How dirty money distorts real estate markets
CHADY EL KHOURY is assistant general counsel in the IMF’s Legal Department.
Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.
Why are home prices skyrocketing beyond reach? It’s not just inflation, low supply, or zoning laws—dirty money is part of the problem, too. Criminal networks, corrupt politicians, and tax evaders use global real estate as a safe place to park illicit wealth, driving property prices up in cities such as New York, Miami, London, and Dubai. By funneling billions through luxury properties, these secretive buyers contribute to housing bubbles that push local buyers out of the market.
The playbook is simple: instead of buying a $10 million penthouse directly, they use shell companies, trusts, and offshore accounts established by professional enablers to hide ownership. Developers rarely question the source of the money. As a result, entire neighborhoods—particularly in major global cities—fill up with high-end empty properties owned by anonymous entities. In London alone, foreign companies held £73 billion worth of properties in 2018, with about 90 percent of these purchases made by entities registered in tax havens, according to a paper by economists Jeanne Bomare and Ségal Le Guern Herry.
But it isn’t a problem just for wealthy Western cities. In African cities, including Lagos, Nairobi, and Johannesburg, speculative investments create similar real estate bubbles. Weak regulations and informal housing markets make these regions attractive for questionable money, driving prices up and squeezing out local buyers.
Two decades ago, the international community prescribed that real estate agents, like banks, conduct due diligence and report suspicious transactions. Yet, unlike banks, those in the real estate sector are not held to strict anti-money-laundering standards consistently. Detection and enforcement remain weak globally. Efforts to close these loopholes are underway. Countries such as Canada and the US are exploring requirements for property buyers to disclose their true identity—the “beneficial owner.” Public agencies should verify this ownership information and make it accessible to authorities investigating suspicious transactions when red flags arise. If privacy laws allow, making this information public would also enhance transparency.
Without more transparency and enforcement, real estate will continue to serve as a safe haven for concealing illicit fortunes, further distorting housing markets and making homeownership for ordinary people an even more distant dream.
