Money Laundering Provided 1 In 20 Dollars For BC Real Estate

Money Laundering Provided 1 In 20 Dollars For BC Real Estate

Canadian real estate is a giant washing machine, confirms the British Columbia government. The province’s Attorney General office released a new report yesterday. The report estimates the amount of laundered cash in the real estate market to be in the billions last year. Considering last year was slower than usual, it represents a good chunk of all sales.

An Estimate $7.4 Billion In Laundered Cash Hit BC In 2018

The estimated amount of money laundered cash to hit BC last year is jaw dropping. The paper estimates $7.4 billion flowed in B.C. in 2018, with $5.3 billion going to real estate. For context, this is the size of all transaction dollars for Toronto, this past March. The paper also mentions the model would underestimate if not all funds are included. Since it’s hard to measure illicit cash, this number is likely much higher. It only gets more shocking from here.

Laundered Cash Could Have Fueled 4.6% of BC Real Estate Purchases

The paper estimates if the cash were spread across BC, it could represent up to 1 in 20 real estate dollars. The $5.3 billion in cash last year, equals 4.6% of 2018’s total dollar volume. If the funds have the same distribution as sales last year, it would be 83% residential and 17% commercial. This breaks down into $4.6 billion in residential purchases, and $0.7 billion in commercial. If the funds were only used for residential real estate, it would represent 5.3% of the residential market.

The paper doesn’t make any estimates on how many homes that would represent. Using some basic averages though, it’s pretty f**ked up. Using the average sale price, it works out to 3,604 homes if distributed like all investment. If solely invested in residential, it  would work out to 4,152 homes. Not an insignificant amount.

If Only In Lower Mainland, It Equals 7.4% of Purchases

The paper also gives an estimate if this money only hit Lower Mainland, a.k.a. Greater Vancouver and Fraser Valley. The $5.3 billion would represent 7.4% of Lower Mainland residential transactions last year. Since the panel used assessment data, the total transaction volume is higher than the MLS. You, I, and your neighbor would most likely buy a home through the MLS.

If all transactions involved Realtors, the ratio would actually be much higher. The paper doesn’t dive into this, but assessment transactions include non-market purchases. Consequently, the assessment transaction numbers are ~93.6% higher than MLS only volume. If the money exclusively went through Lower Mainland MLS systems, it would be ~14.2% of total dollar volume. Considering residential comps are based on the MLS, the biggest impact would be made here as well. If you were integrating your laundered cash, would you make non-market purchases? Probably not, but you never know.

Depending on how this money was funneled, the impact could be greater than even estimated. We’ve dived into how real estate prices are influenced by money laundering before. That was with just a few purchases. Now we’re talking about a lower estimate of 4.6% of transactions across BC, and up to 14.2% in Lower Mainland.

Greater Vancouver Real Estate Prices

The price of a “typical” home in Greater Vancouver, and Lower Mainland. British Columbia. The period of estimated money laundering is highlighted for context.

Source: Canadian Real Estate Association, Better Dwelling.

All of this is pretty impressive, when you consider we’re discussing a year where prices fell. In 2018, the price of a typical home in Lower Mainland B.C. fell 0.9% from the year before. In Greater Vancouver, the price of a typical home fell 2.7% from a year before. That’s with money laundered cash propping up dollar volumes.

More important to the average real estate buyer, is who provides the liquidity? The end goal of money laundering isn’t to purchase a home, but to layer transactions for clean cash. Right now we have an estimate of the amount of money that went in over a single year. However, we don’t have an estimate for how much of this cash has come out clean. Good thing real estate money laundering magically stops at the border of BC, otherwise Canada might have a problem.

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  • FBO 5 years ago

    In a slow year. Now let’s reconstruct the busy years, when even China was saying money laundered cash was leaking out into Canada.

  • Smaug 5 years ago

    And that’s in 2018, a year in which the market ground to a halt in Van. Imagine what it was from 2010 to 2017. It could have been many times that amount. Instead of 1 in 20, maybe 1 in 3? 1 in 2?

    Local incomes sure don’t explain the prices.

    • Ethan Wu 5 years ago

      2015 must have been bonkers. Even the US pegged that as a huge year for laundering.

  • #Vindicated 5 years ago

    I didn’t think vindication was going to be so satisfying, but it really is.

  • DB 5 years ago

    why do these things take forever to come out by govt.

  • Oldguy 5 years ago

    I moved to Vancouver in 1990 and lived there for 6 years. The money laundering, then as now, was obvious to everyone. But nobody said anything or did anything because everybody was getting rich. That includes politicians, regulators, buyers, sellers, bankers, lawyers, realtors (all of them), the media. Everybody. If the folks there want to blame somebody, they should look no further than in the mirror.
    Everybody knew and nobody did anything.

    • george 5 years ago

      EXACTLY!!!! you are 100% right and nothing will change. All here act like this is normal and accept this ‘normal’ situation like a whore engaging in unprotected sex and claiming everything is fine…you will get something later on hongcouver…..

  • Renter 5 years ago

    Hope ON govt. also takes some meanful steps to curtail these criminal activities so that the locals with local incomes could have some hope of owning a roof over their heads.

  • cto 5 years ago

    Now,…what is the Ontario Government hiding on this issue!!!?
    I’ll bet you, it is just as bad and likely worsened since they are cracking down in BC.
    We Canadians truly are suckers!

  • Mike Martins 5 years ago

    How do you know it stops at BC boarder. For years they were telling us all skies are clear there is no problem.

  • Frost 5 years ago

    If nothing is done on a federal level to curb this money laundering heaven, the markets will simply shift to other parts of Canada. Ottawa, Montreal and London are exploding right now. Until the money laundering and foreign ownership is curbed we will continue to see astronomical home prices and rent. Demand action from your government this election. Does not take much to send an email to the reps in your riding.

  • Scott MacKinnon 5 years ago

    That’s what you get when its all just a bunch of rent seekers

  • Give me a break 5 years ago

    They already know it’s much higher in Ontario.The press and public pressure to stop dirty money is the only reason it’s on government radar.No industry would be able to hide that much money without getting busted.
    CRA should start seizing the properties .

  • Time Lord Wayne 5 years ago

    I think an effecive protest might be to ring the door bell of money launderers’ homes and then run away. When they answer the door — surprise, there won’t be anyone there! Of course we need to organize this on a national level. Random door bell ringing won’t have much effect.

  • MM 5 years ago

    Cmon, we don’t need any excuses for harassing rich people in BC anymore. Money laundering? Keeping homes empty? Forget it…Just tax them to death and force them to leave province without any justification.
    That experiment in a single province must be completed to teach other provinces some lessons and to stop a lot of socialistic bs.

  • SUMSKILLZ 5 years ago

    No government is going to touch this directly…to do so would tar and feather one as a racist. Nobody’s going to take that chance, unless someone from Quebec takes the baton and runs with it. Sigh, that’s the last thing we need right now in Quebec.

    • Grizzly Gus 5 years ago

      Politically it should be a lot easier to target “money laundering drug dealers” than it is to target “foreign capital”. The opposing side won’t want to try and brand it as racist, because then they would be opening themselves up to accusations of protecting drug dealers.

      It is more likely that some politicians wouldn’t want to touch this because they might worry about it pissing off some of their base that has benefited from the increase in prices. The comments from Mmr below as an example.

  • Mmr 5 years ago

    Is it money laundering if money from developing countries invest here? I mention it before not every one pay tax there does not mean they are drug dealers. Under ground economy in developing countries high as 40 percent. Please dont tell 40 percent of ppl on those countries drug dealers. Also invest Canada either black or white money is a good thing. I hope Ford government dont act like idiot bc government. And encourage those money to Toronto real estate. We need all the investment we can get from all over the world. Its free economy let’s encourage it. Every one wins.

    • Smaug 5 years ago

      You’re the guy who inherited two Toronto properties, then leveraged up to two more, right? Sure, the whole economy should be run for your benefit. Yesterday you wanted interest rates under 2%. Today you us to keep the country open to laundered money. Tomorrow what will you be asking for? The world doesn’t revolve around you. Grow up.

      • Mmr 5 years ago

        Target drug dealers instead putting whole sale tax of 15 percent on every one!! Why government so lazy to do investigating bad people instead putting whole sale tax on every one to get some votes. Why dont you talk about that.

        • MH 5 years ago

          Sure. Let the residency be determined based on the taxes paid in Canada as it has been proposed a long time ago – fair and simple. No people declaring poverty-level incomes owning multiple RE properties and consuming taxpayer funded public services. Much better than the foreign buyer tax.

          I am sure you will vote with both hands for it. After all, it looks like fairness is your primary concern.

    • Renter 5 years ago

      I don’t think it is a good idea to get these tax cheaters from developing countries to CANADA just because they have money to invest in CANADIAN RE. We need immigrants who would pay their share of taxes and not people who could abuse and cheat the tax system.

  • Dave 5 years ago

    We need the money to keep our economy going .
    The politicians know that and it makes them look good

  • JC 5 years ago

    So in other words, prices are not going to come down? I should just jump into the market now as nothing will ever change, and prices will just keep going up, up, and up as the Ontario/Federal government will never doing anything about the money laundering because it’s holding up our economy?

    • Joseph 5 years ago

      JC, things will eventually come back down. Clear examples are Vancouver and Australia. It’s just a transitional stage where the gov is finally doing something about it. Why NOW did BC start doing something about it? Makes you wonder about the driving forces behind all this. Let’s see how quickly Ontario follows suit, or not at all.

      • Bob 5 years ago

        I’m sure our former crack dealer and crack using Premier will be overly concerned about transparency and due process.

  • gg 5 years ago

    The banks are guilty too as well as real estate agents and car sales and the list goes on

  • HowCanThisBeAllowed? 5 years ago

    It’s not just you guys it’s been happening here too in Australia and New Zealand. Take a look: ABC News: Real Estate: dirty money laundered through Australian housing

  • DB 5 years ago

    BOB…I’m not a Ford fan but your referring to the Premiers brother and former mayor on Toronto, Rob not the Premier.

  • Sokol 5 years ago

    Looking at the analysis of the report by Bloomberg the gestimate of the $5-$7B can be highly inaccurate – the alleged laundered $5B can easily be just $500M. And alleged Chinese criminals can easily be American ones and maybe not even criminals.

    If your estimates are based on estimates of estimates- it’s a good start but highly inconclusive to make sound statements

    • Sokol 5 years ago

      The link to the Bloomberg article

      Vancouver’s Dirty Money Figures: The Smoking Gun That Wasn’t

    • AML Bro 5 years ago

      The Bloomberg article is a joke. Two misunderstandings the authors has is the report gave a an estimated weighed distribution of the money across Canada by criminal activity. Since reporting and enforcement is different in all regions, that pegs regions with high petty crime per capita as regions with higher amounts of laundering. Since laundering is largely a white collar crime involving high velocity transactions to obfuscate, hubs like Toronto and Vancouver are most likely home to the vast majority of all of these funds.

      The gravity model could be lower, but the gravity model also doesn’t include artificial invoicing and smurfing done through banks – the vast majority of money laundered. The report is actually just scratching the surface money laundered in BC.

      The RCMP arrested a high roller at River Rock on behalf of Australia, because the country alleged he washed over $855 million by himself.

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