Remember back in 2014, when the CMHC released data on foreign ownership of Toronto condominiums?
And remember how few people believed the numbers?
I thought the statistics that CMHC provided were laughable at best, and that perhaps they were using outdated information, or not missing new-construction numbers altogether.
Well, I’d love to see them, or somebody competent, re-run those numbers in a couple years, because foreign buyers are snapping up condos like never before…
Sometimes, you can just “feel” a story in the air.
This topic has been on my “Blog Idea” list, which is actually a Post-It note stuck to the inside of my old-fashioned paper day-planner, for about the last month.
And then this week, two articles came out on the subject, and I thought perhaps it was karma.
But before we get into the new news, let’s take a look at the old news.
Back in December of 2014, CMHC released data on foreign ownership of condominiums across major cities in Canada, which included the following:
Toronto – 2.4%
Vancouver – 2.3%
Montreal – 1.5%
Victoria – 1.1%
Ottawa – 0.7%
The data also included data on foreign ownership of downtown condominiums, as follows:
Montreal – 6.9%
Vancouver – 5.8%
After the data came out, so too did the critics.
HERE was an article by Gary Marr from the Financial Post, titled, “CMHC Finally Releases Foreign Ownership Data On Housing – Too Bad Few Believe It.”
HERE was a blog post I wrote on the subject that week as well.
I said it before, and I’ll say it again – I think those numbers are really, really low.
And we’re not talking 5%, 10%, or 15% low. I mean the actual numbers could be DOUBLE.
I guess we would have to define “ownership,” but that’s a tall order.
If a property is owned in the name of a resident of Toronto, but the money used to buy the property was wired from overseas, then who really “owns” the condo?
That is why I think the numbers are so skewed.
Well, that, and I just think the CMHC didn’t have accurate data, and/or it wasn’t up to date.
Case in point, read the article in Wednesday’s Globe & Mail, and you might see why any numbers on this subject must be absolutely, positively, up to date.
“Toronto Condo Buyers Head Directly To China To Court Buyers” is the title of the article, in an awesome piece of journalism by Tamsin McMahon & Nathan Vanderklippe.
The article explains that brokers looking to sell to overseas buyers used to simply rely on contacts based in foreign countries, but today, they’re actually heading over and doing presentations in person.
Wasn’t it just a matter of time?
If domestic buyers ever stopped buying pre-construction condos, surely developers would have to do something different and think outside the box.
But part of me thinks that developers might even prefer to deal with overseas investors, since they’ll likely put up less of a fuss before, during, and after construction than a Toronto resident with a foot on the ground probably would.
It also goes without saying that for some people overseas, Canadian real estate is cheap by comparison.
The best line in the article, which was something real estate agent Tony Ma told a room full of would-be investors:
“Canadian houses are so cheap; why not invest?”
Is that how they see it?
Canadian houses are cheap?
All we ever hear about is how expensive Toronto real estate prices have become, and how there’s a massive bubble about to pop.
And yet investors across the world believe that Toronto real estate is “cheap?”
My two cents, for what it’s worth, is that while the price of Canadian real estate has appreciated rapidly over the last two decades, it’s still cheap relative to other world class cities. Our real estate might cost 1/4 of what a comparable property would cost in London, England, and that’s even after our 20-year bull cycle.
So while Torontonians see our prices as “expensive,” people around the world, do not.
We Torontonians also haven’t seen our city grow, on the world stage, from the eyes of a foreigner. Maybe we’ve taken it for granted, and this quaint little city in Canada has become a major destination for others around the world.
The Globe & Mail article gave several examples of wealthy, overseas residents who wanted to send their children to Canada for school, or who had already done so, or who wanted to move here full time.
And I think it goes without saying – these people aren’t looking to rent.
So where is foreign-ownership headed?
What would those CMHC numbers look like today? What would they look like in two years?
Well, I’d be remiss if I didn’t share another newspaper article from Wednesday, also in the Globe & Mail:
Wow, that’s an attention-grabbing headline, isn’t it?
Here’s the juicy part:
Some Canadian banks allow wealthy Asian investors to skirt Chinese law by helping them bring in large amounts of money that is often used to buy real estate in Vancouver.
Financial institutions in the area have flagged more than 8,200 suspicious transactions since January, 2012, the year China began cracking down on citizens they suspect of corruption.
Ninety-six per cent of those transactions were also facilitated by the banks, however, even though the vast majority of that business involved suspected money laundering, according to FinTRAC, the federal agency responsible for tracking money laundering.
It is illegal for Chinese citizens to remove more than $50,000 (U.S.) a year from China without government permission, partly to stop corrupt millionaires from fleeing with their money. But a review of B.C. court cases by The Globe found they have worked around this restriction by sending millions of dollars into Vancouver-area banks through multiple wire transactions of smaller amounts by family and friends.
I find the last paragraph interesting, since it’s that very law that makes Chinese citizens want to remove money in the first place.
I’ve heard on numerous occasions, including from my own clients, that the political instability (or potential instability) concerns many wealthy Chinese citizens to the point where they worry about the safety of their money in Chinese banks. So many of them would rather own Canadian real estate, whether it goes up/down/sideways in value, than keep money in the bank, with risk, and where the rate of inflation is higher than the rate of interest.
As a result, a lot of Chinese money is effectively being “banked” here in Canada in the form of condominium investment.
I won’t speak to the idea of banks “helping clients bend the rules” since I don’t know enough to provide an accurate opinion.
But I find the timing of that article, which was written by an investigative journalist and likely took a lot of time to compile, rather interesting given the article about real estate developers going directly to China to sell condos.
In the end, all of this leads me to question that “2.4%” statistic that CMHC gave us about foreign ownership of Toronto condos.
I often evaluate a property with a comparative market analysis, but I also often use the good, ole’ “gut feeling.” I think my gut feeling is accurate most of the time.
Suffice it to say, my gut feeling when that 2.4% statistic came out was that it was low, and the two articles from Wednesday’s paper give me even more reason to believe so.
Now maybe a fifty-dollar follow-up question is this: why do we care if condos are foreign-owned?
A reader asked that in my December, 2014 blog post, and added:
“The supposition that foreign owners would flood the market with listings in a market downturn is patently unproveable, and appears by all accounts to be yet another invention by the bears to “prove” that they’ve been right all along…about something.”
So other than the potential for foreign-owners to “bail” on the market, is there any other reason why we care about the percentage of foreign-owned units?