Chinese Investors Driving Up Metro Housing Prices

[logan5]

Originally Posted by twoNeurons

Limiting foreign buyers will not change real estate prices, because foreigners aren't driving prices up. It's FEAR of foreigners and the idea that they're buying up all the houses that is driving LOCALS to buy real estate at insanely low interest rates, essentially enslaving themselves to a property for the next 25 years.

Sure, there's some moving and shaking in the high end, which has made some people wealthy when they downsize, but there isn't a huge amount of that happening.

I think it's safe to say foreign ownership is driving up the price of single detached homes, but are they also driving up the cost of condo ownership?. I've heard different reports of foreign ownership of condos being at a lower proportion than detached homes. What is not reported is how many condos foreigners are buying at a time. 1 buyer at a condo development could mean 5 condos in one foreign owners hands. If that's the case, condo prices would surely be affected as well.

If condos are the only product 95% of us can afford, doesn't that give developers a way to leverage more money from prospective buyers?

Maybe foreign ownership is having little effect on housing prices or maybe it is having a significant effect. There's only one way to find out...

[st7860]

http://www.bnn.ca/Video/player.aspx?vid=699416 Market swings bringing Chinese money into Vancouver's real estate : Realtor --- September 8 2015

[cornholio]

Originally Posted by casper

So a foreign investor (with $8.5M in assets), who does not depend on any government services in Canada is making the same contribution to the tax base as someone who works in Canada making $100k.

if that $8.5M is invested in say Condos, in addition to taxes they are paying condo fees. Lets say 8 condos, $400 per month per condo in fees. That is $3,200 per month in management, building maintenance and contribution to reserve funds for major upgrades.

Sounds like a good deal for the local economy.

If those 8 condos are to speculate with then it is no better then speculating on food or water. Had they bought a 8 suite rental building that would be a different story. As is those 8 units being held by one individual is a negative for the city because it is a net negative for the residents living and working in the city, and the businesses hiring them. It inflates the market. In-fact speculation is not good in any market. But when it comes to something everyone needs then its doubly bad. Hence our food industry is protected and heavily regulated.

[st7860]

The 8 condos are having their fees and taxes paid even empty so that keeps the costs lower for everyone else. People living in them pay no taxes when selling the units.

[Spork]

Originally Posted by st7860

The 8 condos are having their fees and taxes paid even empty so that keeps the costs lower for everyone else. People living in them pay no taxes when selling the units.

They would be paid even if somebody lived in them.

If we assume that there would be fewer units overall due to less purchasing activity (investors turned off by requirement to maintain occupancy in a unit) and therefore higher property tax rates, this could be offset by a lower lifetime interest expense on a mortgage due to the property value being lower. Remember that a $1m property pays $800 per $100k in value in property taxes, but $3000 per $100k in value in interest expenses (mortgaged).

[st7860]

Originally Posted by Spork

They would be paid even if somebody lived in them.

If we assume that there would be fewer units overall due to less purchasing activity (investors turned off by requirement to maintain occupancy in a unit) and therefore higher property tax rates, this could be offset by a lower lifetime interest expense on a mortgage due to the property value being lower. Remember that a $1m property pays $800 per $100k in value in property taxes, but $3000 per $100k in value in interest expenses (mortgaged).

okay that makes sense but what about the tax free status on selling a primary residence that the landlord wouldn't be entitled to?

[casper]

Originally Posted by st7860

Exactly. In addition to that, fortunately the BC Government in July of this year cut the required amount of investment for provincial immigration in half, to $200,000. This should help things a bit. To the moon gentlemen!

To be clear it is a bit more demanding that that:

General Nomination Requirements
◦ active and ongoing management of the day-to-day business operations
◦ demonstrated residence in B.C.
◦ admissibility to Canada

•Personal Requirement ◦personal net worth of at least $600,000
◦ business and/or management experience

•Business requirements
◦ establish a new business or purchase and improve an existing business

•Investment requirements
◦ make an eligible personal investment of at least $200,000 in the business

•Job requirements
◦ create at least one new full-time job for a Canadian citizen or permanent resident in the business

http://www.welcomebc.ca/Immigrate/Ab...uirements.aspx

Buying a house does not qualify as "Invest in a business creating at least one new full-time job for a Canadian citizen.".

But yes, it is a good program. We should have the provincial government actively market this in Asia and Europe. Lets grow the economy.

[casper]

Originally Posted by cornholio

If those 8 condos are to speculate with then it is no better then speculating on food or water. Had they bought a 8 suite rental building that would be a different story. As is those 8 units being held by one individual is a negative for the city because it is a net negative for the residents living and working in the city, and the businesses hiring them. It inflates the market. In-fact speculation is not good in any market. But when it comes to something everyone needs then its doubly bad. Hence our food industry is protected and heavily regulated.

It only inflates the market if there is no active construction of new condos. Price goes up, builder builds more buildings and condos. The cost is kept in check.

[Spork]

Originally Posted by casper

It only inflates the market if there is no active construction of new condos. Price goes up, builder builds more buildings and condos. The cost is kept in check.

Except we aren't producing economic widgets. There are constraints to supply (regulation, physical land, labour/material capacity to build) inherent effects on their own input costs, and the echo of price going up causing further demand. Not to mention the effect on the rental market, where investors who would like to purchase and rent the property out (rather than keep it empty) are blocked out of the market, driving up rental costs for the remaining supply. This will eventually incentivize full rental buildings by various organizations interested in a return, but they are also driven by their return on capital, which is affected by the amount that they have to invest, thereby not insulating the rental market from such rapid rent increases. A virtuous cycle.

[casper]

Originally Posted by Spork

Except we aren't producing economic widgets. There are constraints to supply (regulation, physical land, labour/material capacity to build) inherent effects on their own input costs, and the echo of price going up causing further demand. Not to mention the effect on the rental market, where investors who would like to purchase and rent the property out (rather than keep it empty) are blocked out of the market, driving up rental costs for the remaining supply. This will eventually incentivize full rental buildings by various organizations interested in a return, but they are also driven by their return on capital, which is affected by the amount that they have to invest, thereby not insulating the rental market from such rapid rent increases. A virtuous cycle.

I would agree with your point on single family homes. There is a fixed amount of land.

Condo. There is no shortage of building going up. Developers need to pre-sell to a certain percentage to secure financing to build and then they build. If there are projects that are in pre-sale, I don't see the issue.

[st7860]

http://www.metronews.ca/news/vancouv...vancouver.html
"But Fry was careful to point out her party doesn’t care whether the buyer is from Canada, just whether they’re flipping the house."

[Spork]

Originally Posted by casper

I would agree with your point on single family homes. There is a fixed amount of land.

Condo. There is no shortage of building going up. Developers need to pre-sell to a certain percentage to secure financing to build and then they build. If there are projects that are in pre-sale, I don't see the issue.

Condo prices are affected by the underlying cost of the land, as well as the regulation that restricts their supply. If the entirety of Metro Vancouver was zoned for MFD in some shape or form, then I could concede the second point, but the fact of the matter is that there is not an unlimited supply of condos.

[Tourist9394]

Originally Posted by casper

To be clear it is a bit more demanding that that:

General Nomination Requirements
◦ active and ongoing management of the day-to-day business operations
◦ demonstrated residence in B.C.
◦ admissibility to Canada

•Personal Requirement ◦personal net worth of at least $600,000
◦ business and/or management experience

•Business requirements
◦ establish a new business or purchase and improve an existing business

•Investment requirements
◦ make an eligible personal investment of at least $200,000 in the business

•Job requirements
◦ create at least one new full-time job for a Canadian citizen or permanent resident in the business

http://www.welcomebc.ca/Immigrate/Ab...uirements.aspx

Buying a house does not qualify as "Invest in a business creating at least one new full-time job for a Canadian citizen.".

But yes, it is a good program. We should have the provincial government actively market this in Asia and Europe. Lets grow the economy.

There are ways around this by the shrewd Mainlanders, and this happens in my hometown Home Kong also. The applicants of this investment program buys farmland in Richmond, create a shell business known as a garden, hire a Canadian security guard to front as providing jobs for the economy. Get Canadian passport.

[st7860]

http://www.vancouversun.com/business...#ixzz3lTaeZiLZ
"It’s not the first time inflated real estate and land prices have been blamed on investors and immigrants from greater China. In the 1980s and 1990s, when there was an exodus of people and money from Hong Kong to Vancouver, there was a similar rant."

[McPaul]

Originally Posted by st7860

OMG foreigners!!

http://www.theglobeandmail.com/news/...ticle26246319/

"Kevin Cheung and Scott Wang are two of the latest wave of developers, sometimes labelled as offshore, who have arrived in Vancouver within the last couple of years and caused ripples of interest and alarm.

Both graduated from Sir Winston Churchill Secondary School, with Mr. Cheung getting a bachelor’s in commerce at the University of British Columbia. Both have fathers in real-estate development in Shanghai who are providing the starting equity for their sons’ Vancouver ventures. They are the children of the astronaut families."

Wang Cheung?

Everybody have fun tonight!

[casper]

That Wang and Cheung group does not sound like it belong in this threat.

it is a company run by locals who went to school here and live here. Perhaps they borrowed money from family, or local Canadian banks we will never know.

That is the problem with the entire premise of this threat.

If you want some contrast. About five years ago I was looking at buying property in Saskatoon. A good number of the new condos I looked at were owned by numbered companies based in Toronto. They investors would buy in before construction and then sell just before taking possession. How many of these foreigners are local?

[whatnext]

Originally Posted by McPaul

Wang Cheung?

Everybody have fun tonight!

[Alex Mackinnon]

“You see a lot of this in Vancouver, where the mother and child stay here and the father is doing business in China where the opportunity is,” said Mr. Cheung

This is the issue. I agree that the foreign money isn't that big of a problem when it comes volume. Most of the problem is people leveraging themselves to high hell based on some absurd valuation of property as a wealth hoard rather than a place where you live. We've turned Vancouver into a city where you don't build wealth, you stash it. That's really crap for anyone who's grown up here.

The issue of empty units is hugely wasteful, even if condos aren't as finite as SFHs. The fact that they're empty and in often in core areas means that people are placed farther away from things than they need to be, just because somebody wants a land based insurance policy. View cones and density limits definitely help contribute to this issue though.

In the event where you have someone sitting with 8 empty units, that's 8 families which could probably living closer to where they live, work or play. People should live in those areas. If only people bought rural property as a storage of wealth instead of urban real estate...

[st7860]

It shouldn't bother people if others throw their money away or leave it idle paying endless maintenance fees, property taxes, and heavy capital gains when they sell. Until the Canadian dollar rises those 'foreigners' will still be buying up things.

[Alex Mackinnon]

Originally Posted by st7860

It shouldn't bother people if others throw their money away or leave it idle paying endless maintenance fees, property taxes, and heavy capital gains when they sell. Until the Canadian dollar rises those 'foreigners' will still be buying up things.

It doesn't bug you when people buy things and not use them? That's just waste.

As somebody who likes utilitarian philosophy this drives me insane.