Is the onslaught similar in cities on the US West
Coast?
Buying a home in the US or Canada has been an effective way for foreign
residents to launder some money and get their wealth out of harm’s way. In
the trophy markets on the US West Coast and in the Canadian cities of
Vancouver and Toronto, rumors of a massive influx of Chinese money have
swirled with growing intensity for years.
The Chinese economic elite are worried about a devaluation of the yuan.
They’re worried about getting rolled up by their own government. They’re
worried about markets collapsing. They’re worried about pollution. They’re
worried about a million things. They have one foot out the door. If push
comes to shove, they’re ready to make the move.
So capital flight from China has turned into a tsunami. And this money has
to go somewhere.
The meme is this: These desperate buyers prefer a higher price
because it’s more efficient for them to get their money out. This pumps up
prices. Which impresses other Chinese investors, and they flock in ever
greater numbers to those markets. American-Chinese businesses have
sprung up to cater to them with special packages that take care of
everything, including travel arrangements.
The real estate industry, benefiting from higher prices and higher unit
sales, has largely downplayed this trend. Realtors and sellers love moneyed
buyers and are not inclined to ask too many questions.
Estimates of the magnitude have ranged all over the place. Thick opacity
covers much of the industry in this respect, and there is no city-by-city
data.
In San Francisco, one of the hot spots for Chinese buyers, it has been
estimated that the percentage is around 3% to 5%, so not huge. But prices are
set at the margins. These prices then cascade through the market via the
multiplier effect of comparable sales in the area, which is used to determine
future prices.
The National Association of Realtors comes up with annual estimates of
foreign buyers. As we reported
last year, it found that in the 12-month period through March 2015, buyers
from China had plowed $28.6 billion into US residential real estate,
surpassing Canadians as top foreign homebuyers for the first time.
This $28.6 billion is interesting. It’s a survey-based guess from an
organization with an agenda. And it is a national average. But there are only
a small number of markets where Chinese buyers are active in large numbers,
so a national average, even if accurate, obscures local trends. And buyers
can hide behind shell companies, so the beneficial owners might never be
known.
In August, we reported on RealtyTrac’s much juicier, and darker, version
of what is going on with Chinese buyers in West Coast markets [Foreign “Smart Money” Frets about Turmoil at Home, Flees,
Plows into US Housing Bubble 2, Thinks it’s a “Safe Haven”].
There are other reports and estimates, but reliable city-by-city data is
nowhere to be found. For whatever reason.
Now another estimate, this time for Vancouver, the hottest housing market
in Canada, which itself is currently one of the biggest housing bubbles in
the world. Peter Routledge, a financial analyst at the National Bank of
Canada, authored the eye-popping note, which in turn was reported by Bloomberg.
Foreign buyers are a hot topic in Vancouver, where home prices have soared
to levels that are nearly as ludicrous as those in San Francisco.
According to the Real Estate Board of Greater Vancouver, the “benchmark
price” for all types of homes in February soared 22.2% year-over-year as home sales jumped 36%.
Who is buying all these homes, at these prices? No one knows.
But according to Routledge’s study, in 2015, Chinese investors plowed
C$12.7 billion into Vancouver homes, out of C$38.5 billion in total sales.
That’s 33%!
In Toronto, Chinese investors accounted for C$9 billion of the C$63
billion in total sales, or 14%!
And in San Francisco? He didn’t check. But we wouldn’t be surprised if the
number came out fairly high as well. These numbers are far higher than
industry soothsayers would like us to believe.
He cautioned, however, that these “back of the envelope calculations”
were, as Bloomberg rephrased his note, a hypothetical approach to gauge
capital flows. To get the data, he’d extrapolated from a Financial Times
survey of 77 high-end buyers and data from the US National Association of
Realtors. This way of approximating what’s going on in the market, he
said, pointed to the need for reliable data.
The new Canadian government, bowing to pressures to do something about the
distortions caused by the influx of Chinese money, announced on Tuesday in
its 2016 Budget that it would earmark C$500,000 to figure out
how to track foreign buyers:
Households rely on housing market data to make informed decisions in
buying and selling their homes, while governments depend on data to design
effective housing policies. Currently it is not possible to fully understand
the role of foreign homebuyers in Canada’s housing market since a
comprehensive and reliable data set on the number of homes sold to foreign
homebuyers does.
But Philip Cross, a former chief economic analyst at Statistics Canada,
the agency charged to do this, told Bloomberg
that the C$500,000 could only pay for five researchers for one year, and
would “not be enough to even plan a potential survey or data collection
method.”
So perhaps, it’s just another gesture designed from get-go to not lift the
veil of obfuscation.
Canada Mortgage & Housing Corp., the government housing agency, is
also trying to figure out how many foreign buyers ply the Canadian housing
market.
In the US, the Treasury Department is launching a pilot program to
identify and track foreign buyers that hide behind shell corporations. But it
is limited to only high-end properties, and only to two markets, Manhattan
and Miami-Dade, and only to buyers hiding behind shell corporations. So no
real answers either.
Like San Francisco and other trophy cities, Vancouver is struggling with
an affordability crisis for locals. To get a grip on the problem, the city
commissioned a report last year, and the results were just presented to the
City Council. Read… The
Vacant Condos in Vancouver