Back in August we noted that the Vancouver housing market was doomed after the implementation of a 15% property tax on foreign buyers targeting the massive influx of Chinese money driving real estate prices to astronomical levels. Sure enough, within a matter of weeks home prices had plunged and so had the volume of residential real estate transactions (see "As The Vancouver Housing Market Implodes, The "Smart Money" Is Rushing To Get Out Now").
Three weeks after we suggested that the Vancouver housing bubble had popped in the aftermath of the implementation of the July 25 15% property tax in British Columbia targeting the Chinese free for all in Vancouver real estate, we got confirmation of that last week when we reported that only one word could describe what has happened to Vancouver housing in the past month: implosion.
Zolo, a Canadian real estate brokerage, which keeps track of MLS home sales in real-time and reports prices as an average rather than the “benchmark price”, showed as of last week a major correction underway in most Metro Vancouver markets. According to the website, the City of Vancouver currently has an average home price of $1.1 million, down 20.7% over the last 28 days and down 24.5% over the last three months. The average detached home is $2.6 million, down 7% compared to three months ago.
The number of transactions has likewise slammed shut: while August is typically one of the slowest months for real estate transactions, MLS sales data from the first two weeks of the month shows what many have been hoping for during the last few years of escalating prices. According to MLS listing data, there were only three home sales in West Vancouver between Aug. 1 and 14 this year, compared to 52 during the same period last year. That’s a decrease of 94%.
But, of course, all that laundered Chinese money has to go somewhere...and preferably somewhere without a 15% penalty tax on foreign buyers. So, at just a hop, skip and a jump across the border, wealthy Chinese citizens looking to move hot cash offshore have set their sites on Seattle. According to Bloomberg, within days of the implementation of the new Vancouver tax, real estate brokers in Seattle saw a noticeable increase in inquiries from Chinese buyers.
Just a few days after Vancouver announced a tax on foreign property investors, Seattle real estate broker Lili Shang received a WeChat message from a wealthy Chinese businessman who wanted to sell a home in Canada and buy in her area.
After a week of showings, he purchased a $1 million property in Bellevue, across Lake Washington from Seattle. He soon returned to buy two more, including a $2.2 million house in Clyde Hill paid for with a single cashier’s check.
Shang says she’s been inundated with similar requests from China and Hong Kong after Vancouver’s provincial government enacted a 15 percent tax on foreign homebuyers in August to help cool soaring real estate values. With Chinese investors -- the largest pool of foreign capital -- looking for a place to put their cash, the unintended consequence of the fee has been to push demand to cities such as Seattle and Toronto.
“The tax was the trigger of this new wave of investment now coming to Seattle," Shang said. “Why pay more for the same thing?"
“Chinese money isn’t going to sit and wait," said David Ley, a Vancouver-based professor at the University of British Columbia’s Department of Geography, who focuses on housing. “Investors are going to find another city," and Toronto and Seattle are the top two contenders, he said.
Home-purchase inquiries from China have jumped materially in Seattle and Toronto since the Vancouver tax was announced, according to Juwai.com, the country’s largest overseas property website.
Just like Vancouver, the biggest impact from the influx of foreign capital is on the higher end properties in Seattle with one broker pointing out that the share of homes selling for over $1mm has doubled year-over-year. And, in case there was any doubt about who was driving those high-end real estate prices higher, Sotheby's notes that 50% of the houses it sells in the Seattle suburbs are now going to Chinese buyers, up from roughly 30% last year.
While there are no figures specifically showing purchases made by offshore buyers, brokers say demand in Seattle and Toronto has been robust, particularly for the high-end properties Chinese investors tend to favor. In Seattle, about 12 percent of all homes this year sold for at least $1 million, double the share over the last decade, according to brokerage Windermere Real Estate. Single-family home prices in King County, where the city is located, jumped almost 15 percent in October from a year earlier, data from the local Realtors association show.
The average price of a Greater Toronto home rose 23 percent in November from a year earlier to C$776,684 ($586,530), while sales soared almost 17 percent, the local real estate board reported Dec. 2. In Vancouver, meanwhile, sales have plunged since July and were down 37 percent last month compared with the prior year.
Dean Jones, chief executive officer of Realogics Sotheby’s International Realty, which specializes in high-end properties and has a unit that caters to Asian buyers, estimates that about half of the homes his firm sells in Seattle’s suburbs are going to Chinese purchasers, with many of the transactions requiring the use of interpreters, international banks and multiple escrow deposits. That’s up from about 30 percent last year, he said.
“This is Vancouver 2.0," said Jones, who lived in the Canadian city about two decades ago, when the capital flow from Asia started to accelerate. “A lot of the same motivations and goals are being replicated in Seattle.”
Well it should be fun to track exactly how many quarters it takes for Seattle's high-end real estate prices to bubble over and crash...any guesses?