A recent story in the Wall Street Journal reported that Chinese are “stampeding to Vancouver and Toronto, two of Canada’s hottest markets.” For that, we should be grateful. Chinese have made owning real estate in Canada more rewarding than any of us expected and they have made our society distinctly richer by bringing their values and culture to Canada and sharing them with us.

Brun0 wrote:hahah. hey palominocn, you know the tax money deducted from your paycheck? well, it's being stolen and siphoned back to the US. the rats are getting ready to get out of the sinking ship and are already stashing their money away, while you will be the one sitting here eating instant noodles and typing angrily about how whitey screwed you once again i.e. you will once again miss the point that the chinese are their worse enemy.

choke at that haha.

Michael wrote:Now the money is going back the other way...

The new real estate protectionism is misguided


By CAM GOOD
http://www.vancouversun.com/real+estate ... story.html

In the last two months, we’ve sold over 700 condos in Toronto. Sixty per cent went to Mainland Chinese buyers. In meccas like Richmond, 98 per cent of the hundreds of homes we’ve sold are to buyers who are Chinese. Even in White Rock, we sold 35 per cent of a new condo tower to buyers from Mainland China. For a new market like White Rock, that’s a shocking number.

As the North American media has just recently picked up, buyers from Mainland China are a driving force in our real estate market. The staggering truth is we’ve seen just the tip of the iceberg. There is a rapidly growing middle class in China which is just now beginning to realize they can afford homes abroad.

Chinese buy Canadian homes because they care about nothing more than their kids, their kids’ education and real estate. They also want a safe haven for their wealth. These are some of the push factors.

Pull factors are that Chinese are crazy about Canada. They think it’s safe and stable, with a great education system, and we survived fairly well through the global economic downturn. Plus, our real estate is freehold and less expensive, even in pricey Vancouver.

A recent story in the Wall Street Journal reported that Chinese are “stampeding to Vancouver and Toronto, two of Canada’s hottest markets.” For that, we should be grateful. Chinese have made owning real estate in Canada more rewarding than any of us expected and they have made our society distinctly richer by bringing their values and culture to Canada and sharing them with us.

Read more: http://www.vancouversun.com/news/real+e ... z1KW1OOPZz

At the time of the pre-1997 wave of wealthy Hong Kong immigrants, I spoke against foreign ownership controls. But I think this time it may be very different.

I'm sure you've read about the mainland Chinese mania for buying real estate as a store of value. In case you haven't had the opportunity to hear mainland Chinese talk about it, I can confirm that many wealthy Chinese consider property (leases only - land ownership is virtually non-existent) to be the best investment available in China to hedge against inflation and take advantage of the rapidly increasing wealth within China. But my observation is that it is driven by the greater fool theory, not rational investment.

I've read reports that in 2009, there were 64 million uninhabited apartments in China (from power company records) and there are currently 5 sq m of unoccupied office space in China for every one of the 1.3 billion Chinese citizens. I've also read that the price of a modest new apartment in Shanghai or Beijing is approximately 30 to 40 times the average annual salary. So it looks like there's a rare "double-bubble" in China's main cities - a supply bubble and a simultaneous price bubble.

Many of these 64 million vacant apartments in China are vacant because the owners are buying the apartments simply to hold them as non-producing assets. This is made easier by the lack of annual property taxes and very low monthly maintenance fees in China. Overall Capitalization rates in China's big cities are notoriously low, perhaps with the exception of foreign enclaves like Pudong near Shanghai.

China's government efforts to rein in the bubbles has killed trading in the major cities where it's been applied, but the buying mania has shifted to smaller unregulated cities within China . . . and to places like Vancouver.

There are certainly more multi-millionaires and billionaires in China than there were among Hong Kong's 6.5 million people in the late 1980s! Are there now enough wealthy people among China's 1.3 billion inhabitants seeking foreign investment to dramatically skew Canadian real estate markets? I think perhaps there are. And I don't think we can afford to ignore their influence given that many of them aren't buying housing - they're buying assets which they don't expect to use.

Canadian homeowners are now paying more for homes simply because of the influence of this offshore buying in Vancouver, and it could get much worse. Many recent local buyers carry high ratio mortgages, and would be hit hard by anything that causes prices to fall. A significant increase in mortgage rates or a major slump in the Chinese economy could leave many recent local buyers "under water".

And such a slump in China is distinctly possible. China's real debt is much higher than the state reports, and higher than most westerners imagine. Chinese banks behave a lot like state organs, lending money to state-owned-enterprises which often default on the loans. One report I read recently said there is more bad debt classified as assets on the balance sheets of Chinese banks than the asset value of the entire Swiss banking industry. One of the reasons China's leaders say they must maintain high growth rates is that the economy has Ponzi-like characteristics. If the GDP growth rate drops below, say 5 or 6%, there may be a banking crisis.

On principle, I am not one who supports the idea of foreign ownership controls, but I fear it could do Canadians a lot of harm in this case.

I'm sure you have considered some of the points I've raised, but I ask that you take into account the potential scale of Chinese investment in Canada. China isn't Hong Kong - there is enough wealth in China now to buy and sell Hong Kong many times over. Wealthy Chinese have experience with various forms of wealth confiscation by the state, whether it's nationalization of bank deposits, forced purchase of unredeemable bonds, or the current scheme - bank deposit rates that are less than half of the real rate of inflation. Many are very eager to invest offshore to put some of their wealth beyond the grasp of the state.

Overall, this is a disturbing trend with potentially serious risks for those Canadians whose equity position in their homes is not strong. The influx of Chinese buyers is certainly stimulating parts of the Canadian economy, but part of the price is being paid by locals who end up paying more for smaller homes farther from the centre, and carrying larger mortgages for the privileges. If anything goes wrong, it could be a very serious blow to many.

Michael wrote:Now the money is going back the other way...

There is a rapidly growing middle class in China which is just now beginning to realize they can afford homes abroad.

Chinese buy Canadian homes because they care about nothing more than their kids, their kids’ education and real estate. They also want a safe haven for their wealth. These are some of the push factors.