The Panama papers, the Miami real estate market and the news that impacts all countries. When the Panama Papers story broke, the entire planet was shocked by the schemes of the rich around the world to conceal their wealth and evade 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 stunned. The story of the Panama Papers involved the discovery of data related to the secret dealings of a Panamanian firm known as Mossack Fonseca. The company was a favorite of the world’s billionaires and millionaire clients who wanted to set up shell companies and offshore accounts to hide money from their governments.
There is a famous saying that rich people all over the world speak the same language. The publication of the data of the Panamanian firm demonstrated it. The client list included prominent businessmen, politicians, celebrities and criminal network bosses. When the full scope of the deals was absorbed, a European leader was forced out of office; governments launched investigations, and other things to initiate damage control measures.
Closer to home, the US Treasury Department jumped into action immediately and began drafting rules for banks to reveal the identities of the people behind shell companies. The department also established standards to stop the opening of foreign accounts.
Miami’s real estate industry was one of the hardest hit. Reports detailed that some of the money used to buy overpriced condos came from people named on the list. It is notable that even before the mention in the Panama Papers, the Miami real estate industry was under scrutiny from the US government for claims of money laundering. Authorities were not comfortable with the fact that people bought a substantial number of condos and luxury properties in Miami in cash without leaving a trace. Considering some of the listings cost millions, it was curious how buyers could afford cash transactions without any legal documentation.
Miami Florida at sunset, colorful skyline of illuminated buildings
The US government raised a red flag on the type of investment in Miami-Dade County and put measures in place to trace the origin of money from buyers who pay more than $1 million in cash. The main concern of the authorities was that since the money did not go through the formal banking sector, it was considered suspicious. In 2015, about 53% of properties in the area were recorded as cash sales.
When foreigners bought $6.1 billion worth of property in Palm Beach, Broward and Miami-Dade, there were many suspicions about the origin of the funds. Most of the money was thought to represent capital flight from Latin American companies. When the real identity of the property owners emerged, it was a shock to industry players. Paulo Alves Pereira, a Brazilian politician and property developer was one of the names. It was discovered that he was the true owner of Mateus 5. Paulo resigned as governor of Brasilia a few years ago after being accused of corruption. When the Miami Herald decided to investigate the report further, it found at least nineteen foreign nationals who own properties in Miami that appear in the Panama papers. These nineteen people are suspected of being involved in fraud, bribery and tax evasion in their country. The investigation also found that many Brazilian clients who used the services of a particular local real estate attorney had questionable backgrounds. Most were politicians, people with political connections, and judges. The newspaper discovered that the Miami Association of Realtors organized an event to advise its investors on ways to circumvent 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 in the agreement as long as the companies pay taxes and declare their assets. The fact that foreign citizens who invest between $500 and $1 million in a US project have the opportunity to become US citizens through the EB-5 visa program has also been of great interest to Latin American citizens.
Although many factors have contributed to the recent slowdown in the Miami condo market, one reason must be the publication of the Panama Papers. Foreign buyers can no longer do business as usual. They find that many more questions are being asked compared to last year’s offerings. At the same time, many Latin American companies are going through economic and political downturns.
The Panama papers can affect Miami condo prices which can drop to affordable levels. At some point, massive inflows pushed property prices so high that they were unaffordable for locals. Rental prices can also drop to affordable levels when owners of vacant condos choose to lower their rates to attract renters. 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. At the moment, it seems that the impact of the Panama Papers has damaged the image of Miami and its luxurious condominiums. Whether the revelations will have a significant effect on the industry remains to be seen. Authorities will no doubt take a closer look at Miami real estate transactions involving foreigners and cash. The effect of the Panama Papers has left its mark for years to come.
