Bank mortgages, not bags of cash, behind mainland Chinese home buys: study

A new case study reinforces the significant role of mainland Chinese money in the city’s hottest west side residential real estate markets. It also finds that almost 70 per cent of all sales on the Multiple Listing Service in a recent six-month period, worth more than half a billion dollars, were bought with mortgages extended by just three Canadian banks: CIBC, BMO and HSBC Canada. [In total, 82% of sales involved mortgages.]

Source: Bank mortgages, not bags of cash, behind mainland Chinese home buys: study

45 responses to “Bank mortgages, not bags of cash, behind mainland Chinese home buys: study

  1. And yet Garth is still denying it… nice to see you back regularly VREAA, you were missed 😉

  2. Yes in a very specific and well-heeled area of the city

  3. This is news????? Seriously???? Andy Yan stumbles onto something that anyone on the inside has known for years. There is a reason why it is centralized to 3 banks. Because only these banks offer what they call a newcomer mortgage, so if you have a 35 to 40 percent downpayment, you can get a mortgage off of that downpayment alone if you are a newcomer and can prove your assets size. Basically, the banks are well protected because CMHC does not insure mortgages above 1.25 million I think. So most of these property has an incredibly low debt to asset ratio which is much safer than the conventional mortgages that most Canadians carry. But, alas, this is a terrible headline, so lets just call that they overleveraged themselves and borrowed 90% of multi million dollar purchases irregardless of what they actually do owe on these properties.

  4. Yeah, it’s really easy to tell if someone is a mainland Chinese just by looking at last name such as Wong, Wang, Huang, Liu, etc….which actual native Chinese themselves can’t tell if the person is from HK, Taiwan, Mainland China, or even Singapore just by looking at that.

    Also, that 172 high end sales manages to lift the entire GVRD RE market with over 30K transaction per month?? With ripple effects all the way out to like Surrey, Coquitlam, Port Moody, Langley??? Give me a break….

    • Thanks for clarifying this about the names. Since he’s not Asian himself, Andy Yan couldn’t have known this and so his methodology must have been flawed. Oh wait . . .

      • I don’t think his research is flawed but his research doesn’t neccessarily prove conclusively that it is mainland Chinese money. He himself said it is only ethnicity and not nationality that he proved, not sure how the headlines came out to be more about nationality. Now, anyone who has seen the market would say that he is most likely correct. But just like how he would have put me, a Canadian with no Chinese citizenship, and many people like me as recent mainland Chinese immigrants, it is definitely flawed from that perspective. His number only proved that most sales are to ethnically Chinese people, that is not the same as saying most sales are to Mainland Chinese people who are recent immigrants. Anyhow, this is all semantics I am arguing because anyone who has seen the data would probably agree with him that he is right. It’s just the inconclusivity of his research.

  5. “They don’t mind taking a $75,000 hit,” he said, noting that some brand-sensitive teens change cars every few months. “They just trade them in and dad puts the money in their account.” – MCL Motor Cars Manager Scott Warren

    [G&M] – Young, wealthy Chinese immigrants driving Vancouver’s luxury market

    [NoteToIllustriousEd: They do car loans, too – right?… Right?]

  6. Sebastien Ledoux

    Anybody wants to laugh?:

    • What a clown. It’s astonishing what this industry gets away with.

      • And yet he’s right while you are wrong for how many years running?? I can’t believe you are so thick skinned and lack humility that you can still show your face around here, without admitting you are wrong, while insulting people who have been right.

      • Like your pal Brian, you think realtors (aka used house salesmen) are an objective source of insight. Do you also ask the barber if you need a haircut?

      • I just care who has the best track record first. If you are wrong and is wrong for a long time, you are wrong, doesn’t really matter what your reasoning is.

      • Na, he isn’t wrong, he will just tell you that he has made millions from other investments. Surely that is why he is on this board discussing things with us minions who obviously understand nothing about economics, real estate, or anything financially related for that matter, cause you know, who haven’t made a few millions like him.

      • Space: I’m right about the overvaluation of Vancouver RE on a fundamental basis. I don’t think anyone can argue that, looking at the numbers. Where I’ve been wrong is in my estimation of human delusion, greed, and groupthink, and the extent to which these forces can temporarily assert themselves over prices. But make no mistake, their assertion is not permanent.

        Brian: you have confused me with someone else. I’ve never claimed to make millions. All I’ve said is that a diversified equity portfolio has outperformed RE over the past decade or so.

        You are right, though, that I think your views are not grounded in economics. You and space have but one, flimsy “insight”: that rich Chinese will forever propel Vancouver RE. Thrown in to the mix is the occasional lament over affordability, which, coming from speculators, rings rather hollow. No data, no thoughtful reasoning. Just the ad nauseam repetition of that one topic. I pity the unwitting visitor who, out of naivety, may begin to read your voluminous posts. If I have spared someone even a minute of such boredom with this post, it will be worthwhile from a public service perspective.

      • Wait, weren’t you the dude that told me you have investments that have outperformed the Vancouver Single Family Home market? Since 2003, average single family homes on the west side would have made you about 1.5 million minimum. Average Vancouver East single family home would have netted you about 1 million. So unless you have made a few million dollars doing stocks (very possible by the way, some friends rode the google ipo hard), you couldn’t make that claim. I guess I might have given you more credit than you deserve. Thanks for clarifying this btw. So while you are sitting here laughing at Owen Bigland, that guy probably has ripped off at least a few million dollars of gains from the last ten years alone on his real estate investments, no small change to sniff at. I wouldn’t laugh at him who has done better than me at investing no matter what methods. Your methods are based on price to rent / price to income which I have shown many cities in the world whereby the ratios are much worse than Vancouver in an apple to apple comparison. You dismiss them as non-comparables. You are right, what I write might be boring, but I am pretty sure people would rather be reading that than reading someone who is consistently wrong. The results don’t lie. I am here to make sure people know not to follow someone who has been wrong for a decade. Get that?

      • You can win at the casino, too. Doesn’t mean it’s a sound investment, or that you deserve any credit for it. Ditto for Vancouver RE.

      • So fundamentals must hold for all instances and cases right? Monaco too? Please use your fundamentals to explain how does Monaco or any other resort destinations for that matter work. You have never done so. I am sure everyone in Vancouver is taking great comfort in knowing they made a great decision not to jump in the single family house market during the mid 2000’s because that is such a fundamentally sound decision that they are screwed forever. That is extremely comforting for them to know that they made a great fundamental decision.

        Your so called fundamentals, ie. Price to Rent / Price to Ownership is only a generalization of what happens in the markets not a rule of what happens. Not to mention that the term price to income is so hilarious as Andy Yan just showed that the real incomes of many of these buyers would probably be much higher than what they declare. So how do you account for those in your fundamentals? There is no overriding rule in the markets, if there is, everyone would just follow this rule and we would have no volatility at all. I am sure that you have made a ton of money using fundamentals right or are you the guy who sold Google at 200 dollars because fundamentally it had reached its peak at that point and forward P/E’s were not strong enough.

      • The one straw in the world you are left to grasp at is the principality of Monaco. Hilarious.

        Fundamental economic forces always, in all places, rule prices over the long-term. Due to distortions caused by human emotions, the metrics that try to describe these forces are not reliable in the short term. But in the long term they are the only thing that matters.

        An imperfect guide is better than none. You have no framework to assess whether prices are low, fair, or high relative to intrinsic value. Saying there is a “limited supply + lots of Chinese people” is not an investment framework. It provides no basis by which to take (or avoid taking) action going forward. If I’m mistaken, please describe your framework.

      • So basically you are saying I’m right and that’s that. If my prediction don’t pan out, it’s not that my analysis is wrong, it is because reality is wrong! If reality simply followed my model and framework, it would be right!

        When Chinese mainland investors outbid local builders for houses along Cambie street by $1M+ per house a few years back, local developers were crying foul, saying it is a bubble, they are overpaying and being too greedy and ruining the market. They even got city councillors to come out and say how those investors were wrong and things don’t work the same way as in China. Well, fast forward like 5 years, those houses are being torn down and being replaced by either luxury $1M townhouses or 6 storeys developments selling at $700+/sq ft. Those overpaying moronic mainland investors made a huge gain on their investments. I’m pretty certain they didn’t buy based on price to income or price to rent framework. Instead, they probably looked at the larger longer term pics and saw the opportunties you missed.

        btw, just to open your eyes a little wider to the world, instead of the well that’s Vancouver or even North America, almost all cities in the world that has a resort / retirement feels to it, housing prices are out of reason of the average working family, and over-valued by price to rent / price to income, and have been for decades or longer. Just ask any local family in SouthEast Asia or Caribbean if they can afford the nice houses being bought by ex-pats there.

      • btw, isn’t long term simply a series of short terms? So if the “fundamentals” as you say aren’t accurate in the current short term, what makes you think it will be accurate in future short term?

        And seriously? An imperfect guide that’s always wrong is better than no guide at all? You would rather be wrong 100% of the time instead of being right some of the time just by luck? I guess you just prove the saying “some knowledge with no understand is worse than no knowledge at all”.

        Do you also use the bible to like explain everything too? Since that too is also a guide to the world works.

      • Actually, no, over the long term fundamentals change drastically. Your claims of fundamentals are based on historic numbers of what Vancouver and to a greater extend North America is. You fail to recognize factors such as global capital, demographic shifts, cultural shifts that have a drastic impact on your so called fundamentals. You fail to realize the changes that happen around the world and the globalization of world assets has had a significant impact on our fundamentals. I have heard your arguments before, I bought google when it was around 200 but everyone thought I was nuts because the fundamentals didn’t support it and it was dropping like a stone. Who is laughing now? If I followed fundamentals I would be dirt poor right now. Thankfully, I rather be “fundamentally wrong” and have money than be “fundamentally right” and be begging for it.

        If our markets are open to the rest of the world and we happen to hold the top assets, these things are bound to appreciate and a new set of fundamentals come in. Globalization is like the advent of money, it gives everyone a new set of tools and set of rules to play in. We have no idea what type of fundamentals will be set in this market that most people still don’t seem to understand.

        Put it this way, do you believe stocks should fundamentally trade at a forward P/E of 10, in the 1990’s that’s all I heard. Obviously that doesn’t hold for a lot of stocks and people who tried to trade any tech stocks using this simple and dumb analysis of fundamentals have gotten destroyed, why? Because they fail to recognize the speed of change. Part of the reason why stocks have appreciated so much is the amount of global capital that have flooded the stock markets because these markets are much more regulated and organized than markets in their homelands. Sure, there is more capital thanks to interest rates domestically but you can’t argue that there is also a bigger demand for assets in our markets from abroad.

        The difference between me and you is I see a small glimpse inside of this change and I, to a degree, facilitate it. This will bring more inequality, more polarization to our society but it will make the most desirable assets more expensive. To me, this is a whole new ball game to play in.

      • space: Yeah, East Van has a real “resort” feel to it. Sure.

        Brian: You didn’t provide a framework by which to assess value.

        Also, globalization is not new. It’s been happening since the dawn of civilization. Your “it’s different this time” argument is one of the greatest traps in investing. The Dutch tulip traders also thought it was different for them. How’d that work out?

        You’re right that the fundamentals can change, but the measures for assessing them are eternal. You can have a rise in earnings, and the PE will simply reflect that. What changed were the earnings, not the validity of PE as a tool.

        Vancouver’s fundamentals have not changed, however, in pace with prices.

      • “Vancouver’s fundamentals have not changed, however, in pace with prices.”

        How do you measure this, how do you make this claim?

        So you ask what framework I use. It’s actually quite simple, Price to Income, same as yours. The difference between you and me is that I don’t believe what we define as income is what the government reports, in fact far from it. In the single family home market, the term income is very loose. Hence why you are looking at report after report whereby people are basically calling bullshit on people’s incomes, particularly on the west side. My contention is simple, we have no framework to measure global income for many buyers of the single family homes in Vancouver, it’s the same issue in London, in Hong Kong and in Australia. If we did, what you would find is that many of them earn far more (you are talking about magnitudes of sometimes 100 times than what is reported). I don’t understand why people have this blind faith on reported incomes in the western world.

        Second metric I use is simple value comparison, does an asset make sense to the buyer who is buying it. This has less to do with fundamentals, I can concede this but it is how buyer psychology works, does a single family home feel expensive, cheap, etc in the view of the buyer. To figure this out, you have to be able to assess the buyer’s other options, without doing that, you would have no clue. In my case, the buyer has only options in asia due to constraints that I pointed out.

        Third metric is price to wealth. If the person owns about 20 million dollars but makes 0 dollars a year, he still owns 20 million dollars. I can’t believe that price to wealth is not a fundamental ratio for house purchases. But even if it is, again, we run into the same problem whereby western worlds do not have a proper measurement framework for the true wealth of these buyers.

        But all this really points to one thing. All the fundamentals used in the markets assume a local buyer; hence why you use local incomes. But when that isn’t the case, you either end up with fundamentals that are useless or useful but have no way to measure some of its variables. So I am not sure how you could tell me what Vancouver’s fundamentals are because even the experts don’t have a clue. What is the average income of say the average home owner on the westside, do you truly believe that it is 25K in many areas.

        Globalization of capital may be happening for hundreds of years but as Vikram Pandit, former CEO of Citi pointed out in one of his talks, it intensified after 9/11. Our fundamentals are seeing a drastic shift as a result of this intensification.

        Really, all the fundamentals are trying to measure is simple, can the buyer afford the house. The buyer could be anyone, from anywhere, we don’t care. But our metrics are useless at painting a true picture of who this buyer is in the Vancouver market. Hence why you see Andy Yan’s research trying to do this.

      • I don’t buy that the entire Vancouver RE market is now governed by Chinese income levels. In select pockets of the west side this is a factor, but we’re talking about a city-wide and indeed country-wide phenomenon of overvaluation.

        Just because a buyer can afford something doesn’t mean it’s a sound investment, and that they’ll buy it.

        The value of a house, and of anything for that matter, is the sum of all the future cash flows it will generate, discounted at an appropriate rate. Look at how much a comparable house will rent for, and you can determine its fundamental worth. You might add a bit to this estimate to reflect the intangible, “sentimental” benefits of ownership. And you might subtract a bit from this estimate to reflect the cost of of illiquidity and other ownership hassles.

      • Two things. First of all, I actually agree that the Chinese money only affects a small part of the real estate market. Problem is, it is that small part of the real estate market that everyone wants to get into. If you read all my arguments closely, you will find that I am very much focused on one specific part of the market, the single family homes market in four sub regions, Vancouver, Richmond, Burnaby and West Vancouver. Frankly that is all I care about. My theories pretty much do not apply to any other types of property and I concede that openly. What I am trying to say is that in this asset class, which represents only about 10% of all Metro Vancouver real estate transactions, the Chinese money dominates. By my estimates, they are probably directly involved in about 30 to 40% of the transactions (similar methods to Andy Yan’s) and indirectly (by funding local buyers with large cash reserves) about 10 to 20% (this part is very murky, I am not even sure what the number is but I know from experience of talking to local buyers this happens quite often, conservatively 10% minimum). My estimate is that in this particular segment they have a 50 to 60 % effect both directly and indirectly. This doesn’t take into the effect of displacement. whereby they basically force high income earners into lower properties which could account for a further percentage which I do not have any clue how to guess. For the rest of the properties, they have a negligible effect and I fully expect that segment to correct with an interest rate hike. But if you look at the charts, the segment that I am talking about has completely decoupled with any sort of historic correlations on the property ladder. That tells me that this particular segment is driven by the Chinese funds. Now you could say that well, it doesn’t really matter because it is a small segment. I would actually agree because I think it is perfectly fine for someone to live in a 2 bedroom condo somewhere in Burnaby. But the people in Vancouver who decries affordability always bring up numbers from this particular segment to demonstrate their case. This frustrates me somewhat because there is only about 100,000 properties of that type in the entire market, not for sale, but total possible supply. That is a very small supply number in a city that is marketed to Asia constantly.

        For your rental theories, explain to me then why is it that in the cities that I mentioned in Asia, namely Taipei, Hong Kong, Beijing, Shanghai, price to rent has always (not recently) been much higher than what your fundamentals should suggest.

      • Actually, price-to-rent has not always been high in these places. Go back to the chart from the Economist and select Hong Kong. Then select the price-to-rent tab.

        Price-to-rent is running at nearly twice the historical average for that city, and three times above 1980s levels.

        Hong Kong is one of the most overvalued property markets in the world, along with Vancouver, Sydney, and a few other places that are going to crash. Hard.

      • Two problems with what you are saying:

        1. Since 9/11 there has been a huge outflow of foreign money from all over the world from unstable countries. This isn’t just China. Huge amounts of foreign capital coming out of Russia, Middle East, China, etc looking for safety. Part of the effect of this is wall street engineers who got creative and created mortgage backed securities in the secondary derivatives market which really caused the housing crash. But the effect of that is this foreign capital from all over the world is still there. Unless you think this capital will magically disappear back to the unstable origins which it comes from where they are liable to lose 100% of it. This capital will still linger in the west. You talked about how some cities in the US crashed by 70%, look at San Francisco, which has the second largest percentage of asian population in the west, its price is back almost at the top of the curve again. So are you calling a second bubble in San Fran then?

        2. Even if your theories are true. Basically you are saying, in a horizon of 30 years, there is likely going to be a crash of 50% or more. By statistics, you are probably right. But I could also say, in the next 30 years, there will be a time when the price of the Single Family Homes in these four regions will be 50% higher than today. By not putting any sort of time framework on your theories your theories are basically useless to the average person. Not to mention that 30 years is a long time. If someone told me that my choices are to rent for 25 years and then the crash will happen and I can buy. I would rather buy today and have that crash happen 25 years later. Think about the time frame that you are talking about here, it’s practically someone’s life.

        My issue with your contentions is that while it makes for great economics debate. It is practically useless to anyone looking to buy a single family home in the four regions I listed earlier.

        Btw, the P/E ratio of the stock indices are quite high compared to their historical averages too, do you have short positions betting that your whole theory will be right. I bet you that you don’t because you might get margin called before your theories can be proven. For disclosure, I actually do have long term put positions out there for hedging purposes against the exact events that you predicted, so in effect, I might actually practice your theory more than you do.

      • Yes, I’m calling a bubble in SF. It’s where I live and I see the distortions everyday.

        You want a timeframe? Think in terms of 1-3 years. Not 25.

      • Great, so three years later, you and I can meet on this blog again to see who is right. So you think that within the next 3 years, we will see a 50% or more crash in Vancouver Real Estate. Ok, at least that is a prediction. I don’t agree with it but everyone has their predictions. I think in 3 years, single family home prices in the four regions I pointed out will be higher than what it is today. I guess we will see 3 years later who is right.

  7. As at 2015 October 15, China’s home mortgage rates dropped to a range of 4.5% to 6.4.

    It used to be higher. China tier cities average home mortgage rates (2001 – 2011)

    • Deposit rates offered by Chinese banks were much higher than today’s rates.

      People’s Bank China 1996 – 2015
      still plenty of wiggle room

  8. having worked with realtors throughout the United States and Canada I can tell you Vancouver realtors have a very shady, nasty vibe about them …its too bad Vancouver has become such a hole

  9. @3rd Rock – Which is why they are so happy to borrow $$$$$$$$$$ here cuz it is so damn cheap! At 2% it is practically free when general overall inflation itself is 2%+!

  10. @Canis – badly done research is worse than no research at all…this is all race baiting sensationalism aimed at getting moist racists like team BPOM all whipped up and excited so they can drive more traffic to the newspaper websites, and score browny points for people like Andy Yan, Brian Eby, etc.

    The best and most accurate research is probably from MacDonald realty where they actually have an office in China that actively help mainland Chinese people buy real estate here. You don’t any more accurate about the nationality, money source, and status of the buyers than that.

  11. rod_jonsson_pmd

    discount tents … een mo bat pig … pffft! …

  12. Capitalism of the 21stC, where 10% – 30% ‘dark pool’ flippers are condoned by the power almighty.

    ” a global regulatory clampdown on dark pools, off-exchange share trading platforms that allow investors to keep their orders secret, with prices displayed after a transaction has taken place. Critics of the platforms say they distort public markets and disadvantage traditional investors.”

    “Hong Kong’s securities regulator, the Securities and Futures Commission, is introducing rules next month that will ban retail orders from dark pools; require brokers to prioritise client trades over proprietary orders; and introduce a range of new administrative and operational controls – measures that brokers say will make it uneconomical to run these private share trading platforms.”

    “Hong Kong SFC is following in the footsteps of U.S. and European regulators, who worry that dark pools have allowed sophisticated high-speed traders to take advantage of institutional investors, and have served to distort the way share prices form.”
    – –
    “Although dark pools have flourished in the United States and Europe, where they account for more than 10 percent of the market, they have struggled to take off in Hong Kong where long-standing restrictions protect the exchange from competition.”

    “Hong Kong is home to 16 dark pool operators, accounting for around two percent of market turnover, according to the SFC. Among the operators are Goldman Sachs, Morgan Stanley and Credit Suisse.”

    • Realistically, most dark pools that are owned by banks or brokerages like GS end up being used to front-run and screw the clients over, basically doing the very thing the dark pools are supposed to protect their users from.

  13. Condo & TH market is mostly driven by local income & interest rates. but very few wants to live in a condo / TH. They want the SFH, preferably in West Van and Van West so they complain about the high prices. Boo hooo….no one have a right to SFH. Even if all the hot money Chinese money is gone, 90% of those whiners still wouldn’t afford it. It’s just life and it’s not fair, get used to it.

    Much better to focus on what the city and prov can do for the majority of population, which is lower general housing prices and build family friend condos / TH, and better goverance structure for them – which might be stronger protection laws, strong enforceable penalty for builders for shoddy buildings. more professional regulated/managed multi-family buildings / co-ops / etc. And basically more density on Van West.

  14. This is what passes for journalism in the “world class” city of Vancouver. A few quotes from a debt huckster.

    Ah, what I’ve always dreamt of: a “forever” home in a high-density condo.

  15. Telus & Huawei to create 5G “Living Lab” in Vancouver

  16. For our illustrious editor:

    “Most people are convinced bubbles exist, regardless of the data. Hence if the prediction doesn’t pan out, then the market was in some sense “wrong.” Traders haven’t yet woken up to the stupidity of their behavior. When they do, prices will crash and the bubble proponents will be proven right in the long run. So most people would implicitly think; “Why praise someone for being right for the wrong reason?” Of course this makes bubble theory into a near tautology, irrefutable in volatile asset markets that will almost always eventually show price decreases.”

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