“I am a first generation immigrant here to Vancouver. I bought my place last year. I expect a correction of 10% over 3 years. People always ask me: why do the immigrants come here?”

Julian Lee at VREAA 29 Aug 2011 1:56am & 7 Sep 2011 12:08am
“I am a first generation immigrant here to Vancouver. I came about 20 years ago with my parents from Asia. This is a beautiful city and I am proud to say that I am now a Canadian and have completely integrated into the culture. I have a particular perspective on the Vancouver real estate bubble as I am very familiar with both cultures. Here are my 2 cents:

1. Are there rich asians who are buying houses? Yes, there are a lot of it. But they are not the majority of real estate purchasers. They make up purchases in some of the most expensive areas. But it doesn’t justify that all areas should go up by the same percentage. For example, if you go to an open house on some of the Westside neighbourhoods, you’ll be amazed by their purchasing power. It’s incredible, beyond anything that we have seen here, completely consistent with other stories. The street is loitered with expensive cars. You can also take a look at the parking lot of some west side schools, their kids roll in far fancier cars than their teachers. But, if you are to go to an open house say in the commercial area, these guys are nowhere to be found. So it’s not true that they are the single most important factor in driving up house prices in every area, but they do certainly make a difference in some areas. I think across the entire lower mainland they don’t make up the majority as they almost never touch anything in Surrey (except South Surrey White Rock) or Langley. For now they mostly operate in Vancouver, Burnaby, Richmond (until the Tsunami, notice how Richmond’s price stopped flat at the same time as the earthquake), and West Van. As for the 5% foreign buyer stat that have been bandied about here, I would be very curious to ask who is classified as a foreign buyer? Is an immigrant a foreign buyer? Is it simply a non-canadian citizen or a non-canadian resident? That does make a difference because a lot of these rich asians park their wife and kids here. So their family is technically canadian residents, are they still considered a foreign buyer at that point? The final thing is, almost all of them will buy. They will not rent, every investor immigrant that lands here from Asia will buy a property of some sorts. They really don’t care about how high the price is, we have not reached a level that would make them feel that we are expensive compared to a place like Beijing.

2. About this bubble. Is there a bubble? I would say there probably is. But it is not as big as one may imagine. Here is why. All the statistics that have been gathered have been compared to western stats. Meaning that all rent to own ratios, average cost to income ratios, etc, are all using historical statistics in the Vancouver / Canadian markets. But that’s not necessarily correct. Because the demographics of Vancouver is shifting. When you look at any given city’s ratios, you need to take a look at their demographics. So for example, if your city is 20% chinese, I would use Beijing’s ratios multiplied by 0.2. If the city is 10% Indian, then use Mumbai’s ratios multiplied by 0.1, etc. Basically, I would take into account the cultural differences of these ratios. Taipei’s rent to own ratio is a lot worse than Vancouver’s, to the tune of double or triple as bad. This is just an example, do I expect that Taipei or Beijing will ever correct to Western levels? Not a chance. It’s just the way that different cultures value real estate. I would be curious what that ratio would look like once the cultural differences have been considered. I would imagine that we would still be higher than the number, but it wouldn’t be as astoundingly high as it currently is. So while I feel a correction is in order, I would be shocked if Vancouver housing crashed.

3. People always ask me this, why do the immigrants come here? I am a Canadian Citizen who immigrated from Asia when I was young. I have to say, it’s the best thing that has ever happened to me. To understand the core immigration issue, one must examine what is important to rich asian people. Believe it or not this all starts with the one child policy in China. As a result of this policy, Asian families, who normally are very children focused, have become even more so. For anyone who has ever received an education in China, he/she would know that it is worse than hell to go through the highschool final examination (the so called gao kao). Basically, you prepare night and day since the age of 15 till you graduate when you will take a national university entrance exam which will determine your fate for the rest of your life. Like it or not, whether you are rich or poor it does not matter. Everyone needs to go through this. No matter how rich you are, places in the best Universities in China cannot be bought with money, no matter how much. Anyways, no parent wants their kids to go through this. So they must find a way to get them abroad.

Now you ask, there are a ton of places with good education systems, why here? Well, when you only have one child, you really don’t want anything to go wrong with this kid. The only other person that you trust with this child is your wife. So the wife must also immigrate with the child. However, unlike the child who can probably integrate into any community easily, the wife can’t. I am not even 30 and I have to say it is hard for me to drop into somewhere say Germany and integrate easily into the community. Try learning another language when you are 40 and you’ll find out in a hurry that it is not that easy. So you need a huge chinese community where the wife can pretty much not learn english, or know very little of it, to get around. Sound familiar now?

Now, it may sound absolutely absurd to us, but everytime I travel to the states for business or pleasure my relatives get worried. Why? Because there is this nice misconception that the US is dangerous amongst chinese circles. Why? Cause they have guns. Now, remember, the kid is the most important part of the family, do you really want to send him to somewhere where anyone can carry a gun? Not likely.

This really narrows the places down to a few in the world. You are looking at Vancouver, Toronto, Melbourne, Sydney, Singapore. At this point, you have to look at yourself, now imagine that most of your time is spent in the bustling chinese cities where air pollution is a huge problem, where the only thing green you see if likely the little patch of grass the government decided to put there to show the foreigners, where all you see is skyscrapers, etc. You only have about 3 weeks vacation each year, do you really want to go to Toronto? I have not heard one investor immigrant who have ever said they prefer toronto to vancouver. Vancouver is as beautiful as any city in Asia. And here is the kicker, we are a relatively new city, we bring an air of invigoration to some of these people who simply see a better lifestyle here.

Now, you are down to Vancouver and the two Australian cities. Well, unfortunately for us, the Aussies seems to be perceived as more racist than us nice Canadians. At least in some chinese circles. And, asian people aren’t adventurous like their Western counterparts, they tend to want to stick to a tried and true formula. So, as the first wave of rich asians have landed here and shown that their families will settle nicely in this City without much issues. More will follow. They do NOT take the path less traveled, they like the one that has been stepped on by thousands of people.

Finally, one last thing to consider. It is very difficult to get money out of china. If you are very rich, you need to have an excuse to get your money out. Well, guess what, thanks to our abundance of resources, these guys have a nice excuse to get their money out. They can say that they are coming here to buy resources. Much easier sell to the government.

So there you have it, if you look at all these factors, you quickly realize why it is that they don’t go to Miami, or Phoenix, or Portland, hell, or even Seattle, but they come here.

That said, to cool off the bullish camp. A few thousand immigrants does not make up the whole market, so you will still get the swings, but they will come and snap up anything they can get their hands on if we do go down significantly. Because they know that in this is perhaps one of the rarest places on Earth that fits everything they and their peers are looking for. The ones who are here are buying because they know more are coming. There is a three year waiting queue in Beijing for applications. The scariest part is there have not been any significant efforts to market Vancouver abroad. This is all done by word of mouth.

So there are my 2 cents, I wish everyone good luck in this market. I am not convinced that the market will go up forever as I am intelligent enough to know that no market acts that way. I expect a correction of about 10% over the period of say 3 years. Then it might still go up a bit after that. But I think it’s unrealistic to expect ridiculous returns that we have seen. I bought my place last year, but I had to search very very hard to find the best possible deal in the market in order to hedge myself against a correction. I am actually really glad that there is this forum as it is good to hear a contrarian view over the normal “yeah it only goes up comments”.”


Thanks for sharing your story and your thoughts, Julian.
Your argument that Vancouver is an attractive city for Asian families is persuasive in a broad fashion, but hard to actually quantify. It is a form of the ‘Limitless Demand Argument For Ongoing Market Strength’. It amounts to ‘Vancouver is attractive to Asians’ + ‘There are lots of rich Asians’ = ‘Ongoing price strength in Vancouver ad infinitum’. We have always had the position that there is a chance of this playing out, but that that chance is low (less than 5%).
Many aspects of human behaviour are similar across different cultures, and if you’re a regular reader here you’ll know we expect all market participants to respond in a similar fashion to a pullback in what is an overextended speculative market driven largely by very cheap financing. Markets behave under the same principles in Beijing, Mumbai, Taipei, Europe, and North America; we expect human responses to a failing Vancouver RE market to be similar across cultures. Namely, many buyers will sit on their hands, some sellers will come to market as prospects of ongoing steady gains fade. People almost everywhere have recently learnt that when assets start falling, they can fall a lot. We think they’ll realize that about Vancouver RE in good time.
Asian buyers may well have been attracted to Vancouver, and see it as a safe-haven, for the very reason that prices seem bullet-proof. We expect Vancouver RE to be a lot less attractive to ALL players on the way down.
In the relatively brief 2008-2009 dip, all Vancouver buyers, of all nationalities, disappeared, and only came back when money was handed out for free. There will be no such springboard under the market when it next weakens.
If your way of thinking is true, then we would expect to see an increase in Asian buying in the event of any future price drops. Personally, we don’t see that happening, and expect the opposite.

We’d classify your prediction of no more than a 10% pullback over 3 years as a prediction of ongoing price strength; after a run-up of hundreds of percent, such a ‘correction’ would be nothing more than ‘noise’.
We’ll see how our various predictions play out in the coming years. It probably won’t be long before we get a chance to see how market participants respond to an initial price pullback.
Thanks again for your posts, please continue to contribute here, and all the best with your endeavours.
– vreaa

67 responses to ““I am a first generation immigrant here to Vancouver. I bought my place last year. I expect a correction of 10% over 3 years. People always ask me: why do the immigrants come here?”

  1. When you look at any given city’s ratios, you need to take a look at their demographics. So for example, if your city is 20% chinese, I would use Beijing’s ratios multiplied by 0.2. If the city is 10% Indian, then use Mumbai’s ratios multiplied by 0.1, etc.

    Interesting way of looking at things, but this ignores the fact that the vast majority of buyers are paying their mortgages with the salaries they earn here (and not their salaries back in Beijing, Mumbai, etc).

  2. Thanks. Very interesting insights.

    The only thing that I question is the ability of these rich asians to support prices to the extent you predict. You admit there aren’t that many of them, and they are only interested in certain areas. So can this segment keep the whole market to only a 10% correction? Not sure.

    • “So can this segment keep the whole market to only a 10% correction? Not sure.”

      The “rich Asian” meme reminds me of the whole .com business case, where we can all be millionaires by tapping a mere 0.01% of the available market.

      Despite all the FUD and theories surrounding why “Vancouver is different”, the simple facts remain that cap rates are low and debt levels of established locals are high. Stay on target…

  3. If there aren’t that many rich foreigners, what happens when the locals run into financial difficulties and have to sell? I know many families who are over-indebted and will have to liquidate properties at some point in the future. If there aren’t thousands of foreigners who are going to buy up their properties for unlimited prices….well you can see which way the market will go. The number of people who are over their heads with debt far, far exceeds the rich people coming here, I would say. And as we’ve said over and over again, these are the ones who set the market.

  4. Tax capital gains on primary residence.

  5. Let’s be an asshole and take the philosophical high road: we are only deluded by what we think are causal market factors and their interplay. Whatever causes the market to drop will be something we never expected, a proverbial “black swan”. As per Julian, the Chinese will choose the well-worn path, and what do most people do in a dropping market?

  6. Real estate prices during the roaring twenties and the great depression
    Using new data on market-based transactions we construct real estate price indexes for Manhattan between 1920 and 1939. During the 1920s prices reached their highest level in the third quarter of 1929 before falling by 67 percent at the end of 1932 and hovering around that value for most of the Great Depression. The value of high-end properties strongly co-moved
    with the stock market between 1929 and 1932. A typical property bought in 1920 would have retained only 56 percent of its initial value in nominal terms two decades later. An investment in the stock market index (including dividends) would have outperformed an investment in a typical property (including net rental income), by a factor of 5.2 over our time period.

    Click to access Anna_tom.pdf

  7. Thanks for the comment! Very interesting.

    Aside from fear of guns in Seattle (or other US cities) — another difference may be that it would be difficult to leave a wife and kids in Seattle and go back to the business in China. In the US investor immigrants have to run a business that employs a couple of people full time. They can’t give the government an interest-free loan in exchange for a green card. If the wife didn’t speak English, it would be very hard to run a business that employed other people; furthermore, in terms of socialization, Seattle is about 13% first generation Asian to Vancouver’s 30% I think?

    I do wonder if the Monaco 5% prediction is a bit too low. Wealthy investors inflate the rest of the market. The upper-middle class has to move out to the less desirable neighborhood, and pushes up those prices for crappier houses, ect.

    There are a few possibilities that might interrupt the “Monaco” trend. At some point the middle and working class may not be able to service their mortgages. If this leads to foreclosures that could cause a cascade effect in the less desirable communities and bring down prices in the outer areas. (More of a 50-35% decreases in Surrey, East Van, ect.)
    Vancouverites

  8. Believe it or not, there are a lot of rich Mainland Chinese people who have retired in California. When I was in China, my wife’s brother’s friend who showed us around Great Wall was talking about going to US with his family, putting his kid into a good US university, looking forward to enjoying the nice and easy lifestyle there with his friends there. He cited the same usual benefits that we keep hearing that makes Vancouver so special to the Chinese – clean air, the mountains/ocean, safety, no need to speak English, etc. And yes, his friends even drove him to the ultra-rich Mainland Chinese enclave that’s nicknamed Concubine Viliage due to the fact that a lot of the houses/mansions are all occupied by concubines/mistresses of the ultra-rich/high level party officials, etc.

    The guy has heard of Vancouver, went to visit some friends here once, however he didn’t consider Vancouver because it’s just too much of a village, not a city.

    So sorry to burst Julian’s bubble but there are tons of rich Chinese actually looking at and wanting to immigrant to California over Vancouver.

    Vancouver does have a couple advantages over US though:
    1 – Much less likely to be investigated for not reporting world-wide income and paying taxes on it.
    2 – Easier to get in via the investor immigration class.
    3 – Lai ChangXing, and other corrupt officials with a few millions embezzled funds.

    However Vancouver is not this 1 unique special place on the face of this planet for the rich mainland Chinese. It’s a special unique place for those who wants an easy way in with things to hide. For the regular millionaires without worries about prosecution from the Chinese government, it’s one of many choices.

    • Nice one space889, however your phrase “(mainland chinese) millionaires without worries about prosecution from the Chinese government…” is so much an oxymoron. If there is such a creature it’s 1% of all mainland chinese millionaires. So in the end 99% of the corrupt kind have no choice but to “hide” in Vancouver.

  9. 4SlicesofCheese

    Question to original poster, have you ever lived anywhere else in the world other than Vancouver and your mother country?

    I come from a similar back story as you but have lived in countries other than Vancouver before.

    While I agree about some of your assessment, there are Chinese that believe what you believe about Vancouver in other cities around the world, not just Vancouver. Could be your point of view is skewed to Vancouver because you are surrounded with people that want to live or are living in Vancouver.

    • The poster did cite Melbourne and other Australian cities. And the housing markets in those cities do have similar problems to Vancouver.

      I think there’s some slow down in the housing market now in Australia. They changed the mortage rules in regards to foreign investors — would be interesting to know if that is one of the reasons for the slow down.

    • I have lived in the US for a bit, nothing significant, say a few months. I have been to many Cities around the world. My favorite city to live is San Francisco which actually also has a huge chinese community. Unfortunately, real estate is not exactly cheap in San Fran either.

      I agree that most Chinese people feel that major US cities are probably better than China. But that is not what I am arguing. I am saying that when you do an analysis of what these people want, especially when it comes to the perceived safety of their wife and kids, Vancouver fits the bill wonderfully.

      My personal opinion is that if the Dad actually lived here full time then he might actually prefer a bigger and more cosmopolitan city like a San Fran, but since he is only here a few weeks a year, Vancouver provides a nice change of pace from the major Asian cities. And seriously, it is very hard for you a find another place in NA like Richmond where you literally don’t have to speak English to get around. The signs are all in chinese.

  10. How does the ongoing Chinese bank liquidity squeeze affect the plans of the next wave of “immigrants”? Back in China, SMEs owners are mortgaging and selling their houses to keep their businesses afloat. The previous wave to Van bought with a money-is-no-object mentality, and that set the current stratospheric price. But those house values will be adjusted, ongoing, by what the next wave can smuggle out of China, which is subject to new ongoing action by the Chinese government.

    Question to Julian: What is the ratio of business people to bureaucrats in the Chinese recent immigrant populations you are familiar with?

  11. Human nature is the same the world over.
    Greed and fear is a common denominator everywhere.
    Vancouver was premium priced before this bubble started.
    Even if the market falls back by 50%, it will still be an expensive city to buy into at around 5x income.
    I acknowledge the comments of external income earners. But as a % of the overall population, it wont be sufficient to hold up the entire market.
    Any viewing of Hong Kong bubbles over the years, reveals that the chinese like every other human, jump into rising markets and abandon markets when they pop.
    But id just like to thankyou for listing this anecdote. It was very illuminating.

  12. Until we have a level playing field, where the CRA makes sure that if you live in Canada (or your spouse and children do) that ALL your worldwide income is declared and taxed, we will be living in an unfair society.

    Many immigrants have given up high incomes and low taxes for the life-style we have in Canada and our values. Others seem to regard it as a dropping off point with no input needed.

    A few high-profile cases that are prosecuted should do the trick.

    • The issue goes deeper than foreign income, the income tax system allows for avoidance and those with foreign income have ways of joining higher income locally-employed Canadians in the noble pursuit.

      Just remember this when you hear politicians advocating for lower corporate taxes to stimulate the economy.

  13. I would also say that many asian immigrants can come here and feel comfortable knowing they may not need to learn english. Look at Richmond, as most signs are in cantonese or whatever. They can watch fairchild tv, read the chinese newspaper, and have the clean air of B.C.

  14. Nice discussions going on. Allow me to respond to some of these posts.

    1. I never implied that the rich Asians don’t go to other places such as California. In fact, if the whole family can immigrate this might actually be a better choice. My personal favorite city is actually San Fran over Vancouver as I think it’s a more cosmopolitan vancouver that doesn’t rain as much. However, the issue is that usually the dad needs to stay in China to work while the kids and the wife come over. So again, they will be concerned whenever they hear about US teenagers carrying guns on chinese news. The other cities that I have listed are also potential choices, but when you look at what factors they would choose, Vancouver happen to fit the bill for everything. And I do agree with another poster here. Chinese millionaires usually don’t make their millions without some sort of bribery, tax evation, etc. It’s not an indictment on their character, it is simply how business works in China. So a lot of them would like to go to a place where they can consider as a safe haven.

    2. There are several very important cultural differences that don’t show up when calculating ratios of income to house prices. For example, let’s take our friends from India. I have several friends of mine from India who live with their parents in their house. The way they do it is that the entire family on the male side (I mean like brothers, dad, mom, etc) all live together even after they get married. So everyone pitches in to support the cost of housing. It is their tradition and that is how it works in India apparently, so in this case, the actual income supporting the debt is often 3 to 4 times the normal individual income. Going back to the Asian example, Asian people place a much more important value on real estate, it’s not an investment or simply a place to live, it is part of their identity. For example, in many Cities in China, the house prices to income ratio is much much worse than Vancouver. But that’s simply the importance that people in that culture place on real estate. When the son goes to his gf’s parents to ask for their daughter’s hand, it is customary to make sure that he owns a place or is at least in the process of looking to buy a place. The son’s parents would feel shameful if they can’t get their son at least a down payment to a place before they get married. Do I agree with this? No, but it is part of the culture. This tends to skew real estate prices as you have a ton of young couples looking to buy. Most of them have parents supported down payments. What I am proposing is simply accounting for these cultural differences when we calculate our price to income ratio or rent to ownership ratios because obviously if Vancouver is half chinese, then you can no longer compare our ratios to a city who is say 2% chinese due to the cultural differences and the importance of real estate to them.

    3. I wonder what the average apartment costs in Greater Vancouver. Because when you talk about affordability, apartments aren’t that unaffordable. In fact, my friend bought an apartment in Coquitlam in 2005, it has gone up like 30% over the last 6 years. That’s a 5% rise each year, hardly anything astounding. It is the detached houses that have skyrocketed mostly, and that is exactly the type of housing that these people that I refered to are looking for, apartments are mostly secondary properties to them. I think the issue is the value for the money, because you can still get a decent sized 2 bedroom apartment in say burnaby for about 350K.

    4. Despite of all this, I still feel like we are a bit overpriced when all things considered hence my prediction of a 10% price correction. But I refuse to blindly use western macroeconomic ratios when there clearly has been a demographic shift in Vancouver over the last 20 years; this is not just Chinese, there have been many people from other cultures who have immigrated here such as India who will also skew our ratios. We will find an equilibrium where prices don’t go up 10% every year, but that equilibrium may not be what everyone here expects.

    Good luck to all.

  15. “important cultural differences”

    So for price to income that may be true but in its essence price-income is a proxy for what’s really going on, that a large portion of the market is investor-owned.

    Price-rent ratios in North America are a very different beast compared to parts of Asia with higher income growth and different monetary policy regimes. North America has a solid base of high quality alternate investments that directly compete for capital with housing on a risk and return basis. Using an argument that Asians “value” real estate differently than North Americans does a disservice to basic investing and one of Taiwan’s richest men agrees with me: according to him, FWIW, Vancouver is overvalued from an investment perspective.

    If you want reasons why people will overpay for housing, often for completely sound rational reasons, let me assure you that Asians have lots of company.

    • buying a home is not a business decision. Why are you applying investor principals? This might be your way of looking at buying a home, but the vast majority do not use your formulas. How much is the emotional component of owning a home worth? By the looks of the angry and frustrated posters here I’d say it’s worth it’s measurement in gold

  16. I really appreciate the poster and comments.

    I think where the rubber hits the road for Vancouver is the percentage of debt/leverage in the market. If a certain percentage of people cannot service their mortgage, due to any number of factors, the market will drop.

    I could see a 2-tier situation developing wherein the outlying areas drop by 50% or more while others hold steady. In San Fran the worst drops were located 1 hour and more outside of the city.

    • “I could see a 2-tier situation developing wherein the outlying areas drop by 50% or more while others hold steady.”

      Mm. possible. Let’s just say I’ll reserve judgement on the matter.

      San Francisco recovered quickly from the recession; my friends down there tell me the job market in tech is relatively strong and wages are climbing at a fair clip. Also keep in mind that Vancouver, even in the most affluent of areas, has a higher %GDP spent on real estate than San Fran. My concern is there isn’t much to keep the local economy afloat if the miracle of real estate starts to sputter.

      • Yeah – I know some friends of friends who went into foreclosure in San Francisco, but also some others who snapped up good deals. It’s disturbing to hear that Vancouver has a higher % GDP spent on real estate then San Fran.

        Your question about the local economy would also be my main concern. People paying mortgages must have jobs to support those mortgages. If the mortgage monthly payment grows too high to put food on the table it doesn’t matter how much people value housing. If ya can’t pay ya can’t pay.

        I’ve heard that industry is getting hollowed out in Vancouver, but I don’t know the city enough to judge. Certainly a lot of mining interests are located there, but lumber must be hitting hard times right now.

        If part of what is driving the market are people who don’t actually work in the city, that will skew the fundamentals somewhat — especially if income is not being reported. In other words — I trust the fundamentals but are we getting all the data?

        btw- how is Vancouver’s tax base? Is the city profiting from the bubble or shrinking? That could reveal interesting things about the growth or shrinkage of industry in the city.

      • “I trust the fundamentals but are we getting all the data?”

        Again, the gauge I think watching is prices to rents. Incomes are a sidebar but in certain markets are the only proxy we have for valuations because the rental pool is small. By the price-rent measure — I use the condo market where there’s a healthy amount of investors — Vancouver is significantly overvalued compared to investments of similar risk profile (like say a utility). As I mentioned above you can explain away “cultural differences” and maybe even “ethnic and cultural superiority” as reasons for why someone is WILLING to pay more to own-occupy, but the baseline is real estate as an investment; as a rich (Asian) tycoon stated, Vancouver looks overvalued from an investment perspective.

        (And BTW the ethnic superiority arguments are so disingenuous and paradoxical it is laughable. Are immigrant Asians accepting 3% cap rates on condos superior to a Caucasian’s 7% blue-chip utility play?)

        I’ll watch the investment market and let the owner-occupied chips land as they may.

      • First off, these are excellent points. However here are my 2 cents.

        1. I question the view of Condos as pure investments. I understand that you are using it simply as a metric and yes it does mean that the average rate of return when all considered is around 3 to 4%. As such, I would not own a condo for cash flow purposes nor do i recommend others to do it, like I said, I think a correction will come. But I am unsure how many condos today are used as investments versus principle residence, when people get forced out of the SFH market, Condo is a nice cheaper alternative. I am not convinced that the majority of them are investment properties. Now this is simple conjecture, I don’t have hard stats to back this up. If you have some stats to show, please share, I am actually looking for these stats as well. Your assumption would only be correct if the majority of condos are actually investments. The issue here is that no matter what way the market goes, if you are an asian living in Vancouver, at some point you will have to own a place. Not for investment, but if you want to get married, you can’t rent because of familial pressures and culture (not because the housing markets will rise and you need to get in, frankly if I could rent I might actually consider it, but it appears such a decision would be blasphemous to my family). That’s part of what I refer as cultural differences.

        2. You are certainly right that there are far better investments than housing in the markets today and that Asian money markets may not have the same options as NA. Again, do I feel that say if Asia had the same quality of investment instruments that NA has then its housing ratios should come in line with NA? I doubt it. There are things that are simply more important to them. For example, people constantly complain about how much money asians spend on tutoring to gain an advantage in highschool grades. Is it true that the average caucasian family has less money? No, but it’s just that everyone places their money based on what they feel is important. So in an Asian person’s case, it’s real estate and education, they can simply never eat out, never go on vacation to save the money needed for these 2 things. Here is the funny part, most of my CFA friends would not buy a place except to live which more or less validates what you are talking about. But there is also a significant distrust of the stock markets and other paper backed securities in general in the asian communities, especially after all the fraud, manipulation, etc that have happened in the recent years in the states. Taiwan and China have significantly different views on this matter, Taiwanese investors tend to be more trusting of the money markets than the Chinese (I am guessing they have a more developed system and have been at it for longer). Even at this point, I am considering fleeing the money markets as the recent stock turmoil have made me want to invest in real commodities (minerals, potentially oil) and real assets rather than any paper investments..

        I actually agree with Yank, I think the drop will likely be much more significant in the outlying areas of Vancouver that are not supported by the immigrant money. Surrey comes to mind, wouldn’t shock me when Surrey drops by a much more significant margin.

      • Watching price to rent is a good thing for me to remember.

        Condos in the States were particularly vulnerable to very steep price drops, along with houses located in less desirable neighborhoods. (The areas located about 1 hour away from San Fran in the suburbs, for example.)

      • I agree that price to rent is a good thing to consider when you look at housing as a investment entity. I simply question the basis of that way of thinking. Clearly it is not simply an investment to most people who own a place. Like I said, my fundamental question is, even if you have the same quality of money market investment instruments in Asia as in NA, I wouldn’t expect the rent to price ratios to be anywhere near the western historic norms in Asia. I mean, I would expect HK financial markets to be just as sophisticated as NA markets, I am sure their price to rent ratio is probably more distorted than Vancouver’s. I heard they have 100 year mortgages there. That’s nuts.

      • Julian, “There are things that are simply more important to them.”

        OK (thanks for responding so thoughtfully BTW) — the point I’m making in this thread (and actually there is only one, despite the many thousands of words) is that perceived value for marginal investors has nothing to do with actual value. Some investors will have different goals compared to others and will be drawn to certain asset classes to maintain capital and produce a steady income stream — what have you. Perhaps certain cultures are more wont for certain asset classes, and you’ve made good arguments for why that is the case.

        But there is something broader here, after taking a giant step back, that doesn’t make sense. The business case for an asset does not change based on the marginal investor. The rent, depreciation, risks, and all other factors that make up the utility we know as “housing” are pretty much cast. What someone is willing to pay for this business will vary, but the point is the business case doesn’t change. That is, unless investors are forecasting higher prices in the future.

        Now this isn’t to say an investor won’t overpay vis-à-vis other competing investments for various personal reasons, some based on comprising a certain asset class mix within a desired investment portfolio. That I will not dispute. But consider that the market is still made of more than those with Asian sensibilities for investment memes. Even if this “non-Asian” portion of the market makes up, say, 20% of the investor market they will set the marginal price eventually. Or put another way, those investors who place a high premium on the perception that real estate is safe in the long run, reasonable, correct, or not, are paying an inordinate amount for their options, which is nothing more than a direct wealth transfer (a form of tax) to renters and other investors who sell to them. If that’s worth it based on their financial big picture, go nuts, though I am suspicious there are enough people, who need Vancouver real estate in their portfolios for a high price, to overcome the “others” who will consider a broader menu of investment choices.

      • Thanks for the discussion, Julian/jesse/Yank.

  17. Thanks Julian for the long response. The identity issue is certainly at play, like it is in Australia, where there is enormous social pressure to own, outside the pressure to “get in on the game” which is what I think we are seeing in Canada, overall (not necessarily with the Chinese immigrant population).

    I certainly agree that will skew the price ratio for that population. What about the families who buy 5 houses. Hm, maybe that is also part of their identity and I just can’t see it as anything other than 1 house to live in and 4 to flip.

  18. an honest post from an immigrant in an attempt to shed light on why Vancouver is such an attractive destination. Not sure why it was greeted with denial, suspicion, criticism, etc. You also don’t need to pick apart his reasons why asian immigrants choose BC; they are as legitimate as any

  19. “Asian people place a much more important value on real estate, it’s not an investment or simply a place to live, it is part of their identity”

    this is true, even for Vancouver born and raised asian. I’m late 30’s, all my asian friends own detached homes, most of my caucasian friends either rent or live in condo or townhouse. Do caucasian place a lower value on owning land? Perhaps they have lower income than their asian peer.

    • 4SlicesofCheese

      The majority buyers at Metroplace, Jewel, HighGate Village, Perspectives, Crystal Place, Esprit, Chancellor, majority of buildings in a 3 mile radius of Joyce skytrain, etc etc etc etc would like to have a word with you.

      • LOL. That was priceless 4SlicesofCheese. I think Rollie’s point though is that if these guys could afford a SFH, they would prefer that. As for Rollie, the thing is, you can’t own land in Asia, it’s too expensive. A SFH in any major Chinese city is considered a significant luxury. So when they get here, they do a quick calculation of how much our SFH costs versus what they would have paid back in China, and voila, it makes sense to them. Unfortunately, they are also mislead by agents as there probably are better options than paying 3 mil for a place in Vancouver Westside.

  20. Rollie: “Not sure why it was greeted with denial, suspicion, criticism, etc.”

    Gee, Rollie, are you reading the same post and comments as the rest of us?
    The above discussion (original post and 25 comments prior to yours) has been very civil, and Julian, the original poster appears to agree.
    Perhaps “denial, suspicion, & criticism” is in the eye of the beholder?

  21. Interesting story on topic.

    http://www.theglobeandmail.com/news/world/asia-pacific/for-chinas-wealthy-their-fondest-wish-is-to-leave/article2157290/

    And back home
    http://www.cbc.ca/fp/story/2011/09/08/5370059.html

    I pretty much agree with what the OP has said.

    I am surrounded and grew up with people that have those beliefs as well.
    Funny thing my parents next door neighbors originally were Indo-Canadians, and they had multi-generational and multi families living there together, and we actually were quite friendly with them.
    About 5-6 years ago they sold to Mainland Chinese, yet my parents being of Chinese decent never met or spoke with them once. Their house has at least one suite. We see more of the tenants, also Chinese, then the actual home owners.

    In the end it comes down to debt, and we Vancouverites have more then enough.

    We have had immigrants with these cultural beliefs for the longest time in Vancouver and elsewhere, with the bulk of the time with stagnant to minimal house price appreciation, only within the last 10 years has house prices and personal debt risen to these levels.

    Financial innovation has to play a role. So the question is “Is it different this time?”

    • “Mr. Su, a Chinese millionaire, builds skyscrapers in Beijing and is one of the people powering China’s economy on its path to becoming the world’s biggest.

      He sits at the top of a country – economy booming, influence spreading, military swelling – widely expected to dominate the 21st century.

      Yet the property developer shares something surprising with many newly rich in China: He’s looking forward to the day he can leave.

      Mr. Su’s reasons: He wants to protect his assets, he has to watch what he says in China and he wants a second child, something against the law for many Chinese.”

      Interesting link. Thanks.

    • There is a Chinese real estate bubble, when it explodes Australian and Canadian dollars are going to collapse, commodities are going to crash.

      Also after reading the globenandmail article, if this guy is a millionaire, what is $40k to him for having a 2nd child? That doesnt make sense. I think he is a millionaire but the gov’t doesnt know it yet so when the govt finds out he is in deep s**t cause he has been evading taxes lol.

  22. FYI
    I just read that Chinese returning from abroad can bypass the one-child policy. Children born abroad do not count in the family size if they are not taking out Chinese citizenship.
    Perhaps this is why Chinese are immigrating to Canada – to skirt the family policy regulations. Does that sound Chinese to you? Manipulating policy to suit their needs? Nah…

  23. Good insights and general comments. As a local Chinese guy I can relate.

    However, it does point out a key issue with Vancouver. There’s a significant portion of the population that is Chinese in “culture” but isn’t HAM. Meaning, they overvalue RE but don’t have the $ to back it up (given today’s prices)

    In the end, for most locals, whether they’re yellow, brown, white, blue, green, if buying a home takes up 90% of your net worth and a big portion of your income, you probably shouldn’t be buying. Unfortunately, these days, people think it’s a can’t lose proposition, so it will continue to be until it isn’t…

    • nobody is buying a home and spending 90% of their income to support it. These are stats based on averages. You can’t get a loan with mortgage debt financing more than 32-35% of your gross income

      • Re-read ‘Poorguy’s comment. He didn’t say anything about 90% of income. He said: “if buying a home takes up 90% of your net worth and a big portion of your income”. (in other words, almost all Vancouver buyers).

        When most people buy a home in Vancouver, RE instantly become more than 100% of their net-worth (their savings outside of their homes are usually less than their mortgages, sometimes much, much less).

  24. The Fed Reserve St. Louis has an interesting artole that looks at U.S. foreclosures data and finds that it was not driven by predatory lending but rather by “household overreaching”, of which the two largest groups are educated and relatively well-paid Gen X’ers and those in their late 20’s. Interesting stuff.

    http://stlouisfed.org/publications/re/articles/?id=2124

  25. Jealous, Bitter, Basement Dwelling Bear

    update: brother-in-law and sister-in-law looking at apartments and townhomes all over burnaby; will buy in at $500k using his parents HELOC as downpayment. He has known all my bearish arguments, and his response comes down to

    1) they will NEVER raise interest rates because that would bankrupt too many homeowners. Even 2% is impossible in his eyes.

    2) at least you have something to show for it if you buy rather than rent

    3) local prices are nothing for the rich asians. Rich asians will keep coming and prices will stay high or rise.

    it is almost an irrelevancy that they are second generation Chinese; their culture is local, although parental attitudes may have some influence that I am not crediting.

    Second update:

    The neighbour (caucasian, if it anyone is keeping score) was chatting to visitors in the garden in full earshot of my wife (with full knowledge she was within earshot – she could see her directly). She was telling them about changes that had been made to the gardens of our house and the next house down. She repeatedly referred to us as “the renters” as in “the renters did that” and the renters in that house did this” while referring to the other houses’ residents as “the people in the next house” “the people in that house.”

    I am not making this shit up.

    A while ago, I may have wondered what is wrong with us, that we are still sub-human “renters” not even deserving of being referred to as “people.” This time, I realise that the problem lies with her, not with us.

    I really hope the 5% Monaco scenario does not play out. I am protecting our downpayment by holding it in cash equivalents (pulled out of the markets a while ago before the drops) and am saddened by the BoC’s interest rate stance. We are thinking of maybe buying an acreage and cotttage up in the Thompson-Okanagan region as a hedge for the hyperinflation scenario. Any idea if the prices there have finished bottoming? They are insanely cheap now in many places; you can get a few acres for less than a 5% dp on a burnaby house.

    • Ok, I have some good news for you.

      Just like I argue against the crash scenario, this attitude of housing always goes up also irks me. If you are buying an apartment expecting it to skyrocket tommorow, you can almost forget about it. This is a simple fact, apartment supplies are not determined by us, they are determined by greedy builders. Vancouver’s density is not very high to begin with, so it is unreasonable to expect that apartment building will all of a sudden stop. So any rise in apartment prices will be quickly eaten up by the developers. Downtown apartments seem to be running at a bigger premium because they might actually be out of space so their supply is somewhat limited, but the rest of Vancouver we could be building apartments til the cows come home. So if you are looking for an apartment, it won’t go up significantly over the next few years, in fact, I think it will correct a bit.

      • haha. Perhaps you misunderstand. I am most certainly NOT wanting to throw our money away on an apartment. Neither are my in-laws; they have been forced into looking at apartments because they could not find a house they qualified for (gross income $120k a year).

        I am basically hoping that this decision not to buy -this bet – is the correct one. Otherwise, inflation will erode our savings while making mortgage debt worth less and less. If that is the future, of course we would buy a condo or townhome today purely as an investment; we have the means to do so. In the event of a correction, I don’t think we would buy a condo.

      • oops, that was me above also.

        The funny thing is, I told that to my in-laws – to wait for price corrections – but they won’t.

        My acreage question was purely based on the desire to get some land to live off/on if the SHTF as badly as some predict, and as a way to convert cash (which isn’t real) into something that survives the inflationary environment, without putting into something hugely overvalued, in effect hedging for either inflation or deflation, if that makes sense, while providing a material refuge.

      • that really needed a period in there somewhere.

    • Yeah – Roubini seems to be looking for what will happen after 2013. I’m not enough of an expert, but China had to put out a large stimulus package because US consumers aren’t buying as much stuff. Since China is dependent on exports in a way that, say, India is not — they get more hurt by the US slow down.

      In the States I think deflation is much more likely then hyperinflation for many goods. Same for Canada, except, I guess, housing in Vancouver.

  26. Well I can see that if you were very rich and living in a totalitarian regime, you might want to send some money overseas as security. Except you can’t just send big piles of cash as I understand it, you have to have a reason. Buying real estate is just such an approved activity.

    From that perspective, the higher the price the better. Not only that but future price drops are irrelevant to you because the real motive is a foothold in another country and sending a big pile of your cash away.

    So what is the price of security, what would you pay for that? The house may be the irrelevant thing.

    As for the having more than one child rule, yes it would seem that just paying the fine would be a reasonable response it may cause some loss in stature that we are not aware of.

  27. Hello, I’m a friend of Julian Lee in real life. I just read through this long thread. I immigrate from Vietnam 14 years ago. We had about the same culture and mentality as Chinese people. My parents are both teachers, and teachers in Vietnam get paid peanuts. That is an issue that angers me, but I will not dwell on that. I just want to tell my perspective as well.

    We came to Canada with practically no savings. My mother forbid me to sell the house in Vietnam to get some seed money. She would have a relative of ours stay there instead, because in her mentality, once a family (and by this I mean an extended bloodline of 20-30 people) acquires one or more houses, relinquishing it is unthinkable.

    My parents have been working a full time job and a part time job for most of their time here, clocking in 60-70 hours a week average. Meanwhile I have been going through university, maintaining A to A+ grades and getting scholarships, while working 25 hours a week part time. I also work full time + part time (60-70 hours week) whenever not in school. I am not saying this out of arrogance. I burn away my health and lifespan to maintain this sort of productivity, and trust me, I am not happy living like this. And we also skimp our spending and lifestyle to completely unimaginable levels. I will spare you the details. But the alienation from my parents, family, and community in general is a worse alternative.

    Our family did this so that we could buy a house in Vancouver as soon as we could so that I can get married. It sounds absurd to you but my getting married and having children is, to my parents, the sum total of my goal for existence. To understand how much weigh my parents place on marriage, children, and house, I will tell you the anecdote that I once sat through a 6-hour long lecture about the need for me to buy a house and court more girls the night before the final round interview for a 6-figure job (needless to say I did not get the job). Julian is quite civil in his post about this, but his parents are also significantly more easy-going than mine, and so he had not felt the pressure to buy a house as keenly as I do. And yet, my parents are still a long way from the true “Asian fanatical parents” out there.

    Neither Julian nor myself belong to the “rich and probably questionable Asian” group, by the way. Both of our families are honest, upper-middle class at best, and just very hard working.

    I managed to buy a house in the end of 2005 and rent out half of the house. I have been comfortably paying down the mortgage for the last few years, but the story didn’t end here…

    Recently, I told my parents that if I sell this place and buy in Surrey or Port Coquitlam, I would be able to get a much better house and yet pay off all the debts, and actually still have a bit of money to spare. I got a week-long lecture about how the location is far from the city center, dangerous (because it is far from the city center), etc. etc. I will spare you the details because it all doesn’t make much sense to me either. I know that my parents were just frightened with the prospect of giving up a house because it is, in the community and to my aunt’s family who also live in Vancouver, a lost of status.

    I also told my parents that I would like to get a job in the US and live there. My parents then gave me another earful on how I am irresponsible and leave my old parents alone to deal with the renters in half of my house.

    There you go, my rant about the Asian mentality toward housing. Perhaps a generation later, this mentality may fade. But right now, I can’t move out of Vancouver even if I want to. Julian and I had talked for a long time about the subject of Vancouver RE, and I suspect that he is as stuck in Vancouver as I am.

  28. Oh and just to add an extra fun anecdote. My parents bought their first house in Vietnam the same way, through ridiculous amount of hard work and sacrifice of lifestyle. They did this because, tada, my dad needed to prove to his own family that he could buy a house before marrying my mom.

    To me, that attitude is nihilistic and, eh (let’s not insult my parents here) wisdom-challenged, but it is the attitude of a people, a society, immovable regardless of my wish.

  29. Pingback: Complex Pressures On ‘A Simple Man’ – “My rant about the Asian mentality toward housing. My getting married and having children is, to my parents, the sum total of my goal for existence. I can’t move out of Vancouver even if I wa

  30. Why does Canada have to let people like you come immigrate here. All you rich assholes do is drive up the RE prices to unaffordable levels for locals. Why should I have to care it is not as expensive as Beijing. You bastards drop your wives and kids here and use our tax dollars for free education and medical care. What does Canadians get from this BS, a few dollars for the RE whores. Depot you are all back to China. Canada is so stupid.

  31. I know many chinese firends who are fresh off the boat and the first thing they do is buy property. Maybe buying a house removes some of the insecurity due to relocating. Whatever it is, buying is a necessity for them. Then we come to the kids that have stayed in Vancouver for a few years but does not have the what it takes to get an proper education. Education is a primary reason for many rich chinese to come to Vancouver but getting a proper university degree is just as hard if not harder to get than in China. The language barrier and the laid back pace of life do not encourage these kids to study. Many spend most of their time in Karaoke parlors, bars, night clubs, and restaurants.In order for these kids to earn a living, their parents provide funding for them to invest. Small business is hard to make a good return and require hard work managing. Real estate becomes a logical and easy route of investment. It does not involve understanding the money market or picking stocks or manage inventory. The expectation that Vancouver housing price will increase is more than enough of a incentive for them. Over the last few years I’ve seen these kids make money off of “their” primary property while living at the parents house. There is more to the Vancouver real estate market than rich asian buying up the most expensive areas.

    I agree with the accessment that only selective areas of Vancouver are targetted but i don’t think we’ll see a price adjustment in those areas.

  32. Most under-appreciated post.

  33. Despite the guns, the US admitted 87,345 permanent residents from China in 2006.

    Click to access IS-4496_LPRFlowReport_04vaccessible.pdf

    Despite the racism, Australia admitted 25,366 permanent residents from China.

    Click to access IS-4496_LPRFlowReport_04vaccessible.pdf

    Singapore admitted 26,125 permanent residents from non south east asia countries which are coming primarily from china and india.
    http://www.singaporeupdate.com/previous2007/170707_ministeranswersquestionsonsingaporepermanentresidents.htm

    In 2007, Canada admitted 28,896 immigrants from China, less than a third as went to the US (granted in a country a tenth the size).
    http://www.statcan.gc.ca/pub/91-209-x/2004000/part1/t/t4-3-eng.htm

    Despite the great scenery, Vancouver is the destination for only 15% of immigrants, less than Calgary and Edmonton combined and about a third as many as went to Toronto.
    http://www.cic.gc.ca/english/resources/statistics/facts2010-preliminary/02.asp

    [thanks for this info, ‘justthefacts’.. post was held up in moderation queue because of number of links. -ed.]

  34. Sharleen Buckman

    Savvy commentary , Coincidentally , others are searching for a Aetna GC-1373-4 , my kids used a template form here http://goo.gl/FVTkJs.

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