Foreign buyers are trying to move their money to a safer spot for capital preservation. They are looking for hard assets and the condo sector has a track record of increasing prices
The bad news for China’s real estate market could be good news for Canada’s condominium market.
A crackdown on real estate ownership in the world’s most populous county might translate into Chinese citizens looking to move more of their money abroad, with Canada a leading destination.
“Absolutely it will have a positive impact [on the condo sector],” said Benjamin Tal, deputy chief economist with CIBC World Markets. “If it’s softening now, it will soften less rapidly than otherwise. This is a positive move because some of the money will find its way to Canada.”
The Shanghai Stock Exchange Property Index was off as much as 9.3% following news of the crackdown Monday, which will include increasing down payment requirements on second-home mortgages and tougher implementation of a 20% capital gains tax on property sales.
In Vancouver, the real estate board for the metro area said Monday that sales for existing apartment properties were down 25.5% in February from a year earlier. Prices were also down 3% in that asset class from a year ago.
Ben Myers, vice-president of Urbanation Inc., which does research on the condo sector in Toronto, said the impact of foreign investors remains unclear.
“A lot of foreign investment comes through a subsidiary so there is no way to figure it exactly out,” said Mr. Myers.
By his firm’s estimates, only about 10% to 15% of investors come from abroad and only about 5% of those people have their name on the direct purchase of sale.
“It’s a small amount,” said Mr. Myers about the number of people who might come from China to invest.
Even at a small amount, those people would be welcome in the condo sector, given sales are not quite as robust as past years.
Realtor and developer Brad Lamb says every time there is a crackdown abroad, it’s good for the Canadian market.
“Foreign buyers are trying to move their money to a safer spot for capital preservation. We see that a lot from more politically risky countries,” said Mr. Lamb. “They are looking for hard assets and the condo sector has a track record of increasing prices.”
While Mr. Myers speculated that tighter rules out of China could be bad for the Canadian real estate market if the Chinese government restricts money leaving the country, Mr. Lamb said that might mean foreign buyers are unlikely to sell here.
“There is no way in the world they are going to bring the money back,” said Mr. Lamb. “They’ve done that as a safe haven. You have money in Toronto, you leave it here.”
He said one of the methods of bringing cash into Canada via real estate is to have a student going to school here. Other times, the money is transferred to relatives.
“What makes it attractive is the scale here. We are talking $300,000 to $400,000 condos. There are few places in world you can buy that in that price range and have someone run it,” said Mr. Lamb. “It’s much harder to bring money into other countries. We have a very easy and open pipeline of Chinese money.”
Assessing China’s property market
Encouraging November data highlights the possible opportunities for investors in China’s property market. FT writers give Veronica Kan-Dapaah a view from on …
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China’s property bubble will burst in latter half of 2013, says research firm
Inflated by high-end speculation and the flow of cheap money, China’s property bubble seems to keep on growing and now it’s nearing its popping point, says the founder of a Hong Kong-based research firm.
A crackdown on real estate ownership in the world’s most populous county might translate into Chinese citizens looking to move more of their money abroad, with Canada a leading destination.
Gillem Tulloch of Forensic Asia told Reuters the “bubble” will burst in the second half of this year once China stops “injecting ridiculous amounts of credit into the economy.”
The Chinese government announced plans earlier this month aimed at calming the country’s property sector, including steeper down payments on second-time home buyers and a new capital gains tax.
But Tulloch thinks the restrictions will have mixed results.
“I’ve never come across a government that’s actually managed to deflate a bubble gradually,” Tulloch said.
Property investment accounts for a huge portion of China’s economy, meaning the consequences of a crash could be severe.
“It’ll have a huge impact on all parts of the economy as asset prices decline and people’s savings get wiped out,” Tulloch said.
Asked whether investors should hold out any hope for Chinese property development stocks, Tulloch replied: “I would say there’s absolutely no value in any of these stocks whatsoever . . . The Chinese property companies have the best terms of trade in Asia and yet they’re the most highly leveraged in Asia, so when this bubble bursts they’ll all be negatively affected.”
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