Australian lawmakers are learning how home prices have been inflated by money laundering. The Senate committee investigating the adequacy of anti-money laundering laws continues this week. A piece tabled is a study showing how high-profile individuals with questionable cash should have set off alarms. Instead, they were able to move millions of dollars of unknown origin into housing. Weak regulations have made Australia a magnet for using homes for money laundering. The result is higher home prices as families and money launderers compete for the same units.
Australia Ignored Warning Signs For Real Estate Purchases
A study by Transparency International Australia (TI) was tabled this week. The document outlines how real estate has become a popular tool for money laundering. One notable section is a list of high-profile people who presented obvious risks. Despite the elevated risk, they didn’t set off any alarms.
Some of the cases cited:
- A Sudanese General who purchased a A$1.5 million home in his son’s name, despite only earning A$60,000/year.
- A Malaysian banker currently incarcerated in Singapore for money laundering. Prior to his arrest, he had bought an A$8.2 million property through holding companies.
- A billionaire Chinese property developer who bought six homes for a total of A$37 million. He’s currently exiled from Australia on national security grounds. “He did not live in any [of the homes],” the organization emphasized.
AUSTRAC Estimates $1 Billion Laundered From China In 1 Year
A report from AUSTRAC also called out Australia’s anti-money laundering rules. In one report, they estimate $1 billion was laundered from China from 2015 to March 2016. That’s just China. There are lots of other places with plutocrats looking to hide cash in countries with weak laws as well.
Since money launderers are buyers, they create more demand than usual. The extra demand, especially with falling interest rates, helps to push prices higher. Just this would be enough to be a concern, but it also impacts market behavior and dynamics.
Money launderers have an incentive to pay the most they can since it moves more money. The homes they purchase become comps for the neighborhood. As a home buyer, you don’t know if a home sold for 25% over asking because of exuberant buyers or a money launderer. You only know the next home in the neighborhood will see its market price influenced by it as a comp. This is how just a few homes used to move money can spark an exuberant market.
Weak Australian Regulations Make Real Estate Ideal For Laundering
Why Australia? The same reason it’s become popular in Canada — a lack of enforcement and weak laws. “The real estate sector has continually been identified as a weak spot and a large compliance hole in Australia’s AML/CTF regime,” said TI.
Housing is an ideal option for money laundering since it’s expensive and often involves the state overlooking fraud (they just want a house!). Other factors such as, it’s not uncommon to see large amounts of cash used in transactions, something that doesn’t happen with stocks and bonds. Then there is the return on investment. Most forms of money laundering cost money, but using real estate can make the launderer money.
“Criminals may be drawn to real estate as a channel to launder illicit funds due to the ability to buy real estate using cash, to disguise the ultimate beneficial ownership of real estate, the relative stability and reliability of real estate investments, and the opportunity to renovate and improve real estate, thereby increasing its value.”
It’s not just great for laundering, but it’s relatively anonymous and profitable as well.