Hat tip to PK’s Infectious Greed where this article was featured from The Globe and Mail about the Chinese influence on the Vancouver real estate market. Excerpts below, and the full article linked here:
The house Manyee Lui is showing today is listed at $2.2 million. Although the lot is only 33 feet wide and the house is nothing more than a blandly handsome two-storey, Lui expects it to sell quickly, even though the market’s turned a little tepid. With 2,900 square feet, the place is big enough for four bedrooms and an additional self-contained suite. All things considered, she says, “It’s not so expensive.”
Lui is simply telling it like it is: This house in the Dunbar neighbourhood may not be anyone’s idea of a dream home, but it delivers respectable accommodation for a reasonable price, at least by the standards of Vancouver’s west side. With a standard city lot trading hands for around $1.4 million and construction costs running at least $200 a square foot, it doesn’t take much of a house to hit the $2-million mark. And this summer and fall, as real estate markets wilted in most of the country, vertigo-inducing prices for properties on Vancouver’s west side held steady or even edged a little higher.
The question a lot of people were asking is, Who on Earth is buying them?
Lui explains why she’s so confident the home will sell: “It will appeal to a buyer from China.” She allows there was a time when Chinese buyers’ architectural preferences differed significantly from the local norm, but over the last 10 years their tastes have widened and become more westernized. Now long-term Vancouverites and incoming Chinese are seeking almost exactly the same thing—except, Lui says with a laugh, “we can’t afford it.”
True. When Lui says “we,” she’s talking about the locals, people who make their living in Vancouver. Now that the forestry industry has been eclipsed and the place has a median household income that is only average by Canadian standards, Vancouver is a city with no visible means of support. The affordability ratio has rocketed upward so quickly that it is now the steepest on the continent: more than double the Canadian average and more onerous than in places like New York and San Francisco. No wonder Vancouver is at the top of the media’s suddenly urgent bubble watch, not just in Canada but also in the United States; outlets ranging from Reuters to Businessweek have reported on a housing market they suspect is ripe for the kind of downfall the Americans are only too familiar with.
A common scenario for an investor immigrant from mainland China unfolds like this, explains immigration lawyer Steven Meurrens: One member of the household qualifies under a category of the Business Immigration Program and posts a $120,000 bond in lieu of making the $400,000 investment stipulated under the program. (Some qualify instead as “provincial nominees,” and follow a somewhat different scenario involving an actual investment.) Portions of the money are divvied out to various immigration advisers and service providers, while the interest accrues to the federal government, which in turn spreads it around to provincial governments—about a half billion dollars annually of late. Essentially, the money is treated as the cost of Canadian entry—although in a further wrinkle, many breadwinners never move to Canada, instead retaining their offshore jobs or businesses as well as Chinese citizenship, to maintain their income stream and taxpayer status in China, which helps shelter income from higher Canadian taxes.
Lynn Hsu owns Macdonald Realty Group, home base to Manyee Lui and almost a thousand other agents. Since buying a single office in 1990, Hsu has turned the company into Western Canada’s largest realty operation, and she is well aware that Vancouver is vulnerable to changes in Asian investment and immigration. After 1996, when immigrants from Hong Kong stopped arriving and many in fact returned to Asia, real estate swooned, reviving only around 2002, when economic conditions improved and immigration from mainland China began to surge. Hsu says there is little agreement about what would happen to the market if China itself experienced a real estate meltdown of some sort. “One view is that it may have a negative effect,” due to the depletion of fortunes built on real estate and development (the primary contributor of wealthy migrants, alongside manufacturing and mining, she says). “But the other view,” she says, “is that Vancouver will look more appealing as people look for ways to get their money out of China.”
Hsu cites another factor that has the real estate industry on tenterhooks: the imminent doubling of requirements for investor and entrepreneur immigrant programs, raising minimum net worth to $1.6 million and minimum investment to $800,000. What will this change do to the supply of wealthy immigrants? “That’s the question everyone is asking,” says Steven Meurrens, the immigration lawyer.
Some 80% of immigrant investors are from Asia; at Immigration Canada offices in cities such as Beijing and Hong Kong, there are three-year backlogs of applicants who qualify under the old rules. Thus it will likely be years before the number of people arriving under the investor program dwindles. And as long as wealthy immigrants continue to arrive, pretty much everyone believes they’ll continue to buy homes here, rather than, say, invest in American cities where property is now much cheaper. “They’re here, not there,” says Hsu flatly. “They need a place to live.”
There’s also general agreement that a large proportion of Chinese immigrants won’t opt to rent instead of buying, even if the economics make more sense. “People in China always feel very insecure if they do not own their own house,” says Fang Chen. “Even those with a very low income will spend their savings to buy.” It’s a trait common to any country with an agricultural heritage and limited land, explains Tsur Somerville, an associate professor at the UBC Centre for Urban Economics and Real Estate. “There are some countries where the only collateral has been real estate.” Historian Yu even compares Vancouver real estate to a Swiss bank account—not for its secrecy, but for its rock-solid value and political peace of mind. The icing on the cake: Capital gains on a primary residence are tax-free in Canada.
So there’s a consensus of sorts: Vancouver real estate prices are unlikely to rise in the near future and may or may not fall. But if they do fall, the primary reason will not be a dearth of wealthy immigrants. That still leaves the bigger question: Is Canada’s third-largest city forever doomed to make its living selling condos, or will its connections and favoured geographic position translate into something new and significant? In other words, will it be New York, or will it be Halifax—a place haunted by a heyday it failed to exploit and can never recapture?
The full article, plus 300+ comments: http://www.theglobeandmail.com/report-on-business/rob-magazine/is-vancouver-in-a-real-estate-bubble/article1808967/singlepage/#articlecontent
I was in Vancouver 2 years ago and even then it seemed to be blowing up faster then San Francisco. I can’t imagine what it’s like now if the trajectory hasn’t changed much.
On a side note Vancouver is an absolutely beautiful city.
After 6 years of living 50 miles south of Vancouver (in Bellingham, WA), I always wondered why so many BC residents shopped and owned expensive second homes in Whatcom County. This is the first clue I’ve ever had why housing is so expensive up there.
Now that the forestry industry has been eclipsed and the place has a median household income that is only average by Canadian standards, Vancouver is a city with no visible means of support.
Wow. This will end well.
Like Hamster, I lived in B’ham. I have friends who’ve seen their typical tract home in White Rock (just across the US/Canadian border) skyrocket in price. I have friends who bought closer to Vancouver, in Burnaby, get nuts over the housing prices. (both friends bought in the 90’s… when it was first booming.)
Vancouver real estate is definitely “beyond frothy”.
Two weeks ago a chinese man paid US$68 million for a vase at an aution 🙂 Why spoil the party ? Let them blow as much bubbles as possible 🙂
Canada, as well as Austrialia, have strong currencies. Remember it wasn’t that long ago that the Canadian dollar, the luni, would be $0.66…now it more than parity (doing a Google search for “1 us dollar to CAD” brought up $1.06).
Vancover is “different!”
I can tell you from personal experience that Vancouver is `different`. First, there have been almost none of the american-type mortgage games that got the U.S. into trouble. Second, they`re not making anymore land. The greater Vancouver area is bordered by ocean to the west, the US border to the south, Mountains to the north and the Agricultural Land Reserve to the East and south (the ALR keeps the land for agriculture and has been near impossible to develop. Third, it`s not just the Chinese, Immigration from India has also boosted the population and the economy. While Vancouver is not bulletproof, it is more like citites such as San Francisco, Boston or New York. It can get hit, but is will recover much faster.
Back in 2008, my wife and I got Canadian residency status. We liked BC so much and were so sick and tired of the US political climate and the way this country was heading, we were ready to get out.
We were in BC last year. I LOVE that place. It’s got something about it that I can’t explain. It’s clean, it feels open and airy….it’s beautiful…its people are nice and polite, the food is great. The weather is great if you like a colder climate in LA and like rain (which we do).
But the RE is outrageous in the Vancouver proper area. Anyone buying property in Vancouver proper is crazy. It’s not worth it and isn’t necessary to do so. The city has decent in enough transportation that really doesn’t require anyone to “live” in the city. Places like Yaletown are severely overpriced for locals.
We are still in LA because I can’t find a job there. People who think BC.Vancouver will recover faster are dreaming. If that place gets hit, it’ll get hit so hard that people will leave and move to cheaper parts of Canada. It’s that simple. With a poor job market, it’s a no brainer for already residing people in BC to move elsewhere.
And I disagree with the above poster…Vancouver is not different. A bubble is a bubble is a bubble. If you remove all the locals and place wealthy people there, then it’ll be different……but then it won’t be Vancouver anymore. So why move there?
I have a master’s degree in engineering and work in a pretty prestigious place. I am by no means saying this to brag but if I’m having a bear of a time finding work up there (and can’t even find work above $80K/yr US), there’s no way in hell we’re going to move up there and have a better life.
They’re in for a world of hurt the locals are.
That was an outstanding article. Thanks for linking to it.
>Wow. This will end well.
I popped my last supply of popcorn in anticipation, but now have to get another tin. Until the Chinese start to hurt back home, this won’t end. Chinese are 50% of new development sales and 80% of high end sales. Chinese Nationals that is. It’s crazy. Australia is suffering the same effect, but at a less distorting rate of 20% of buyers.
>First, there have been almost none of the american-type mortgage games that got the U.S. into trouble.
In the end what got the U.S. into trouble were adjustable rate mortgages, for fraction of buyers. All mortgages are adjustable in Canada. Imagine the pain on a city full of 1 mil mortgages with just a 50 basis point increase. What a staggering thought.
> Second, they`re not making anymore land
Hm, I’ve heard this before. Oh, you’re just here to make us smile, right? You suckered me in until that one. 😀
Vancouverites with ARM`s still have to put down significant cash and there aren`t any neg am loans. Chinese tend to buy thinking a generation ahead, not a few years. I am not saying the city is immune. Just ask any local about the early 80`s when the RE crashed. That WAS due to the high-teen intrest rates. Canada doesn`t have the same debt problems the US does and shouldn`t have to raise their rates as high. There isn`t any shadow inventory there and more people want to move to Vancouver, it is sort of the L.A. of canada.
There is a boatload of shadow inventory. When I visit Vancouver I stay in a condo in Coal Harbor. Last visit in late summer I counted the apparently empty condos in the surrounding buildings (no lights, no drapes), it ranges from 10% to nearly 40%, depending on the building. The condo next door to the one I stay in, in an older established building) had been occupied until last summer. Now it is empty. Owned by Chinese.
I dont think Vancouver is going to get much cheaper than it already is. Migration to Vancouver is not stopping and developers are still building and selling out. There are a few projects that are not doing well but that’s because they are overpriced. Properties that are priced well will sell in any market. Vancouver is also a fantastic city with features that are not readily available in most of Canada and it’s only +5 in the middle of winter not -40!!