

        Genius is 90% mental.

        1. * Liz Warren.

          … and if the SEC wants to go short here more power to ’em!

          da bear

          p.s. Fed’s crypto-chango-gonzo FRN looks a bit fraudtastic too! There ought to be a law!!!!

  4. Lots of baby-boomers are retiring and drawing down their 401k accounts, which doesn’t help the DJIA. Millennials are buried in student loan debt and their early working incomes, which are consumed by obscene high rents, are a fraction of their parents at the same age, so they won’t be buying the market’s dip.

    1. A lot of these are probably left in the default growth asset allocation which is getting beat up right now. So they’re watching their 401k balance shrink every week, why not cash some out?

    2. It may not be the obscene rent hikes at all, but more the incessant need for the latest gadget to entertain themselves.
      Many years ago, it was considered normal for rents to be 10% yearly of the value of the rented property, residences, so there would be a return to the investor of enough to cover the loan, taxes, depreciation, and maintenance of the property, and return a 5% net to the investor or owner
      Accordingly a $500K house should return a $50K to the owner which would indicate a monthly rent of about $4,250 for the tenant.
      Of course the loan interest now is not the 6%-8% that it used to be.

      Problem in the tenants and the public need more money to enable them to have the luxuries that were not available in the far past.

      In the past there was not the electrical devices that consume time and money, and the lasting effect of the student loans and the demand for luxurious living standards has limited the amount of money able to be spent on rent.

      When you consider the children with the $1,000 telephones, the computers, and cars you can see that the money available for food and necessities might be lowered, and luxuries are paid first on the bill paying days. LOL

      1. It is not cell phones, computers, avocado toast, or Starbucks that is the problem. Housing is the problem. The problem is that a $500k house shouldn’t be rented out. It should never have been built probably. It should have been a much cheaper house built and so rent could be less than 30% of median income.

        In a paper released this past weekend at the American Sociological Association’s annual meeting in New York City, Cohen used figures from the Bureau of Labor Statistics to bust the myth of the latte factor: the idea that we’re wasting our precious funds on pointless luxuries.

        Cohen found that we’re not spending more on things we don’t need to get through the day. On the contrary, we’re spending less. Between the mid-1980s and the mid-00s, Americans’ spending on clothes fell by 28%; alcohol 12%; tobacco 25%; vehicle purchases 15% and vehicle maintenance 24%. Overall expenditures on food also declined, with spending on in-home meals falling by 8% and restaurant dining by a more modest 3%.

        Where did the money go? Consider your own circumstances, and you’re likely to see the most common increases in spending. During the same period of time, we spent almost 20% more on housing and 32% more on healthcare, which includes a more than 100% rise in the cost of health insurance and 41% of pharmaceuticals. Education? An astonishing 60% increase. Gas went up by 23% and auto insurance by 29%.

        Cohen summed it up aptly:

        “A colleague of mine once told me that America is a place where the luxuries are cheap but the necessities expensive. A cell phone is affordable. What’s killing people is housing and childcare and medical expenses.”

  5. This post really exemplifies the addiction our Global economy has to cheap credit. We need a system that rewards earned credit. As it relates to real estate, we could start by taming the monsters that Freddie and Fannie have become. We need to put a stop to this self-destructive cycle of boom and bust.

    1. <a href="https://www.marketwatch.com/story/a-death-cross-is-forming-in-us-oil-underlining-the-unraveling-of-crude-prices-2018-11-20"A death cross is forming in U.S. oil, underlining the unraveling of crude prices
      Published: Nov 20, 2018 2:12 p.m. ET
      The 50-day moving average for WTI futures is less than 0.5% from the 200-day
      AFP/Getty Images
      Ominous signs for oil?
      By Mark DeCambre

      Oil is already in a bear market, but now a fresh, negative pattern is crystallizing in the commodity that has absolutely bludgeoned bulls over the past two months.

      January West Texas Intermediate crude (CLF9, -6.87%) on its first full session as the front-month contract, was down a whopping 7.5%, to $52.91 a barrel on the New York Mercantile Exchange and that downtrend has propelled the U.S. benchmark to the brink of forming a death cross—a chart formation in an asset that many market technicians believe marks the point that a short-term decline morphs into a longer-term downtrend (see chart below).

      Based on the continuous chart for the most-active oil contract, the 50-day moving average at $67.58 a barrel is less than 0.5% shy of falling beneath the long-term 200-day moving average at $67.25, according to FactSet data. At the current rate of decline, a death cross could occur within a week or two.

      Both the U.S. contract and the global benchmark Brent oil (LCOF9, -6.63%) are in bear market, usually characterized as a decline of at least 20% from a recent peak. In fact, U.S. oil is down 31% from its Oct. 3 peak at $76.41 a barrel.

      Crude oil’s rapid descent has weighed on the energy sector, with the Energy Select Sector (SPDR ETF XLE, -3.54%) a popular fund used to bet on the energy sector, down 15.4%.

      Meanwhile, the unraveling of oil prices, viewed by many as beneficial to average consumer, also has raised some questions about slowing global growth, rattling stock-market investors and pushing the Dow Jones Industrial Average (DJIA, -2.11%) the S&P 500 index (SPX, -1.76%) and Nasdaq Composite Index (COMP, -1.71%) down by at least 8% since early October.

  6. Crude oil down around $4 per barrel to $53 and change. Abdan and his $80 per barrel call is, not surprisingly, nowhere to be found.

  7. In Sonoma , here in California, there is a constant demand for homeless housing and affordable homes for the needy, The government does not seem to understand that it is virtually impossible to provide those thing at a price that is affordable in a capitalist economy. Unless, the government itself contracts and builds it.
    If you use a non-profit, the cost goes up 10% above the contractor’s price, and that contractor’s price includes everything possible to be included in the development cost so he can receive the increase profit for the inclusion of high end profitable furnishing and utilities.
    and no governmental worker will want to make a decision indicate that the worker wants and means to limit the ability of the homeless or needy to enjoy the benefits of home owner ship.
    After all, it is just governmental money being spent!

    1. In Sonoma , here in California, there is a constant demand for homeless housing and affordable homes for the needy

      Most of the homeless and “needy” are people with a lifetime of bad choices. Taxpayers do not owe them a roof over their heads.

      1. This assertion needs to be challenged. I work with the homeless very often. You would be surprised to see what the face of homelessness looks like. There are the visible transients, drug addicted, and the mentally ill. They draw the most attention. But these are really just a subset. Quite often homelessness are children who are homeless for no fault of their own.

  8. I stopped reading at “The Institute for Policy Studies”, a hard left “think tank” that has supported terrorism and violent overthrow of the US government.

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