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CMHC gets serious on foreign investor issue

by on 11 Nov 2015

Canada’s housing agency is considering ways to collect more data on foreign investment as home prices continue to surge in Toronto and Vancouver.

"It’s clear that we need to capture more detailed information on foreign investment, to better inform the Canadian government and housing market participants," Evan Siddall, chief executive officer of the Canada Mortgage & Housing Corp., said in the text of a speech delivered in Toronto Tuesday. "A lack of accurate and reliable data makes it difficult to determine if or how foreign investment may be affecting the market. Most of the available information is anecdotal. And the problem is that many foreign investors may prefer to hide their ownership."

Foreign money may be more likely to leave a market quickly, increasing volatility, he said. Options the Ottawa-based agency is considering include getting information from local realtors, developers and land registry offices on annual residential sales to foreign buyers for homes and condominium units. The agency already surveys property managers about how many of their units are owned by foreign buyers.

Siddall also highlighted the potential risks of foreign money in the country’s housing sector. He said it’s "very possible" offshore buyers make up a "substantial portion" of the demand for high-end luxury homes in Vancouver and Toronto.

Home prices in Vancouver increased 14 percent to C$722,300 ($543,900) in September from a year ago and Toronto home prices jumped 10 percent to C$567,000.

Foreign ownership is one of the mortgage insurer’s four data-gathering priorities outlined in the speech. It will also aims to collect information on the total volume of mortgages for a given time period, new condo sales, and on the rental market.

The agency is considering publishing the results of its stress tests, which Siddall said earlier this year in an interview CMHC conducts regularly. A U.S.-style crash scenario where there’s a 30 percent drop in housing and a 5 percent rise in unemployment, would still leave the agency in a strong capital position.

Such a scenario would mean an eight-fold increase in insurance claim losses to as much as C$13.2 billion over five years and cumulative net income would swing to a C$2.8 billion loss from a C$7.5 billion profit. Those losses would be borne by the agency, with none taken by the banks and lenders that originated the loans, Siddall said. The government would have to absorb the losses in such a stressed scenario, he said.

“Insurers would not design a situation this way," he said, reiterating the agency is exploring ways to spread the risk.

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