Immigrant Investor Scheme Generated Little Cash

Immigrant Investor Scheme Generated Little Cash hero image
Some feared the end of the immigrant investor program could undermine the Vancouver luxury real estate market, but new numbers don't support that conclusion

The recent death of the federal Immigrant Investor Program caused some quaking in Vancouver's luxury housing market, but a close look at the program shows it was little used by wealthy foreigners and nearly worthless to Ottawa and participating provincial governments.

Research from a Vancouver immigration lawyer shows that the typical hard cash generated for Canada through each program applicant was just $20,000.

Under the former Canadian rules, principal applicants worth a minimum of $1.6 million had to provide the Canadian government with an $800,000 interest-free loan for five years. They and family members could then apply for citizenship.

After freezing the program for two years, federal Finance Minister Jim Flaherty killed it February 11 in the federal government's 2014-15 budget.

Tens of thousands of Chinese millionaires in the queue will consequently have their applications scrapped and their application fees returned.

"It will have a definite impact on the market," said Jackie Chan, an agent with Dexter Associate real estate agents on Vancouver's tony West Side, who echoed the comments of other real estate agents selling at the top end of the market. Chan predicted the end of the program will cool sales at the higher end of the Vancouver market, "anything over $7 million."

A South China Morning Post investigation released just days before Flaherty's announcement revealed there was a backlog of more than 45,000 wealthy Chinese waiting for approval of their applications to move to British Columbia as of January 2013. Others put the estimate as high as 58,000.

Yet Canadian government statistics show that the number of immigrant investors into B.C. peaked at 5,875 in 2008 and had declined to 2,644 in 2012, when the freeze came into effect. That includes applicants, their spouses and dependants.

According to BC Real Estate Association (BCREA) numbers, "the total of added [B.C.] households is estimated at between 900 and 1,000 since 2001."

Cameron Muir, BCREA's chief economist, said the program's death is a yawner.

"The only impact we foresee is less pressure on the inventory of detached houses in Vancouver's West Side, Richmond and Vancouver," he said, referring to B.C.'s three most expensive markets.

When the finance minister nixed the program, Flaherty told Parliament that it had "significantly undervalued Canadian permanent residence."

That appears to be an understatement.

An analysis of the Immigrant Investor Program prepared for clients by Vancouver immigrant and business lawyer Jeffrey Lowe of Lowe and Co. and released to Business in Vancouver shows that the program offered scant value to Canadian taxpayers.

As Lowe's report details, the immigrant's $800,000 loan was allocated between six provinces, each of which had to guarantee the return of the monies in five years.

This basically restricted the provinces to investing in five-year Government of Canada bonds that have been paying an average of 1.5% interest per annum for the past five years.

Therefore, the $800,000 translates into about $12,000 per year or $60,000 over the five-year period. Further, Citizen and Immigration Canada paid a commission of 5% on the $800,000, or $40,000, to one of 15 "facilitators" (these include Desjardins, HSBC, ScotiaMcLeod and other big financial houses) for help in marketing the funds.

According to Lowe's research, the net benefit to Canada from a typical $800,000 immigrant investor fund investment was $60,000 (earned in bonds) minus $40,000 paid to the facilitators.

Lowe notes that the net benefit to Canada for each applicant was $20,000, which was shared among six provinces.

See also:

Immigrant Investor Program ScrappedWhat Will that Mean for Vancouver Real Estate?


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