Criminal money is causing real problems in Toronto’s real estate market.
A new report by anti-corruption group Transparency International Canada claims corporations have spent $28.4B on luxury homes in the Greater Toronto Area since 2008, and have paid $9.8B of that in cash.
This is a red flag for a few reasons. First, the 1.4 million corporations included in the study are privately owned, which means there’s no information available about who the real buyers are.
Second, these corporations paid $10.4B in the form of mortgages from unregistered lenders who are not subject to anti-money laundering practices.
And third, by paying nearly another $10B in cash, there’s no way to know where that money is coming from, causing these transactions to fall under the radar of financial institutions.
“A worrying amount slips past regulators who don’t really know who owns what, nor how much is being used for money laundering and tax evasion,” the report noted.
The issue has been dubbed “snow-washing.” The term comes from the fact that Canada has “the most lax rules for corporate transparency,” and as a result, dirty money that enters the country becomes “cleaned like the pure white snow,” James Cohen, Transparency International’s executive director, explained.
The Toronto real estate market already has its fair share of problems. Home prices are continually on the rise, with the average selling price of all home types in February sitting at $780,397. Additionally, low vacancy rates continue to be an issue, as housing starts decline.
The fact that criminal money is now affecting the market only worsens the situation for Torontonians.
“Dirty money exacerbates this affordability crisis by adding extra demand from buyers who have a perverse incentive to overpay for properties in order to wash more dirty money through a transaction,” said report author Adam Ross, according to CBC News. “None of us wants to live next door to a criminal or to a property that sits empty and unmaintained.”
But criminal money isn’t only a problem in Toronto. It’s also affecting the Vancouver market. A previous study, also conducted by Transparency International, found that half of Vancouver’s most expensive homes had hidden ownership.
“Our laws and regulations are full of cracks that can be exploited by criminals, and they appear to be doing so in growing numbers,” the report said. “Canadian real estate has attracted the attention (and money of dubious origin) of corrupt government officials and organized crime syndicates from across the globe.”
Transparency International is now asking Canada to create a publicly accessible company register that identifies corporation owners in order to eliminate this growing criminal issue.