Billions in Toronto Real Estate Bought Anonymously, with Funds of Unknown Origin

Looking to launder some cash?

By Stephen Punwasi, Better Dwelling:

Looking to launder some cash? You might want to head over to Toronto, and use the real estate. A new Transparency International Canada (TI Canada) report studies the corporate ownership of Greater Toronto residential real estate. The organization took a dive through over 50,000 corporate purchases made from 2008 to 2018 (full report). Turns out at least $20 billion in buys were made with no checks and balances to determine the beneficial owners or source of funds.

Corporate and Beneficial Ownership

First you need to understand the issue with beneficial ownership in Canada. Beneficial ownership is the person/company that actually benefits from a company. Canada, much like any other tax haven, doesn’t keep track of beneficial owners. Instead, the government only collects a list of directors and a mailing address. Great from a privacy standpoint, but it can become problematic sometimes.

One of those times is when buying real estate. In Ontario, companies can register a title with only the name of the company, and a mailing address. There’s nothing else. We don’t note what country the company is registered, and the address can be a post office box. When combined with how they’re buying Toronto real estate, you can see how this is problematic.

Corporations Used $9.8 Billion In Cash To Buy Homes In Toronto

Using cash to buy Greater Toronto real estate is popular with companies. Looking at the 51,498 GTA homes companies bought from 2008 to 2018, $9.8 billion were all cash buys. That’s about 35% of the total dollar volume spent, with the volume accelerating right up to 2017. To contrast, just 11% of household volume made similar all-cash transactions.

The real estate industry would most likely tell you that’s a sign of market strength. After all, well capitalized companies are transferring money through banks with rigorous checks. What could go wrong?

Well, we don’t know who the beneficial owners of the companies bringing money into the banks are. Going out on a limb here, but I’m willing to guess the majority of them are regular companies that have extra cash. However, there’s no way to verify who has been actually buying these units. If a dodgy beneficial owner isn’t on the corporate registry, no government agency flags go off.

Unregulated Private Lenders Provided $10.4 Billion To Companies

Even more Toronto real estate was bought by companies using unregulated private lenders. Over $10.4 billion in mortgages were obtained by companies using private lenders, over the same period. This represents 49% of corporate mortgage dollar volume. To contrast, just 3% of GTA household borrowing originated from private lenders. Private lending is heavily overrepresented in the corporate world.

Unregulated private lenders are a bigger problem for transparency, since they are… uh, unregulated. TI Canada notes these lenders have no obligations under Canada’s current anti-money laundering regimes. This means they don’t just get to ignore beneficial ownership – they also get to ignore source of funds.

Corporate ownership isn’t the problem, as is the lack of information on buyers. The vast majority of companies may be totally legitimate businesses… or not. However, even a few billion in laundered cash can have a large destabilizing effect on prices. We’ll dive more into the pricing mechanics of money laundering next week though. By Stephen Punwasi, Better Dwelling

How do the most splendid housing bubbles in Canada stack up against the most splendid housing bubbles in America? Holy cow! Read…  The Most Splendid Housing Bubbles in Canada Deflate

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  52 comments for “Billions in Toronto Real Estate Bought Anonymously, with Funds of Unknown Origin

  1. Iamafan
    Mar 21, 2019 at 4:55 pm

    In the USA, new rules: https://tinyurl.com/yxokm2b2

  2. nick kelly
    Mar 21, 2019 at 5:38 pm

    ‘Going out on a limb here, but I’m willing to guess the majority of them are regular companies that have extra cash’

    ???

    We are talking homes right, not industrial or commercial property (hotels etc.) ?

    Well to my naive ears this sounds far from regular. If a company has extra cash, presumably earned through the operation of the business, shouldn’t it use the money to either grow the business, retire debt, or pay a dividend?

    The author is clearly knowledgeable so I’m a bit puzzled as to why he guesses a regular company would go house shopping, (not for an office building) Does it want to know where the schools are?

    I’m assuming the ‘regular’ company is not a small RE outfit that buys and sells RE for a living.

    If the author likes maybe he could expand on this.

    • Joe
      Mar 21, 2019 at 5:47 pm

      You thinking a villain has cash and creates a corporation. The corporation buys homes with cash and derives rental income. The home is listed in the corporation’s name only. The corporation washes the cash back to the villain. The market crashes and the corporation sells the home for pennies on the dollar?

      • Jas
        Mar 22, 2019 at 2:54 am

        Or perhaps more aptly Kopeks on the Ruble!

      • Mar 22, 2019 at 11:03 am

        How do you crack down on slum lords?

    • Bankers
      Mar 21, 2019 at 6:01 pm

      I think we could say Stephen is “opening the debate” ? Very brave.

      Most company formations that I am aware of that include housing are formed for that specific purpose, or if not are very tailored to family or individual wealth management but also including regular business. However my experience is from a different part of the world.

      It is a very dificult topic due to how various themes intersect ( privacy, foreign access to market, corporate monopoly, social expectations, national monetary policy, corruption…and many more) – I have my own ideas though I think I will leave those who are closer to do the speaking :-) .

    • Bucket mouth
      Mar 31, 2019 at 4:34 am

      Only one organization prints money with no oversight or audits to monitor where its money goes or how much it prints, and it controls the money in almost every country on earth,,, if you guessed the Federal Reserve Bank in the US, Canada, Europe and Asia then you know more than most people. They print money out of thin air and answer to no one, they are taking complete control of every country that they print money in, no one dares speak of them because most are on their payroll, they will never be prosecuted for their crimes and they dont fight fair.

  3. Crazy Horse
    Mar 21, 2019 at 6:34 pm

    Here in Jackson Hole Wyoming we used to have a terrible problem getting our lawns mowed and roofs shoveled because nobody making less than $100,000 per year could afford any of the converted motel/condos or 5 remaining mobile homes in the county. After driving from out of state across a 8,000 Ft pass swept by avalanches, the worker/commuters were so tired they kept falling asleep on the job. Knife fights broke out over who could live in the one underpass in town.

    But all of that is ancient history since passage of the Disuse Tax. We discovered that we never had a housing shortage— just a shortage of houses being used. At any given time there were millions of square feet of beautiful estate homes sitting unoccupied while their owners’ enjoyed their other homes in St. Barts or the south of France. The Disuse tax merely required that existing houses be occupied at least 50% of the time or pay a 50% annual fee. If owners chose to leave them vacant they had several options: Rent the house out when not using it, build a guest house on the property and rent it out, or build off-site housing for at least three families. The only constraint upon these alternatives is that the rental rate for these newly available properties was limited to the average per square foot rate for the entire state. As one might expect in a low income state where one single county has an average wealth higher than in the Hamptons, the result was that suddenly lawn mowers and snow shovelers could afford to live where they work because rent was the same as in the poorer parts of the state.

    For many of our wealth homeowners accustomed to spending Christmas here along with a few days of golf on the Fourth of July, the thought of having someone else sleeping in their bed was understandably abhorrent. Some willing paid the 50% annual Disuse tax, but most quickly went about creating housing for the community. The few scofflaws who found their entire estates seized and turned into community housing projects soon wished they had accepted the county’s goal of rebuilding a community for those who actually lived here.

    Originally the Disuse Tax was thought to be un-enforceable because the wealthy have almost all the legal representation in the US, but the requirement that homeowners submit full photo documentation verifying their periods of occupation, along with a few high profile estate seizures soon rendered the Disuse Tax nearly self-enforcing.

    So that is how we brought Community back to Jackson Hole and kept our school teachers, firemen, law enforcement and snow shovelers housed within it.

    LOL

    • WES
      Mar 21, 2019 at 7:36 pm

      Crazy Horse: In Vancouver they are trying a variation of this because there are hundreds of thousands of unoccupied homes, etc. and no places for locals to live.

      Only time will tell if it works but I have my doubts. It is so much easier to hide in a big city than say a small city where everybody knows everything.

      By the way Jackson Hole is a beautiful place! Worked building mining equipment in Wyoming back in late 1970s! Jellystone Park summer/winter great too!

      • gary
        Mar 24, 2019 at 10:54 am

        Yes that was a great story Crazy Horse.

        I’d like to point out a main part of the scheme was the RENT CONTROL aspect, otherwise it would have failed

        (I point this out to all the anti-rent control con-artists out there).

    • robt
      Mar 21, 2019 at 11:19 pm

      Private property is the enemy of the state. Year by year little by little the goal of the state is to erode property rights. The object of this exercise is ultimately to confiscate your property directly or indirectly to house refugees, homeless people, or illegal migrants, the true constituency of political parties of a certain persuasion. The people who pay taxes, maintain property, respect the law, and work are the patsies who pay for it all.
      Who owns what and what they do with it is the business of those who paid for it.
      In Germany there are recent examples of vacant properties appropriated by the state, forced improvements made to the property with the ‘owner’ footing the bill to make it suitable for multifamily occupancy so that illegal migrants can be housed, with deemed rents paid by the state, i.e. taxes.

      • HowNow
        Mar 22, 2019 at 8:24 am

        The “state” owns all the property. When you say “private property” what do you mean? You have user-rights to the property, but the “state” owns it. If it weren’t for the “state”, your property would only be held by you if you can fend off others We need a strong and just government. And, in return, we buy “rights” for the use of the. property. That’s why we pay taxes to “the state”.

        • robt
          Mar 22, 2019 at 10:37 am

          Technically the Queen owns Canada. So what? If you have a mortgage the lender owns the property until the mortgage is discharged. So what? As long as you pay the bills they don’t have the right to bother you and shouldn’t have the right to tell you what to do with any property you ‘own’, though nobody really owns anything – we get to use it for a while.
          The structure of our society is not a collective that determines where we live and how we spend our money. Yet. But encroachment by eminent domain is an insidious process and never takes place to your benefit. Bad laws are made for ‘good’ reasons, and something like occupancy laws are created to buy votes and exercise power by encroachment of your property.
          We don’t ‘buy’ rights, we have rights. We pay taxes for services.

      • 91B20 1stCav (AUS)
        Mar 22, 2019 at 3:15 pm

        Robt.- how many divisions among the declining number of private property owners will you be able to raise? Are you saying that the state does nothing to validate your ownership and protect your claim to your property (acknowledging the infinite ways that are used to game the system depending on citizen input to government)? The Roman Empire, 1796 France, and 1917 Russia are just a few historical examples that come to mind. Does anyone attempt to see the current and larger picture of a massive world population that every day finds itself less able to become invested in an ‘ownership society’, and thus provide said divisions? The race to the bottom continues. May we all find a better day.

    • Chris Garbor
      Mar 21, 2019 at 11:26 pm

      Perhaps with a smart home one can turn on the electricity, turn faucets on and off, adjust heat, etc. from a remote location to create the illusion the house is occupied to avoid the disuse tax. What a sad and pathetic tax……

      • Crazy Horse
        Mar 22, 2019 at 7:29 pm

        Chris
        Wonderful All-American solution. Use technology to cheat on your social responsibilities. Sort of like Apple (and many other American Corporations) shuffling their profits to no tax countries to park them and avoid paying American taxes.

        Pathetic.

    • Mar 22, 2019 at 2:08 am

      I wish they’d do that here in LA.
      The housing shortage always seemed artificial, just a result of housing being turned into an investment asset rather than a place for local working class folks to live in.
      QE money has to go somewhere and there is a shortage of things for those blessed with early access to invest it in.

    • Mar 22, 2019 at 4:12 am

      That Disuse Tax sounds not only logical, but completely necessary. When govt and central banks have financialized housing to such a degree, something has to be done to keep communities intact.
      Vacant/unoccupied homes should be taxed by the municipalities in these areas where affordable housing is absent, and in many areas bought up by wealthy speculators. If you can afford to own a 2nd, 3rd, 4th, 5th “second home” that sits unoccupied for the better part of the year, you can afford to give something back to the community where it is located.

    • doug
      Mar 22, 2019 at 7:47 am

      Interesting and I have never heard of it. So I try to search for it. Can’t find it. I guess the wealthy don’t want it known about, and control the search engines?
      I live and work in a resort area and we could use such. I would like to get more info…
      Thanks to anyone who can point me in the right direction.

      • Paulo
        Mar 22, 2019 at 8:40 am

        @ doug

        Exactly. The workers around Uclulet and Tofino have a terrible time finding housing. Whistler.

        When I first started a flying career at age 19 I used to work at luxury tourist resorts. The owners supplied housing, food, and a job for my girlfriend. If they didn’t do this I would have gone elsewhere. This comment applies to all restricted housing locales. If you want workers, guess what? They’ll actually need a place to live. They had this figured out for medeivel serfs, why not now (even though we call them servers, landscapers, roofers etc).

    • MD
      Mar 22, 2019 at 9:33 am

      “Here in Jackson Hole Wyoming we used to have a terrible problem getting our lawns mowed and roofs shoveled…”

      Terrible – indeed, I’d say human suffering on an unprecedented level.

      And those starving Africans or bombed-out Yemenis think they’ve got problems, eh? They should try getting a ‘little man’ to mow their manicured lawns in Wymong!

      Oh, the humanity!

    • Paul
      Mar 22, 2019 at 12:07 pm

      None of these rules are needed in Jackson if you just develop some of the 97% of Teton County that is blocked from development…

      • Crazy Horse
        Mar 22, 2019 at 7:22 pm

        Paul
        Yep. There is all that vacant, unused land locked up In Grand Teton National Park, inhabited only by moose and grizzly bears. The three million visitors per year should just stay at home with you in New York and there would be less need for motel cleaners in the town of Jackson.

    • Crazy Horse
      Mar 22, 2019 at 3:40 pm

      I got a great laugh at how many readers missed the LOL at the end of my post. To think that a majority of the usually highly perceptive contributors to Wolf Street thought that such a just and logical policy had actually been implemented in a place like Jackson Hole! Never will happen until the serfs turn their hunting rifles against the absentee billionaires, take over their toy log lodges and silly glass palaces by force, tar and feather their lawyers and run them out of town like they did with sheepherders in the old days.

      There are some elements of fact in the tale. A laborer on one project I worked on did live under the bike path overpass, and he did end up in jail after a fight with his wife. Service workers commonly live 10 to an apartment or 2 per car. And the majority of twenty million dollar “cabins” are only occupied for a few weeks each year while school teachers, nurses and ER doctors commute across a mountain pass from another state.

      • Crazy Horse
        Mar 22, 2019 at 3:59 pm

        PS Dick Cheney is an absentee “resident” of Jackson Hole, visiting his golf course house only for his annual week of trout fishing. As an actual resident of Texas he was constitutionally prohibited from serving as Vice President along side a President who was also from Texas. But in the realm of the Oligarchs who inhabit the upper .001%, the Constitution is irrelevant.

        • 91B20 1stCav (AUS)
          Mar 22, 2019 at 4:46 pm

          @Crazy-you definitely had me wondering when you said this was happening in redcon WYOMING, for all of the reasons you presented. I bit hook, line and sinker, though, in another vain hope that the economic royalty of the world might be realizing that advantages exist in practicing enlightened self-interest. An excellent jest, and I shoulda known better. A better day to all.

      • GrassRanger
        Mar 22, 2019 at 5:18 pm

        In 1963, I worked the summer at Jackson. I loved the place and the experience. A fellow I worked with tried to get me to buy a vacant city lot for $500. Alas, I had to use all the money I earned that summer to pay for college that fall. After Labor Day, they nailed plywood over all the motel windows and rolled up the sidewalks for the winter. Not quite the same Jackson today.

    • Sirr duende
      Mar 25, 2019 at 2:51 pm

      Interesting anecdote. Thanks for sharing

  4. WES
    Mar 21, 2019 at 7:21 pm

    Laundering money is considered very bad! So naturally Canadian federal politicians have to appear really tough! So they created anti-laundering laws to oppress the ordinary Canadian masses, 1984 big brother style!

    Naturally these same politicians don’t really want to actually stop foreign money being laundered in the country!

    This company stuff is just a nice legal work-a-round created by the federal government to circumvent its own so called money laundering laws that require financial institutions to report to the government any large money movements!

    Another nice legal loophole is checking the Canada Resident check box on real estate broker form when buying/selling a property in Canada! So when you sell the proceeds of the sold property are not subject to any taxes so you can easily take the money out of Canada without paying any taxes!

    As if that isn’t enough of an incentive to launder foreign money in Canada, Canada Housing and Mortgage will offer government insured financing so you can skip out of the country not paying off the mortgage stiffing Canadian taxpayers plus not paying any taxes!

    All of these so called legal bugs are not bugs waiting for a windshield but all purposely built-in features!

    Welcome to Canada!

    • robt
      Mar 21, 2019 at 11:26 pm

      In the late ’70s and early ’80s there was a tidal wave of money from the Caribbean that hit Toronto, and agents were buying property for cash with no limit to the numbers. So, nothing new, except the banks were told to stop being naughty collecting duffel bags of cash from little islands.
      But there are always ways, and nothing changes, because legislation and regulations are always enacted in response to clever and creative money management, never in anticipation of it.

    • Paulo
      Mar 22, 2019 at 8:45 am

      Well, maybe if they just confiscated the houses and repurposed them if they are empty more than occupied? A few arson examples would do the same thing and insurance would soon fail to cover empty homes. There are solutions and one way or the other common people need a place to live. Taxation might be better than revolt, imho.

      regards

      • robt
        Mar 22, 2019 at 10:58 am

        Why stop there? A continuing background discussion in political parties of a certain persuasion involves assessing whether people really need a 4 bedroom house if only one or two people live there.
        Surely they could just move in whomever they want to your wasted space in the name of social justice, or saving the environment or whatever happens to be the rationalization of the day.
        However, allowing properties to fall into disrepair does become an issue for municipalities to solve, and they have ways to do this.
        It’s worth keeping in mind that the advocates of property confiscation by taxation or expropriation invariably overestimate the number of vacant unrented properties to further their agenda.
        It’s also worth noting that the worst management of properties and the worst landlords in any city is governments that own and manage social housing.

        • Crazy Horse
          Mar 22, 2019 at 7:44 pm

          robt

          “It’s also worth noting that the worst management of properties and the worst landlords in any city is governments that own and manage social housing.”

          Ideology or fact? Or just an accurate reflection of social housing as it has been done in the USA?

          In Vienna Austria 60% of the entire housing stock is social housing. Most of the population qualifies, and even if they later in life become wealthy frequently prefer to stay in public housing because it is so desirable. https://www.huffingtonpost.com/entry/vienna-affordable-housing-paradise_us_5b4e0b12e4b0b15aba88c7b0

        • robt
          Mar 23, 2019 at 1:44 pm

          Crazy Horse:
          Fact as it relates to social housing in USA and Canada. It’s nothing to do with ideology except maybe the ideology of denial; it’s reality.
          Pointing to some other country is characteristic of denial of conditions here. In any event, the predominant feature of housing in Europe is waiting lists from 1 or 2 years (Vienna) to 20 or 30 years (Sweden), and key money, ‘courtesy’ money to the previous occupant, and large deposits. Even private rentals go instantly if they are even available, and only by networking, key-money, persistence, etc.

    • bemused
      Mar 22, 2019 at 1:14 pm

      WES, just a thought….. The normal way to end a sentence is with a period. It is much more difficult to read a passage where every sentence ends with an exclamation point. It is analogous to Valley Girl speak where every sentence ends with a rising inflection — the audible equivalent of a question mark.

      • GrassRanger
        Mar 22, 2019 at 5:09 pm

        So should he use “eh,” instead?

      • robt
        Mar 23, 2019 at 1:47 pm

        The Valley Girls won years ago – just like, try listening to anyone under 30 or even 40, even if they’re in like, Congress!

  5. Patience
    Mar 21, 2019 at 8:24 pm

    In Minnesota a ton are bought with LLC.’s

  6. Jeremy
    Mar 21, 2019 at 8:44 pm

    If this is houses, then $20 billion is around 20,000 houses, more or less, at the going rate in Toronto. Condos, somewhat more. If it’s buildings and commercial RE, then less. Given the 50k transactions, they’re probably talking about lower end condos for the rental market.

    I’m guessing a big chunk of this will be completely legit purchases by REITs, but even a measly billion or two of dirty cash could move a market.

  7. Bev Kennedy
    Mar 21, 2019 at 9:42 pm

    Well homes could also include condos as in residential.
    But as for the average home seller the checks on background are vigorously done….
    But this is no different from the velvet glove treatment for large institutional agendas but fiddly for the average consumer home owner taxpayer voter.
    We have a very odd spin on democracy these days
    Insurance companies are also expanding into this etc etc

  8. Bev Kennedy
    Mar 21, 2019 at 9:47 pm

    And then there are the LLC s that disguise the true project owners…that can easily be vapourised as some very unlucky condo owners discovered in Calgary when they tried to pursue remedial action re subpar construction only to learn the high end builders name but not engagement had been used to flog the properties (vintage ten years old)

  9. Hamid Alizadeh
    Mar 21, 2019 at 11:44 pm

    They are Iranian government whom took people money and run away

  10. Mar 22, 2019 at 12:42 am

    These were all shell companies set up by the Chinese to avoid paying any capital gains tax on Canadian real estate.

    • Mar 22, 2019 at 11:28 am

      and to avoid being repatriated

  11. Debt Wazoo
    Mar 22, 2019 at 12:49 am

    This is not a housing problem, or a laundering problem, it is an unintended consequence of government problem.

    There is a lot of demand for financial privacy.

    Banking laws managed to make bank accounts totally useless for financial privacy. So all that cash belonging to people who value privacy got squeezed out of bank accounts and into the next most convenient asset: housing. As a result, all the people living in those assets got squeezed out into the street and became homeless.

    More laws to eliminate privacy for real estate ownership aren’t going to fix the underlying problem. They’ll just squeeze it into some other place.

    We’re playing whack-a-mole here, except what’s getting whacked is unfortunate low-income people.

    • MD
      Mar 22, 2019 at 9:37 am

      Ah! As per normal it’s all the fault of ‘gubbinment’! Of course!

      This time we see it’s too many pesky regulations FORCING people into speculating in real estate, and avoiding/evading taxes.

      Nothing whatsoever to do with the greed of the speculator.

      Nope – it’s government and its ‘rules’. Definitely.

      • Michael Fiorillo
        Mar 22, 2019 at 10:02 am

        Yes, and how dare mere “citizens” and “residents” demand any restrictions whatsoever on Absolute Property Rights!

        After all, what are the needs for human shelter, when compared with the need of Capital for “privacy?”

  12. WSKJ
    Mar 22, 2019 at 5:58 pm

    re the Michael Fiorillo comment, above, “Absolute Property Rights” do not, in fact, exist. There are always public domain, zoning laws, etc..

    Given the cleverness of Crazy Horse’s initial comment, and much of the follow-up commentary, I feel that there was a missed opportunity here for readers to suggest clever ways to both protect private property rights, and to encourage responsible ownership of real estate.

    re private property rights in general, I’m all in favor of them. They serve not only the 0.1 % and the launderers of ill-gotten gains, but also the smallholder.

    Loved your stories, anyway, Crazy Horse…LOL

    • Michael Fiorillo
      Mar 23, 2019 at 11:42 pm

      Ah, but in the minds of Libertarians, Absolute Property Rights do indeed exist.

      They do! They really, really do!

  13. Crazy Horse
    Mar 22, 2019 at 7:09 pm

    Hi WSKJ,

    Thing about my Disuse Tax is that it is totally compatible with private property. It contains no restriction upon building a Cowboy Heaven or a Taj Majal. If the owner wants to provide underwater heating for snow melt on his entire acreage instead of just burning $2,000 per month of diesel to melt the patios as is now common he can do so. He just has to live in the house.

    The current restrictions on use of private property in Teton County are much more restrictive. The low rise zoning height code in the Town of Jackson defines the style of building and makes it impossible for any developer to build moderate cost housing and make a profit. So none gets built. Residences in the county are limited to 12,000 sq. ft. — an onerous burden to someone like our president Donald. He could never build in Jackson Hole—- why I bet the 37 toilet rooms alone in Mar-a-Lago occupy more space than 12,000 sq. ft.! (I’ve noticed that there is a high correlation between extreme wealth and the number of toilets needed.)

  14. Martin
    Mar 24, 2019 at 9:40 pm

    You see exactly the same thing here in Bangkok. Walk downtown after dark and marvel at the microscopic number of illuminated luxury condo apartments – those with the lights on. A ready reckoning is less than 5% occupancy.

    I have a friend who lives in one such development in Sydney. He tells me that he sees his sweaty, chain-smoking, multiple mobile phone wielding Chinese neighbours once a year max. And don’t get me started on my native London, a city of ghosts.

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