For the past two decades, foreigners have been purchasing homes in expensive new luxury condominiums in New York City driving prices to extraordinary levels, the most recent of which was the purchase of a $100 million dollar Penthouse in the prestigious One57 Condominium. In today’s market, international real estate buyers comprise upwards of 50% of these purchasers. The question has been repeated asked by native New Yorkers, where does all the money come from and who can afford to pay upwards of $7,000-8,000 per square foot and higher for these “homes”?
The answer is complex. First of all, most of these units are not really homes in the traditional sense. Instead, they are safety deposit boxes for the hidden wealth of people who have often usurped economic power, sometimes by questionable methods, often through political connections, in their native countries. Many of the apartments remain empty; some are furnished and used intermittently by various family members from time to time who are visiting NYC or attending colleges and universities here.
Why do these international real estate buyers choose the U.S.?
Most of the millions of dollars necessary to purchase these properties have been transferred to off-shore bank accounts, often without having been taxed in any country. Since the profit gained in these off-shore bank accounts is less than optimal, many of these people choose to park their money in U.S. real estate in areas with established growth potential like Manhattan or Southern California. Because of the steady foreign demand for these properties, they are virtually recession-proof.
There is also the added advantage of being able to conceal the actual personal ownership of this real estate through LLCs (Limited Liability Corporations and Trusts), making them out of the reach of foreign governments trying to confiscate the U.S. assets of their citizens. Purchases of this type are perfectly legal in the United States and these sales are frequently negotiated by agents such as myself. The LLC is the entity formed for the sole purpose of owning this one property. It is managed by an off-shore bank in a tax free haven.
The New York Times has done a major year-long investigation to establish who the actual owners are of the real estate are with interesting but somewhat limited results. The front page series on this subject began on Sunday, February 9th and is running daily with interesting Inspector Clouseau-type discovered tidbits revealed each day. If you interested in the unabridged version as reported by the New York Times, click here.