Vancouver Housing Fueled by Chinese Buyers

The rising price tags on luxury houses on Vancouver’s west side are a sign of China’s expanding wealth as Chinese mainland buyers seek a home for cash in the face of real estate investment curbs at home.  There is no reliable data on how much Chinese money is flowing to Vancouver, but industry watchers say enough has gone into several high-end neighborhoods to skew Canada’s national real estate data.

Local stories abound about cash buyers, who won’t be vulnerable when interest rates rise, and of bids that far exceed the asking price.  “Placing the money is really what they’re doing. They’re parking it, like in a bank,” said Cam Good, president of TheKey.com, which markets Canadian property to Chinese buyers and recently opened its second China office.

Canada weathered the global recession better than many of its peers, helped by steady demand for the commodities it produces, an aggressive stimulus program, and strong, conservative banks that didn’t need government bailouts. The national property market stalled, but did not crash, and prices soon climbed again, with bidding wars for property in many cities. Vancouver is the hottest market.

The Canadian Real Estate Association in May revised its 2011 average price forecast up because of a jump in Vancouver area multi-million dollar property sales. Vancouver area real estate spending was up 10 percent from a year-ago in April, and the average price was up 21 percent to C$815,252. The national average is just $372,544.  The rise in Chinese spending in Vancouver mirrors similar trends from other emerging economies, including a reported spike in property buying in New York by Brazilians.

Chinese money first went into real estate in Britain and Australia, and then to Canadian cities like Vancouver and Toronto, said Scott Brown, a senior vice president at broker Colliers International in Canada, who sees little chance that the trend will fade. “It is in its early stages,” he said.

Brokers say the Chinese buyers often seek to advance both family wealth and education, allowing their children to attend school in Canada and learn about western culture.  Desirable properties need a large lot and rental potential, and importantly, good feng shui — an ancient Chinese philosophy aimed at optimizing natural energy flows.

Vancouver, on Canada’s Pacific coast, has long-standing ties to Asia, both in terms of trade and investment. The 1980s and early 1990s saw a flood of money from Hong Kong and Taiwan from investors worried about political changes at home. The current spending echoes that, but focuses on residential rather than commercial property, said University of British Columbia professor David Ley, whose book “Millionaire Migrants” studied the Hong Kong spending.

“Their source of wealth is China, not here. They are not well-positioned to undertake economic activities here, which anyway have low returns relative to China,” Ley said.  China’s efforts to control spiking domestic real estate prices means it may be easier for wealthy individuals to invest abroad than at home. In theory the Chinese government can limit capital outflow, but in reality the wealthy find it relatively easy to avoid the controls.

“As the government sought to calm the run-away real estate market, it’s inevitable that some of this capital will leak overseas, seeking higher returns,” said Alistair Thornton, an economist with IHS Global Insight in Beijing. “Also, if you bought a house in Vancouver, it also is a hedge against future Chinese growth, because there is something solid there and you can live in it if something goes wrong.”

With the buying so far restricted to a few neighborhoods in and near Vancouver, the impact of Chinese buying may also be somewhat overstated, said Cameron Muir, chief economist at the British Columbia Real Estate Association.  “The footprint is surprisingly small given the amount of media coverage it has received,” Muir said.

Canada can also expect more competition as other countries step up efforts to lure Chinese money in. “The jig is up. The secret is out. Everybody knows that Chinese buyers are the biggest, most active group in the world,” said Good. The surge in Vancouver real estate prices has prompted some calls for curbs on foreign investments to prevent local residents from being priced out of their own market, with some of the criticism taking on racial overtones.

The jump has also raised alarm bells for economists, but the lack of firm data on who is buying and why makes it difficult to say if Vancouver has a real estate bubble or not.  Robert Hogue, an economist at Royal Bank of Canada, is careful not to describe the Vancouver market as a bubble. But like many, he sees it as “a real risk area.”

“Vancouver’s average house price has doubled in six years, just a couple years longer than it took Las Vegas’ prices to do the same,” Bank of Montreal economist Sal Guatieri wrote in a report last month.  “The latter was driven by a wave of sub-prime buyers, while the former is being fuelled by a wave of foreign investors. If the latter ebbs, it could leave a serious undertow in its wake, sinking prices.”

Source: The Vancouver Sun