Abstract
Real estate markets are highly vulnerable to inflows of illicit wealth, given the clandestine nature of dark money, making these activities difficult to detect and estimate. We exploit one of the largest offshore data leaks – the Panama Papers – to study how the associated individuals behave in housing transactions and quantify the effects of their housing market participation. We find that buyers linked to offshore secrecy purchase properties at a premium of 3.8%. Additional robustness and heterogeneity tests evidence that this premium is driven by these individuals’ secret funding and agenda to park money in properties as a safe haven. We further explore two policy shocks: the 2007 introduction of a cross-border cash movement policy and the 2010 implementation of the Estate Agents Regulations (EAW). After the former, the property selling prices of these individuals decreased by 5.5%, while their property purchase prices decreased by 2.7% after EAW. In addition, we document a negative externality of Panama-linked purchases on properties in the same projects and neighborhoods, revealing price increases of 5.1% and 7.3%, respectively. The back-of-the-envelope analysis further provides an aggregate estimate of illicit wealth in Singapore’s housing market, which is approximately S$0.65 billion to S$3.72 billion per year on average.
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