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
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: Suggested Citation