World real estate as intertwined as financial markets
The infusion of foreign capital into local housing markets can be beneficial, but can have negative effects as well
Real estate markets have become just as interconnected as financial markets, so they can be equally vulnerable to volatile swings in global fortunes, argues Michael Goldberg, dean emeritus at the Sauder School of Business at the University of B. C.
“ Local housing markets are certainly very open to invasions of capital from abroad, and these can be disruptive,” Goldberg said in an interview.
“ When money flows in, people say, ‘ Great, we’re on the world map, isn’t that terrific?’”
However, just as easily as it flows in, Goldberg noted that capital can flow out “ as somebody finds the next hot place where you simply have to have a condo in the global marketplace.”
Goldberg made his point to The Sun Tuesday ahead of a roundtable discussion on globalism and real estate hosted by the Sauder school’s centre for urban economics and real estate at the Fairmont Pacific Rim hotel.
Discussion was guided by the fact that capital for all real estate is now global, whether it is the bulk pre-sales of Vancouver condos overseas or Canadian pension funds buying Brazilian shopping malls.
Goldberg said international flows of capital are impossible to regulate, and can be a good thing as the flow of capital creates employment in housing construction, new homes add to the tax base and the city becomes more of a global player.
However, he argued that public officials need to be wary of situations where international flows of foreign capital overtake local demand and create “ a market that is overly hot.”
Instead of trying to restrict foreign buyers, Goldberg argued that cities need to consider “ easing supply.”
“ If you start to see demand, the last thing you want to do is start regulating rents and things like that,” Goldberg said. “ You want to encourage developers and create more supply, which will bring prices down.”
In the case of Metro Vancouver, Goldberg said he sides with those who do not believe the city is in a bubble, and he is doubtful that the capital flowing into B. C. from investors, such as wealthy buyers from Mainland China, is cause for concern.
“ If it’s at the high end of the market, where much of this foreign stuff is, I don’t care,” Goldberg said. “ That’s not a social issue.”
Goldberg will be one of three speakers at the roundtable event. Others include Lijian Chen, managing director of global real estate for Greater China UBS Global Asset Management and Robert Edelstein, from the Haas School of Business at the University of California at Berkeley, where he is the Maurice Mann chair in real estate and cochair of its Fisher Centre for Real Estate and Urban Economics.