City Officials Struggle To Fend Off "Unstoppable Juggernaut" Of Chinese Homebuyers

As we've pointed out time and time again, foreign - mainly Chinese - buyers seeking to park their ill-gotten gains beyond the reach of the Communist Party have - in addition to global capitals like New York City and London - favored a handful of cities in the Pacific Northwest, as well as Australia and New Zealand. Many of these cities - for example, Vancouver - have seen property values rise to levels that are unaffordable for local buyers.

While the influx of capital helped fuel an economic recovery in the aftermath of the crisis, home values soon reached crisis levels that demanded action by local officials. Some places have tried to use taxes to deter foreign buyers. In some instances, the taxes worked - at least temporarily.

But with the flow of buyers refusing to slow despite efforts by the Chinese government to stop money moving offshore, many of these cities are getting desperate. And after years of occasional headlines, it appears the crisis has finally become dire enough for the mainstream press to start paying attention.

Vancouver

To wit, government officials in Canada and Australia who spoke with the Wall Street Journal for a story about how Chinese homebuyers expressed concern that widespread foreign ownership has created bubbles in local real-estate markets. Even as Australia and New Zealand and some Canadian cities have raised taxes on foreign buyers, many are worried that home values will continue to climb, foiling policy makers best efforts to control them. Since it passed an 8% foreign buyers tax last summer, Sydney says foreign buying hasn't let up.

Jon Ellis, chief executive of Investorist, an online portal for cross-border property transactions, said Chinese property buyers are an "unstoppable juggernaut". In some markets with large Mandarin-speaking populations, locals can spot real-estate ads in Mandarin at bus stations and benches in the surrounding area. In response, Vancouver imposed a 15% foreign buyers tax back in 2016. When that didn't work, city officials worked with the province on something more aggressive.

China

The Province of British Columbia has also passed laws to discourage the resale of unfinished condo units.

After the first Vancouver 15% tax failed to put a lid on foreign buyers, Mr. Robertson worked with the province of British Columbia on more aggressive steps. In February, province officials raised the foreign-buyers tax to 20% and expanded coverage well beyond Vancouver. Officials also imposed a new levy - 0.5% of the property value and climbing to 2% next year - on homeowners who don’t pay income tax in Canada.

In April, British Columbia also announced measures to deter the resale of condo units before construction was completed, to discourage investors from flipping units before they are occupied.

At the Beijing expo, Florence Chan said she originally wanted to buy a home in Vancouver but changed her mind. "The taxes are too high," she said, adding that Melbourne is looking better.

Officials complain that fending off foreign homebuyers is like squeezing a balloon: No matter where you press, the air moves elsewhere. After New Zealand passed a ban on foreign speculators buying homes (a measure the IMF blasted as "discriminatory") last year, buyers moved back to Canada. And investors are already looking to Malaysia and Thailand as the next markets ripe for foreign buying.

Foreign capital is now returning to Canada, driving the latest surge in home prices. Buyers from China and the U.S. have found Victoria, the small capital of British Columbia that sits on an island west of Vancouver.

Victoria was declared the world’s hottest new housing market last year in Christie’s International Real Estate survey, based on a 29% increase in annual sales of million-dollar-plus homes. Single-family homes in the Victoria area hit a record high of about $570,000 in May, up 9% from a year earlier, according to the Victoria Real Estate Board.

"Victoria is experiencing the same rapid growth in housing prices and sales volumes that have strengthened Toronto and Vancouver in recent years," Christie’s International said in its survey last month. “If Toronto and Vancouver can be a measure, it is likely Victoria will continue to perform well despite [new] regulations” targeting foreign buyers.

Attention has already turned to Malaysia and Thailand, which now tops the list for Chinese buyer inquiries, ahead of the U.S. and Australia, according to Juwai.com. Two years ago, Thailand ranked sixth.

In Australia, Chinese buyers are believed to be responsible for between 10% and 15% of homes under construction. Chinese buyers prefer newer homes, and will demolish old homes to rebuild from scratch. The share is highest in Melbourne and Sydney, where foreign buyers account for a quarter of newly built apartments. At one swanky new development in Melbourne, Chinese buyers are said to be behind 10% of the sales.

Officially, Chinese citizens are only allowed to move $50,000 worth of yuan offshore every year, but there are many loopholes, including buying expensive watches and exchanging them for cash offshore, or exercising exceptions for having a child studying at college or living abroad. But unless the Chinese government strengthens its crackdown on money moving offshore and disappearing into foreign towers, it's difficult to imagine how local governments will stop foreign buyers - after all, taxes also make the problem worse for locals. Over the next decade, some analysts predict Chinese investors could spend as much as $1.5 trillion abroad.

 

Comments

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In reply to by vato poco

Laowei Gweilo D503 Fri, 06/08/2018 - 23:09 Permalink

especially when foreign money being the primary driver skewing Vancouver real estate is a fallacy ...

it's one of the factors, and it exacerbates it in low volume periods... but the biggest drivers are lack of supply + regulation. in March, one institute* once again argued (what others have argued before... google it if you want there's a few studies on it I just don't like shilling outside links) and outlined (quantitatively... as in, showing all the fucking regulation expenses... the math is there, just look at the regulation costs on getting anything above 3 stories built)

that between $200K and $600K of every house price is from regulatory costs/barriers to entry

that's on par with New York, rather than a city even remotely the same size as VAN.

and that $300 per square foot alone is just regulatory barriers -- that's more than the entire fucking per-square-foot housing price of most US cities

its all the libtard regulation... exact same reason why Vancouver gas prices are the highest in the world (edit: I meant North America/didn't want to stealth edit) is why housing is so crazy here -- what, are rich Chinese skewing gas, too? lol... just like 30-40% of gas prices here are local regulation/taxes. it's the same for housing

then, on TOP of that, the other large driver that is causing such a lack of supply (and thus fierce competition with amidt low volume) is that Vancouver has unearthly zoning restrictions... almost everything 5 minutes out of downtown is low storey... you having mansion suburbs within minutes of the dt core and financial district, no effing wonder there's single family/single room apartment shortage o.0 cuz mayor moonbeam has a boner for his mcmansion low storey skyline and makes developers jump through a gazillion hoops to build anything above three stories

and why downtown in VAN has the HIGHEST density per capita of high rises (not skyscrapers.. just high rises) IN NORTH AMERICA -- cuz it's the only place they can fucking build

srsly, it's like self-inflicted Hongkingitis except we have land coming out our eyeballs and yet the mayor still decides to make poor locals/rich Chinese compete over lack of supply on just the fucking island (downtown) while most of the metro city gets regulated like warren g

and is why for every square foot, Vancouver regulation on zoning adds an additional $300 per square foot just in zoning regulation costs -- as a standard, Montreal and Quebec were $0 .

so even compared to Canadian peers, and Montreal where there's a shit load of Chinese too because of their buy-a-visa program (albeit many live in BC but they're still the 3rd largest destination for rich Asians outside of VAN and TO), Vancouver gets an extra $300 per square foot just in regulation costs -- and there's precisely why VAN condos downtown are often $900-1200 a square foot similar downtown condos in MTL are barely $800-900 sqrft.

so, sure, then rich Chinese come in and because few Canadians can ALREADY not afford $800-1200 a square foot, the low volume competition between a few overleveraged Canadians and liquid Chinese gets further skewed up to >$1300 a square foot in some cases.

but even you remove Chinese, you really think Canadians can afford an extra $300 in regulation and demand costs OVER AND ABOVE what is an already high price in MTL lol?

you remove Chinese and VAN real estate sure as fuck isn't crashing 50% so until VAN fixes their stupid regulation/taxation, everything from gas to housing will be some of the most expensive in North America

and that's what 10 years of socialist carbon taxes and bike lanes get you

(*conservative, mind you, but CD Howe is pretty close to centre compared to the Fraser Institute, and not notably either socialist anti-rich or capitalist anti-regulation, either of which would want to blame either foreigners or regulation)

In reply to by D503

Theosebes Goodfellow Four Star Sat, 06/09/2018 - 13:09 Permalink

It doesn't take a Chinese rocket scientist to realize that Mainland China is no place for a wealthy man. The communist revolution in China ran for 60 years leaving a military-industrial oligarchy in charge. The Chinese themselves have been doing capitalism for 5000 years, (without the benefit of things like the Protestant work ethic, the brilliance of Deming's quality circles, or Jesus's Love thy neighbor paradigm).

In reply to by Four Star

gdpetti JibjeResearch Sat, 06/09/2018 - 15:56 Permalink

Yes, imminent domain style, no? And that policy seems to be rather western? or would the earlier version be eastern? or simply the basic methods of those in power and corrupt or sinister in intent? same in any empire and China is still in empire mode... which is the only reason Putin is a little reluctant with Xi... but then Putin doesn't have much choice, does he?

This issue in the home market is no different than the economic hitmen policy in the forex markets... all manipulation all the time... if you let the bastard banksters in the door, they simply won't go away, won't play nice... et al... until you kick them out... and that's never easy to do after they start living there.

In reply to by JibjeResearch

Boing_Snap Justin Case Sat, 06/09/2018 - 06:35 Permalink

The Chinese have used assimilation to conquer invaders for thousands of years, do you think that will change? Islam and China are in a race to out baby the rest of us. Our younger generation is too occupied with Pokemon, and can't afford a house to reproduce.

Well putting it nicely, in the assimilation game we're off to a bad start.

In reply to by Justin Case

Laowei Gweilo ufos8mycow Sat, 06/09/2018 - 04:25 Permalink

hey, Detroit is catching up =p

a quick look at news reports and Trulia real estate data, I can find quite a few areas (a tiny fraction of metro detroit, granted) where PSF is up to US$250-300

technically, VAN metro average is like US$700 but places like Burnaby are US$600 and you can probably find US$450-500 if you go to the Detroit-esque areas of VAN =p

so, you know... some parts of Detroit are making progress ^_^ especially when any area median above $100 PSF in Detroit was unheard haha

 

and VAN downtown condos may still average like US$700-800 PSF after the weakness so far this year 

but are still nowhere near places like Paris and Tokyo (900), SanFran (1100), Geneva and New York (1200), Beijing and Shanghai (1500), London (1600), Singapore (2100), and Hong Kong (2600).

(these are PSF condos downtown but the relative ratios are about the same for metro condos, and if anything make VAN look even cheaper because metro VAN condo prices are skewed by high price/low supply downtown; see how places like Burnaby 15-30m from DT are PSF US$500-600)

 

granted, still crazy compare to most of the US...

where places like Nashville or Chicago are 300-400 PSF, even Washington, and even LA is barely up to 500 PSF... just saying in terms of PSF value (rather than 'affordability') there's a reason why 'hot money' (even if it is only 5-15% of the market) is choosing VAN (and why in low volume, even 5-10% of the market has a lot of sway)

In reply to by ufos8mycow

Laowei Gweilo debunker Sat, 06/09/2018 - 04:54 Permalink

sure, I said it was still a factor.

but if you compare regulatory costs/zoning restrictions on supply, and use places like Montreal as a standard ($0), then TO adds up an extra $125 PSF in regulation costs and VAN adds an extra $300.... that's $300 of the $800 median purely regulation costs/restrictions on new construction. and it's as high as 50% of the costs of all houses (so, assuming MTL it's about 10-15% (rather than using them a $0 benchmark).

foreigners are not the other 50% =p they may skew a lot but even you remove all Chinese, you're sure AF not seeing more than a 20-30% crash lol and TBH even if if VAN crashes 30% heck 40% just to entertain the idea, it's still going to be more expensive than almost everywhere in the US that isn't Silicon Valley or New York, and even after a 40% crash it would _still_ comparable to Washington or Los Angeles ...

VAN would need to crash >50% to get there when new construction regulation alone adds $300 PSF -- that's more than the total median cost PSF for most US cities lol -- and in VAN that's _just_ regulation costs/barriers

and with tech companies like Amazon, new office space like WeWork, all the english-language college expansions coming downtown, etc alone probably adding over 15,000 workers downtown over the next 5 years, there is going to be INCREASED demand on either renting or buying, one way or another ....

so even if housing prices crash 20-30%, 1) still going to be far too expensive for VAN median wages, 2) demand growth will continue to outpace supply, 3) it'll be a firesale for either investors like Blackrock or Brookfield (which is Canadian and is already competing with Blackrock to be global slumlord #1) or foreigners (from any country, mind you) to get rental properties.

plus, VAN is run by libtards.... libtards than make actual liberals look conservative... they will NEVER ban foreigners, based purely on ideology. they'd sooner get rid of the carbon tax then hurt the feelings other people lol 

and it's too late anyhow... a lot of Chinese that may still be interested in VAN probably have at least one Canadian family member by now ... it was too late by 2014-2015, even. 

it's why the 'foreign tax' isn't actually estimated to raise all that much money that would suggest it's any higher than >10% 

and also why over 2/3rds of the new speculation tax is actually hitting Canadian citizens not foreign passports lol ... majority of 'speculators' are surprisingly found to actually be legally Canadian and no one connects the dots that a lot of Chinese money is now legally Canadian citizens on paper

(and TBH that's one reason why foreigners really are shown as only 5-10% of the market ... cuz a lot of them are Canadian now ... either through the old rich visa program, the Quebec visa program, or because it's been so many years now already and they just immigrated naturally lol -- again, it could have only been stopped by 2012-2014 and instead they encouraged it)

as long as the city keeps growing the way it does based on open immigration/foreign company policy

and as long as the VAN regulatory barrier of entry costs (per square foot) ALONE are higher than the ENTIRE per-square foot value of most US cities lol

then supply is going to continue to make condos expensive AF -- with or without "foreign" purchases

 

In reply to by debunker

Laowei Gweilo Sh1tmebritches Sat, 06/09/2018 - 04:42 Permalink

sorry I meant North America... I knew that, a lot of Europe not just UK is far more expensive.

just mean, apples to apples, there's no good reason VAN should be so much more expensive than places than very similar markets across Canada and US and the difference is almost all explained by regulation/carbon taxation.

ppl in VAN can drive barely 60 minutes and get gas dirt cheap in the US cuz it's not a supply/demand thing, it's purely regulatory. provincial taxes and municipal regulation. 

even BC cities about 4-5 hours away from VAN (or most of mid-large cities in Ontario like Kitchener, for example... to show its not logistical) are .35-.40c/gallon more than VAN... because they're were not run war-on-car mayor moonbeam. heck, any of the larger BC towns (without the extra VAN muni regulation) a couple hours from the provincial border it's over a $1 gallon more in BC than similar cities in AB also close to the border -- again, cuz despite similar supply/demand, government in BC makes anywhere of 30-40% of the cost of gas in regulation/taxation.

In reply to by Sh1tmebritches

artichoke Laowei Gweilo Sat, 06/09/2018 - 13:18 Permalink

Gasoline is not a good comparison, it's a simple market, easy to ship it to this station or that station 500 miles away, so the prices will be the same except for reg costs and other local costs.

Not at all true of real estate.

You might find the same of cheeseburgers, except they aren't regulated so you won't see reg costs.  In Vancouver and in the boondocks of rural Montana, a cheeseburger probably costs about the same, but real estate will cost vastly different.

In reply to by Laowei Gweilo

techpriest artichoke Sun, 06/10/2018 - 22:34 Permalink

No regs on cheeseburgers? I'm pretty sure there are regs on the cows, meat processing, the ingredients in the cheese and for the bun (among other things, one farmer in the industry tells me there is a regulation on dead mice per rail car of wheat), and of course the local regulations per restaurant. However, the key here is centralization - you can operate in locations where the regs are ideal per business unit, so that the only difference in cost is local taxes/regs.

In reply to by artichoke

Decoherence Laowei Gweilo Sat, 06/09/2018 - 10:08 Permalink

Same thing in NZ.  Side note, I keep reading in the media a bill passed to stop / slow foreign buying.  They must know something the NZ Parliament doesn’t know, because that bill hasn’t even made it to its 2nd reading:  

https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_75755/overseas-investment-amendment-bill

And now it’s losing momentum because the smarter end of the gene pool realizes this bill will just further exacerbate the housing shortage.  Someone actually did the calculus instead of using knee jerk lefty logic.  Lefties placating the poor winds up screwing the poor.

 

 

In reply to by Laowei Gweilo

Jessica6 Laowei Gweilo Sat, 06/09/2018 - 10:13 Permalink

We'd get a better idea of what the percentages really are if the fintrac loophole for crooked lawyers was shut down. https://ca.reuters.com/article/domesticNews/idCAKCN0X42J2

Lawyers in Canada, unlike financial institutions and other professionals, are exempt from the obligation to report suspicious transactions, allowing them to use trust accounts to move around money for clients without notifying regulators.

A lot of these properties are bought through numbered companies and law firms. Until we have the numbers, who knows.

Low interest rates and idiot CMHC regulations enabling people to buy multiple properties, are also to blame.

In reply to by Laowei Gweilo

artichoke Jessica6 Sat, 06/09/2018 - 11:53 Permalink

THAT sounds like a reason the Chinese money is going to Canada.  Otherwise it's insanity to think someone would prefer Vancouver or Montreal to NYC.

But as we crack down, Canada's likely to get our child trafficking business too.  Maybe those Hollywood stars who promised to leave the USA really will do it!

In reply to by Jessica6

artichoke Laowei Gweilo Sat, 06/09/2018 - 11:49 Permalink

But the classical response is that in return for costly nonbeneficial regulations, the prices don't just go up, but people decide to go elsewhere.  For 500K you can buy better weather and Donald Trump as national leader instead of Trudeau-Castro, then settle in Seattle if you love that slightly too cold weather.

Vancouver prices are exceeding NYC suburbs, and the value in NYC is much better.

In reply to by Laowei Gweilo

AGuy Thugocracy Sat, 06/09/2018 - 13:11 Permalink

"Chinese are buying at the top, all over the world. Government and citizens, not very good capitalists yet."

They are trying to get capital out of China before it implodes. Its not as if they have a choice in the matter. Their options are limited. I think if there was an alternative for them to get capital out, they would use it. Some did via BTC, which was the primary reason why BTC is priced so high. It stopped soaring when China impose restrictions on BTC.

In reply to by Thugocracy