More to the foreign investment story

The full effects of China’s influence on Canada’s housing market may not yet have been felt, according to a leading economist.

The sharp increase in prices at the upper end is slowing, which will reduce volumes but a significant price drop will only occur if the pullback of foreign buyers was the result of a credit crunch,” Economist Michael Campbell wrote in his most recent research report. “When it comes to the impact of China’s internal debt problems there is a fine line as to whether it’s positive or negative for our market. So far, problems in China have encouraged money to flow out of the country in search of safety but that could turn quickly if there is a credit crisis.”

According to Campbell, $1.2 trillion has left China and parked in other countries – including in Canadian real estate.

Add that to the $11.3 trillion that has left Russia, and the influence of foreign money on Canada’s real estate could be even higher than the most liberal estimates.

However, the influence foreign money – especially Chinese – has on Canadian real estate is concentrated on higher end properties, according to Campbell.

“The danger for the lower and mid-level end of the market remains a significant move up in interest rates,” he said. “For the higher end, changes in capital flows out of China and other countries would have a major impact on volume. The $5 million plus homes cannot be supported by the local demand.”

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  • by Ranjit Randhawa 2016-07-13 10:54:50 AM

    The government details only direct foreign buying. There are no figures of indirect buying by foreigners through their Canadian relatives.

  • by Frances M. 2016-07-13 1:29:10 PM

    I may be wrong, but my sense is that a lot of foreign ownership is hidden, for example in the Toronto condo market, by investors using a Canadian citizen as a conduit for buying up large numbers of units. I sold my very nice (larger, higher floor) unit in an enormous condo project in Liberty Village because it turned out to have approx. 75% rentals, and lots of people behaving badly (e.g. irresponsible young people with too many dogs, drug dealers, pimps and prostitutes) Within a year, the common elements appeared to be 10 years old. Unsavoury.
    I have to believe that many owners were clueless as to who was renting their unit, as a typical investor would be concerned about the quality of their tenants.

  • by Frances M. 2016-07-13 1:31:34 PM

    Oops - hadn't seen Ranjit's comment until after I posted mine. So at least one person concurs.

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