Saturday, May 28, 2011

Landcor Study of Luxury Buyers in Vancouver

The study has some flaws, it will tend to overcount, but even if their estimates are double reality, it's still a market driving percent of the buying population. Every sale sets the comps for a whole lot of houses.
Chinese buyers snap up most of ritziest homes
Landcor looked at transactions and flagged buyers with pure Chinese names who have spellings typical in the People's Republic of China, filtering out those with Westernized first names as well as non-Chinese names.

They found 74 per cent or 122 out of the 164 homes sold in 2010 above the "luxury" threshold ($3 million for houses on Vancouver's west side and $2 million for condos in Richmond) were bought by buyers who fit the mainland China profile.

That was a jump from 2009, when 68 per cent of luxury homes (49 out of 72) in the two areas were matched to likely Chinese buyers.

In 2008, 46 per cent or 32 out of 69 sales fit the profile.
Of the sales that were not directly to foreign buyers, some percent were purchased at elevated prices solely on the belief that a foreign buyer would be there later, that losses are impossible.

The virulent pushback against just the theory of foreign buyers has been interesting in itself. It speaks to enormous mistrust of the real estate industry by a subset of the population. (We know it's a subset, because otherwise as monopoly gatekeepers, their presence (like the used car salesmen in a loud 70s sport coat) would be holding prices back, and clearly that's not happening.) It speaks to a need for someone to blame, but not a minority acting in what appears to be their own self interest, but the system itself. This is a good place for the blame, the system itself is broken. Although, not in the ways most people think.

All bubbles need a story, true or half-true, or utterly false, the narrative about why things are different today than the day before is critical to get buyers to act when this much risk is involved. The paired narratives of: "you can jump on this free money bandwagon from the East, oh and by the way, if you don't, you'll never ever own a house here, so you better really enjoy that illegal basement flat you are lurking in" are a well matched carrot and stick.

But this is all temporary. These buyers certainly look like the last ones in, the herd mentality outsiders, the bagholders.

"The PRC is heavily investing in Metro Vancouver for homes (and) outer B.C. for steady resource pools, but for how long?" it asks. "Bubbles can certainly burst and the economic shrapnel could be painful."
Oh, and there is a whiff of that other myth, that this is some kind of Chinese State Project. If things play out on the wild side, this will be roundly debunked if the Chinese state starts chasing down this exported cash (although it remains to be seen if Canada would even help with that). I really don't think this scenario is a complete stretch. Those trillions of reserves sitting in China are needed to sterilize the exchange rate. The Chinese are going to need to recapitalize the banking system, and the losses this time will be at (or very near) Western levels, unlike previous rounds. A cash crunch back in PRC will challenge every assumption.

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