Untangling the Web: The role of Offshore Financial Centers in Real Estate
This paper aims to promote a greater understanding of Offshore Financial Centers and the role that they play in real estate by rendering explicit pertinent questions such as what are the most dominant Offshore Financial Centers, who is using these Offshore Financial Centers and how and where these Offshore Financial Centers are being used. In answering these questions, we find that Offshore Financial Centers are no longer exotic and peripheral players. Rather, they have become increasingly mainstream and part of the ordinary dealings when transacting real estate in prime locations. Using data from the offshore leaks database supplemented by FDI data, we identify the British Virgin Islands as the most dominant Offshore Financial Center. We note that most companies registered there have their ownership in Hong Kong. Given that China is the largest holder of FDI stock in Hong Kong, the results would suggest that much of the funds finding their way into the BVI are of Chinese origin. Using data from the UK Land Registry, we determine that over 82,000 properties in the UK are held through structures domiciled in Offshore Financial Centers. These properties have an average transaction price of £2.3 million against a national average value of £230k. We determine that London has the highest number of properties transacted through Offshore Financial Centers representing just over 50% of all properties transacted through Offshore Financial Centers. We identify the BVI as the largest domicile for Special Purpose Vehicles holding property in the UK. This, taken with the foregoing, suggests that Chinese money funneled through Offshore Financial Centers is at least partly responsible for the acquisition of prime real estate in London. Within London, we note that the properties transacted through Offshore Financial Centers are concentrated within an area of roughly 40 square kilometers in what is considered Prime Central London.
Offshore financial centers, real estate, UK Land Registry, offshore leaks database, Special Purpose Vehicles, British Virgin Islands
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