[bobbinka]

interesting read into 'shadow banking'. picked out a few paragraphs for those that dont want to read the whole thing:

Translated for The Globe, they show that Mr. Gu, or his companies, are hidden – the legal term is “beneficial” – owners of certain properties, even though absentee foreign clients bankroll everything from the down payment and mortgage payments to property-related taxes and other expenses. The homes and mortgages are registered in the names of his clients, their companies or spouses.

The financing Mr. Gu’s companies receive from those clients comes in the form of loans that are not taxable, and that fall within what’s known as “shadow banking” – an unregulated system that has exploded in popularity in China, and now appears to be getting a toehold in Canada. Such “peer-to-peer” loans, as they are also called, sidestep banks entirely, and promise lenders significantly higher returns than they can get elsewhere.

Mr. Gu’s lender clients earn their wealth primarily in China, while coming and going from Vancouver, according to Mr. Lazos. Records show that they give Mr. Gu power of attorney to facilitate everything through his small, nondescript Vancouver office, but his stake in the properties remains hidden. And although he is not licensed to broker mortgages or manage investments, records suggest he does both.

When Mr. Gu flips a property, his contracts stipulate that lender clients get back what they put in, plus a set return – 15 per cent in one instance. After the mortgage and the bills are paid, Mr. Gu keeps whatever is left, which, in some cases, appears to be hundreds of thousands of dollars.

According to legal and tax experts, this arrangement would allow him to avoid taxes, because the properties are not in his name. Mr. Gu can also maximize financing, because individual clients applying for mortgages, ostensibly to buy the homes, can borrow more money collectively than Mr. Gu could if he tried to finance properties on his own.



While many Canadians have come to resent the impact of foreign buyers on the real-estate market, the documents suggest that Mr. Gu pocketed much more than his clients did on some of his deals.

In one contract involving a rental property, his client was guaranteed a return of one per cent a month for paying the down payment and property-transfer tax upon purchase. Mr. Gu would collect the rent and pay the mortgage, then keep the rest of the profits when the duplex sold.

Mr. Gu sold the property two years later for $850,000 more than he paid for it, because the market price had jumped by that much. But according to the terms of the contract, his client stood to receive less than $90,000 of that windfall.

Vancouver real estate speculators taking advantage of loopholes and lax$oversight - The Globe and Mail