Should we ban foreign investors from buying our real estate?

hs1

The topic sounds like a statement only a moronic Presidential candidate would make 🙂 However, should we?

A family with a combined income of $90,000 would qualify for a $500,000 house. Today this kind of money buys either a decent condo or a condo townhome in a suburban sub-division. The math that most baby boomers were used to was that your house should cost 3 times your annual salary. So where has such affordability gone? Most people when asked this question point to foreign investors, particularly Rich Chinese Investors as the root cause of rising prices.

There are protests and lobbies in Vancouver to curb this inflow. Some economists claim that upwards of $9B per year flows into the Toronto real estate market from Rich Chinese Investors. That is $750M per month or $24.7M per day or $1M per hour. There is no real way to verify this data and I remember Stephen Harper during his campaign had pledged half a million dollars to implement a system for tracking this. Builders of new condos say that it is around 5% but I think they downplay the numbers.

There are reports of Investors using real estate in Canada as a vehicle for laundering their cash. According to one source, Chinese are allowed to move money to Hong Kong and from there one is allowed to invest $50,000 overseas. Anything in excess of the $50,000 would be considered smuggling. Mortgage rules for a foreign non-resident investor buying in Canada are pretty straightforward. You need 35% down and show a bank balance in your account to cover 6 months of principal and interest. If $50,000 is 35% it means that the asset value cannot exceed $143,000. That will buy two and half parking spots at a downtown condo building. Legal or illegal, the money is flowing in and it’s not going to stop.

It’s a pretty sweet deal for Canadian lenders to control a rising asset with a 65% loan to value, so don’t expect the Government to do anything about it. Prime Minister J.T. has said that any attempt to impose tough rules to curb such influx of capital will have an adverse effect on equity of homeowners. I don’t think so. In Britain a special capital gains tax was implemented for foreign investors and did nothing to control rising real estate prices. Australia has implemented stricter buying rules to combat rising prices, often attributed to Chinese investors driving up the market. Prices jumped up 10% from last year.

Count your blessings that we live in Canada since the World is beating down our door.

Our current demographic dictates that prices will continue their upward trajectory.

We have to treat foreign investors as one part of the supply demand effect.

If you’re an owner that bought 20 years ago you’re a millionaire, as a result of the same effect.

If you’re not in real estate by now, get on the bus – fast.

Andy Sagu