Dirty money is driving up Toronto real estate prices, report says | The Star
A Star investigation published last year revealed that Canadian real-estate agents submitted suspicious transaction reports in less than 0.008 per cent of property sales made between 2013 and 2017.
“While the proceeds of crime can be laundered through any strand of the economy, there are several characteristics of the real-estate sector that make it particularly attractive for money laundering,” states the report, listing “weak regulation, lax enforcement, and the ability to hide in plain sight through anonymous ownership structures.”
The report found that anonymous owners are concentrated in the high-end luxury market, far more likely to buy homes with cash, and when they do take out a mortgage, they rely on alternative lenders, which are not subject to the same anti-money laundering rules as banks.
While only 4 per cent of GTA residential property transactions involved a corporation, the report found the more expensive the house, the more likely it has an anonymous owner. Only 3.5 per cent of residential properties bought for under $1 million have corporate owners. But 54 per cent of homes purchased for $7 million — $10 million are owned through a company.
A Star investigation into the Four Seasons Private Residences Toronto found that nearly one-quarter of the units in the Yorkville luxury condo development were held by private corporations.
Anonymous owners are more than three times as likely as individuals to pay for their homes in cash, which “enables a buyer to avoid the scrutiny of financial institutions,” the report says.
While alternative lenders only account for 3 per cent of mortgages taken out by individuals, they provide 49 per cent of mortgages held by corporations, which means these loans were not subject to reporting rules, nor the federal stress test designed to ensure the loan can be repaid.
Potential solutions for Canada and Ontario are already being implemented in real estate markets around the world, where it is becoming more difficult to anonymously own property.
In 2016, the United States Treasury Department started tracking real-estate purchases by shell companies in Manhattan and Miami. In the months that followed, cash purchases by corporations dropped 70 to 95 per cent, and the monitoring program has now been expanded to six other areas including San Francisco, Los Angeles, San Diego and San Antonio.
British Columbia has plans to establish a public registry of the real owners behind companies that purchase real estate.
The U.K. has proposed a ban on real-estate ownership through shell companies. It already has a public registry of the real owners of every company incorporated in the country, and will soon extend that registry to include the many island tax havens under its jurisdiction, including Bermuda, the Cayman Islands and the British Virgin Islands.
In January next year, all EU members will have to make their corporate ownership registries public.
In Canada, the provincial finance ministers have pledged to collect more information — without making it public — on who owns corporations and make that information available to authorities, though there is no timeline on when that will happen and little urgency to get it done.
In the meantime, anonymous ownership is still a reality in Toronto’s property market, the Transparency International Canada report states, attracting dirty money from far and wide.
“By hiding behind companies, trusts or straw men, criminals can enjoy the spoils of their crimes in plain sight while making it exceptionally difficult for law enforcement agencies to detect, investigate and prove their ultimate ownership.”
Marco Chown Oved is a Toronto-based investigative reporter. Follow him on Twitter: @marcooved
This content was originally published here.