MANHATTAN — The city’s luxury real estate market is bracing itself after Wednesday’s announcement by the National Treasury Department that it will begin mandating the disclosure of identities of secret buyers of Manhattan homes costing $3 million and above.
Cash-only transactions conducted using shell companies like limited liability companies, or LLCs, will be under the microscope, the New York Times first reported.
The program, which will also include homes for $1 million and over in Miami, will run from March through August, the department said, explaining that it planned to evaluate the results before expanding the program nationwide and making it permanent.
The initiative was in part in response to the Times’ coverage of the increasing use of shell companies by foreign buyers who use U.S. real estate as a safe haven for their money.
But real estate experts questioned whether the move was warranted and noted that many buyers of luxury properties had good reason for wanting to hide their identities.
Real estate expert Jonathan Miller estimated that roughly 10 to 15 percent of Manhattan’s market falls under the $3-million-and-above price range and that more than half of those deals are likely cash buyers.
He believes the program could have a chilling effect on the high-end of the market.
“When you introduce something that’s out of the blue and far-reaching, any unexpected event or change causes a blanket of uncertainty and pauses the market,” he said of the announcement.
While Miller didn’t disagree with the premise that there might be drug dealers or billionaire oligarchs that got their money in unseemly ways, he also said that all cash deals have always been a big part of the market in such a wealthy city.
“In my view, it’s an overreach of the government. It’s essentially characterizing a wide swath of the market as being criminal,” he said.
With the 6-month program, it may encourage buyers to wait, he said, or perhaps look at getting a mortgage.
“The purchasing of properties in an LLC has become common practice to safeguard the identity of buyers, who are often high profile and/or celebrity, where disclosure of address or financial circumstance could make them vulnerable from a safety, business or social standpoint,” said Andrew Heiberger, founder and CEO of TOWN Residential.
Either way, he said, buyers are vetted by co-op board and through the condo application process, so he didn’t expect “a significant number of illegalities uncovered or impact on the market.”
New York City implemented new rules in May, requiring that the names of all members of shell companies, along with their taxpayer identification numbers, be provided to the city's Finance Department, though not to the public.