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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