“The issue of foreign investors is largely misunderstood,” he writes in the bank’s latest economic insights report, The Many Faces of the Housing Market
, penned with fellow economist, Andrew Grantham. “The share of those investors in total activity is much smaller than perceived."
According to the pair, the largest share of ‘foreign money’ is spent on homes for people, often recent immigrants, who actually live in Canada – a situation that poses much less risk to the housing market.
“Is that foreign or domestic investment? Note that this kind of activity requires much larger down payment and the fact that the family lives in the house suggests a much higher level of commitment than a typical investor,” the pair write. “So in terms of risk, this segment of the market is relatively safe.”
The economists note aggressive price appreciation of condos is a thing of the past and investors are focusing more on rental income than capital appreciation, but also that this poses a different threat than over-valued units.
“That’s where the vulnerability is," they write. "We estimate that roughly half of the stock of rental units in the cities belong to this category.
"To the extent that higher rates and/or low rent inflation challenge the economics of rent, we might see a wave of sales in the resale market that will directly compete with the upcoming influx of new units.”
CMHC estimates just under 20 per cent of condos in Vancouver and Toronto are owned by investors – both foreign and domestic. Tal and Grantham, meanwhile, believe around 70 per cent of pre-sales and 50 per cent of final sales are currently going to investors.
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Benjamin Tal, deputy chief economist for CIBC, says the number of foreign investors in Canada is much smaller than many believe and that the effect they have on the housing market is overblown.