“China is Buying Canada” – Notes From a Gigantic Real Estate Bubble

Many of you will be intimately familiar with the massive real estate bubble still in the process of inflating in certain parts of Canada, particularly Vancouver.

The insanity of it all recently received a great deal of public attention when the following home was listed for $2.4 million earlier this year (it has since sold).

If you’ve been following this story, you’ll also be aware that the primary driver behind the bubble is foreign investment, particularly Chinese. Of course, this isn’t a phenomenon unique to Canada, and as I noted in last year’s post, Welcome to Arcadia – The California Suburb Where Wealthy Chinese Criminals are Building Mansions to Stash Cash:

The city, population 57,600, projects that about 150 older homes—53 percent more than normal—will be torn down this year and replaced with mansions. The deals happen fast and are rarely listed publicly. Often, the first indication that a megahouse is coming next door is when the lawn turns brown. That means the neighbor has stopped watering and green construction netting is about to go up.

The city’s Asian population grew from 4 percent in 1980 to 59 percent in 2010.

To the people who actually live in these communities, the results of the flood of cash can be downright devastating. With that in mind, Maclean’s Magazine has just published a fascinating article titled, China is buying Canada: Inside the New Real Estate Frenzy. Here are a few excerpts:

Its impact on Vancouver’s gravity-defying boom is the best known—and most hotly debated—example, as eye-popping price gains leave behind such quaint indicators as average household income, or regional economic activity. “We’re bringing in people who just want to park their money here,” says Justin Fung, a software engineer and second-generation Chinese-Canadian who counts himself among those frustrated by Vancouver’s surreal housing market. “They’re driving up housing prices and simply treat this city as a resort.”

Yet the amphetamine rush of Chinese cash has been felt far beyond the disappearing pastures of the Fraser Valley—especially in the last couple of years. Fully 10 per cent of new condominiums being built in central Toronto are now going to foreign buyers, according to a survey released in April by the Canada Mortgage and Housing Corporation (CMHC); veterans of the city’s rough-and-tumble real estate market believe the vast majority are mainland Chinese. On Juwai.com, an online listing service where Chinese buyers can look for international real estate, inquiries about specific properties in Ontario rose 143 per cent in 2015, with the total value of those homes hitting $11.2 billion. Quebec saw its numbers more than triple, while Alberta’s numbers rose 70 per cent.

Meanwhile, Chinese developers have made buys in locations that have left analysts scratching their heads, including Nova Scotia’s remote Eastern Shore and an abandoned mining town in the B.C. Interior. The stated reasons for such purchases don’t entirely compute (neither seems the likely site, as owners and local officials suggest, for a full-service, self-contained vacation community).

While experts try to determine how much money is flowing out of China, there’s no question a good deal of it has come to rest in leafy Vancouver neighborhoods, sparking anxiety and deep divides in the community. So decoupled have local house prices become from economic fundamentals that it now requires a mind-boggling 109 per cent of the average household’s disposable income to service the costs—like mortgage payments and insurance—needed to own the average home in the city, according to research by the Royal Bank of Canada. There’s no sign things are about to slow down. A recent report by real estate firm Re/Max found prices surged by 24 per cent in the city during the first quarter compared to the same time last year, and pegged the average price of a single family home at $2 million. The real estate firm noted the emergence of a vicious cycle, as intense competition for houses caused would-be sellers to hold off on listing their homes (for fear they won’t be able to afford a new one) thereby limiting the available inventory and driving prices even further into the stratosphere.

The frenzy has taken a visible toll on one of the world’s “most livable cities,” resulting in hollowed-out neighborhoods, absentee investors, and vacant, decrepit homes as huge numbers of investment properties simply sit unoccupied. What statisticians have been slow to chart has been ruefully documented in popular blogs like Vancouver Vanishes and Beautiful Empty Homes of Vancouver, which tracks empty, multi-million-dollar character and heritage houses.

Frustration has hit a boil, and it’s been on full display at a series of “emergency” housing town halls, headlined by the front bench of the Opposition NDP. Hundreds have turned out to sit in church basements to voice their concerns, and their anger. At one held last week at St. Paul’s Church in Vancouver’s Mount Pleasant neighborhood, a new advocacy group with a darkly intimidating acronym HALT—Housing Action for Local Taxpayers—turned up with picket signs.

With Canadians already owing $1.65 on average for every dollar of disposable income they earn, there were ready signs that domestic buyers were tapped out. The sudden influx of Chinese money over the past couple of years was akin to throwing gasoline onto a slowly dying fire. Which is why no politician in their right mind is likely to take a hard stance against foreign buyers. Says Duff, the UBC law professor, “Nobody wants to shut it down, because it’s like a drug. We always need another fix.”

That seems like a good place to stop.

Full article: “China is Buying Canada” – Notes From a Gigantic Real Estate Bubble (Libety Blitzkrieg)

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