How Chinese Investors Win Big in Canada—Or Do They?

Although for the past several years foreign investment has fueled the real estate market and driven prices to new heights in select Canadian cities, those days may be ending. The frenzied buying habits of wealthy investors has been a mixed blessing for many cities, notably West Coast markets above and below the Canada/US border. Asian investment in cities including New York, Boston, Houston and Miami, is also well documented, but has not led to the unparalleled price increases experienced in Vancouver, B.C.

Escalating prices, properties left empty and untended by foreign owners, and an influx of non-resident owners has changed the face of real estate in some of those West Coast cities, including Seattle and San Francisco, and in other Canadian cities like Calgary, including the Southeast area. The implementation of a foreign investment tax on Vancouver real estate has had a dramatic effect on recent purchases, according to the government of British Columbia. In October, Ottawa also enacted measures to "tighten loopholes" and enacted stricter mortgage rules throughout the country.

New Chinese Currency Requirements

At the beginning of 2017, new Chinese currency requirements were also enacted, designed to stem the tide of foreign currency transactions. Each year, according to reliable statistics, "Chinese people spend between $15 billion and $20 billion abroad on services such as tourism and education." The additional drain that results from buying property is what the new regulations are designed to counteract.

But it remains to be seen whether or not it will be effective. Even though the influx of foreign buyers seems to have slowed "to a trickle" in Vancouver, investors are still much in evidence in cities like Houston. In 2015, according to an article in Texas Monthly, China "became the second-largest international buyer of Texas real estate, accounting for 31 percent of foreign sales." Latin American buyers were, at the time, number one.

China Also Seeks To Curb Foreign Spending

New regulations in China are making it more difficult for investors to purchase property in Canada, effectively moving their money out of the country. This will result in a big decrease in the amount of property being sold to Chinese buyers in big cities such as Toronto, Vancouver and especially areas like Point Grey Homes. With home prices skyrocketing in recent years because of the demand created by foreign buyers, this may help stabilize the housing market throughout cities in Canada. Home buyers are no longer going to have to compete with foreign buyers, which is going to help reduce competition among home buyers. For home buyers in Canada, the stem of the flow of money coming from China is good news. For companies who have been selling to foreign buyers for some time, this revenue stream is no longer a viable one when considering buyers coming from China in order to have a Canadian investment.

But, what does all this mean for Canada? It's complicated.

The Basics of the Housing Crisis

There is no disagreement that Canada is facing a housing crisis, particularly in its largest cities where demand is high, supply is inadequate and prices are outrageous, leaving many in a renting situation when they may otherwise be buying a home in another city. The disagreement revolves around the cause of the problem and about workable solutions.

A landmark case is pending against a Chinese businessman living with his family in Vancouver. In a suit brought by a Chinese bank, the B.C. court upheld a decision requiring repayment of funds from a transaction involving Canadian real estate.

Looking to the Future

Most authorities expect the effects of new regulations to be minimal, especially among the more moneyed Chinese buyers. And Canadian analysts, while seeing some decline in recent inquiries, expect that foreign investors and Chinese buyers will continue to view Vancouver and Toronto real estate as "good buys." However, the basic problem still exists: demand outpaces supply and prices continue to rise, pricing local buyers out of the market.

That is seen as the crux of the problem, and until that problem can be solved, according to the experts, the housing crisis is still a major problem — for Canadians as well as for foreign buyers. Controlling immigration — and foreign buyers — may be one way that the country reacts to this.