After allowing billions of dollars of untracked money to flow into local housing markets over the last decade, officials at both the federal and provincial level are now beginning to talk seriously about combatting the issue of money laundering in Canadian real estate.
Outside of a few general promises floated during the October election – the Conservative’s pledge to launch an inquiry into money laundering, the Liberals’ proposed tax on vacant residential properties owned by non-resident non Canadians – one of the few proposals to spark real discussion was Ontario Real Estate Association CEO Tim Hudak’s public call for a beneficial ownership registry, which would “require companies, trusts and partnerships to publicly disclose controlling shareholders, beneficial owners and partners” so all involved would know who is actually funding a property purchase, he wrote in the Toronto Sun.
On its face, the suggestion is a good one – sunlight is, after all, one hell of a disinfectant – but in the world of dark money, one would assume a well-funded criminal organization involved in human trafficking, drug smuggling or war profiteering might also be willing to fudge its books.
“In reality, if people are smart enough to have tens of millions of dollars, they’re probably smart enough to figure a way around whatever rules are put into place,” says Bosley Real Estate’s David Fleming.
Fleming is quick to point out the plan-shaped void that exists between Hudak’s idealistic words and their intended results.
“The cool soundbite out there for politicians is ‘Thank God they’re doing something about this.’ But that’s the problem. All you have to do is say you’re going to do something; the general public doesn’t ask how, and they don’t look at whether or not it’s actually going to happen.”
The widely-held belief among OREA and provincial governments like Ontario’s and British Columbia’s is that reducing the amount of anonymous money in the real estate market will reduce speculation and decrease sales to non-resident entities for whom making obscene over-asking offers is the norm, increasing inventory and cooling prices.
But it’s questionable just how much of an impact on prices a removal of laundered money would have. How much can prices really fall in the fastest growing province in Ontario?
“For people that are out there saying, ‘I can’t afford the house that I want. It’s a million dollars. If it was $500,000 I could afford it.’ You’re not owning. It’s not going to happen,” Fleming says.
Simeon Papailias of Royal LePage Signature Realty agrees that the average buyer won’t receive any pricing help from the beneficial ownership registry, but the upper end of the market will almost certainly be impacted.
“There’s a lot of evidence in the United States where they did implement a registry that the flow of money to luxury properties under shell corporations has already stopped or reduced by up to 70%,” Papailias says. “I definitely think it’s going to have a positive effect.”
The effect on realtors may not be quite so rosy.
“Agents are going to miss deals as a result of it,” says Papailias. “It would definitely have an impact.”
Some have proposed a ban on non-resident ownership as a way of eliminating the potential for foreign money laundering, but Papailias points out that not all money laundering has a foreign source. Much of that chicanery would be allowed to continue under any sort of foreign money ban. It could also leave sellers in a precarious situation.
“What if, for argument’s sake, the market was ice cold and someone needed to sell their property so they could feed their family?” posits Fleming. “Are you going to tell that person that a buyer from New York isn’t allowed to buy their home?”
Whatever the provincial Conservatives’ next move, the question remains: What more agents can do to stem the flow of dark money into the Canadian market?
“We’re not detectives,” Fleming says. “We can’t find out if the money is actually coming from somewhere else. If they show up with a cheque, we fill out the receipt of funds. The forms are there for us, but beyond that, I don’t really know what more a real estate agent can do.”