China’s Property Crash – Effects on Vancouver?

“Recent buyers are outraged as the value of their investments fall, sometimes by more than 25%.”
“They worked hard to earn money to buy property, but not long after they bought it, it crashed this much.”
“UBS are predicting the property market will suffer a hard landing in the next few years.”

– from ‘Shanghai Property Crash’, 27 Oct 2011 .

Greenhorn writes, by e-mail:
“This means Vancouver real estate prices will rise, right?
Condo prices in Shanghai are crashing. If you watch this video, you will see that condo prices in Shanghai are falling from $260/sq.ft. to $190/sq.ft. A lot cheaper than Vancouver!
Why are condo prices so low in Shanghai? Because China is a poor country with a per capita GDP of less than $8,000. But Canada’s GDP is only $40,000 and condos in Vancouver sell for over $1,000/sq.ft. so may be this ratio of per capita GDP/condo prices per sq.ft. is about right.
People tell me that if real estate prices crash in China, there will be a flood of money to Vancouver as our real estate market is an excellent store of value. I find this hard to fathom. If your real estate in Shanghai at $190/sq.ft. is crashing, do you then go buy in a market such as Vancouver that is 5 times as expensive? If Vancouver real estate at $1,000/sq.ft. crashes, do you then go buy in Monaco at $5,000/sq.ft.
Sure my examples are extreme, but you get the point I am trying to make.
When China real estate prices are up, Vancouver prices rise because the wealthy Chinese want to diversify their holdings.
When China real estate prices are down, Vancouver prices rise because the wealthy Chinese want to diversify their holdings.
Do prices ever fall in Vancouver?”

Despite our apparently bullet-proof market, we have a hunch that this will have a negative effect on Vancouver RE:
(1. deleveraging in China)
+
(2. psychological effects of plunging Chinese RE on Vancouver local buyers)
will be greater than
(3. tiny amount of safe-haven money running wishfully to only RE on globe still ‘retaining value’)
Add to this Euro-bloc rolling-crisis, and we think that the next leg down in everything is going to be a doozie. Look out, here comes 2012.
– vreaa

11 responses to “China’s Property Crash – Effects on Vancouver?

  1. Has effect, problem is people in bubble use bizarro logic. See Black Adder Goes Forth episode Captain Cook. You mull the enemy into a false sense of security and attack where the line is strongest.

  2. Well as the bulls say, mainland buyers are coming here with suitcases of cash to buy property, suitcases of cash! They got too much cash and they need to put it somewhere safe! That’s all that matters. So yeah they will buy Vancouver when China property market is going up or down, the money flow will never ever end! Never ever! Remember Vancouver Sun has predicted that a 10 year old North Van townhouse will appreciate 7% a year for at least a decade! It’s a sure thing that investors in bonds and stocks can’t beat!

    Ok if you don’t find problems with the above argument, then you are a genius and get out there and buy, buy, buy!

    • Regarding North Vancouver, I’ve just posted the message below on the vancouvercondoinfo forum. The 7% annual appreciation will indeed be very hard to achieve this year…

      North Vancouver going down down…

      Thanks to Larry at YatterMatters, here are the latest numbers:

      MOI: 6.2 (not as bad as Richmond!)

      Average Sold Price down from $1,077,913 to $991,968: -$86K or -8% in one month… Ouch!

      Median Sold Price down from $936,000 to $895,000: -$41K or -4.4%.

      That’s pretty much all the 5% downpayment that has been wiped out in one month… That must hurt!

  3. Chinese market meltdown will definitely have an effect on the Vancouver housing market. This is because a lot of the people buying those westside houses made their money in Chinese real estate. I reiterate that the majority of mainland buyers who buy westside properties actually are buying them as their residence, not for investment. They have their wife and kids living there. The way that a chinese crash will affect them is that they will not have the so called suitcases full of money. For the last 20 years, it has been very easy to make money in China, not so much anymore.

    BTW, I find it amusing that people are posting how Vancouver Condos are 1000 dollars per square foot. There are plenty of condos in burnaby that are selling at about 400 to 500 dollars a square foot. Only the premium condos in DT cost 1000 dollars a square foot. So to say that vancouver condos cost 1000 dollars a square foot is a bit ridiculous.

    • Royce McCutcheon

      Agreed that $1000/sqft is not typical, but it’s weird to cite Burnaby examples to disprove Vancouver prices (nothing wrong with Burnaby at all, but it isn’t Vancouver).

      Also, I hope $400-$500/sqft doesn’t register as a good price. Consider 350k for a 750sqft 2bdr condo. I think that’s around 5-6x median income in Burnaby (and that ignores taxes, condo fees, maintenance, etc.). And while I know how people live in other parts of the world, that set-up is tight once you have 3+ people. I just don’t see how someone makes the leap to that place being worth the money and commitment unless they believe the price they’ll get for that place down the line is going to be much higher.

    • “For the last 20 years, it has been very easy to make money in China, not so much anymore.”

      Yes this is what I hear from associates who have their own businesses there. No surprise, if economic conditions are not good there, there’s no where else for it to be good. Keep an eye on Chinese businesses shutting down.

  4. Hahaha, this is like the Olympic Village x 10000 🙂

    And the Shanghai composite index has crashed too.

    Well, they still have the state owned enterprises to hollow out and creditors to disappear from…

  5. $260/sqft to $190/sqft in Shanghai – and some people claimed that Vancouver is cheap compared to China 🙄

  6. This makes no sense at all. If China’s market crashes it will wipe out a lot of equity. A crash in China is more likely to lead to a crash in Canada.

  7. According to this story, one Mainland Chinese investor bought 10 Cambie Corridor houses for about $34 million.

    http://www.cbc.ca/news/canada/british-columbia/story/2011/10/27/bc-cambie-corridor-speculation.html

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