Can We Find Comfort in the Safety of our Condos?
By now, the global economy is beginning to feel the impact of the Russian invasion on Ukraine. With the severity of the situation expected to intensify in the weeks to come, one of the major concerns – beyond the far-reaching hikes in prices of food and energy supplies – is how severe the damage of the invasion will be on the U.S Real Estate market.
More specifically, Miami – South Florida.
Prior to the sanctions imposed by the U.S following the annexation of Crimea in 2014, Russia used to be an incredible powerhouse in the luxury real estate business in Miami (as well as New York). With these sanctions already having crippled their buying power well before their current invasion on the Ukraine, Russia has only represented about 2% of the foreign investment in Miami since August 2017.
Russian assets on American soil are being blocked, including cars, yachts, jewelry, bank accounts and, of course Miami real estate. These asset freezes only apply to those who are closest to Putin, or for those who are in full support of the Ukrainian invasion under the Magnitsky Act.
This act authorizes the U.S government to impose sanctions on those they believe, or have evidence to support, are human rights offenders. The Treasury Department’s Office of Foreign Assets Control (OFAC) is already compiling a list of Specially Designated Nationals of Russia and Belarus who are believed to be close supporters of Vladimir Putin and his decision to invade Ukraine.
Under the Magnitsky Act, assets are unable to be sold or mortgaged – and should the invasion persist, or should matters increase in severity, Russian real estate investors could see their condos become the property of the U.S. Government by means of forfeiture.
Further U.S sanctions include severing ties with Russian state-owned banks in an attempt to further cripple Russian financial systems and encourage them to pull out of the invasion. Russia is also under threat of being kicked out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) – the Belgian cooperative society that provides services related to the execution and facilitation of financial transactions and payments between banks across the globe.
American banks are also expected to put Russian businesses and investors under scrutiny, with the potential for loan approvals and property sales to be delayed if the crisis intensifies.
One thing to keep in mind is that most luxury purchases, by both foreign and domestic buyers, are cloaked through Limited Liability Companies. On top of this, most Russian investors are likely to further obscure their ownership of accounts and property through the use of offshore trusts. In order to effectively seize these Kremlin-connected assets, the U.S government would have to redesign the way it tracks property ownership which may result in more damage to their internal economy than it would succeed in crippling that of Russia.
Solace can be found in the fact that most of the Miami real estate market is made up of both Europeans and Latin American investors. This means that any further impact of the Russian invasion on Ukraine will have on the Miami Real Estate market will be negligible.
