Straw Purchase or Safe Haven? The Hidden Perils of Illicit Wealth in Property Markets

61 Pages Posted: 27 Oct 2020 Last revised: 20 Feb 2024

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Liu Ee Chia

Pennsylvania State University - Smeal College of Business

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

Date Written: September 8, 2020

Abstract

Real estate markets are highly vulnerable to inflows of illicit wealth. We exploit the Panama Papers offshore data leaks to study how Panama-linked buyers were involved in housing transactions in Singapore. These buyers linked to offshore secrecy pay a premium of 3.8% in their property purchases. The premium is linked to individuals' motive to park funds in a safe haven via properties. We explore two policy shocks and find that property prices paid by these individuals decreased by 5.5% after the cross-border cash movements were restricted in 2007 and by 2.7% after the new Estate Agents Regulations were implemented in 2010. One mechanism that caused Panama premiums was through transactions by related parties named in the Panama paper. These buyers manipulate property value to inflate prices in the transactions. Our evidence also could not rule out the possibility of illicit transactions being disguised using local straw buyers. The Panama-linked transactions caused positive spillovers that drove up property prices in the same projects and neighborhoods by 5.1% and 7.3%, respectively. A back-of-the-envelope analysis shows an aggregate estimate of illicit wealth of up to S$3.72 billion per year for Singapore's housing market.

Keywords: Money Laundering; Illicit Wealth; Offshore Secrecy; Housing Market; Safe Haven; Straw Purchase

JEL Classification: E26, R21, R30

Suggested Citation

Agarwal, Sumit and Chia, Liu Ee and Sing, Tien Foo, Straw Purchase or Safe Haven? The Hidden Perils of Illicit Wealth in Property Markets (September 8, 2020). Available at SSRN: https://ssrn.com/abstract=3688752 or http://dx.doi.org/10.2139/ssrn.3688752

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Liu Ee Chia

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate ( email )

15 Kent Ridge Drive
NATIONAL UNIVERSITY OF SINGAPORE (MOCHTAR RIADY BU
Singapore 117566, 119245
Singapore
06565164553 (Phone)

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