More Chinese cash could enter Vancouver real estate market soon

Dec 19 2017, 3:46 pm

The easing of a Beijing law that restricts the amount of money that can leave the country each year could cause further foreign real estate investment in the Vancouver market.

Currently, China law prohibits citizens from moving more than $50,000 a year per person out of the country. Though many have found creative ways around that rule, most notably to invest large sums in North American real estate where they feel their money is safe from prying eyes, loosening of the law could promote the Yuan overseas and cause a mass influx of Chinese money into the Canadian economy.

Speaking on the increase of Chinese cash in the United States, CNBC reported last year that the $50,000 rule is not heavily enforced, but citizens will move to Shenzhen, a Chinese city on the border of Hong Kong, to transfer “money in the millions” to Hong Kong where there is no such outbound currency limit.

According to the Wall Street Journal, China’s State Council and central bank is set to announce the removal of financial limits on how much individual Chinese and businesses can spend on stocks, bonds and real estate in foreign markets.  The initiative will likely be a step-by-step approach, beginning with certain free-trade zones and moving up, in order to avoid mass amounts of money leaving the country at once.

Another incentive for Chinese to move their investments to North American markets is a tumbling Chinese stock, proving the worst week for the Chinese stock market since the 2008 financial crisis. On Friday, the CSI300 index dropped six per cent and the Shanghai Composite Index fell 6.4 per cent, totaling a 13 per cent drop this week.

Meanwhile, foreign investment into China is also becoming more available. Today, Chinese officials announced they would allow foreign ownership of some Chinese e-commerce businesses in an effort to open up the country to accelerated development and competitiveness.

There is currently very little reliable data on how foreign ownership is impacting the Vancouver housing market, but some politicians are calling for a closer look at the issue. In May, Mayor Gregor Robertson proposed a speculation tax on foreign real estate investment to Premier Christy Clark, however Clark quickly put a wet blanket over the idea, stating that those with equity in the market would risk losing money if housing prices dropped.

A subsequent Insights West poll found that 77 per cent of Vancouverites supported Robertson’s plan for an absentee homeowner tax. And on Wednesday of this week, another survey by Angus Reid found that 20 per cent of respondents in Vancouver were “miserable” with their inability to access the out-of-reach housing market, and 85 per cent of those people were seriously considering leaving Metro Vancouver because of the costs.

Despite the alarming statistics, another recent report by the British Columbia Real Estate Association (BCREA) found that the percentage of foreign buyers purchasing homes in Vancouver make up “considerably less than 5% of the housing stock and not more than 5% of sales activity.” However, the BCREA’s numbers are hardly without bias, as it is the official association for the 18,500 realtors in British Columbia, a group that sees significant financial benefit in soaring housing prices.