Tuesday, September 2, 2014

Tracking foreign buyers in Canada’s housing boom: Can we do it? Should we even care?

A third of people buying homes in Canada may be foreigners, says one real estate company. A leading economist says the number isn’t even 5%. The country’s housing agency says it has no idea what the actual number is.
There is no definitive answer to the persistent question about how much of the current Canadian housing boom is being driven by overseas buyers — as some eyes focus sharply on Mainland China.
Even at Canada Mortgage and Housing Corp., the percentage of foreign ownership in the Canadian housing market is a deep mystery. CMHC avoided the issue entirely this month, when it released a massive survey of more than 42,000 Canadian condominium households in Vancouver and Toronto.
“At this point in time, it is still very difficult to identify [overseas investors] as part of the survey,” said Bruno Duhamel, manager of economic and housing analysis at CMHC. “We are exploring what type of method could be used.”
The real issue may be even if we can pinpoint the number of people from outside Canada buying residential property, should we care? Canada has no restrictions on foreign property ownership and the federal government said as recently as last year it has no plans to implement any restrictions.
“If we are talking about people with connections to another country, it’s meaningless. I’m surprised it’s only 33% if it’s just a connection,” says Benjamin Tal, deputy economist with CIBC, referring to a survey by Vancouver brokerage Macdonald Realty that found of its 531 single family sales in 2013, 178 or 33.5%, were to buyers from Mainland China.
The Macdonald Realty results were produced by someone going through the transactions and identifying names the the company identified as Chinese, meaning the buyers may very well have been established Canadian citizens.
Mr. Tal’s own analysis, which he based on the CMHC data, information obtained from developers and his own bank’s business, suggests foreign investment is less than 5% of the condominium market in Toronto and Vancouver.
“It’s a solid market,” said Mr. Tal about the overseas buyers. “We are talking about people who are putting down 45%-50%. They are not getting CMHC mortgage insurance [backed by the federal government].”
So why all the fear and loathing about overseas buyers?
“I think ‘foreign’ sounds risky,” said Mr. Tal. “You ask people about them and it’s like ‘they’re the bubble, there is going to be a crash when they leave’.”
But demand can fuel price increases. If you feel housing prices are rising too fast, a high percentage of overseas buyers driving the market may be a legitimate gripe, concedes the economist.
Brian Johnston, chief operating officer of home builder Mattamy Homes, says the so-called foreign buyer fear has always been overstated.  “A lot of the capital comes from overseas, but the buyers are residents. There is also the phenomenon whereby someone (generally from Asia) gets their Canadian passport and then returns to their country of origin to make the real money (and taxed at much lower rates). Meanwhile, they have bought real estate here.”