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Pace of Cash Luxury Sales Suffers Little After Feds Take Look

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A dent in high-end housing sales followed a federal crackdown on secretive purchases in the Miami area, but experts attribute the lag to market fluctuations rather than the Treasury Department's geographic targeting order, which kicked in March 1.

Miami-Dade County's cash-happy housing market fell under federal scrutiny when Treasury's Financial Crimes Enforcement Network required title companies to peel back a layer of secrecy on luxury home purchases. Aiming to halt the flow of laundered money, FinCEN mandated the disclosure of the names of people behind shell companies in cash deals north of $1 million.

Geographic targeting orders, or GTOs, covered only two places, Miami-Dade and Manhattan.

Miami's real estate community feared the regulation would repel legitimate international buyers, who have grown accustomed to shielding their identities behind limited liability companies. So far, Miami brokers and attorneys have reported business as usual.

"It hasn't come up once," said Ben Moss, a luxury broker with ONE Sotheby's International Realty in Coral Gables.

Numbers, however, point to slower sales so far in March.

"We did see higher numbers, especially for condos, in February than we did in the first two weeks of March," Moss said.

He pulled data from the Multiple Listing Service, which showed 26 cash deals valued at more than $1 million closed from Feb. 21 to 27. Less than half that number closed the following week.

The last two weeks of February saw 45 high-end cash closings, considerably more than the first two weeks of March when 23 closings covered by the order were noted.

"It's enough to point me to say that in fact the disclosure impacted these buyers to want to close before March 1. However, when we take into account the total amount of transactions on a countywide basis, it doesn't strike me as a huge number."

Farid Moussallem, a Miami Beach-based director of international sales for Compass, a technology-driven real estate platform, noted the slowdown of transactions from February to March but attributed the slip to the upcoming election and devalued foreign currencies.

"It doesn't look like it's related," he said.

Numbers followed a similar pattern a year ago — 41 deals closed during the last week of February 2015 compared to 27 during the first week of March, according to MLS data.

HICCUP?

Because of regulatory loopholes, Moussallem dismissed the GTO as "irrelevant in most cases." He said high-end deals usually involve a wire transfer, which exempts the transaction from the GTO but is caught in the banking system with money moves of $10,000 or more.

FinCEN announced its plan in January when Miami's luxury housing market was notably kicking back. Real estate professionals worried about a backlash that could do more than scare away dirty money.

"It certainly generated a large volume of inquiries as to how it was all going to work from brokers, lenders and clients alike," said Manuel Crespo, a shareholder at Greenspoon Marder in Miami, who specializes in real estate matters. But he too said the GTO has yet to have an effect on sales.

William Hardin, who will be studying the effects on sales before and after the 180-day length of the order, said a hiccup between the end of one month and the start of another is typical.

"Closings are not evenly distributed over the month," said Hardin, director of Florida International University's Hollo School of Real Estate. "Even at the high end, the best time to close is the last day of the month."

He doesn't expect to find much deviation during the next six months.

Up north, a similar opinion was offered by international real estate attorney Edward Mermelstein. The managing partner at Rheem Bell & Mermelstein in New York City said a dent in sales north of $10 million began before the GTO took effect.

"In terms of discouraging foreigners to purchase in these markets through LLCs," he said, the GTO "had absolutely zero chilling effect."

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