The media continues to put the spotlight on the Vancouver and Toronto housing booms and the role played by foreigners to drive up prices. Affordability issues are of great concern and questions continue to arise regarding the sustainability of the housing bubble.
The viability of continued housing demand by the Chinese given the government’s 2015 introduction of capital controls, which limits capital withdrawal to the equivalent of $50,000 (U.S. currency) per person. Suffice it to say China’s capital outflow has surged in recent months, notwithstanding these controls. There are a number of ways to circumvent the rules and the penalties are tiny. The Chinese government is simply not enforcing the controls and the continued devaluation of the Chinese Yuan continues to trigger massive outflows. Much of that money is moving to housing in Toronto and Vancouver, as well as to Australia, New Zealand and the United States. The Chinese are now the number-one foreign purchaser of U.S. residential real estate surpassing Canadian inflows this year. This is stimulating the housing markets especially in New York, Los Angeles, San Francisco and Seattle. Chicago, Miami and Las Vegas are also seeing significant investment.
The Canadian government and regulatory response to this foreign inflow of money is evolving. The media have recently highlighted the potential for money laundering and the lax enforcement of anti-money laundering initiatives in the real estate sector. But it appears that most of the Chinese purchase of Canadian housing is not for money laundering purposes, meaning garnered through illegal activity or to support terrorism.
More on this to come.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres