Are for­eign­ers be­hind spikes in real es­tate?

More data, stud­ies called for on soar­ing house prices

China Daily (Canada) - - FRONT PAGE - By LOUISA YOU in Van­cou­ver For China Daily

A new re­search pa­per out of the China In­sti­tute at the Univer­sity of Al­berta (CUIA) calls for more data on for­eign in­vest­ment in Cana­dian real es­tate.

The pa­per, ti­tled For­eign In­vest­ment in Real Es­tate in Canada, was pub­lished on Aug 6 and ex­am­ines is­sues and chal­lenges sur­round­ing the con­tro­versy of for­eign real es­tate in­vest­ment in Canada, es­pe­cially from China.

The au­thor, Kerry Sun, is a re­search as­so­ciate at the China In­sti­tute, an Ed­mon­ton-based think-tank es­tab­lished in 2005 to en­hance and sup­port teach­ing and re­search ac­tiv­i­ties be­tween China and Canada.

“While for­eign in­vest­ment in ur­ban real es­tate is a sen­si­tive sub­ject, the China In­sti­tute be­lieves that bring­ing facts to bear in public dis­cus­sion of this is­sue of­fers the prospect of adding light rather than heat to the public pol­icy de­bate,” CUIA di­rec­tor Gor­don Houlden said.

“Although Toronto and Mon­treal have drawn sig­nif­i­cant in­ter­est from in­vestors, Van­cou­ver has be­come the epi­cen­tre of the con­tro­versy con­cern­ing for­eign in­vest­ment in real es­tate,” Sun wrote.

Me­dian house prices in Van­cou­ver have risen from ap­prox­i­mately eight times the me­dian house­hold in­come in 2008 to 10.6 times in 2014, and since 2008, global Chi­nese out­ward in­vest­ment in real es­tate has in­creased more than 200 fold to ap­prox­i­mately US $33.7 bil­lion in mid-2014.

In a June 2015 poll, 64 per­cent of Van­cou­ver res­i­dents said they be­lieve that for­eign in­vestors were “a main cause of high hous­ing prices.” How­ever, the Bri­tish Columbia Real Es­tate As­so­ci­a­tion pinned it more on Van­cou­ver’s con­strained ge­og­ra­phy and lim­ited sup­ply of de­tached homes.

Canada Mort­gage and Hous­ing Corp, the coun­try’s lead­ing mort­gage in­surer, found that only 2.3 per­cent of condo own­ers are off­shore in­vestors who re­side per­ma­nently in other coun­tries. The per­cent­age is higher in some neigh­bour­hoods, such as 5.8 in the Bur­rard Penin­sula, and only 2.4 per­cent of home­own­ers in Toronto are for­eign in­vestors.

Mon­treal has the high­est per­cent­age in Canada, with 6.9 per­cent of own­ers re­sid­ing per­ma­nently out of the coun­try.

How­ever, the data col­lected only re­flect condo own­er­ship, and are not per­ti­nent to other real es­tate, such as de­tached homes. The re­port says that in Canada, “no for­mal mech­a­nism ex­ists to track the level of for­eign in­vest­ment in real es­tate, lead­ing to much un­cer­tainty on re­lated mat­ters.”

Van­cou­ver has be­come the epi­cen­tre of the con­tro­versy con­cern­ing for­eign in­vest­ment in real es­tate.” Kerry Sun, re­search as­so­ciate at the China In­sti­tute

“His­tor­i­cally, Cana­dian real es­tate mar­kets have pro­vided high re­turns to in­vestors, and in re­cent times observers have also sug­gested that the de­pre­ci­at­ing Cana­dian dol­lar is favourable for fur­ther in­vest­ment and as­set pur­chases from abroad,“Sun wrote.

On a re­cent elec­tion cam­paign stop in Van­cou­ver, Prime Min­is­ter Stephen Harper said that if re-elected, the Con­ser­va­tive gov­ern­ment would com­mit $500,000 to col­lect­ing data on for­eign buy­ers.

“There are real con­cerns that for­eign, non-res­i­dent real es­tate spec­u­la­tion is the rea­son some Cana­dian fam­i­lies find house prices be­yond their bud­gets. If such for­eign, non-res­i­dent buy­ers are ar­ti­fi­cially driv­ing up the cost of real es­tate, and Cana­dian fam­i­lies are shut out of the mar­ket that is a mat­ter we can, and should, do some­thing about,” Harper ex­pressed.

Harper also rec­og­nized that “[in] most de­vel­oped coun­tries, gov­ern­ments track this kind of in­for­ma­tion, but gov­ern­ments in Canada, his­tor­i­cally, have not. And, as a start, this needs to change.”

The re­search pa­per agrees that “ex­ist­ing sources of data pro­vide an in­com­plete ac­count of for­eign ac­qui­si­tions and residential prop­er­ties, con­tribut­ing to the con­tentious treat­ment of this sub­ject in public and media dis­cus­sions.”

Sun also stated that “in­vest­ments orig­i­nat­ing from China are a par­tic­u­larly prom­i­nent sub­ject of in­ter­est, due partly to per­cep­tions that Chi­nese in­vestors are in­volved in a sub­stan­tial por­tion of trans­ac­tions in Cana­dian real es­tate mar­kets.”

Alex Liu, of Sut­ton GroupSeafair Realty in Van­cou­ver, said that, “Ev­ery time we do busi­ness, we have to fill in where the buyer or seller is from, and in fact, 90 to 95 per­cent are lo­cals, ei­ther Cana­dian cit­i­zens or res­i­dents. So ac­tu­ally for­eign­ers, that is, for­eign in­vestors, in­clud­ing Chi­nese in­vestors, buy lit­tle real es­tate in Canada.”

“That’s only the sur­face, how­ever,” said Liu, “for my clients, the ma­jor­ity of the money they use to buy real es­tate may come from China, in­clud­ing money from fam­ily or for­eign busi­ness.”

“For ex­am­ple, we have re­cently opened sales on a new build­ing, and nearly 100 per­cent of the buy­ers are eth­ni­cally Chi­nese. There are other [non-Chi­nese] buy­ers as well, but they are mostly in­vest­ing to re-sell their prop­er­ties.”

He also be­lieves that as far as the ren­minbi re­cently de-valu­ing, it will more or less af­fect the hous­ing prices a lit­tle; but he sees the in­ter­est rates as a more im­por­tant fac­tor which would have a larger im­pact on hous­ing prices.

“So the main force of the Cana­dian real es­tate [in Van­cou­ver] is the Chi­nese peo­ple that live here, or want to live here that have Cana­dian res­i­dent sta­tus,” Liu said. “But they can­not be con­sid­ered for­eign­ers; they are Cana­di­ans em­i­grated from for­eign lands.”

Although the scant data col­lected af­firms that for­eign in­vest­ment is not con­tribut­ing to the real es­tate prices as some may have thought, Sun points out that “the chal­lenges as­so­ci­ated with data col­lec­tion, hous­ing af­ford­abil­ity, the ori­gins of for­eign cap­i­tal, and the so­cial im­pli­ca­tions of real es­tate at­test to the com­plex na­ture of the con­tro­versy over for­eign in­vest­ment.”

Sun said that “at present, per­cep­tions have be­come as in­flu­en­tial as the re­al­ity of real es­tate in­vest­ment,” and with new data hope­fully on the way, Cana­di­ans can sleep a lit­tle eas­ier know­ing that most of the buy­ers in real es­tate mar­ket are Cana­di­ans as well.

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