Wednesday, November 30, 2011

Vancouver Realtor: 90% of High-End Buyers are Foreign

Another data point in the foreign influence debate.
Should there be restrictions on ownership of real estate in Metro Vancouver?
Moore says almost 90 per cent of higher-end house buyers are foreign.

“They seem to find Vancouver and the Lower Mainland to be a safe place to live, in terms of worldwide, and they do like our weather, and it doesn’t seem to be slowing down since they began looking for homes in the ’80s,” says Moore. Condominiums are a different story, though, where he estimates it to be more of a 50-50 mix, although he admits 26 of the 28 units he sold at a new complex on Royal Oak recently went to those of Asian descent.
There's the rub with an informal survey. Asian descent doesn't tell you anything about foreign money.

Although much of New West is high on a slope, it hasn’t seen the same pressure from foreign buyers.

. . .

However, Goodwin has noticed many of the South Asian builders that buy land in Burnaby to construct big homes and sell them, are now targeting New Westminster’s West End for its big view lots.
Pilothouse Marketing’s Craig Anderson has been project manager for three recent new developments that went on sale in the city—Brickstone Walk, 8 West and 258, and he estimates 35 per cent of the buyers for the last two were mainland Chinese.
The Real Estate Board of Greater Vancouver doesn’t track specifically where foreign buyers are purchasing homes. However, president Rosario Setticasi says a regular informal poll of up to 400 realtors reveals only about 10 to 12 per cent of home purchases are by foreign buyers.
10-12 percent is enough to boost a market. It's certainly enough to utterly juice a few select submarkets.


jesse said...

Say I'm some rich local and I happen to derive most of my income from Asia. OK so I buy a $2MM house in an expensive area of the city. I assume that the capital I import is going to raise a few eyebrows if it wasn't declared.

I know the narrative is that capital is flowing in from all points east, I'm just wondering if more than we think is financed or is mostly derived from an existing, and lower, cost base through previous purchases.

GG said...

Good question. The savvy investor would quickly figure out that if speculating is good by paying cash for one house than speculating is great using the same cash to finance 5 houses. Lord knows CMHC treats all those mortgages exactly the same.

hhh said...

A friend of mine is from China and they bought the house with 65% mortgage from local Canadian bank. I was kind of shocked why our bank loaned the money to foreigner? She told me she has a business in China and the bank loaned to her based on the documents that she provided? This makes me wondering ... ...

jesse said...

hhh, with 65% down why does the bank need any proof of anything? If borrower goes in arrears the bank forecloses and sells the asset to cover all costs, including I might add costs related to the foreclosure, which are charged out at whatever the prevailing posted rates are for such undertakings (read $100/hour or worse).

Scrape the surface to uncover which departments in banks are profit centres...

GG said...

The only way a 65% mortgage would be trouble is if so many of them go bad at once the bank resorts to fraud to process them. (Yeah, I'm in the U.S. why do you ask?)

If you restricted Canadian banks' activities to only domestic business, they would be small and trapped in the Canadian business cycle. Optimally, the cycle should be smoothed out through foreign activity. Canada is a small place with a limited economy. Ideally, you don't want the banks' fortunes tied 100% to that economy. Not that you don't need to watch them closely, or they could just magnify the business cycle with their short-sightedness

But lending money to foreigners backed by high equity collateral inside Canada that cannot leave Canada. I wouldn't worry about that. I'd worry about foreigners with 95% mortgages backed by CMHC. That is worth worrying about. Why CMHC guarantees foreigner's mortgages? No clue.

jesse said...

I think a review of CMHC's limited recovery avenues with foreign ownership should be discussed: charging premiums in line with limited access to collateral assets should be segregated, not aggregated.

Scary stuff; one hopes the government starts reviewing CMHC individual insurance policies more seriously.

But I'm skeptical this is a large problem; I don't have data on this but I suspect there are some healthy ratios flowing into the more expensive markets; cash flows would be exorbitantly negative unless there's chronic IR arbitraging.