On February 8, 2016, the 4,713th Chinese year will begin. This will be the Year of the Red or Fire Monkey – a year traditionally linked with both economic turmoil and the potential for reaping great profits from well-calculated risks – the idea of outsmarting the monkey.
With China already in the grip of financial upheaval, could this mean more bad news for the Metro Vancouver real estate affordability, or lack thereof? Will offshore money further escalate our skyrocketing prices and reduce supply, as wealthy Chinese buyers scramble to park their money in a secure location?
According to most industry watchers and analysts, the answer is no – although consumers shouldn’t expect to see inventory shortages disappear any time soon, nor see a drop in prices.
The general consensus from industry insiders is that the finger of blame should not be pointed so intensely at money coming in from China, as there are plenty of other factors at play pushing up local housing prices.
“There tends to be an overemphasis on the [impact of the] offshore buyer,” says Richard Bell, principal of Bell Alliance, a law firm based in Fairview, Vancouver and specializing in real estate and immigration. “Last year, 25 per cent of our conveyancing business came from millennials – local buyers under the age of 35. Baby boomers, too, are selling their family homes and often buying several homes – a condo for themselves, one for their kids, and perhaps another as an investment property. These are all people who have lived here for many years – sometimes for several generations.”
Asian Does Not Equal Overseas
Studies and marketing surveys consistently suggest there is actually far less ownership from Mainland China than the public perceives. In a recently released report by BC Notaries, 33 per cent of notaries in the province said they had no foreign buyer transactions last year and a whopping 59 per cent said 10 per cent or less of their transactions represented a foreign buyer. In Greater Vancouver, that figure was 52 per cent, and the proportion reporting no overseas transactions was the same, at 33 per cent. Only two of the 60 Greater Vancouver notaries surveyed said that at least half their transactions were from overseas buyers.
Many local developers are finding the same thing. At The Independent, Rize Alliance’s residential development on the corner of Kingsway and Main Street in Vancouver, 60 per cent of the buyers registered a postal code within 10 kilometres of the building, including 40 per cent who were within five kilometres. Only 2.2 per cent of the purchasers were from offshore and a further 1.1 per cent from outside Canada.
“People forget that 48 per cent of Vancouver is of Asian origin,” says Bob Rennie, Vancouver’s well-known marketing superstar, otherwise known as the Condo King. “So of course, you will see plenty of black hair coming through the presentation centres. But the argument shouldn’t be about race and offshore money – it’s about supply and demand. And there is a shortage of supply in Vancouver, so prices will keep going up.”
The Trickle Factor
There’s also what Bell describes as the trickle factor. “If you do have a wealthy offshore buyer willing to pay $4 million for a property that was previously worth $3 million, it will raise the price of the surrounding properties and price some buyers out of the market. Those buyers may then have to spend their $3 million on a property that was previously valued at $2.5 million, and the effect will keep trickling down.”
Bill Szeto, president of Oakwyn Marketing, agrees. He’s quick to stress the same trickle-down result occurs when a local downsizer sells, for several millions of dollars, the home they purchased 40 years ago for $20,000. This financial windfall could mean local buyers are also willing to pay over list price for their new home and put further upward pressure on the Metro Vancouver market. Once again, rising prices are a factor of supply and demand, not ethnic background, he says.
“People like to say how ridiculous Vancouver prices are, but on the global scale, they aren’t,” Szeto adds. “A client of mine from San Diego wanted to buy a home in Manhattan that was listed at $3,000 per square foot – and that’s in US dollars. Plus the strata had final say in whether they would let him purchase or not. If he came to Vancouver, he could find a $6 million property in Shaughnessy and get it at the equivalent of a 40 per cent discount thanks to the weakness of the Canadian dollar. And since most Asian money has already been converted to US dollars, it’s like buying at fire sale prices.”
Time for Taxation?
One controversial solution that’s been making headlines is placing a tax on foreign ownership to bolster affordability for locals. “There is a lot of ongoing high-profile public discussion about the rising cost of housing in many areas of BC, the potential linkage to foreign buyers,” says Tammy Morin Nakashima, president of BC Notaries and a notary in Steveston. “Our survey results, which indicate that the vast majority of real estate purchases in British Columbia are made by BC or Canadian residents, points to the need for careful consideration of any related legislative changes.”
A vacant home tax has also been proposed for homes that are purchased and then sit empty. It’s a concept Bell says he struggles with. “It creates a bureaucracy that now needs to be measured, monitored and enforced. Many Canadians have winter homes, so how do you say it’s okay to spend two months there but not four? And what happens in the case of an elderly person who may be hospitalized for several months?” (In fact, the new idea for a vacant home tax recently proposed by UBC economists allows for such circumstances – click here for more details.)
A tireless advocate of density as the best, most effective way to create affordability, Rennie is also among the growing number of people who support tiered tax on the sales of luxury properties. “What if we put a three or four per cent tax on properties over $3 million, and then repatriated that money as tax relief for first time buyers or properties under a certain amount?” (See here for more on this idea.) It is another answer that won’t change the price of housing, but it also isn’t influenced by the colour of a buyer’s skin.