Foreign Investor Anecdotes from the Globe and Mail – “One of the more expensive homes bought last year is registered to a student who is not living there. It changed ownership three times in five years and is now empty.”

“A Beijing-based private equity manager who bought a $2.3-million home in the hot Vancouver real estate market said he did that while earning just $19,000 a year. He also wired nearly $2-million to his family in Canada during the same period.

Jing Sun is among several foreign investors who bought property in Canada in recent years, but kept the extent of their wealth out of view of the tax authorities and the courts, a Globe and Mail investigation has found.

The Globe’s findings come amid a controversy in Vancouver, where many blame foreign buyers for soaring house prices that have made a single-family home unattainable for some long-time residents. The Urban Development Institute will tackle the topic for the first time in a sold-out public forum on Wednesday in Vancouver.

The subject became an election issue when Conservative Leader Stephen Harper promised to collect data on foreign ownership of Canadian real estate and to consider new taxes and regulations to keep housing affordable.

An in-depth look at public data – including land titles, tax reporting and court records – revealed a distinct pattern, suggesting the typical wealthy foreign family buying Vancouver real estate pays little or no income or capital gains tax.

“I actually have clients in this circumstance,” said David Chodikoff, a Toronto tax lawyer who was a prosecutor but now defends clients who have trouble with the Canada Revenue Agency.

He is among several experts who said most wealthy foreign buyers are not breaking the law, but simply using tax avoidance manoeuvres or loopholes in the system.

“They love to take advantage of Canadian tax law … and it is happening in other communities too,” Mr. Chodikoff said.

Many of the houses being snapped up are not huge mansions. Increasingly, they are family homes priced out of reach for locals whose taxes pay for public services, and some of whom earn more than the incomes reported by buyers such as Mr. Sun.

Court records show Mr. Sun’s wife lived without him in their pricey Vancouver home for six years while he sent her $260,000 a year from China. They paid $40,000 a year for their children to attend private school in Canada.

When the couple broke up, Mr. Sun stopped supporting the family. In his divorce case last year, he claimed he had been making $19,000 a year. The court asked for tax and other financial records, but he failed to produce any, the documents say.

He said his money was loans from friends and family in China. The judge did not believe that, saying his bank would not have approved his financing if he had no wealth of his own.

“In my view, the respondent has yet to overcome the unlikelihood … of a bank advancing him over $1-million [in a home mortgage] on the basis of a $19,000 salary,” B.C. Supreme Court Justice Emily Burke said last year.

Accountants and tax lawyers say it is common for investors from China to pay no income tax in Canada while moving their wealth to Canada through spouses and children here.

The Globe discovered one in three multimillion-dollar homes bought recently in Vancouver areas popular with foreign buyers is registered to a homemaker, student or corporation – one indicator of how the identity of the person who actually paid can be hidden.

When a spouse or child sells a property that is registered in their name, the real investor can avoid capital gains taxes – because the relative in Canada can claim it was their primary residence, therefore not an investment.

Other revealing data came from Statistics Canada, which tracks income that households report to the CRA.

In the Vancouver area of Dunbar, which realtors said is a top neighbourhood for Chinese clients, one in four of what Statscan calls “couple families” – excluding seniors – declared income of less than $35,000 in 2013. That puts them in the lowest tax bracket.

Given that the municipal property taxes on a $2-million to $3-million home are about $10,000, those reported income levels are questionable.

Land titles records on 250 houses bought in the past two years for more than $2-million in key Vancouver neighbourhoods indicate that 85 per cent of those new owners have Chinese names. There is no way to tell how many are Canadian. However, 2014 statistics from Macdonald Realty and ReMax show that 70 per cent of their clients were from mainland China.

The records list the occupations of non-corporate owners. The most frequent is “business person.” The next is “homemaker,” then “student.”

“When you sift through the information, you find that the wife [or student] has no income … there is no possible way they could afford to purchase the home,” Mr. Chodikoff said.

Several of the houses visited by The Globe appear to be unoccupied, with cobwebs at the front entrance and mail piled up.

One of the few owners who answered the door was a 25-year-old University of British Columbia science major who did not want to be identified. “My parents bought the house – for me to study here,” she said.

She is the registered owner of the $2-million home – but she said her parents live there too when they are not in China on business. “After I study, they will sell again.”

One of the more expensive homes bought last year – in Point Grey – is registered to a student who is not living there. It was bought for $4.8-million and has a stunning view of the mountains. It changed ownership three times in five years and is now empty.

The Globe found five out of 13 properties owned by students are empty and four are rented out, suggesting they were bought as investments.

A family friend picking up the mail at one house said the real owner is a business person in China who will not be in Canada for months. At another empty student-owned home, the backyard pool is filled with dirty water and garbage.

Many of the properties registered to homemakers are occupied. Several family members at those homes indicated the heads of the households are transferring wealth to Canada – because it is seen as a small, clean, inexpensive haven.

A homemaker listed as the owner of a $3.5-million house bought this year said her husband chose it “because it was good for our daughter’s [public] school to be nearby.”

She said she is staying in Vancouver – primarily so their children can get a Canadian education – while her husband travels back and forth.

She said the couple has permanent resident status in Canada, which benefits the family, but her husband earns good money in China from his food trading business.

A key question is whether foreign ownership actually is inflating the market while locals whose income tax dollars pay for roads and hospitals are squeezed out. If so, Canada would be losing affordable housing as well as much-needed provincial and federal tax revenue.

The data examined by The Globe suggest the foreign buyers have a significant, disproportionate impact on home prices.

One third of the 250 properties increased more than 50 per cent in price since 2010 – some of those more than doubled. They were also resold at least twice in that period.

The price of one property went up 40 per cent, then 123 per cent, in five years. The average single-family home in all of Vancouver increased 21 per cent in the same time period, according to the Canadian Real Estate Association.

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Top ten price increases
Vancouver properties in Dunbar, Point Grey and South Granville from a sample of 250 homes purchased in the past two years for more than $2-million

The most revealing picture on tax avoidance emerged in court records from more than 200 B.C. divorces and other disputes involving real estate investors.

In several, the judges suspected or concluded significant overseas income was hidden.

Essentially, CRA rules say a non-resident who buys and sells Canadian property must pay capital gains and other taxes on earnings from those investments. If they have a primary residence and family living in Canada, they must file resident tax returns and report all of their income.

Some cases indicate that millionaires buy properties through relatives in Canada and then claim in their tax returns to be non-residents – which means they pay no Canadian taxes on their worldwide income. Others who file as residents appear to have grossly under-reported or failed to report their earnings.

Several cases involved multiple properties in the names of spouses, children, girlfriends and corporations.

The most clear-cut example of suspected tax evasion was a 2013 spousal support case against Hong Kong businessman David Ho.

The judge determined he had a net worth of $15-million to $20-million when his girlfriend, Jade Chen, came to Canada and started managing assets for him. The court concluded Mr. Ho’s annual income – from one bank account alone – was 100 times higher than the total income he reported to the CRA, which was as little as $1,254 in 2009.

The court concluded that Mr. Ho bought several properties in the Vancouver area. He put one in Ms. Chen’s name, another in his son’s, and two – worth $5-million – in the name of a corporation that had no purpose but to hold his assets in trust.

When a corporation sells property, the shareholders can simply sell the company’s shares to the new buyer, so the home stays in the company name. In that scenario, no one pays the B.C. provincial property transfer tax – $40,000 on a $2-million sale – because no change in owner name is registered. Unlike Ontario, B.C. has not closed this loophole.

Mr. Ho became a Canadian citizen years ago and signed up for B.C. health coverage. Until recently, however, he claimed on his taxes that he was a non-resident.

“[Mr. Ho’s accountant] advised Mr. Ho to break all significant ties with Canada, such as owning property and bank accounts, to ensure that Canadian tax authorities considered him to be non-resident,” B.C. Supreme Court Justice Victoria Gray said.

The accountant, Frank Sze of Richmond, said that sometimes owners don’t want their names attached to the properties.

“There are a lot of people who don’t want their names to appear in the land registry. They don’t want to be known,” Mr. Sze told The Globe and Mail. When asked why, he said, “Just because.”

Even after Mr. Ho began paying Canadian income taxes as a resident in 2011, he claimed his income was only $27,500, the court documents said.

“Many of the concerns about Mr. Ho’s evidence related to how he handled assets and how he reported them for tax and legal purposes,” said the judge, who awarded Ms. Chen a quarter of a million dollars.

In some cases, Chinese investors have said their income was from family gifts and loans, which are tax-exempt.

When millionaire Xiong Hu Li’s wife divorced him in 2013, he ignored court orders to produce financial records, including tax returns. Instead, court records say, he claimed that all the money invested in Vancouver while he was in China came from his parents.

His wife, Rong Yao, had a $6-million Vancouver home, a condo, a Porsche and an Audi registered in her name. She testified at one point she owned 16 properties in B.C., until her husband had them transferred into his mother’s name.

B.C. Supreme Court Justice Mark McEwan concluded Mr. Li “appears to have significant financial interests in China … millions of dollars … the money in Canada is of less consequence to him than revealing his assets appears to be.”

The judge called Mr. Li’s failure to account for his wealth “reprehensible” and awarded Ms. Yao spousal support, plus almost $4-million in assets.

Tax experts told The Globe and Mail Canada’s tax regime is not set up to collect from foreign millionaires who earn money overseas and have homes and family in Canada.

“I think it’s a serious issue and its a problem for the government and a problem for Canadians,” Mr. Chodikoff said.

“There could be a quite significant loss of tax revenue. More resources need to be pumped into the CRA – and more political will – so there is a desire to have stronger laws.”

The CRA indicated it is investigating the situation, but gave no specifics.

“There have been no prosecutions for tax evasion of people in Vancouver who claim to be non-resident or claim China as their primary residence,” a statement from the agency said.

“The CRA can, however, confirm that it has numerous ongoing investigations across Canada, some relating to residential real estate.”

An accountant in Vancouver who spoke on condition that he not be named said that the point is to remove the money from China.

“The picture is, basically, a lot of these people don’t really live here,” said the accountant, who came to Canada several years ago, and has wealthy Chinese clients.

“The guy in China wants to shift the money to the children – to get it out of China. Then if the Chinese government goes after the man, the assets are with the children.”

– from ‘Foreign investors avoid taxes through Canadian real estate’, by Kathy Tomlinson, Globe and Mail, 7 Oct 2015–

‘Martin From Richmond’ Update – “Prices are down more than 15%. Another thing worth considering is that 2013 is the Year of the Snake for those of Chinese ancestry.”

“Prices have dropped more than 15 per cent in one popular neighbourhood in Richmond.
Almost a year ago, a 2800 square foot, five bedroom three bath house sold in the Garden City area for $952,000, a bit above asking price in what was described as a cash sale that followed a bidding war between two interest parties.
Within the last week, another house, a 2400 square foot, three bath house on a similar-sized lot sold in the same neighbourhood for $805,000, below the asking price of $838,900 and even below assessed value.
In both cases, the homes didn’t need any work, and were move-in ready, updated, and well-designed.
The $147,000 drop in price works out to be a 15.4 per cent price drop in the area.
And I think it’s an indication that at least one home owner seriously considered “cashing out”, and ultimately did, and that others might do the same, if the real estate industry continues to grind to a halt.
Another thing worth considering is that 2013 is the Year of the Snake for those of Chinese ancestry.
A renowned Richmond fortune teller and feng shui expert predicts that the Year of the Snake will see profit margins slip, and said business will slow down
Whether you believe in Chinese astrology is not the point; considering the influence of foreign and mostly Chinese buyers on the price spikes since late in 2010, it’s whether this significant subset of deep-pocketed people believe it.
The fortune teller said 2013 will see a significant slow down, and said people will be more careful in spending their money.
As with my earlier “self fulfilling prophecy” comment, if Chinese investors really do believe that 2013 will be a slow year, that could influence their decisions, and in fact, result in a slow down. It all depends on if enough people are drinking the Kool-Aid.
But the fortune teller also noted that the “wealthy Chinese” are unlikely to liquidate their assets by taking low-ball offers, and will decide to rather sit on their properties, awaiting better times.
So, recent sales activity (according to the Greater Vancouver Real Estate Board, January 2013 sales were the second lowest for that month since 2002) combined with the Chinese New Year, could further trigger prices to slide.
Something worth considering for those who are mullling over the possibility of re-entering the world of home ownership.”
– Martin from Richmond, via e-mail to VREAA, 6 Feb 2013

We don’t believe in astrology any more than we believe in leprechauns, but we do ‘believe’ in the fact that others believe in such things, and that those beliefs can influence herd behaviour.
A speculative mania is itself based on false beliefs.
– vreaa

Local Realtor “Cautiously Optimistic”

“Now Andrew had a couple of questions about the Vancouver real estate market… In the media he’d been reading that the Vancouver real estate market had seen a significant drop in the last little while, and he wanted to know what the real situation was.” …
“We’ve seen a lot of changes in the economy in China, so there’s a lot less people coming over from China. We’ve also seen changes in mortgage rules which has also reduced a lot of demand for property here in Vancouver.” …
“What are my predictions for the next six months?.. Our major trading partners (US, China) have been having some issues but their economies seem to be turning the corner. So I’m cautiously optimistic. … In terms of changes to mortgage rules, they came in 3 to 4 months ago, we’re feeling the effect now, in the past after mortgage changes, you get about 3 to 6 months where things soften up, then things begin to pick up. So, you know, I’m cautiously optimistic.”
– excerpts from Mike Stewart, local realtor, self posted youtube video, 20 Nov 2012 [hat-tip Anon]

Whenever a speculative mania tops and begins its deflation, participants who don’t understand the fabric of bubbles, and who haven’t seen the mania for what it is, will search for extraneous factors to blame. Sure, some external factors may shape the path of the price descent, but the real cause for the resultant implosion is the fact of the mania.
– vreaa

Quotes from above added to the “It’s Only A Flesh Wound” sidebar post.

“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

‘Sell Your Property In China’ – “This postcard was in my mailbox yesterday. Lots of lucky red colouring.”

– scan of a card flier distributed to residential addresses in Vancouver, e-mailed by ‘J’ to VREAA, 20 Jan 2012. J writes “This postcard was in my mailbox yesterday.  Lots of lucky red colouring.”

“I guess I will keep watching everything and restrain myself from jumping onto the Vancouver housing bandwagon even though I missed the Shanghainese one.”

“I came to Raincouver three years ago. I was working and living in Shanghai for two years: it’s a nice city, more transparent and efficient than its counterparts in inner part of the country. More foreign investments and more job opportunities. And therefore more attractive for young people, either uneducated, educated or over educated 🙂 At that time I remember the main topics between colleague is either stock market or property price. There is pressure for me to buy apartment before I got married with my wife (we both live and work there) but I didn’t go that route by empty my pocket (not much) and by asking my parents for their help (not much they can do either). At that time, 2006-2007, the price of a 2-3 bed apartment in outer skirts of city will cost 7 to 10 times of my annual income with at least one hour (doesn’t matter you drive or not, could be two if you are not living beside subway) commute to work.
Well, I guess I’m lucky not be part of the housing party in Shanghai, but here in Vancouver, it’s definitely another show going. I’ve been here 3 years now and realized the house price was shooting up. I don’t know the exact price range here in Burnaby but some SFH will easily cost you 1mil. Consider all the fun facts undergoing these days: QE3, bailout, Euro crises, BPOE, HAM, I guess I will keep watching everything and restrain myself from jumping onto the Vancouver housing bandwagon even though I’ve missed a Shanghainese one.”
– GuyInBurnaby at VREAA 30 Nov 2011 12:59pm, commenting on “If I’d paid for it all myself, the price cut wouldn’t bother me as much, but there’s a lifetime of my parent’s blood and sweat in it. Developers’ profits are outrageous. The price they set when the housing market kept going up was far more than the real value.”

“If I’d paid for it all myself, the price cut wouldn’t bother me as much, but there’s a lifetime of my parent’s blood and sweat in it. Developers’ profits are outrageous. The price they set when the housing market kept going up was far more than the real value.”

Danny Deng and his bride-to-be dreamed of their lives together as they walked through the showroom for a Shanghai housing project almost three months ago. Pooling his own and his parents’ savings, a loan from his boss and a 1.1 million yuan ($172,000) mortgage, he bought an apartment and secured his fiancee’s hand.
On Nov. 19, Deng faced off a ring of security guards three rows deep wearing camouflage and carrying shields as he joined more than 100 homeowners rallying in front of the development’s sales office. His transformation from newlywed to street protester came after China Vanke Co. slashed prices for future buyers at the Qinglinjing complex, erasing about 20 percent of the value of his three-bedroom unit overnight.
“If I’d paid for it all myself, the price cut wouldn’t bother me as much, but there’s a lifetime of my parent’s blood and sweat in it,” said Deng, a 30-year-old electrical systems salesman. “Developers’ profits are outrageous. The price they set when the housing market kept going up was far more than the real value.”
– from ‘Shanghaied Home Buyers Take to Street’, Bloomberg, 29 Nov 2011

Then why, Danny, did you buy it?
We know: Because you thought that prices would continue to go up, and up, and up, right? Right.
And if they had, you’d be taking credit, not complaining, right? Right.
Speculators are the same everywhere: Shanghai, Sydney, Spain, Ireland, Vancouver.
The outcomes of speculative manias know no cultural bounds.
– vreaa

—
More of Danny’s story from the article:
For Deng, the pain is more than financial. Tears swell in his eyes as he recounts the moment his father handed him access to his life savings of 360,000 yuan to help make the down payment.
The gift made Deng consider himself a member of the “ken lao” generation, meaning to gnaw on the elderly.
“I was depressed, uncertain, touched and a bit ashamed,” he said, asking not to be identified by his full Chinese name because of the personal nature of his story. “I had been proud and didn’t think it was their business. But when the moment really came, I knew it was impossible to manage only by myself.”
Deng had moved to Shanghai three years earlier from a small city in the north to be closer to a girl he met in college. When talk turned to marriage, his girlfriend insisted they buy an apartment first, he said.
“At my age, I should get married and I should have my own home whether or not I can afford it so that I can be the same as my classmates,” Deng said.
Deng saw an ad on Soufun.com for pre-sales of a project called Qinglinjing, meaning “Clear Forest Path,” that was being constructed near a soon-to-be built subway station next to the future home of the Shanghai Disney Resort. Deng and his girlfriend visited a showroom to walk the wooden floors of the replica 96-square-meter (1,033-square-foot) apartment, planning how they would fill its two bedrooms, living room and study.
“We loved it,” Deng said. “It suits us for the next three to five years because we plan to raise a child soon.”
The snag was its 1.7 million yuan price tag. Chinese policy requires a minimum 30 percent deposit. Deng had saved 70,000 — not enough. That’s when he called his parents, then borrowed another 50,000 yuan from his boss, and secured a loan of 1.1 million yuan paying as much as 7.8 percent interest from Agricultural Bank of China, he said.
On Sept. 28, Deng and his girlfriend signed a contract with the developer, happy after winning discounts including 40,000 yuan off for being a member for the Soufun.com website and a 20,000 yuan markdown by collecting 20 stamps on a red “home- passport” issued by Vanke. The end price: 1.58 million, or about 13 times Deng’s annual wage.
The next month, they got married. Paying the mortgage will take up 40 percent of the new couple’s combined salary.
… “I didn’t have a choice,” Deng said of the decision to buy. “I don’t want to be too different. Otherwise, maybe for a long time, I would be alone.”

Wow. Poignant story.
And so many similarities to what is going on to Vancouver: Bank of Mom and Pop; ‘girlfriend insisted they buy an apartment’; plans to move in 3-5 years (but now likely stuck); etc.
Also, some differences, too: 40% of income? (low for Vancouver); 1,033-square-foot apartment (MASSIVE by Vancouver standards), etc.
– ed.

“What would Chairman Mao say if he knew Li was the proud owner of a Canadian residency card and a $6 million house on Vancouver’s Westside?”

“Self-made millionaire Li Weijie runs his own ski and golf resort outside Beijing and considers himself a patriot: A lifesize statue of Mao Zedong on a four-meter base towers over the entrance to his resort. What would Chairman Mao say if he knew Li was the proud holder of a Canadian residency card? “I wanted access to the education system and health care of a developed country,” says Li, 43, whose other businesses include one of Beijing’s largest private taxi companies, two car dealerships, and a real estate company. Li now has a $6 million house on Vancouver’s Westside, known for its rich Chinese. His wife tools around Vancouver in a black Maybach while his 20-year-old son drives a dark gray Maserati to classes at the University of British Columbia. His wife and son live in Canada full-time.”
– from ‘China’s Super-Rich Buy a Better Life Abroad‘, Dexter Roberts and Jasmine Zhao, Bloomberg Businessweek, 22 Nov 2011

Opinion – “This is what I hear: Vancouver house prices are determined in China. The house can become the main life investment.”

“This is what I hear: Vancouver house prices are determined in China. Vancouver houses can be bought right in China. Many, with even a bit of money or more, want one foot in China and one outside, and Vancouver is the main place. A new Chinese middle class is becoming prosperous, but the lower class has not. Only a redistribution of wealth to the lower class prevents violent revolutions, of which the west has gone to the extreme of redistribution. In China, many see that situation. Also, for children’s education opportunities. In China, without a good education, such as engineering, computer science, etc., life will most likely be poor. And that education is hard to get in China, but easy to access in Canada. More and more, the available university seats in China, are taken unfairly, by the ruling classes.” and
“In Canada, the mortgage interest is not tax deductible, but there is no capital gains tax when you sell your principal residence., and I prefer it that way. The house can become the main life investment. The city is behind in mass transit and efficient transportation, to and from areas farther from the city center, where more affordable housing could be built. To avoid 2-4 hours driving, living close to the city center is abnormally attractive, which is multi-family residence for most. It now takes two good incomes to rent, and the city’s skyline is mostly high rise condo and apartments. Compare to Calgary which is far ahead on mass transit and highways, allowing quick commute from far out in all directions, where one good income is ample to afford rent in the center, and where the skyline is dominated by office and business buildings. Some maintain the distortion in Vancouver was partly deliberate by socialist planners, to promote multi residence buildings as the norm, to benefit the environment.”
– two comments from Russell Turner at ‘Mish’s blog, ‘Global Economic Analysis’, 20 Nov 2011

Realtor Opinion – “Prices are actually quite stable and have only increased modestly in value in the last year or two. Given immigration predictions, low interest rates and the fact that Vancouver has become an urban resort to the world’s wealthy, there doesn’t really appear to be as much froth as one would think.”

“As a Vancouver real estate agent I share the disbelief at the bizzaro real estate pricing we see so often here. This practice of re-listing at a higher price than a previous, unsuccessful listing is nothing new to Vancouver real estate. Last year I watched a “star” realtor list a $3.5MM condo for $8MM. Not surprisingly the listing was unsuccessful and the property remains unsold and off the market. Vancouver has managed to buck global real estate trends, however, it’s important to remember that sale prices, not list prices are indicative of the presence or absence of a bubble. The motivation for an agent to list a property at twice its justifiable market value is debatable but it does happen regularly. Many agents and sellers are pinning their hopes on the recent influx of Chinese buyers. Regardless, these tactics are not effective and do not necessarily point to a bubble. The reality of our real estate market is that prices are actually quite stable and have only increased modestly in value in the last year or two. Given immigration predictions, low interest rates and the fact that Vancouver has become an urban resort to the world’s wealthy, there doesn’t really appear to be as much froth as one would think.”
– comment from shaunkimmins at Global Economic Analysis 20 Nov 2011

Visual Anecdote – Shanghai Realtor Hawking RE In Traffic

Hey, driver! Want a home? Just 18,000 yuan a square meter. An agent in downtown Shanghai took to the streets in search of buyers. Yong Kai / China Daily
– from China Daily, 16 Nov 2011

Property Prices Collapse in China – “When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse.”

“Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun”…
Citi’s Oscar Choi believes prices will decline another 10% next year, but that’s a conservative estimate. Even state-funded experts are more pessimistic. For example, Cao Jianhai of the prestigious Chinese Academy of Social Sciences sees price cuts of 50% on homes if the government continues its cooling measures.
When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse.”
– excerpted from ‘Property Prices Collapse in China. Is This a Crash?’, Gordon Chang, Forbes, 6 Nov 2011

Effects on Vancouver RE?:
1. A very, very small direct negative effect (a handful of prospective buyers who may have been dependent on funds from these Chinese projects will now be unable to buy here)
2. A very much larger indirect negative psychological effect:
— Things “Chinese” and things “Real Estate” can ‘crash’.
— ‘China’ feels closer to home for Vancouverites than does ‘Ireland’, ‘Spain’, ‘Phoenix’ etc.
— The simple experience of hearing ‘32%-off’ and “price cuts of 50%” has a bracing effect.
– vreaa

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

“A Caucasian friend who owns a house told me that in 20 years time in Vancouver the only Caucasians left will be serving moneyed Asians. Does he intend to then sell for 10 million dollars and leave?”

“A friend (who has a house) told me that in 20 years time Vancouver will be populated by HAM [‘Hot Asian Money’], and that the only Caucasians left will be serving them.
Does he picture himself living in such a community, being Caucasian himself? Does he intend to sell for 10 million dollars and leave?
I thought I did not agree with that vision of the future, until I went to Telus World of Science and noticed bilingual exhibition panels: English/Chinese. Not other language. I will sent them a letter expressing my frustration as a non-Chinese ESL immigrant, since they made my kids feel like secondary citizens.”
– painted turtle at vancouvercondo.info 26 Sep 2011 8:06am

We personally don’t foresee that “20 years time” outcome, but we wouldn’t be at all surprised if a good number of local owners, who DO imagine this happening, are harbouring fantasies of cashing-out big and then leaving to retire elsewhere.
– vreaa

“A large number of Chinese people who’ve come over recently, their experience with capitalism is that everything goes up forever, because it has for the last 20 years in China, so they have that mentality.”

From ‘Canadian real estate – a piggy bank for Chinese investors’, by Kerry Gold, G&M, 10 Jun 2011, excerpted here for the chronological record –

Late last month, a 153-unit condo development in New Westminster sold out in two and a half hours. More than 400 potential buyers lined up for the sales day. For every unit sold, there was at least one back-up offer made. There was nothing overtly special about the project, which will be completed by fall 2012.
… for reasons only understood by the increasing number of local realtors who have learned to target the Mainland Chinese market, it held an irresistible allure to the new Chinese buyers looking to invest their money in the Canadian housing market.
—
Earlier this year, the Bosa Sovereign hotel-condo tower in Burnaby sold out in two days, largely due to the new Asian market. And last week, people began lining up in the rain on Wednesday for a shot at one of the Quintet luxury condo towers being built in Richmond City Centre. Organizers handed out blankets and WiFi cards so the 80 people in line could stay warm and watch the Canucks game while they waited for the sales office to open Saturday morning. The builder sold more than 270 suites that day, with 30 suites held back for a later release.
—
Landcor Data Corporation compiles B.C.’s most comprehensive real estate statistics. President Rudy Nielsen had long known that Mainland China was driving the Vancouver market, but he had yet to prove it with numbers. In Landcor’s first-quarter 2011 residential sales summary, one of Landcor’s senior analysts, from Anhui province in China, examined luxury sales in Richmond and Vancouver’s west side, and identified the number of buyers with Chinese names. The analyst found that in 2010, more than 74 per cent of buyers were most likely from Mainland China. It’s imperfect methodology, but it at least lends some statistical support to a trend that has so far been based on anecdotal information.
“Yes, the realtors are correct,” Mr. Nielsen concludes in his report. “China is coming and it likes what it sees.
“They’re arriving with fortunes intact, especially in the Lower Mainland, eagerly buying their own bits of the good life and helping buoy up real estate prices.”
Many do not want to live in the condos or even rent them out, say the realtors interviewed for this story. They want to have a safe haven for their investment in desirable Canadian cities, in a country that is economically and politically stable.
“You could almost say it’s a ‘land bank,’” says Mr. Morrison.
—
Vancouver marketer Cam Good recently helped sell out an Etobicoke development called Westlake, which, he says, was largely snapped up by Mainland Chinese buyers. Mr. Good has taken his marketing strategy one step further. He says he’s the only Canadian realtor to open offices in Beijing and Hong Kong, directly marketing projects in White Rock, Squamish, and the Toronto area to Chinese buyers who want to protect their new found wealth by tying it up in Canadian real estate.
By opening offices in Hong Kong and China, Mr. Good aims to beat his competition to the source.
“In China, it’s relationship based. The North American market makes buying decisions by looking for specialists, like appraisers, inspectors, realtors, whereas a Chinese person is more likely to make buying decisions based on trust,” says Mr. Good.
Simeon Garratt heads up the Hong Kong office. He usually lives in Vancouver, but was raised in China and speaks Mandarin and some Cantonese. Mr. Garratt understands not just the language, but also the culture. Canadian real estate is simply a better deal.
“If you look at the cost per square foot here, it’s a bargain to buy here in Vancouver,” said Mr. Garratt, prior to leaving for Hong Kong.
“I mean in Beijing, you are going to pay over $1,000 a square foot for anything nice. And that price is top end in Vancouver, for the best you can get.”
—
Dan Scarrow, vice president of corporate strategy for Vancouver-based Macdonald Realty, believes that an office based in Asia is more useful for getting listings than selling condos.
“Having an office there is more a ploy to get listings with developers,” says Mr. Scarrow, who speaks Mandarin. “You are not going to sell many units in China. The Chinese are like any other buyer. They need to see the project to buy it.”
He also believes that the new Chinese buyer is fuelling the Vancouver market because they believe in the appreciation of real estate.
“A large number of Chinese people who’ve come over recently, their experience with capitalism is that everything goes up forever, because it has for the last 20 years in China, so they have that mentality.”
—

1. More very prominent mainstream coverage reciting the China-is-buying-everything meme.
2. Interesting opinion that China offices are largely important to attract local developers rather than for sales themselves.
3. Is this ‘real’ demand or momentum speculation? (if the latter, look out below once the market blips).
4. ‘Land bank’?? Our homes as a traded token? If true… (shudder). – vreaa.

HK To Vancouver And Back – “We returned from Hong Kong as expatriates 3 years ago. As a born Vancouverite, I wanted my daughter to finish school here. Now I realize that there is no future for her here after university. She certainly will never own a property here.”

DM at VREAA 21 May 2011 4:41pm –
“We returned from Hong Kong as expatriates 3 years ago, I guess we thought we were suffering from burn-out after 8 years and felt it was time to settle down. We rented a property in West Vancouver and my husband, a financial analyst eventually landed a job after 2 years. Working for a small Canadian firm was pretty dull and after tax it was pretty much impossible to make ends meet. Our idea of living in a community where you knew your neighbours and the kids played on the cul-de-sac until dark never materialized as we saw houses being bought and sold and often left empty. House flipping here really is a sport and it certainly doesn’t build ties to the community. The only friends we have made on our street, ironically, are another expatriate family who were acquaintances from Hong Kong. Go figure.

We were certainly looking for the lifestyle of the skiing and the fresh air, but that all becomes a little stale once you have fought for parking at Grouse or are gouged doing ANYTHING in Whistler all while avoiding kamikaze stoned boarders who do not care if they obliterate an entire family. It’s all a bit overrated. The amount of time one spends in traffic here is ridiculous: I can’t understand the logic – we won’t cut down a single tree to expand a road to manage traffic but we will let everyone idle in our cars while merging from four lanes to one on the Lion’s Gate, all while we pump gas fumes into the air. And our government wants to encourage more migration to Vancouver when the citizens we have here can’t get anywhere. Nuts.

Consequently a new position in an international bank in Hong Kong came up, starting tomorrow, pays more than double the Vancouver salary. Thank god we did not buy a property here, because I am not convinced we would have sold it and broken even. While rents in Hong Kong are definitely higher, Hong Kong tax allows you to deduct 50% of your annual rent off your gross income before you calculate your 15%. And the government is so efficient that when they run a surplus (which happened at least twice while I lived there), they give every citizen and permanent resident a tax rebate. Yes, folks this is true. This year, we both got a cheque for the equivalent of $800 Cdn courtesy of the government of Hong Kong. When they ran a deficit as they did during SARS, all government employees took a 5% salary cut. Your employer pays your health care costs unlike here, where the employer deducts extended health off your income. If we need to see a specialist, I can see one the very next day. Health care is excellent and yes, you can find an excellent doctor who will take you on as a patient and give you 45 minutes if you need it. Our daughter had pioneering kidney surgery in Hong Kong 3 years ago that is still not offered anywhere in Canada.

Believe it or not general day to day living expenses (other than rent) are not more expensive than here, transit is excellent, cheap, clean and safe thereby eliminating the need for a car entirely. Hong Kong is an international airport with direct flights to numerous destinations all over the world. How hard is it to leave Vancouver and get to a sunny destination without taking multiples flights that cost an exorbitant amount? With a decent salary and low taxes, when I get fed up with the pollution, I can be on a deserted beach in 4 hours in a 5 star resort for a 1/3 of the cost of a trip to Hawaii .

As a born Vancouverite, I wanted my daughter to finish school here and make friends. Now I realize that there is no future for her here once she finishes university and she certainly will never own a property here. Will we come back ever? Yes to visit the extended family. But, we’ll never live here again, even when we retire. There are plenty of other sunny, less expensive destinations to choose from. Vancouver is a nice place to visit but living here is just not all its cracked up to be.”

Thanks for sharing your story, DM. You and your family appear to be returning to HK for a number of valid reasons, the effects on Vancouver of the speculative mania in housing are only part of the story, but important nonetheless.
We note how “she will never own a property here” has almost become synonymous with “there is no future for her here”.
We agree with commenters on various threads who continue to point out that renting in Vancouver is inexpensive and a viable option, but one has to acknowledge the powerful way in which the housing bubble has caused many who rent to feel disenfranchised. – vreaa

Social Effects Of A Real Estate Cult – “We’ve created a generation of young people whose sole ambition is to have a piece of property under their name”

Extracts from ‘For Many Chinese Men, No Deed Means No Dates‘, NYTimes, 14 Apr 2011 [hat-tip both Nemesis and Nick] –
“In the realm of eligible bachelors, Wang Lin has a lot to recommend him. A 28-year-old college-educated insurance salesman, Mr. Wang has a flawless set of white teeth, a tolerable karaoke voice and a three-year-old Nissan with furry blue seat covers. “My friends tell me I’m quite handsome,” he said in confident English one recent evening, fingering his car keys as if they were a talisman. But by the exacting standards of single Chinese women, it seems, Mr. Wang lacks that bankable attribute known as real property. Given that even a cramped, two-bedroom apartment on the dusty fringe of the capital sells for about $150,000, Mr. Wang’s $900-a-month salary means he may forever be condemned to the ranks of the renting. Last year, he said, this deficiency prompted a high-end dating agency to reject his application. In recent months, half a dozen women have turned down a second meeting after learning that he had no means to buy a home. “Sometimes I wonder if I will ever find a wife,” said Mr. Wang, who lives with his parents, retired factory workers who remind him of his single status with nagging regularity. “I feel like a loser.”
…
Working-class buyers have been frozen out of the market while an estimated 65 million apartments across the country bought as speculative investments sit empty.
…
Han Han, one of China’s most widely read bloggers, frequently assails the government policies that he and many economists say have contributed to rapidly rising prices. In an interview, he said one consequence of the single-minded focus on real estate, or on earning the money to make mortgage payments and repay family loans, is that young people have little time for anything else. “We’ve created a generation of young people whose sole ambition is to have a piece of property under their name,” he said.
—–

While the social ramifications of the owner/renter divide in Vancouver is less extreme, it’s not a million miles from that described in this article. – vreaa

Chinese Real Estate Bubble Pops – Beijing Prices Plunge 27% In ONE Month

From ‘Chinese Real Estate Bubble Pops: Beijing Real Estate Prices Plunge 27% In One Month’, zerohedge.com, 14 Apr 2011 [hat-tip Nemesis] –
“Prices of new homes in China’s capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city’s Housing and Urban-Rural Development Commission.
Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.
Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government’s crackdown on speculation in the real estate market.”
… “For all intents and purposes a drop of this magnitude levered even 2 times (assuming 50% or so equity down) means that China is on the verge of a complete bubble implosion.”

Headlined for the chronological archive because of global importance.
It is hard to predict the immediate effect on us in Vancouver, which could be anything from instantly freezing up foreign buyers, to an injection of final buyers running from a falling Chinese RE market into what they perceive to be one of the only apparently ‘healthy’ ones left (Vancouver). Thus, possibly another example of the narrowing that occurs towards the end of speculative manias.
Regardless, the Vancouver RE market is far from healthy, and we’ll see the crash here too, sooner or later. We’re not anticipating 27% drop in the first month, but >50% drops by the trough.
We’ve been anticipating a broad global deflationary wave since late last year. Stock markets appear to have topped; now Australian and Chinese RE. -vreaa

Is Vancouver A Fringe Of The China Property Bubble? – “It sounds like a criminal or insane or whatever you want to call it, a total misallocation of capital.”

Possibly. If so, what are the implications? Could run up even further, could blow up in a spectacular fashion. See this interview with Jim Chanos, currently short China, from FT.com, 1 Feb 2011.

Quotes:
“China is in a very major property bubble”
“70% of their GDP is in fixed asset investment.” … [and this is NOT from infrastructure development. For instance, high speed rail is only 2% of that 70%.]
“At the peak of the bubble in the US, fixed asset investment was 16-18% of GDP, of which 6% was property.”
[The bubble is affecting tier 2 and tier 3 cities as much as Beijing and Shanghai.]
“Prices relative to incomes are in nose-bleed territories by Western standards.”
“A lot of the property that is being built is not affordable by about 99% of the Chinese population”.
[Interviewer: “So it sounds like a criminal or insane or whatever you want to call it, a total misallocation of capital.”]
“One of the bull cases is that this will deflate gently, and that the Chinese economy will seamlessly move to a consumer-led burgeoning middle-class economy… The problem is that consumers are less and less of this economy, as the property bubble has gone on.”
“Anytime you take something that is 70% of your economy and rein it in, history tells us that usually the risks are to the downside… but, who knows, they might do it.”
“The Chinese bankers do see problems, you can see it in their pronouncements.”
“The Western investor is getting a lot of opportunities to buy into this boom, and we’re taking the other side of that trade.”

“There are lots of things that people say about China that, when you examine the data, falls apart”.

Spot The Speculators #22 – “The realtor himself owns four, rented out, and plans to sell and retire with the equity a few years from now.”

anonymous at VREAA 22 Dec 2010 at 9.35pm – “I was told by a realtor dealing primarily with the Chinese segment [of the market] that many of the purchases are investment properties bought by people already here, using their first home’s equity as leverage to get a downpayment AND mortgage. As for overseas purchasers, they put down 40% cash and the rest is a mortgage from a Canadian bank. In fact, he told me many take out mortgages here with the favourable rates, and invest them in China and pocket the difference in interest!
The realtor himself owns four, rented out, and plans to sell and retire with the equity a few years from now.”

[Cavalier speculation by locals is rife and has been the major engine for this bubble. A large number of owners have “plans to sell and retire with the equity a few years from now”. Only a very small percentage will realize their dreams. -vreaa]

“A world-class city? Please.”

That’s Shanghai that is being discussed, not Vancouver. It seems dozens of the world’s very impressive second tier cities have the same identity angst, comparing themselves with NYC, London, Paris and Tokyo. More proof that humans are in essence identical, wherever you go. From an article in China Daily, by Chen Weihua, 4 May 2010.

China’s RE Trading Volume Collapses – “Recent mortgage restrictions may be having an effect after all.”

China’s RE and stock markets have some direct effects on Vancouver RE in that a small number of local sales are to wealthy foreign investors from China. More important, however, is the psychological link between the two markets. Many Vancouver locals believe that our market is buoyed by China, and thus speculate on local property based on that premise. For the latter reason, this story is particularly important. It comes at the same time as ballooning inventory in Vancouver, and mortgage debt that is growing more expensive by the week. More on the Vancouver-China relationship HERE. -vreaa

From businessinsider.com 27 Apr 2010 –

“China’s property transaction volume collapsed last week. Property trading volume went down 64 percent last week from a week earlier in Shenzhen, down 45 percent in Beijing, down 38 percent in Shanghai, and down 2 percent in Guangzhou. In China’s 35 main cities where housing market data was monitored by the newspaper [China Daily], 21 saw their trading volume go down last week, with the figure in Hangzhou going down 73 percent.

China’s recent mortgage restrictions may be having an effect after all. Obviously this is just a week’s worth of data, but if this weekly data turns into a longer-term trend, one has to imagine it could be bad news for prices.”