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Influx of foreign capital not the root cause of price growth – analyst

by Ephraim Vecina on 27 Nov 2017

Contrary to increasingly popular opinion among industry analysts, a markets observer recently argued that foreign buyers are not the main driving factor in the red-hot pace of price growth observed in Canada’s most in-demand housing markets.

Writing for Better Dwelling, analyst Stephen Punwasi noted that the impact of overseas capital on Canadian real estate should indeed not be understated.

“These buyers add additional pressure to housing stock, and pocket the profits on flips overseas, paying very few local taxes,” Punwasi stated. “It’s probably one of the worst kept secrets that Toronto and Vancouver condo pre-sales are heavily marketed overseas. Many scalp the assignments, selling them back to locals for 10s of thousands in profits. Yet these numbers are never included in foreign buying numbers because they never register land, the buyer of the assignment does.”

At the same time, Punwasi stressed the importance of not immediately jumping to conclusions upon seeing the numbers.

“Over the past two years, the median length of time construction has taken is over sixteen months in Vancouver. This means quite a few foreign buyers that will be hitting the registry, bought well over a year and a half ago – at least. Knowing this, and the current number of units currently under construction, it’s going to appear that foreign buying is skyrocketing. Especially when contrasted with a significant decline in sales volume in resales.”

Read more: Bidding wars on Canadian resort properties now commonplace, says report

“Foreign buying numbers are created when a non-resident registers a property transfer. When a non-resident hands over their property transfer tax forms, they also have to file a form for a non-resident speculator tax. Yes, even if they’re eligible for a rebate. This pumps the foreign buyer numbers higher than the actual tax that will be collected. Speculator numbers are reported higher as a result,” Punwasi added.

Ultimately, the issue is not foreigners’ market presence, but rather speculation.

“Locals are under the impression that home prices only go up, providing massive liquidity for any speculator that has more capital. This disproportionate focus tends to blind buyers, to the point where they don’t want to understand numbers, and they become highly susceptible to manipulation,” Punwasi explained.

Related stories:
Vacancy tax is pointless, say Vancouver sales agents
Foreign nationals continue to flock to Vancouver’s homes

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