Buying spree

Jun 2, 2016
Toronto's average home prices have risen as Chinese investors splurge on properties while the Canadian dollar is cheap, and buyers compete for stock.

Chinese investors continue to drive up real estate prices in Canada's most sought-after markets. The possibility of further depreciation of the yuan is pushing investors in mainland China to look for opportunities in other currencies. At the same time, the low value of the "loonie", as the Canadian dollar is known, makes purchases in Canada cheaper, so investors from mainland China and Hong Kong are flocking there - and driving up prices. Toronto and Vancouver are the most popular spots, and where the price increases are the most marked, thanks to their well-developed facilities and big Chinese communities.

The result of this investment has been a rapid increase in residential real estate prices. Average home prices in Canada have risen by more than 60 per cent since 2008, hitting C$500,000 (HK$3 million) across the country in January.

In the greater Toronto area, average prices rose to C$680,000 as of January, up 89 per cent from C$350,000 in early 2007. Price increases will continue, according to the Canadian Real Estate Association (CREA).

In Vancouver, the Home Price Index has risen 40 per cent - from 158 in 2011 to 220. Last April was the highest-selling April on record in the city: sales were 41.7 per cent above the 10-year average for the month, according to the Real Estate Board of Greater Vancouver. The Canada Mortgage and Housing Corporation says there is strong evidence of problems in Toronto and Vancouver.

"We see strong evidence of overvaluation in Vancouver's housing market," says Robyn Adamache, an analyst at the Canada Mortgage and Housing Corporation. "Single detached home prices are higher than levels supported by economic fundamentals, and inventories of new and resale homes are declining while demand remains high."

Demand for residential real estate from offshore buyers and foreign investors remains sufficiently strong to drive up prices, while a shortage of supply is speeding up the increases and making it difficult for domestic buyers to buy a home.

Competition between buyers has underpinned the double-digit rates of price growth this year in those two markets, says Jason Mercer, director of market analysis at the Toronto Real Estate Board.

"Some Chinese investors pay cash, and this group of buyers has [fewer] concerns on price," says a Hong Kong-born Canadian who works as a senior executive in real estate company and declines to use his name.

Buyers are aggressively pursuing home purchases with multiple offers in Toronto and Vancouver, and the lack of inventory is posing a challenge. Multiple offers are common, particularly on single-family homes.

"I started to get busy last year," says Rhino Zhai, a Toronto-based Chinese broker. "More and more people come to buy. Normally each house has less than 10 offers, but some houses downtown have 40 or 50 offers. Most of [the] people buy homes with 90 per cent mortgage loans. It's rare to see investors pay [in cash]."

All cash buyers tend to be foreign investors. Some worry that offshore buyers, many from China, are buying up homes for investment and leaving them empty, in effect taking inventory out of the system.

"This reduces the number of [homes for sale]," Zhai says. "I have seen pessimistic opinions for a decade, but there is just no sign of any slowdown, at least [not in the last] year."

Canadian Finance Minister Bill Morneau has promised to give Statistics Canada resources to track foreign homebuyers.

"Although these market conditions cannot continue indefinitely, there is just no sign of any slowdown," Zhai adds. "Restrictions on capital outflows in China have had some impact; money transferring takes longer."

Still, a consumer survey by the Toronto Real Estate Board and property consultants CBRE Group shows buyers are still positive.

"Chinese investors' buying intentions in the global real estate market remain strong," says Ada Choi, a senior director at CBRE Research Asia-Pacific. "The restrictions on capital outflows may deter some Chinese investors, but the depreciation of the yuan makes quite a lot of investors opt to gain exposure to US dollar-denominated assets, including real estate."

"The thing to remember about busy markets like we're seeing is that they never last forever," says Margo Hoffman, president of the Vancouver Island Real Estate Board. "If homeowners are thinking of selling, this is an ideal time to do so."

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