“I have a have a good friend whose dad is a developer in China, and he knows some developers here. Here are the possible explanations that he offered for why the influx of foreign cash seems to have dried up.”

“I have a have a good friend who is from mainland China. He rents in Burnaby, and it was pretty easy for me to convince him that right now is not a good time to buy. He is frugal, even though his family could easily afford these outrageous prices for cash. He came here as a business immigrant.
His dad is a developer in China, and he knows some developers here. For example, he recently told me some of his fathers’ friends will be starting a new condo tower build in Richmond.
Here’s are the possible explanation that he offered for why the influx of foreign cash seems to have dried up:
1) In 2010, the law came into effect in China, limiting the purchase properties to two more. I.e. if you have zero, you can buy two more. If you have 20, you can buy two more. Now, those who have the money have already bought 2 more properties, so they can’t buy any more. People who need to sell – e.g. to buy a house in Vancouver – can’t find a buyer. As a result, he says that the prices have taken a tumble in some areas of Beijing from up to $3000 per square meter down to $2000.
2) Chinese people prefer US over Canada – Seattle, San Francisco, LA. According to him, US is the #1 choice. Furthermore, business immigration quotas have been reduced in Canada. He says that it’s now easier (and cheaper) to go the states if you have money. I don’t think I need to spell out the obvious differences in the real estate markets. In his opinion, it’s unlikely that the Chinese would speculate in an area where they can’t live. I.e. he doesn’t think that they would invest in real estate if they can’t get a visa to live here.”


“In addition, let me tell you about a young couple I pried from the hands of the condogeddon. A friend of mine, a young teacher and her boyfriend (engaged) just sold the apartment they shared with his brother. I explained to her the obvious reasons why real estate is overpriced – price to rent, interest rates, speculation, etc. It took no more than 15 minutes. I then provided her the links to this blog, and a couple of other resources to research on her own. They walked away with a profit, and are renting a better place for less than what the mortgage and condo fees were – without the need to share it with his “quirky” brother.”

“Feel free to publish this on your blog.
Furthermore, do you have any questions you’d like me to ask my Chinese friend?”


– this from ‘Some Guy’, via e-mail, 24 Mar 2012

Thank you, Some Guy.
Do any readers have any questions they’d like him to extend to his friend?
-vreaa

47 responses to ““I have a have a good friend whose dad is a developer in China, and he knows some developers here. Here are the possible explanations that he offered for why the influx of foreign cash seems to have dried up.”

  1. Charlotte?

  2. ” unlikely that the Chinese would speculate in an area where they can’t live”

    Canada has near unlimited supply of multiple entry visas. Problem solved. Or does “live” mean “obtain citizenship”? Hmmm…

  3. I have a question for your Chinese friend. I heard that China will only allow $50,000 per person per year to be taken out of China. Is this true? If so how are the Chinese paying cash for these properties?

    • I can offer an anecdote… Bribes are fact of business in China, virtually expected. My wife works with quality control inspectors on factories and it’s troublesome to meet compliance demanded by North American retailers. Some big cash is off the books.

      Why bribes? North American consumer demands rock bottom price, not even China factories can appease how cheap the North American consumer is. So factory passes inspection and then substitutes inferior production. The NA consumer shot themselves in the foot, and chased away homegrown manufacturing. Big stores would love to buy Canadian and American products, however the consumer won’t support it. Now the consumer is pressuring Chinese factories to build even cheaper. This is a hassle for Canadian importers because our shipments are so small, Chinese factories are becoming less interested in retooling for Canadian compliance on small orders.

      I could go to China as an inspector and make a healthy living just by approving factories.

      • Interesting, while on a tour in CHina our tour guide mentioned some comapnies that have left China, and are now in India because the costs were cheaper there.

      • Bo xilai was touted as Canada’s friend and was warmly received by Mr Harper, Jean Chrétien to Montreal’s powerful Desmarais clan. Details of his corruptions are coming out by the hours and days, such as his current wife, Gu kailai has a Singapore green card.

        Sun Feng and his entire family had vanished from China. He was the ex-governor of ABoC, and was last seen in the Philippines, Amsterdam, and has arrived in Vancouver or Toronto according to various reports.

        “A Standard Chartered associate in Shanghai, a naturalized Singaporean citizen named Wu Yidian Eden,………….. Her predicament may underscore the risks bankers face in dealing with high-net-worth individuals in China, who often provide little information about the origin of their money and quickly switch bankers when the questions probe too deeply, bankers have said. According to surveys, such clients are particularly interested in services involving moving money across China’s borders even though doing so is a highly restricted activity in China because of the country’s tightly controlled monetary system.”
        http://online.wsj.com/article/SB10001424052702303816504577305232497364296.html

        Our local banks are routinely handing over our savings and investment portfolios to their “new” employees based on the customers race. I don’t blame those with high net worth, having worked hard and established in the west for several generations, are uncomfortable in their skins and moving their cheese from thieving cats.

      • Bo xilai was touted as Canada’s friend and was warmly received by Mr Harper, Jean Chrétien to Montreal’s powerful Desmarais clan. Details of his corruptions are coming out by the hours and days, such as his current wife, Gu kailai has a Singapore green card.

        Sun Feng and his entire family had vanished from China. He was the ex-governor of ABoC, and was last seen in the Philippines, Amsterdam, and has arrived in Vancouver or Toronto according to various reports.

      • “A Standard Chartered associate in Shanghai, a naturalized Singaporean citizen named Wu Yidian Eden,………….. Her predicament may underscore the risks bankers face in dealing with high-net-worth individuals in China, who often provide little information about the origin of their money and quickly switch bankers when the questions probe too deeply, bankers have said. According to surveys, such clients are particularly interested in services involving moving money across China’s borders even though doing so is a highly restricted activity in China because of the country’s tightly controlled monetary system.”
        http://online.wsj.com/article/SB10001424052702303816504577305232497364296.html

      • WSJ – March 26, 2012

        “A Standard Chartered associate in Shanghai, a naturalized Singaporean citizen named Wu Yidian Eden,………………………..
        Her predicament may underscore the risks bankers face in dealing with high-net-worth individuals in China, who often provide little information about the origin of their money and quickly switch bankers when the questions probe too deeply, bankers have said. According to surveys, such clients are particularly interested in services involving moving money across China’s borders even though doing so is a highly restricted activity in China because of the country’s tightly controlled monetary system.”

      • Here’s a little update. The wholesaler has a retail order in jeopardy because their qcontrol held back the product. Factory is complaining that they can’t get workers and the product is grossly substandard. It won’t be shipped. Two production regions are depopulating and China is attempting to slow growth. Trade journals advising companies to diversify production to other countries. “Steel and workers” are what the factories want. (I’m wondering if this has anything to do with the social birth program.)

        The wholesaler would buy Namerican but can’t get factories here retooled at a competitive $ for this buying season. These are large orders and the Chinese factories just can’t comply. What’s the level of apathy over there, I wonder?

  4. Question for chinese friend: With the new law in China restricting property purchase, how does the market prices react in chinese cities? I know you mentioned a 1/3 drop in Beijing. Just wondering if you have reliable (i.e. non-govt) statistics on the other big cities like Shanghai, Guangzhou, Wuhan, etc.

    I know that chinese people in generally thought that RE investment is a no-lose proposition. Has the sentiment related to real estate as an investment changed in china now? If it has turned negative, do they now think 1) “ok the chinese market has dropped i should put my cash outside the country by purchasing “safer” foreign RE, or 2) “oh shxt, even chinese RE can have price drops, perhaps foreign markets will drop as well”? Obviously, #1 is positive for vancouver RE prices and #2 is negative.

    Thanks

    • Second and Third Tier cities are already seeing price declines. Even the government statistics tell us that sales dropped in 100 of 100 cities they track and 75% have seen outright price declines.

      Interesting enough, it was reported that developers in some hard hit cities are willing to carry up to 2/3 of the down payment amount on credit in order to attract new buyers. This effectively means you get into a home with just 10% down.

      Not sure if the tactic is working all that well. In Hangzhou, capital of Zhejiang, some property prices have dropped a stunning 60% this year alone. It is as close to a market collapse as you might get.

      http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20120323000034&cid=1202

      • Very interesting, thanks.

        In the case of such a notable decline, regardless of whether it’s the purchase restrictions or something else which caused it, the fact remains: some foreign buyers should evaporate.

      • No problem SG. I threw that link in just because it proves that 60% home price declines are indeed possible. In fact, happening now. That one is for the doubters who keep trying to insist that housing only rise. We seem to be getting only a part of the story in our media here. Run some searches on the China bubble and check Asian sites you will be shocked at how bad things are getting. Don’t let anyone candy coat the truth. Many cities are experiencing actual price crashes right now. Double digit price drops in one month is crash territory.

        Yes, this will affect many commodities around the globe.
        Yes, it will affect Canadian trade and exports.

    • | Has the sentiment related to real estate as an investment changed in china now?

      I’ll discuss this with him. If anything, he knows plenty of rich Chinese people.

      E.g. he helped his dad’s friend move into a $1.2M apartment in UBC bought for cash. This guy has children, and he bought this apartment solely because he thought that the schools in the area offer a better education. My friend was baffled at this, since the wife doesn’t even speak English. He thought even an overpriced house in Richmond would have been a much better deal that the condo.

    • “high-net-worth individuals in China, … often provide little information about the origin of their money and quickly switch bankers when the questions probe too deeply, bankers have said. According to surveys, such clients are particularly interested in services involving moving money across China’s borders even though doing so is a highly restricted activity in China because of the country’s tightly controlled monetary system.”

      I am not able to post link to this story!!

      • “I am not able to post a link to this story!!”
        ——————-
        Why not? (please don’t say “Martians”)

  5. Yesterday, a reader of this blog, “mommy40,” posted the following (I repaired the spelling and grammar inconsistencies):

    “Just talked to a businessman friend in China. He told me that more and more Chinese money is coming to buy land and old houses and apply for rezoning in the GVRD area. It used to be from individuals, but now it’s largely from corporations and businesses. He has ties to a couple of these companies and he expects to make lots of money here by investing in the housing market. I don’t know how this is going to affect the local housing market. I don’t know why the Canadian government is not doing anything…”

    Now, I have no idea how legit mommy40 is. But to me, this came across like a bogus post. A little fear-mongering posed as a seemingly innocent personal observation. Perhaps a particularly sleazy realtor (Cam Good in preparation for his Global spot tonite?) at work. So I posed the following:

    “Why? Any idea *why* all these purportedly ultra-rich Chinese (really, how many can there be anyway?) are investing here when they can get so much more for so much less elsewhere and not the run the risk/certainty they’ll lose mega-bucks as this fat blimp spirals into the ground? Is it the weather? Two decent days thus far in 2012!! Is it the onerous cost of living?”

    Mommy40 never did respond. But in his anecdote (above), “Some Guy” says his mainland Chinese friend claims Chinese prefer the US because “it’s now easier and cheaper to go the the States if you have money.”

    So…I guess my question is this: Is it really easier for offshore Chinese to “go to the States if they have money?” Because if it really *is* easier to get into the US, and given that one can buy far more/far better real estate in a west coast US destination than in the Most Overpriced City in the World, and given the overall cost of living south of the 49th parallel is more affordable too (and don’t even get me started on the weather!), the apparent thrust behind mommy40’s post would seem to be even more nonsensical than it initially appeared. Sure, *some* Chinese will continue to come here. So will some Germans and some Australians, and probably a few Martians too. But to see the Chinese as a force that will continue to propel this already insanely overpriced market to infinity and beyond would seem, well, downright unhinged.

    • Renters Revenge

      Gord I’m skeptical about mommy40’s post too.

      China has just over 1M millionaires. http://www.bloomberg.com/news/2011-05-31/china-s-millionaires-jump-past-one-million-on-savings-growth.html
      Say 5% of those want to invest in Canada (vs USA, Australia, Africa, Europe, etc, etc), and of that 50% choose Vancouver. That’s only 25,000 wealthy Chinese eligible to buy Vancouver real estate. And of those existing millionaires, how many have already bought here?

      This hope for never ending Chinese investment really does seem to be unhinged.

    • I’m betting on the Martians…

    • LOL I remember there being a post (from a Asian-Canadian perspective) about how Asians love Canada because were are so much safer than US, and thats part of why Vancouver was so popular.

      But all this is just hearsay, I heard from a friend of a friend…..etc…

      The friend being from China doesnt really make this whole thing more legit. I’m pretty sure there are tonnes of Chinese who are caught up in thier own hype about China….someone said this who told so and so……etc……

      Or they dont want to people to know that they’re doing is illegal or something and makeup crap and that crap gets spread like its the truth.

      My parents signed up for a tour group of China 8 days $59 each person. Something about the government subsidizing foreign Chinese to come visit China. Turns out these are just tours that take people to shops (ie Jade shops, Pearl shops, Tea shops) and charge them outrageous prices and the tour group just collects commissions!!! I’ve even read that locals are scammed into these tour too!!!

  6. Just one more comment about China. Despite the worry over slowing activity and a housing bubble that is bursting, the country is still posting an incredible 8% GDP growth rate if not more. So yeah, there is a bump in the road but the country is nowhere near to going into recession. Money is still being made….millionaires ares still being minted and the buying interest will only increase if Vancouver housing suddenly corrects to rational levels. There is a cushion therefore that most other bubble cities do not enjoy.

    • “So yeah, there is a bump in the road but the country is nowhere near to going into recession.”

      Maybe; continued malaise in Europe will require GDP growth in China to be concentrated inwards. I’m still of a mind that 8% is a whistle stop on the way to even slower GDP growth.

      I’m old enough to remember Japan in the 1980s and I’m finding more similarities than differences.

  7. While I’m sure HAM does have an effect on the local market I don’t think the magnitude of that effect on prices is nearly so great as the perception of the effect of HAM. The perception makes people take out huge mortgages expecting equity gains in the future.

    Right now we’re seeing a possible tightening on the availability of mortgages AND a shift in the perception of HAM hordes. Plus there is an unprecedented amount of ‘bubble talk’ in the media.

    Is sanity finally about to return to the RE market?! I hope so.

  8. Please ask your Chinese friends (try c&p)

    lai le ji nian le? xiao haizi duo da le? zai naili shang ban? shi zhemei renshi zhege pengyou de?

    “In 2010, the law came into effect in China, limiting the purchase properties to two more.” it’s funny.

    Let me tell you why this post is not legit, this so called “Chinese friend” didn’t even understand the law he quoted. It’s more like a non-Chinese read some English articles and misunderstood the regulation implemented in 2010ish.
    “Families of Beijing residents who own two houses or more, families of non residents who own more than one house and those who have not paid taxes to the municipality for five consecutive years are not allowed to buy more properties in the city temporarily, according to the regulation released in February.”.
    It’s not “two more”, it’s all you can own is “two”. if you have more than 2, you can’t have another one, period. Of couse, there are ways to get around the regulation.
    I repect your view, but making up the story to support is detriment to your cause.

    • My BS-meter was also ringing loudly.

      “Chinese people prefer US over Canada – Seattle, San Francisco, LA. According to him, US is the #1 choice.”

      In some sense he is correct, the overall number of rich Chinese immigrants to the US is larger than the number to Canada. But anecdotally I have seen very few nouveau-riche Chinese in Seattle, although the number of Chinese exchange students at the University of Washington is now quite high.

      ” Furthermore, business immigration quotas have been reduced in Canada. He says that it’s now easier (and cheaper) to go the states if you have money. ”

      I’m not sure if the poster understands the difference between Canada’s Entrepreneur immigrants and Investor immigrants. The former has been ramping down for 10 years in favor of the latter. The numbers for the federal investor immigrant program was supposedly cut last year, but the 2011 numbers haven’t changed much. See Table 3b here:
      http://www.bcstats.gov.bc.ca/Files/c01db0b9-bc4a-4040-a8e1-cf49d8e42a29/PopulationHighlights2011Q4.pdf
      The requirements of the US entrepreneurship visa are much more draconian (read: sensible) than the Canadian ones.

      • | The numbers for the federal investor immigrant program

        That’s what he came here under, and that’s what he was referring to.

        | The requirements of the US entrepreneurship visa are much more draconian (read: sensible) than the Canadian ones.

        From what he said, people with money are getting their green cards no problem. I can’t verify that.

    • I didn’t make up the story, and I don’t have a “cause”. I’ll see my friend on Monday, so I’ll ask him to clarify what he meant. Perhaps he had one of these schemes in mind to side step the law when he said two “more”.

      • Was in China just last year on a Tour and the tour guide mentioned 2 per family, not 2 more.

  9. Some Guy, how is your friend’s father finding financing methods now compared to before? I’ve been hearing reports of many developers scrambling to find funding sources.

    Thanks for this.

    • He builds mainly government-funded projects so he’s kind of sheltered from the market realities, but I’ll try to find out regardless.

  10. Google ‘Agriculture Bank of China’ to pull out the story on China-born banker helping China-born client to move millions offshore.

    • In other [but related] news Corruption/Transparency related…. Well, let’s put it this way, they don’t call Blighty “TreasureIsland” for nothing, ToL…

      [UK Independent] – Coutts bank fined £8m by FSA

      “A private bank that counts the Queen among its clients was fined £8.75 million by the City watchdog today for failing to do enough to ensure it was not handling laundered money.

      Coutts & Co, which is owned by Royal Bank of Scotland (RBS), did not have the proper checks in place when it started relationships with high-risk customers, considered vulnerable to corruption, the Financial Services Authority (FSA) said.

      Hitting the bank with its second fine in four months, the FSA said the failings were “serious and systemic” and went on for nearly three years, leading to an “unacceptable risk” of the bank handling the proceeds of a crime…

      The fine is the largest ever issued by the FSA in connection with anti-money laundering issues.”…

      http://tinyurl.com/77pny74

  11. For a more detailed, if slightly dated [2004], scholarly treatment of the phenomenon DearReaders may well the following [albeit some minor ‘heavy lifting’ for those without a background in the social sciences – their paper is ‘ChocOBloc!’ with fascinating anecdotal narratives and eminently accessible to general audiences]…

    ABSTRACT:

    Back to Hong Kong: Return migration or transnational sojourn?

    David Ley (University of British Columbia) and Audrey Kobayashi (Queen’s University) – August 2004

    Abstract. This paper re-considers the act of return migration in a period of
    growing transnational practices. In its conventional use, return migration
    conveys the same sense of closure and completion as the immigration assimilation narrative. But in a transnational era, movement is better
    described as continuous rather than completed.

    Focus groups held in Hong Kong with middle-class returnees from Canada disclose that migration is undertaken strategically at different stages of the life cycle. The return trip to Hong Kong typically occurs for economic reasons at the stage of early or mid-career. A second move to Canada may occur with teenage children for education purposes, and even more likely is migration at retirement when the quality of life in Canada becomes a renewed priority. Strategic switching between an economic pole in Hong Kong and a quality of life pole in Canada identifies each of them to be separate stations within an extended but unified social field.

    http://tinyurl.com/chmjzjv

    • the writing style sort of freaks me out. lacks focus and keeps zooming in and out. some good anecdotes though. what i got: variation on making your living in the city but having a retreat in the country. thanx.

  12. It’s not difficult to get permanent residency in the US for your family if you have money and it’s called an EB-5 Visa. It takes a $500K investment into a government approved regional centre and you will get a temporary visa which turns into a permanent one after 2 years. In roughly 5 years depending on the type of regional centre before you get the money back more or less. It isn’t guaranteed but providing you go with a reputable regional centre it as good as guaranteed. On top of the investment the fees run roughly 30-50K. As part of this you and your entire family can live, work, go to school etc and like I mentioned it is a permanent residency. You can keep your citizenship or apply to be an american after 5 years.

    This program has been running for a long time and this is the first year that it is likely to reach the 10K yearly limit in approvals and as much as 80% are chinese. So, still a relatively small number. The program is up for renewal in September 2012 and there are rumors that the limit will be raised to $ 1 million.

    I’m seriously considering doing this myself and have been researching it the last few months – when you can buy a nicer home and bigger lot in La Jolla, California than in South Surrey for the same money then you know you have a serious problem… Beyond things like quality of life, weather, demographics etc the main reason I am wanting to do this is because I have a 4 year old daughter and a 7 year old son. I want them to be in a place where they have every opportunity from arts to technology and everything in between vs Vancouver which realistically has very little opportunity now and undoubtedly even less so in 15 years in eduction and career possibilities. It is a tough decision to leave but more than anything it is sad to see what has become of Vancouver.

    • …Fortes fortuna adiuvat… [but don’t forget what happened to Turnus in Virgil’s Aeneid]… Regardless, Roygon – “Res secundae!”

  13. 你l在加拿大缴过收入税吗? 真不公平呀!

  14. Is China the solution to the world economic depression? Dr. John Quelch, Dean of the China Europe International Business School.

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