Back HomeTransparency in the Real Estate Industry
The slowing in volume of real estate sales in the past year has investors and developers alike worried about the future for New York real estate. One of the main reasons for the recent shift is the tightening of regulations and transparency in real estate transactions.
Prior to the 2008 housing crisis, it was easy for individuals to purchase single-family homes and multi-million dollar luxury condos, and for companies to purchase commercial buildings. Banks would lend to clients who couldn’t afford the loans they were taking, and shell companies would buy up both luxury and commercial properties. Credit checks and regulations have been issued since then to create a safer environment for investors, banks, and property managers.
Now, even further transparency regulations are being put in place to protect domestic buyers purchasing in the ultra high end luxury market. These regulations are called “GTO’s.” A GTO is a geographic targeting order, an examination to track to people behind shell companies who are purchasing multi million dollar properties. “By expanding the G.T.O.s to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course” (1).
Of course, New York City is a rather large market that officials would like to have regulated, but there are some areas of the United States that will be more targeted than other areas. A lot of these regions are known for their stability during uncertain times in the real estate market, as well as their increasing property value over time. “There will now be increased scrutiny of luxury real estate purchases made in cash in all five boroughs of New York City, counties north of Miami, Los Angeles County, San Diego County, the three counties around San Francisco and the county that includes San Antonio” (1).
Especially after the housing crisis in 2008 and the stock market crash due to mortgage backed securities, regulations are expected by investors. The type of monitoring, especially in the past couple of months, has become rather strict. “Some brokers [have] predicted the new orders will have only a slight effect on the new markets covered by the order because foreign buyers already have been pulling back because of global economic turbulence…With luxury sales already on the decline in both cities, especially among foreign buyers, brokers said it was impossible to determine whether some buyers were deterred from purchasing because of the new order” (2).
However, the argument has been made that sales, specifically luxury condominium sales in Manhattan, have not be affected by this new regulation. Hall F. Willkie of Brown Harris Stevens says that ” ‘not one issue in terms of this preventing a sale ever crossed my desk.’ ” (2). However, on the contrary, the fact that these sales “are not passing ones desk” also could be indicative of why sales volume overall is down significantly year over year.
In other words, we may not be seeing deals die due to the increased regulations, rather we are not seeing as many sales period. High monitoring by the government will always lead to a shift in the demand and supply of real estate. “Title insurance companies, which are involved in virtually all real estate transactions, are charged with carrying out the order” (2). Since there are so many different parties involved (between the policies put on from both title companies and banks) there will far less money laundering occurring in both the real estate market as well as financial institutions. This will make for more secure purchases on all accounts, which is much better for investors long term.
(1) New York Times
(2) Wall Street Journal
