Dr. Rantala’s Research Shines Light on Dirty Real Estate

July 24, 2018

Until recently, it has been relatively easy to buy real estate anonymously using a shell company. All-cash buyers who acquire properties through a shell company are not normally required to report the true owner to any authorities or financial institutions.

Assistant Professor of Finance Ville Rantala, along with Dr. Sean Hundtofte, an economist from the Federal Reserve Bank of New York, have co-authored a new, working research paper on this topic. Their findings were recently featured in the Miami Herald.

Our paper analyzes the impact of the new regulation all over the U.S., but the Miami Herald article understandably focuses mainly on what has been happening here in Miami. The effect we see in Miami is particularly strong, and there have been many articles about shell company real estate buyers in the local media during the past few years.

Dr. Ville Rantala
Assistant Professor of Finance, Miami Business School
It has long been suspected that this anonymity allows some buyers to use real estate purchases for money laundering or other illegal purposes. To combat this problem, in 2016 FinCEN, a bureau of the U.S. Department of the Treasury, announced Geographic Targeting Orders (GTOs), requiring title insurance companies to identify the beneficial owners of shell companies buying residential real estate in certain counties.

Dr. Rantala’s research also caught the attention of UM alumnus and Senator Marco Rubio (R-FL), who went to Twitter to compliment the research findings.

In the study, Dr. Rantala and Dr. Hundtofte analyze how the GTOs affect residential real estate purchases made by corporate cash buyers. The study uses housing transaction data obtained from Zillow Corporation. The sample represents approximately half of U.S. residential real estate transactions.

The first FinCEN policy targeting Miami-Dade and Manhattan became effective in March 2016. Dr. Rantala and Dr. Hundtofte observed a dramatic decline in high-end real estate purchases by corporate cash buyers nationwide. The dollar volume of corporate cash purchases decreased by 70%.

The decrease is strongest in GTO counties, but they also saw a decline in corporate cash purchases in other areas.

“We suspect that this is caused by fear of further regulation, a general FinCEN focus on shell company real estate purchases, and FinCEN’s public request for Suspicious Activity Reports from real estate professionals,” said Dr. Rantala.

To read more on Dr. Rantala’s co-authored research, please click here.
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