Ongoing Talk Of Hot Foreign Money – “He says that the ‘official travel destination’ status from the Chinese government, combined with a restriction on investing in China RE, has opened the flood gates to dumping money into Vancouver real estate.”

thinktom (a local realtor) at RE Talks 23 Jan 2011 4;38pm“One of the owners of a large west side RE company has a friend in Hong Kong who’s been living there 20 yrs. He says that the ‘official travel destination’ status from the Chinese government, combined with a restriction on investing in China RE, has opened the flood gates to dumping money into Vancouver real estate. He says ‘it’s only the beginning’.”

Is this an anecdote or a rumour? (Regardless, it’s a third hand opinion).
Is the ‘owner of a large west side RE company’ an informed insider or a biased observer?
-vreaa

And here’s another related story, this time from unicas at RE Talks 23 Jan 2011 10:05am ‘The Wenzhou ladies may be coming’“Wenzhou is a small city in Southeast China. But Wenzhou people are feared in China both as fierce business competitors and real estate buyers. 30 years ago, they were among the first Chinese who set up private business shops. They calculated profit by fraction of a penny. For the past decade they have been known as bigshot condo buyers. They form teams of RE buyers, go from city to city in China, and bring up prices wherever they go.”
unicas quotes from this article from the Financial Times, ‘Chinese city allows personal investing abroad’, 10 Jan 2011“A Chinese city celebrated for its cut-throat entrepreneurs has launched a pilot project allowing individuals to invest directly overseas in a move that could signal greater opening of the country’s tightly controlled capital account. The eastern city of Wenzhou will allow individual residents to spend up to $200m a year in offshore investments, according to an announcement on the city government’s website.”

Okay, so, the Redcoats!, or the Tartars!, or the Russians!, or the Zombies!, or the [your scariest nightmare adversary here!] are coming!
Before we all start quaking, note this passage from the end of the article: “Wenzhou investors spent around Rmb5bn buying assets in Dubai before the real estate bubble burst there.”
As we’ve said before, the vast majority of ‘hot’ foreign buyers are dumb-money momentum investors who will high-tail it out of here when prices eventually turn south. It’s a force and a story that will make our bubble ‘n bust that much more extreme.
-vreaa

25 responses to “Ongoing Talk Of Hot Foreign Money – “He says that the ‘official travel destination’ status from the Chinese government, combined with a restriction on investing in China RE, has opened the flood gates to dumping money into Vancouver real estate.”

  1. Actually….

    China allowing their citizens to invest into foreign markets makes sense. Think back to the 80s and early 90s Japan who essentially ended up buying up a boatload of US real estate. Remember the book / movie “Rising Sun”?

    Anyway, even if China does allow direct investment abroad now, and even if that is in real estate, the odds are much higher that they will flood into the US than into Canada, mainly because China holds a lot of USD and exchanging that for land is probably more desirable than holding onto it as the printing presses are running.

    If you want, Red Dawn 2.0.

    Oh, and even IF China does allow the outflow of foreign currencies of it’s own market, it didn’t save Japan in the end when the reckoning happened. I still think that eventually a strategic crash of the USD initiated by China could be in their favour. If they can manage to crash the USD they will be the only ones left standing. Now if they will do it (and do it soon) is open to debate. My cynical student of history thinks that they will first want to have a little war with the US to “thin the herd” (I said I was cynical), they have s serious population problem with too many males and not enough females, to “bleed off” excess could be in their best interest.

  2. The Chinese government seems to have caught onto the notion that if they let money flow out it will help with inflation. The limits they’ve set almost don’t qualify as such.

    • “if they let money flow out”

      They cannot simultaneously control a currency peg and inflation. If they let money “flow out” it means they either buy it back or the currency adjusts.

  3. One thing to consider when speculating where the RMB goes: the chinese community in vancouver/richmond should be taken into account. no where on earth you can get good chinese food elsewhere. US cities are in no comparison. where the friends and relatives is living is another factor. they are likely to be the purchasing agent and landlord for those RMB captialists/ordinary people in china who don’t even have to immigrate.

  4. Of course chinese are buying. Buy what makes people think that Van is the only West coast option? There’s a litte country south of Canada called the United States, where a cool million can get you, you know, an actual villa on the hills, instead of a plywood shack. Just saying…

  5. I’m afraid all of this is old news if you live on the westside of Vancouver. Within 2 blocks of my house 8 houses have sold in the last year, all to Chinese money,and 5 houses have been torn down to build huge great mansions.The house next to us sold a year ago for 2.5 million in 5 days with an almost immediate closing date. Most of the new houses are empty after building.
    It is what it is. This is a great place to rest your money. free medical, free education, stable government. All the talk of, is there Chinese money coming in ??, will more come???, etc. is so yesterday. It is here, has been here for the past few years, and more will come!

  6. Is it Chinese cash or Chinese credit that’s flowing in? Are these speculators borrowing in China to fund their Canadian RE shopping spree? Not a trivial question to think about considering the possibility of a future credit bubble burst in China.

    • Boy, that’s the 100 billion dollar question, all right. I’ve been pondering this for a while and can’t figure out how one might determine the answer without knocking on doors and asking people to open their books.

      It’s theoretically possible that it’s mostly real cash. Vancouver might have skimmed off the top of those who took offshore profits/bailout money/bribes/what have you and are parking that much actual cold hard stuff. Just crazy gut level, I suspect it’s less than 25% of buyers. People interested in making lots of money usually stay leveraged to keep making money at the same rate.

      Until the tide goes out, no one knows who’s swimming without their shorts.

    • I was talking to a banker friend of mine who works for Scotiabank and deals with many Mainland Chinese about the market and he says it is actually easier for them to obtain mortgages here via “Immigrant Lending” programs which all the big banks have. Essentially, all that is needed is the required 30 or 40% down payment to be verified. Also, the interest rates in China is higher than in Canada which makes it even more attractive to look for real estate here.

      Much of the down payment sources seems to be real profits from successful businesses or illegitimate funds that has been “snucked” out of China. Unfortunately, no questions are ever asked about how the applicants obtain the funds nor how they were able to get it out of China. All that is required is to verify the existence of the down payment. ie.Bank deposit statements etc.

      • Unfortunately, no questions are ever asked about how the applicants obtain the funds nor how they were able to get it out of China. All that is required is to verify the existence of the down payment. ie.Bank deposit statements etc.

        That can’t quite be right.

        If you come into the country with more than $10K in valuables you have to declare them at the border. If you make a deposit of 10K or more the bank needs to report the deposit to the CRA. If you do a wire transfer of more than 10K the same applies.

        I guess they could just make several transaction with $9999.99 each, but eventually I am sure CRA will take a look at those bank accounts as well.

      • I heard exactly the same story from my realtor landlord. 30-40% downpayment does it, and many invest the mortgage in China where interest rates are higher (the exact mechanism of investment I am not sure of, but many obvious ones come to mind). These HAM investors are not some cash-buying bogeymen, as though they were too rich to do, or incapable of doing, the math: why pay cash when mortgages are so cheap and the money is better invested elsewhere?

      • @ TPFKAA

        The thing is: Eventually CRA will take a look at these accounts, they aren’t stupid and the Government needs money.

        They may be able to buy now, but will they be able to pay the CRA should they come back and ask for money?

  7. What I think all this means is that we will be seeing a bifurcated market. The top end exemplified by Westside SFHs will see rampant gains as Chinese speculators/investors/immigrants get into a frenzy. Meanwhile the bottom end of the peripheries and the condo markets will continue to see inventory gains as purchasers dry up, because almost anybody who possibly could have bought in at the low end already has. 70% home ownership is a tough figure to exceed with local wages and tightening mortgage qualification requirements. Will there be enough Chinese buyers to prop up Surrey, Coquitlam, North Van, etc.? I doubt it, as that’s certainly not where we are seeing their money right now. They would rather buy one tear-down in West Van than four condos in New West.

    • (Shit, AG SAGE beat me to this observation on Vancouver Condo Info. No copyright infringement intended. As we each arrived at it independently, the likelihood of it being correct is good.)

      • 🙂 Heh.

        You reminded me that I was thinking the other day of the flip side, that the market is always many markets, in reality. They should each have their own trajectory based on fashion, cyclical industries, shifting demographics, etc. etc. When they start moving in lockstep upward, you have a bubble. The natural forces/whims/zodiac of each market should dominate. When a larger force (like infinite leverage, zero down mortgages, or severe unemployment) overwhelms the smaller ones and makes a general move on the market as a whole, you are either into either in deep recession, or a big bubble.

      • and to that I would add that while each zone has its own “price climate” to paraphrase you, none is “an island, entire of itself.” They are not in lockstep, for sure, but they are loosely tied and interdependent: I can’t imagine a price differential between two adjacent zones can grow beyond a point at which it becomes more attractive to cross the fence. To make a more concrete example, why on earth would you plonk down 1.5 m on a squalid hut in shaughnessy, if 4-5 br top tier homes in mt pleasant, oakridge or marpole were 300,000. The prices within each area may fluctuate relative to one another, but not beyond certain maximal differentials.

        Thus if we are seeing significant depreciations in low end peripheral homes and significant appreciation in top end homes, I think it would be quite an unnatural circumstance brought on by the two opposing forces of incoming money and diminishing local buyers. Hence a bifurcated market, though the discussion can quite handily break down on the semantics of the term “bifurcated”. I propose that you were originally correct on VCI when you said “if it isn’t already [bifurcated]”. To cite an example, a month ago I advised my Chinese friends to put their house on the market now rather than wait. (Renfrew and kingsway region). The wise matriarch of the family replied “But who the hell want to buy?”
        and indeed many homes sit on the market unsold for months, both there and in my neighbourhood (deer lake). Contrast this with our CBC news story……

    • This is what I am thinking as well. However, if this trend continues we may see some spillover effects on specific sub-areas such as those close to Metrotown/Crystal Mall in Burnaby, Coquitlam Centre and Fraserview/Killarney/Victoria. Why? These areas all have established Chinese shopping and dining centres which the new immigrants will find desireable. Aside from these specific areas, the rest of Greater Vancouver will be ignored.

  8. Hmmm. Maybe it’s time to start a propoganda campaign in China claiming that my US city is the next hot investment.

    Truth be told, I hear almost nothing of these buyers in my neck of the woods. It could be that differing immigration rules are keeping them from rushing into US markets in the same manner as Vancouver. (Not that they would choose my city, but certainly we have a few desirable spots left.)

  9. On another note: CBC radio keeps repeating the news about the three killers of a woman in Surrey being arrested. Two are simply named, no professions given; the third is introduced as “XXXXXX, a local realtor.” Haha, I laugh every time I hear them announce it. Guess who’s about to join traffic wardens on the list of professions defined as evil baddies. Many of the Wal-mart greeters in years to come will never admit to being former realtors.

  10. can someone explain the “all the rich off shore chinese” Don’t believe all the “HYPE”

    taken from the same article??

    http://www.ft.com/cms/s/0/b43f72f2-1ce4-11e0-8c86-00144feab49a.html#axzz1C0qsuLTW

    “Chinese individuals are now only allowed to buy up to $50,000 worth of foreign exchange each year. But under the pilot programme, Wenzhou residents will be able to apply for much larger amounts as long as their investments meet certain criteria.”

    and from a 2010 article…

    http://www.chinadaily.com.cn/china/2010-01/12/content_9303621.htm

  11. For the record we will mention that there are a large number of ‘hits’ apparently coming to this or the last post from a Chinese language website that vreaa is unfortunately unable to read.
    Anybody able to give us the gist of the discusssion there?
    See:
    http://www.westca.com/Forums/viewtopic/t=340558/lang=schinese.html

    • I can get u something… if u haven’t already… but it may take a few days.

    • The posts basically are critiquing the charts on this page and how : https://vreaa.wordpress.com/2010/09/11/five-charts-predicting-future-vancouver-housing-prices-with-the-aid-of-technical-analysis/

      There’s discussion on how the analysis isn’t nuanced enough in differentiating between apartment, townhouse, detached markets.

      Reply #5 wonders if VREAA is a Chinese-speaking person.

      Another reply mocking RE critique as fruitless by presenting a link to stock index performance of the S&P.

      Post pointing out regions within CoV. Downtown and Westside will never fall. Considering average size of a Westside home (5,000 sq ft), Eastside (4,000 sq ft), and Richmond home (7,000 sq ft). Price of a home over an apartment of equivalent sq ft should be double. Detached housing prices are justified and are undervalued according to this metric.

      Reply #9, last post of first page talks about how interest rates are insignificant to prices. But noted that sellers have been unable to move inventory despite rates staying low.

      Reply 10 comment on how housing markets are not comparable to stock markets in terms of their relative liquidity. Therefore applying technical analysis is folly.

      Reply 11 does not believe any of the crash scenarios are probable given the strength of the Chinese economy and the current volatility of equity markets.

      Reply 12: Vancouver and Richmond will never fall. US housing prices may have fallen, but certain hot spots like San Francisco continue to rise and will continue to because they are desirable like Vancouver is.

      Reply 13: Q – Why isn’t Carney raising interest rates?
      A – Because he’s waiting for the last Chinese person to enter the housing market. lol

      Replies 14/15: The author must be hoping for a crash to buy into the desirable Westside. Anyone know who he is?

      Reply 16: Areas that are 1 hour+ commute from SF have fallen 40%. 30 minute drive areas have fallen 20% . Phoenix houses have fallen over 50%.

      Reply 18: I am the author! Vancouver wages can’t support $2 million houses.

      Reply 20: Stock markets crash, housing markets may crash. But with a house, at least I have somewhere to live.

      • Reply 20: Stock markets crash, housing markets may crash. But with a house, at least I have somewhere to live.

        Well yeah, as long as you can make the payments.

        What gets me in the whole RE debate is that it seems most people only see the value of housing as the only important factor, completely ignoring that up to 1/4 of all economic activity in BC is tied directly to people buying and selling residential real estate (I posted a link and analysis in one of the comments a while ago).

        This is why I think this RE folly will hurt us all a lot more in the near future, regardless if we are in the market or not, the shockwaves will wipe out or at least seriously injure a lot of people financially.

      • TP -> Many, many thanks for this review, it is much appreciated.
        The comments look pretty much like a cross-section of the discussion we see on Vanc blogs.

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