VANCOUVER • The rising price tags on luxury houses on Vancouver’s west side are a sign of China’s expanding wealth as Chinese mainland buyers seek a home for cash in the face of real estate investment curbs at home.
There is no reliable data on how much Chinese money is flowing to Vancouver, but industry watchers say enough has gone into several high-end neighbourhoods to skew Canada’s national real estate data.
Stories abound about cash buyers, who won’t be vulnerable when interest rates rise, and of bids that far exceed the asking price.
“Placing the money is really what they’re doing. They’re parking it, like in a bank,” says Cam Good, president of TheKey.com, which markets Canadian property to Chinese buyers and recently opened its second China office.
The Canadian Real Estate Association in May revised its 2011 average price forecast up because of a jump in Vancouver area multi-million dollar property sales.
Vancouver area real estate spending was up 10% from a year-ago in April, and the average price was up 21% to $815,252. The national average is $372,544; the GTA’s is $486,223.
The rise in Chinese spending in Vancouver mirrors similar trends from other emerging economies, including a reported spike in property buying in New York by Brazilians.
Chinese money first went into real estate in Britain and Australia, and then to Canadian cities like Vancouver and Toronto, says Scott Brown, a senior vice-president at broker Colliers International in Canada, who sees little chance that the trend will fade. “It is in its early stages,” he says.
China’s efforts to control spiking domestic real estate prices means it may be easier for wealthy individuals to invest abroad than at home.
In theory, the Chinese government can limit capital outflow, but in reality the wealthy find it relatively easy to avoid the controls.
“As the government sought to calm the runaway real estate market, it’s inevitable that some of this capital will leak overseas, seeking higher returns,” says Alistair Thornton, an economist with IHS Global Insight in Beijing. “Also, if you bought a house in Vancouver, it also is a hedge against future Chinese growth, because there is something solid there and you can live in it if something goes wrong.”
With the buying so far restricted to a few neighbourhoods in and near Vancouver, the impact of Chinese buying may also be somewhat overstated, says Cameron Muir, chief economist at the British Columbia Real Estate Association.
“The footprint is surprisingly small given the amount of media coverage it has received,” he says.
The surge in Vancouver real estate prices has prompted some calls for curbs on foreign investments to prevent local residents from being priced out of their own market.
The jump has also raised alarm bells for economists, but the lack of firm data on who is buying and why makes it difficult to say if Vancouver has a real estate bubble or not.
Robert Hogue, an economist at Royal Bank of Canada, is careful not to describe the Vancouver market as a bubble. But like many, he sees it as “a real risk area.”
“Vancouver’s average house price has doubled in six years, just a couple years longer than it took Las Vegas’ prices to do the same,” Bank of Montreal economist Sal Guatieri wrote in a report last month.
“The latter was driven by a wave of sub-prime buyers, while the former is being fuelled by a wave of foreign investors. If the latter ebbs, it could leave a serious undertow in its wake: sinking prices.”
Cat: Vancouver Real Estate
