The provincial government has unveiled data on foreign home ownership this morning in Victoria which the government started tracking less than a month ago. Chinese foreign real estate investors have been singled out as the driving force behind the skyrocketing housing prices in the Lower Mainland. Buyers of homes were asked to disclose on property tax transfer forms, their country of citizenship and whether or not they were Canadian or permanent residents.
However, the figures released moments ago by Finance Minister Mike de Jong, really don’t show what B.C. residents are witnessing with their own eyes, leaving further speculation on to how the data was collected and what measures were used.
The preliminary data collected shows that 5% of all real estate purchases in Metro Vancouver were made by foreign buyers, virtually all of them Chinese nationals.
The data showed that in Richmond, 14% of investments came from foreign nationals, spending $61 million out of the $371 million in purchases, while in Burnaby, 11% came from foreign nationals.
The figures also show that the average investment by a foreign national is $1.157 million, far more than the $735,000 spent on average by Canadian citizens or permanent residents.
Mike de Jong cautioned that the 20 days worth of information collected was very preliminary, but it is the most accurate data the government has on the issue of foreign ownership.
Tom Davidoff, an economist at UBC’s Sauder School of Business and a vocal housing commentator has suggested that knowing where money is being earned versus knowing citizenship of the buyers is what’s important and this could be done by recognizing significant income reported from buyers in years to follow.
Marc Cohodes, an ex-hedge fund manager who has recently reported that real estate values could drop anywhere from 30% to 80% in Vancouver, said if the provincial government doesn’t step in to change the market, they’re going to be voted out.
Mr. Cohodes goes on to say “This is sheer insanity, what’s going on is you’re pricing local, hardworking people out of the market and as I’ve said before, the housing market in Vancouver resembles the Vancouver stock exchange and penny stocks many years ago and that didn’t end well at all.”
Premier Christy Clark says the government is stepping in, the real estate industry has had ten years to get it right, and self-regulation is going away. All authority for penalties and rule-making including all authority for regulation will be put directly in the hands of the Superintendent.
How did this all start?
It’s well documented that the government has created programs since the 1980s that have driven the globalization of Vancouver’s real estate market, all stemming from trade missions to China where millionaires from Hong Kong arrived by the thousands ahead of the 1997 handover to China. In 1973, Pierre Trudeau became the first Canadian Prime Minister to pay an official visit to the Peoples Republic of China, and in 1984 Chinese Premier Zhao Ziyang visited Canada, becoming the first Communist leader to address Parliament.
The long list of government programs are designed to attract foreign investment in to Canada. For example, if you invest a five-year, interest-free amount of $800,000, you can effectively buy citizenship.
In January 2016, The Province of British Columbia became the first jurisdiction in the world to issue its first Panda bond in China’s domestic bond market, officially accessing one of the world’s largest capital markets and raising about $665 million. Panda Bonds are created by the B.C. government, but sold exclusively inside the Chinese market.
The bond was almost twice-oversubscribed by domestic investors in China, including policy banks, commercial banks, fund managers and brokerage firms. BC’s government created assets, sold in China, are easing foreign cash into the real estate market.
However, news of two older single-family homes in the Fraser corridor that sold a couple weeks ago, had price reductions of $100,000. Due to no offers after weeks on the market, another fixer-upper house located on East 18th in Vancouver dropped nearly $449,000, a quarter of its asking price.
Real Estate agents and experts say there is anecdotal evidence that the real estate market may be showing signs of cooling.
At some point, housing affordability will affect the supply side first and is going to start weighing on the demand side, causing home owners to stay where they’re at or cash out and move elsewhere outside the Lower Mainland where housing is slightly more affordable.