Vancouver debate continues…
I’m currently having an interesting discussion with a couple frequent commenters on this blog in the comment section of a previous post. It’s a discussion that has been pitting the Vancouver housing bulls against the Vancouver housing bears for years. Without a doubt, the bulls have won decisively for much of the past half decade since alarm bells started ringing about Vancouver house prices in the mid 2000s.
But where does that leave us going forward? I’ve done my best to quantify the potential impact of ‘Hot Asian Money’ on Vancouver house prices, but I’ll be the first to admit that the data is sparse. But absent any data we are forced to swap anecdotes, not something I’m keen on doing on this blog. So this post is a call for anyone with specific quantitative data on the prevalence wealthy Asian buyers in Vancouver. I have some specific questions at the end of the post, but first, a bit of the discussion to get you thinking:
Blog Dawg #1: …The crowd is Chinese. Population 1 Billion. Remember the boomers? Did they affect house prices? They were a sliver of a boom compared to China. Would all you guys be sitting around in 1964 saying the Beatles are a fad, what influence could they possibly have? And please don’t tell me about Landcor data. Open your eyes. Who lives in Metrotown now… who lived there 25 years ago?
Me: Tell us about it…. Let’s talk numbers. Dig up some demographic data on house sales to Chinese buyers for me. Dig up the actual numbers on Metrotown. You may hate the Landcor data, but it’s still data, while what you’re presenting is anecdote. You may well be right, but prove it using facts rather than hear-say.
Blog dawg #1: They just don’t keep data on race, illegally moved money and money moved between families. But maybe a prolonged visit to Vancouver is in order. In 1982, the Chinese population in Vancouver was 8%. Take a flight. Book accommodation. Go out for dinner on Robson St., in Metrotown, Kerrisdale or Richmond.
Me: I have no doubt that there are more minorities in Vancouver than there was in 1982. But the same could also be said for particular parts of Toronto and Montreal. It doesn’t tell the whole story…. What is their average wealth or income? Is it sufficient to support single family house prices at $1 million? $2 million? $5 million? What percentage of new purchases are first time purchasers from abroad? All available data suggests that it is still tiny. They may dominate a certain tranche of the market, but it is overwhelmingly likely that the wealthy Asian story does more to lure locals into the game than anything else.
The lack of data to either prove or disprove the Hot Asian Money story is indeed frustrating, but in the absence of better data, I’d be inclined to build a case around the Landcor data than “go out for dinner on Robson St.” Indeed a dinner out in Riverdale (east Toronto) might well convince you of the huge influx of Chinese wealth into that neighbourhood…..but with house prices about half of those in Vancouver.
Absent the decisive stats to end this debate, the best we can do is analyze what data we have available to us. I’m sorry to say but the available data casts serious doubt on the sustainability of house prices in Vancouver.
Blog Dawg #2: I have posted Video’s, check out the folks buying, they ain’t from Iceland!
(Note from Ben: By the way, this is the same development that was advertising job openings for people to stand in line. Thanks Global for the level of critical thinking you put into this piece…)
Ben, to go Vancouver and you will feel you have left Canada and are in some burb of China. Chinese are the only people in Vancouver!
Me: I watched them and I didn’t notice anyone holding briefcases full of cash. There’s no doubt that there is a higher proportion of Asian buyers, but the same can be said of a number of other communities in Canada. How do you know that these people are making their purchases from pre-existing wealth? What makes you convinced that they are not holding mortgages as well and are making local income just like the vast majority of other Vancouverites? This is exactly what I mean. Without the solid data, we are merely speculating that all these people in this line are wealthy foreigners with ample cash, not just more momentum chasers relying on cheap, easy financing and a greater fool to ensure them profit.
The plea for data
We all have our particular strengths and weaknesses. Lord knows I have plenty of weaknesses, but one thing I generally consider a strength is my ability to locate data on a particular topic. Whether I interpret the data correctly and draw appropriate conclusions is another matter, but at least I can generally find it.
When it comes to Vancouver and the impact of wealthy Asians, I’ll admit that I have a difficult time locating data that lends credibility to either the bull of the bear case. What I have come across seems to indicate that the Hot Asian Money story may be true in the narrow niche market of extremely expensive homes. But its impact on the average home in Vancouver is likely more related to the psychological factors that convince locals (of all nationalities) to keep piling on the housing train. I know we hear anecdotal evidence of foreigners dominating the upper end of the market. I actually believe that’s true. But the uber rich dominate the luxury tranche in any market. To believe that a handful of super rich buyers can sustain an entire housing market that is otherwise massively overpriced is to believe that a tail can in fact wag a dog.
So to my faithful readers I issue the following challenge: I’m looking for data that clearly indicates the prevalence of wealthy foreigners in the real estate market. The fact that one particular ethnic group is responsible for a large portion of overall sales is irrelevant unless we can show that they are not relying on financing similar to other locals and that the flow of this money or wealthy individuals from abroad is sustainable.
While you’re at it, consider the following questions:
1) Is there any example of a housing market globally that has seen tripling in fundamentals like price/rent and price/income multiples in the span of a decade that has led to a permanently high plateau rather than a correction? By permanent I mean stable or increasing prices for at least another decade. If so, what might have caused it and are the same factors at work in Vancouver? If not, why is Vancouver different?
2) I’ll let a noted Vancouver housing bull frame this last question (quote taken from a comment on a prior post):
“(I’m) just trying to get you to kinda understand that you are really getting nowhere with all this data and a new framework is needed.”
In other words ‘it’s a new paradigm’ or ‘this time it’s different’. The old rules no longer apply. Throw out the data! My question is simple: Has there ever been an example of a bubble where this mentality was not prevalent?
I look forward to the responses.
Cheers,
Ben
Financial Insights 
“In God we trust — all others must bring data.” — old engineer’s proverb
There is no God in China. Maybe that’s the missing insight! 🙂 I don’t have time right now to reply to this post but I appreciate being Blog Dawg #1. I’d be hurt if I ranked lower.
I thought it was Ladies first mac? – note to Ben
There is no doubt in mind that all this stuff about “rich Chinese investors” is hogwash and basically promoted by self serving interests.
There may be some, but a majority are middle/lower middle Chinese with herd mentality (and poor sense about the RE economics)
Framework – back of the napkin about Chinese and other things
1b people
10% of that is 100m
1% of that is 1M
Van pop is 2m, so if 1% of Chinese Dig Vancouver, you have already 50% of the population that is Chinese
Support – Wikipedia
almost 30% of the city’s inhabitants are of Chinese heritage
the Chinese are by far the largest visible ethnic group in the city
Vancouver one of the highest concentrations of ethnic Chinese residents in North America
So Ben to your point – yes, other places have Chinatown, but not as big as this dragon.
– legal reported, probably closer to my guess, but even then. Let’s first establish they make up a huge part of the population.
2. Lust for gambling and real estate is very very evident from other posts. China has a huge real estate boom, can we say that thinking has made it’s way to Van?
Vancouver is amongst the least affordable cities in which to live in the nation, with the highest housing prices in Canada. Several 2006 studies rank Vancouver as having the least affordable housing in Canada, ranking 13th least affordable in the world, up from 15th in 2005.[85][86][87] The city has adopted various strategies to reduce housing costs, including cooperative housing, legalized secondary suites, increased density and smart growth. A significant number of the city’s residents are affluent, a perception reinforced by the number of luxury vehicles on city streets and cost of real estate. As of April 2010, the average two-level home in Vancouver sells for a record high of $987,500, compared with the Canadian average of $365,141.[88]
Since the 1990s development of high-rise condominiums in the downtown peninsula has been financed, in part, by an inflow of capital from Hong Kong immigrants due to the former colony’s 1997 handover to the PRC
3.Vancouver has been ranked one of the most livable cities in the world for more than a decade.
This has to have some value?
4. People don’t work in Vancouver, they live here
Vancouver has an adult obesity rate of 12% compared to the Canadian average of 23%. 51.8% of Vancouverites are overweight, making it the fourth thinnest city in Canada after Toronto, Montreal, and Halifax.[137][138]
I would write more Ben, but this little post box is hard to navigate…but I hope this can contribute…I remember my dad taking me once to the archives and showing me that even back as 70 years ago, Canada had an insane head tax to keep Chinese OUT, oh how things have changed.
All that writing and you couldn’t get to the point?
Data on this program would help. Here is how. Good luck getting CMHC to give out the data. http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Newcomer.pdf
Well we do have some data looking from 10,000 feet. We have:
– total # dwellings, both detached and condo/attached in Vancouver area and dwelling growth rate
– total # immigrants arriving in Vancouver in a year
– median and average incomes of locals, in different municipalities that have both high and low immigration intake (Richmond compared to Maple Ridge for example)
– current house prices in those areas
– current sales volumes in those areas
With all these data you can make a supposition about how much “hot Asian money” is required to keep prices high. That is, if locals with local incomes refuse to, or are unable to, buy, how much FDI is required to propagate high prices?
I’ve run the numbers and certainly foreign-direct income and investment increases house prices; I think, given the relatively small number of immigrants arriving compared to sales, prices are predominately set by locals on a region-wide basis. In certain neighbourhoods if all buyers are immigrants of course they set the price, but those are very specific areas.
I would welcome people who are in doubt to run the numbers themselves to reach their own conclusions. The region-wide data are out there in public purview. Some choose to believe that specific neighbourhood are a “sure thing” due to favourable school rankings or proximity to immigrant facilities like shopping or other community services, but keeping prices high when the rest of the region is a victim of better thy neighbour.
Take a step back and balance the books — Hot Asian Money’s effect is not as great as people think.
—
I can tell you of a few anecdotes (go to vreaa.wordpress.com for a ton more) of locals being heavily active in buying in west side Vancouver and Richmond neighbourhoods. IOW, it is not just immigrants who buy, it’s also locals who think they can eventually sell to immigrants, either by flipping, renovating, or reconstructing (along with the normal influx of well-heeled Canadians into desirable neighbourhoods that has been going on forever). Still, from the people I talk to, “everyone” seems to have an offshore buyer lined up LOL. Sure hope so for their sake: there are only so many Chinese immigrants allowed in and the intake is set to drop by 5% in 2011!
Hi Jesse
When you say that you’ve run the numbers, did you also share them in a blog post along the way? Care to share a link? I’d be interested in reading it.
“there are only so many Chinese immigrants allowed in and the intake is set to drop by 5% in 2011!”
The “federal skilled workers visas” are set to drop. The provincially granted visas are set to increase.
http://www.cbc.ca/news/politics/story/2011/02/15/pol-visas-skilled-workers.html
Note that the provincially granted visas includes “business immigrants” (i.e., investors).
http://www.welcomebc.ca/wbc/immigration/come/work/about/index.page
Another observation is that Vancouver, like other cities, has seen a net increase of attached and condo dwellings and a decrease in detached dwellings. As time goes on, the detached dwelling is becoming less and less common. There will be a premium to own detached properties, especially closer to the city centre, but one must remember that most of the new dwellings being built include basement suites that increase lot utility. The city is increasing in density.
That said, take a look at condo cap rates. They are piss-poor right now and there is no real future development potential of these things. The whole region is overvalued and the horrible cash yields on condos is the definitive proof of this. Detached dwellings are more difficult to assess because they have future density priced in. I think the mentality of marginal buyers in certain neighbourhood have extrapolated this future density premium way too far: a detached house with 3 suites actually can’t be “densified” that much more even though the cap rates are even more poor than poor condos. But that’s a whole other topic.
I hear ya Jesse – a tear-down wreck just round the block from me in Kits – on for a cool 1.6m….sold in a week. Has some nice wood beams and original features…..I smell a Vancouver Flipper in the woodwork!
Your comment from above “There will be a premium to own detached properties, especially closer to the city centre, but one must remember that most of the new dwellings being built include basement suites that increase lot utility. The city is increasing in density.” applies to Ontario.
Ontario is also promoting smart growth which drives the price up of lower density homes within its Cities cores. New single and semi detached construction way off in the GTA. The trouble is they did not add significant transportation improvements which has created significant problems in the GTA. Our road grids and easements do not work with the densities.
Although this isn’t hard cold stats as requested Ben, I think this article gives a good insight into how immigration to Canada is perceived.
http://www.bjreview.com.cn/nation/txt/2011-01/23/content_327912.htm
Yes, Vancouver has a large Asian population, but we should be careful assuming that they are all recent immigrants to Canada. Many have been settled here for a few generations and as Canadian as anyone else. However, my observation “from the ground” is that there are a number of super-rich non-English speaking Chinese living in the Kerrisdale/Dunbar/Point Grey/Oakridge areas. Some of the streets in those hoods are dead – closed curtains and no life.
I wonder if the government is planning to reduce family/skilled worker immigrant visas (as in the press this week) and increase business class investment. This will be truly a bad thing for our society……even more dead neighbourhoods, and local talent/professionals moving out. We will have a culture-less and classless city inhabited by the nouveau riche. The municipal government has a vision to end homelessness in Vancouver in the next few years……he worries about ghettoization – but I see it right in-front of my eyes in these affluent areas!
Just some thoughts.
I cannot stress enough the open question around your multigenerational comment. Many of my relatives and friends’ relatives could easily be mistaken for new immigrants or HAMmers, going to condo sales and driving nice cars.
There is definitely something to the conspicuous consumption idea as related to Asian “face”.
Unfortunately, it’s all annectdotal for now.
Further thought:
My kids are in a daycare in Oakridge. Approx 1/3 of the kids there are new to Canada from Mainland China. Their (very nice) parents are learning English, and they all (I kid you not) drive spanking new mercedes/BMW’s/audi SUVs (a definite learning need there – note to self; advise them on how bad for the environment SUVs are – esp with City driving!), have bought property here, and have a fair amount of bling. I’m humbly there in my beat-up 10 year old subaru!! With some of the parents only the Mother is in Canada. As I said, the demographic in Van is changing.
I see the wealth, but that doesn’t necessarily mean there is sustainable wealth. If you’re looking in Oakridge, well, that’s affluence-central in Vancouver these days. I still think if people take a step back and start asking how much offshore money is required to keep prices high, the results will be disappointing.
We also know the debt levels relative to incomes in the Vancouver area have been increasing. Occam’s razor takes another slice.
Someone on vreaa made a comment that in boom times positive information that justifies higher prices propagates much faster than negative information. I really feel like the anecdotes of rich people driving expensive cars and buying large houses should be taken with the broader picture in mind: one of increasing debt levels, price weakness in the periphery of the city, high unemployment, flat wages, dependence on construction and real estate jobs, etc. See what you want to see, but the macro data are pretty darn hard to ignore!
Jesse – I truly hope you’re right!
so if it not HAM, who is it?
Perhaps HA without the M?
They love the SUVs because they’re perceived as safe and have awd. Plus most will put less then 10k/yr on em.
Which beggars the question – does one really need an SUV for purely City driving?!
Also ask the Hot Asian ladies why a handbag HAS to be an LV or a Gucci.
I still remember the days when I saw some folks in China wore their sunglasses with the Ray Ban sticker and string tag deliberately left on.
“advise them on how bad for the environment SUVs are – esp with City driving”
Save your breath. Mainland Chinese are not well known for being environmentally conscious. The traffic in Beijing is much worse than Vancouver.
In my opinion the landcor data (aka the property roll from the Province), is the only reliable source of info on “foreign ownership”. And it does not show a massive Chinese trend. I think the mere perception and or rumour of Chinese with suitcases of cash is sufficient to move the market. The funding for Vancouver’s land boom comes from CMHC, not China.
I think it’s important to compare the level of Chinese wealthy that could be buying here to other countries.
“China had the world’s fastest growing group of millionaires last year, an elite club that rose 31 percent from 2008 to encompass 477,000 people.”
But “In the World Wealth Report 2010, published by Merrill Lynch Global Wealth and Capgemini SA, the United States still leads with 2.87 million rich people, followed by Japan’s 1.65 million and Germany’s 860,000.”
Oops.
Link to source.
http://www.digitaljournal.com/article/293790
Not much in terms of a new framework, but some very interesting points being made here. But the conclusion is the same, local income cannot even with bank leverage support local prices. Outside influence has to be impacting, maybe before just on the margin, but the now that margin is mainstream and in the spotlight.
The one thing that no one mentioned is that in Vancouver, they have this concept of a “mortgage helper” which is basically dumping people into your basement to help chip away at the mortgage. This additional cash flow is probably never reported as”income” and thus never shows up on the balance sheet. Second, many people work for “cash”, so that again never gets report. Last, Vancouver is a massive global drug port. Again, all the money is in cash, and never hits any balance sheet.
The cash has to be coming from somewhere and it’s clearly not being reported to the local tax agents as “income” maybe the conclusion Ben is just that. The data is escaping CCRA. Clearly for a very very long time.
The only hard evidence I have is from LULU lemons balance sheet. This stupid company just paid 65M for building in Kits. That is 25% of the cash they have on balance sheet. That would have cost them less then 3 million a year to rent. They have massive growth in EPS, so common sense would have told you that why not invest in your business selling butt bra’s??? Instead, they bought the building? So even at the corporate level, locals have a desire to “overpay” for RE assets and make strange choice when it comes to parting with cash for RE.
It was the Japanese that were buying up everything in site in Australia in the late 80’s and early 90’s – when the Aussie Dollar was strong. They could not have made a worse move – not only did prices retreat for several years, the Aussie Dollar lost 30-40% of its value during that time.
I’d suggest we are closer to a top than a bottom in Vancouver … and this is usually when the speculative money from overseas turns up as there is a belief that things are good value – the Chinese can only get 2% on their money in a bank and they are not big equity holders, I suspect a fair bit of speculative money is finding its way into markets like Vancouver … as it is here in Australia. Not to mention there own property bubble – which will burst.
In my view, they are in for a very big haircut … here in Australia they are paying too much (too late in the cycle) and they will go down on the currency in the process (when the commodity booms bursts – and it will).
Phil
Ben
This was the head tax story my father told me about. Everyone should read this
500$ in 1903!!!!!!!!!!!!! A gazillion in today’s money. Amazing. and they were 10% of the population. That was a 50$ that went to 500$ in 16 years. Today’s head tax is real estate!!!
http://en.wikipedia.org/wiki/Head_tax_(Canada)
Through the early 1880s, some 15,000 labourers were brought from China to do construction work on the Canadian Pacific Railway, though they were only paid a third or a half less than their coworkers.[2] This immigration into British Columbia (BC) was large enough — some 3,000 Chinese, when the 1871 census counted only 33,586 in the province — to arouse concern. The provincial legislature passed a strict law to virtually prevent Chinese immigration in 1878. However, this was immediately struck down by the courts as ultra vires [beyond the powers of] the provincial legislative assembly, as it impinged upon federal jurisdiction over immigration into Canada.[3]
As a Dominion of the British Empire, Canada could only try to discourage, not completely eliminate, Chinese immigration at its borders. To do so, the federal parliament passed in 1885 the Chinese Immigration Act,[4] which stipulated that all Chinese entering Canada must first pay a $50 fee,[5][6] later referred to as a head tax. This was amended in 1887,[7] 1892,[8] and 1900,[9] with the fee increasing to its maximum of $500 in 1903.[10]
@Mango “The cash has to be coming from somewhere and it’s clearly not being reported to the local tax agents as “income””
Unreported income is nothing new. Regardless, if unreported income were higher, we would expect more inflation as there is in Alberta where there is real money. The only thing that’s going up significantly in Vancity is land costs. Construction costs, food, and — the big one — rents are NOT increasing significantly. Instead we have capital pouring into assets that have piss-poor risk-adjusted cash flows.
Black market influences don’t drive up property price inflation, they drive up inflation on everything.
Money laundering *will* drive up house price inflation without necessarily impacting other prices. And that is definitely a black market influence.
Why, because drug dealers only invest in property? Please. They spend money on everything, not just buying overpriced houses.
To figure out how silly the black market argument is, look at Florida, home to some of the world’s richest drug cartels and retirees with access to offshore bank accounts. Money is awash yet prices are down how much from their peak?
And don’t say subprime. Florida is a full recourse state.
Foreign investors are always the last people to get sucked into a boom. How many European banks and pension funds bought American subprime mortgages in early 2007? How many “rich asians” bought Lehman Brothers investments in early 2008? I recall a news clip of them marching through the streets of Taiwan. I feel bad for these people, but it is important to realize they are anything but smart money. The smart money in Vancouver is long gone – there’s simply an abundance of fools.
We need a “like” function on here Ben!
The idea that looking around and seeing many Chinese people – even many MANY Chinese people – necessarily suggests that “hot asian money” is sustaining the Vancouver real estate market is not only strange logic, but on some level really quite offensive to me.
I understand questioning the small amount of available data, given all the aforementioned possibilities of illegal money, gifted money between family members, etc. which can of course be true of anyone. I certainly don’t deny that Vancouver has a lot of people of Asian ancestry populating it. And I agree that there’s a top-price segment of the market in which there may be a disproportionate number of Chinese people parking their money in Richmond tear-downs. This all may help explain the final burst we’re seeing of heavily bubbly price averages.
But to imagine that the visible presence of Chinese faces at the next table in a restaurant has any bearing whatsoever on what’s happening in real estate is weak logic at best. I had dinner with two Chinese friends (well, one half-Laotian, but you get the point) at The Reef not long ago. Does that say anything about anything? No, no it doesn’t. They were both born here, and one owns a small townhouse (with a mortgage, just like anybody else), while the other rents. But their presence would in some small way add to the purported “evidence” of Hot Asian Money driving the market? Absurd.
Here in Squamish, real estate prices have also risen to a fevered pitch, but we must be so bubbly due to all the East Indians who have moved here over the years, since there aren’t many Chinese people. It’s the HSM (Hot Sikh Money), no doubt.
I have no extra data to add to your body of evidence, Ben, I just wanted to add my voice to the side that rankles slightly at a few of the comments, here, and in the news.
Hot Indian Money has a better acronym. Then we can point and say: It’s HIM!
Well, you’re heaps more clever than I… HIM it is. 🙂
I believe this is a mute point. Whether the hot asian money is true or not, it does not eliminate the fact that Canadians are more in debt then ever.
If everyone is selling their houses to rich asians where are all the profits? Why are the debt levels getting higher and higher? Prices have been going up. That is because sellers who sold and got good profits buy back into the same overpriced market. So what did they really gain. They just took on more debt at an even greater inflated price.
I have come to dismiss similar comments about the Toronto house price growth being based on immigration. I dismiss these comments because of the recent remax report on house price growth over the last decade.
Click to access REMAX_Barometer_2011_REL.pdf
Top performing cities were Regina (9.56 per cent), Edmonton, (9.25 per cent), Saskatoon (9.2 per cent), Winnipeg (9.01 per cent), Kelowna (8.42 per cent), Greater Vancouver (7.8 per cent), Calgary (7.7 per cent) and Victoria (7.59 per cent). Now lets be honest- none of these cities upto Vancouver are hotbeds of immigration.
So if immigration did not drive prices in these cities up then what did? Readers of this blog know that it was lax lending and cheap money. Simple fact is that these cities outperformed Toronto and Vancouver based on lax lending and cheap money. These factors clearly have a more pronounced effect than immigration. If immigration was the biggest factor in the Toronto market (and Vancouver for that matter), Toronto would be at the top of the list with a mile between itself and the 2nd city.
So this report has totally debunked the idea of immigration driving prices in Toronto for me. I see Vancouver in the same way. Although it is among the top performers it is outperformed by places that see no Asian investors.
Wow, great find. Actually, you missed the eastern Canadian regions. From the chart on page 3, the regions with highest growth were:
Regina (9.56), Edmonton (9.25), Quebec City (9.2), Saskatoon (9.2), Winnipeg (9.01), Montreal (8.48), Kelowna (8.42), Newfoundland (8.14), Greater Vancouver (7.8).
So Vancouver is 9th.
Ben,
If the data were obtainable then I believe that the Re industry would have organized it and promoted it a long time ago. It serves them much better to promote it through anecdote as you suggested.
I agree with you that the wealthy Asian community plays a large role in the small high end market. I also believe that those who moved here over the past few decades and who still have connections to China are more likely to believe in the myth of every increasing Real Estate prices. China is has consistently had incredible growth both in HK and the Mainland in major centres. No doubt these factors contribute to the attitude coupled with the fact that so many in the community here have done well in Real Estate. One would expect that Chinese immigrants are among the most bullish in this industry.
I would simply say that the data does not exist because it is a myth. As we shall soon see.
You have hit the nail, squarely and perfectly, on the head!
A myth can be much more powerful in spreading propaganda than the fact.
I have been involved in real estate since 1978. My grandfather was a spec/flipper
in the 50’s. In the late 80’s boom in Toronto i got sick of hearing how the Chinese
money would elevate our home values forever. We know that the market died, and stayed dead for many years after. The lesson is, cycles are bigger and more powerful than the independant inputs that “seem” to cause them. When handicapping any situation it is critical to find the truly pertinent information.
This is all well and good but I believe Ben asked for stats to back up the anecdotes. For what it’s worth here is a study from a Stats Can employee about the Chinese community in Canada. I can’t find anything about HAMs and their contribution to RE values in BC. It must be true since so many have chosen to collapse on that hill… 😉
Interesting to note, while Vancouver has a larger % of Chinese per total population, Toronto has greater numbers.
Click to access 89-621-XIE2006001.pdf
Ben,
In order to make progress on the “HAM Question”, I think one needs to make it much more precise. “What is the impact of ‘Hot Asian Money’ on Vancouver house prices?” is much too vague. What is “impact”? What is “HAM”? What is “Vancouver”? What is “house”?
For example, a concrete question could be:
1) “Is it true that, since 2000, at least 50% of the Vancouver West Side SFH were bought without a mortgage by people from mainland China who have lived in Canada for no more than 2 years?”
Or
2) “Is it true that at least 500 mainland Chinese citizens have each spent at least $10m purchasing real estate in the GVRD in order to shelter illicit funds from the Chinese government?”
Or
3) “Is it true than at least 5000 people from mainland China (who have lived in Canada for no more than 5 years) are deliberately buying as much real estate at possible in GVRD with the strategy that they will either sell for a profit, or flee back to China to avoid any losses?”
Or
4) “Is it true that at least 30% of the new SFH built in Richmond since 2005 are occupied by a Chinese mother (who lived in Canada for no more than 2 years at the time of purchase) who does not work and has no income, who lives in China, for income”.
I am not suggesting I have the answers to these questions, nor that it is feasible to obtain useful data for answering these questions.
4) was supposed to say
“Is it true that at least 30% of the new SFH built in Richmond since 2005 are occupied by a Chinese mother (who lived in Canada for no more than 2 years at the time of purchase) who does not work and depends on her husband, who lives in China, for income”.
Interesting thoughts. I would love to hear answers to any one of those questions. But suppose the answer to all those questions was ‘no’ and instead we find that the real number in each case is roughly half. What then? Is that an insignificant number? Is it still enough to create price pressure?
Just out of curiosity, did you generate those numbers randomly or are those numbers ‘rumor on the street’ numbers?
If the answers to the above questions were all “yes” if the numbers were halved, that would certainly be astonishing information.
Even if we knew the answer to the above questions, it would still be non-trivial to determine how these facts affect other aspects of the market. In my opinion, one reason is that the most interesting questions involve counterfactuals. For example, “How much lower would the 2011 price of condos in Coquitlam be if the federal goverment had ended the investor visa program in 2005?”
As for the numbers in the questions, I generated them randomly, but I tried to use numbers such that I would not be excessively surprised if the answers were “yes”.
I have a question.
Looking back at the 90s on a graph like this one at VCI
Has anyone ever doubted that the spike in prices then wasn’t caused by the impending handover of Hong Kong? If so, why not?
The other question that needs answering on this is, what % of sales will set the price on the margin in Vancouver? Given that RE is so deeply sentiment driven and the news media are so breathless to pump it up, I suspect the number is quite low. Maybe even as low as 5%. You need to know the answer to that and how many smokin’ hot Asian buyers are in the market to draw a conclusion.
The other reason I think a low % can drive the market: in a bubble the active buyers want prices to rise. They are looking at the highest comps along with the sellers. The buyers are looking at the future value of the house to make a value determination today. Utility value got left behind long ago.
this has to be the most commented post, I think you are getting warmer Ben
Why don’t we look at a graph that gives us a snapshot of what we’re talking about:
http://www.robchipman.net/average-price-graph/
Let’s have a look at SFHs in Vancouver. The last major dip in prices was in 2008, when house prices dipped to staggering high prices from astronomical, unbelievable prices. Now it appears as if it’s gone straight up from there. The line up would look even worse, I believe, if you stripped out all of the parts of the city which were of no interest to the “mythical” Asian buyer. My thoughts: CMHC money is propping up attached and condo prices–flat. Something else is propelling/flinging/whipsawing SFH prices–straight up.
Reading this post is interesting but we are all still floundering because there is no data. The Landcor data is not to my satisfaction and I feel like a fool taking it at face value. The anecdotal and/or real estate agent data (which was linked by VREAA in a previous post) is not to Ben’s satisfaction, for much the same reason. Unfortunately, no amount of forecasting using available data, creating interesting charts, speculating on future collapses of countries we know very little about, can give us a clue as to what will happen and when.
http://economix.blogs.nytimes.com/2011/02/17/forecasting-is-for-the-birds-and-rats/
In the meantime and for the foreseeable future Vancouver will continue to defy. And I would like to state that I was right about SFHs YVR continuing an astronomical climb, which is what I posted months ago. I’m not happy to be right, but it was eerily easy to predict using ears and eyes alone. Question is: what happens when SFH Westside is completely shut out to locals?
PS: If you are still asking yourself why Chinese money flees China, I believe if you turn on the TV today, you can catch a recent news story from a democracy protest in China, which ends with the police coming and grabbing participants, hard, by the hair and bundling them into some building. Will they ever see the light of day again? Who knows? If I lived there and did well, my wife, kids and money would be in Dunbar in a heartbeat. The government follows its own mandate.
It’s a good point that money is coming into the city. But how much is really coming in, and how much Chinese money would come in if prices were 30% higher or 30% lower? Just throwing it out there: maybe it wouldn’t change by all that much…
mac the reason is simple- LAND, a condo is a box in the sky, the Chinese are really really into owning land. Many also put chicken coops in the back.
Why aren’t they flocking to buy farms in Canada?
“Chinese are really really into owning land”
LOL that’s why phase I of the Bosa highrise development beside Metrotown in Burnaby sold out in a day last week, with a high number being sold to ethnic Chinese.
talking about SFH point made mac
relative to prices…
Hey Ben I’ve never posted the “rich Asian” effect, mostly because I thought it was rebuked when uber rich Hong Kongese and Taiwanese immigrated to Vancouver in significant numbers in the early ’90s only to have prices drop close to rental equivalence subsequent.
Anyways, here’s my methodology. In order to gain a sense of what is happening in a specific city, it is not correct to look at certain sub-regions within the city as evidence of a strong housing market. Instead the entire region should be looked at, as its people are geographically and economically linked, as are house prices.
To get a sense of the city’s ability to sustain high prices, we can look at the sum total of all residential property market values, and compare it to the ability of the locally-derived income to carry these properties. We then determine the shortfall, if any, and ask what mechanisms can contribute to filling the gap. These include: borrowing, black market activities, direct foreign investment, and direct foreign income. We can then look at the magnitude of the cash inflows and, taking a step back, asking how realistic it is to have that shortfall covered by some or all of these activities.
So the numbers:
Vancouver region population: 2,374,628
Average people per household: 2.6
Number of occupied private dwellings (est): 875,000
Average household income is about $78,000 (estimated)
Median household income is about $60,000 (estimated), provided for contextual purposes only
From latest January statistics, blended from Vancouver and Fraser Valley statistics packages, we derive total housing market capitalization by dwelling type:
detached = 250,000 * $840K = $250 BB
attached = 260,000 * $470K = $143 BB
condo = 360,000 * $360K = $158 BB
total = 875,000 = $551 BB
We now derive “average homeowner capital” as:
$551BB / 875,000 = $630K per household
This is an average price to average income ratio of 8. Now we have to determine how much additional income or capital not accounted for in the reported income is required to maintain this ratio. If we assume the long-term price-income trend is, say 5, that means we would be expecting an average dwelling price of $390K. This means a collective $240K per dwelling shortfall must be made up by non-reported sources. That amounts to a $210 BB collective capital injection that must occur over the next few years.
I’ll leave people to discuss the numbers above. Personally, taking a big step back, I don’t see $210BB pouring into the province through foreign investment and drug operations. To give context to the housing market capitalization, BC’s (not even Vancouver’s) “official” GDP is about $195BB.
Thanks, Ben; thanks for discussion, all.
Foreign money has direct and indirect effects. Likely unquantifiable.
I suspect indirect effects (on local speculator psychology) have been far greater than direct effects.
“They love the SUVs because they’re perceived as safe and have awd. Plus most will put less then 10k/yr on em.”
Pathetic…to me they are all nouveau rich people. Also countless leave their family here and the husband is doing business in China half of the year. Taking advantage of the system.
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There is certainly not much hard data out there, but a UDI presentation a while back provided a few numbers to play with…. http://www.braunallison.com/blog/2010/10/october_udi_lunch/
– Mainland Chinese immigrants accounted for 29 per cent of the housing starts in Metro Vancouver in 2009. That’s one-third of our real estate market! And that number doesn’t even include Mainland Chinese investors.
– When Immigration Canada introduced its new immigration requirements, the number of applications submitted by Mainland Chinese investors stood at 27,865. To put that in perspective, the total population of Pitt Meadows and Port Coquitlam combined is 68,310.
– 87.3 per cent of Mainland Chinese immigrants who come to BC settle in Vancouver.
– In 2009, Mainland Chinese immigrants accounted for 23 per cent of all immigrants to Canada.
– Traditionally, Mainland Chinese buyers have tended to buy in the areas around UBC, Metrotown and Richmond, but they are more and more willing to look elsewhere. One developer in South Surrey saw about 30 per cent of its sales going to Mainland Chinese buyers in 2008. This year, 75 per cent of its sales have to been to Mainland Chinese buyers.
I have been trying to buy a Single Family Home in Richmond since April 2010. Since then I have visited probably over 100 homes (mostly open houses) and the overwhelming number of visitors to Open Houses in Richmond are the Chinese. It’s hard to strike a conversation with them (can’t speak English, but then again in Richmond you do not need to be able to speak Chinese to get by).
Then, last night March 7, the CBC News (finally) reports that prices in Richmond have increased by $200,000 in the last 60 Days and there may even be some flipping going on. I am shocked to learn that people/companies are flipping real estate, absolutely shocked. Where is the Government in all this, there are massive amounts of capital gains that need to be taxed.
A reporter in the local Richmond Review reported that the money that was in Hong Kong properties is now moving here because they imposed a hefty tax on flipping real estate.
But as long as the prices are going up, everyone is happy and getting richer by the day. So what’s the problem? Well, the problem is that a lot of people who buy at these levels stand to lose a lot of money when a few parameters begin to change such as rules coming into effect March 18. Later in the year, it will be higher interest rates due to rising inflation (food, gas, basic needs etc). Watch out !