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Comment by lettergram | Hacker News Reader

It appears to me, the rise was almost exclusively artificial overseas (likely from China) investments. Basically, Canada is stable and the wealthy in China need a place to park wealth (in a diversified way). Best option is foreign land purchases. This has been occurring in largely west coast US cities as well.

The solution(s) are pretty straight forward and I believe Vancouver already initiated a tax on not living in a residence. If the goal is affordability, those policies need to be increased as well as new building efforts (aka change zoning).

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I have family in Toronto and I concur that the primary cause of the rise in real estate prices is China. My cousin is an established IP attorney who earns a pretty good salary and this is directly from him...he was looking to move last year into a $1MM house (approx. 4k sqft) in suburbs of Toronto. He had the deal all worked up and ready to close until the real estate agent called him in the 11th hour and said the house was sold. He had been looking for some time and thought he finally found what he liked only to not get it. This really irritated him so he decided to find out what really happened. Well, it turns out that a Chinese foreign student made a $1.25MM all cash offer with contingency to close right away. This is the current state of real estate in Toronto. Imagine someone willing to pay more than the assessed value of the property because they’re not taking NO for an answer. Which seller would not want to make extra profit?

North of Toronto, Vaughan specifically, quite a few homes on our street selling for slightly under $2m. Over the last two years, three homes were sold to Chinese nationals who never even set foot in them. Viewings were all via video.

The transactions were all brokered /over/ asking price in cash and are sitting empty ever since. They remove the snow, they do basic maintenance, and everything is again documented via video and shipped off to confirm a job done.

Many families came for the listing but all were outbid with much more favourable terms, quick closing, no inspection, no approval required for funds, etc.

The money is definitely being parked in many pockets of the city via Real Estate. Is it exclusively Chinese? No, but they are by far the larger demographics that parks the money in the home and keeps it empty. I've seen others invest in Canada as a means to get citizenship faster but they usually rent out the homes to generate some money back.

Whats there to complain about? Agents are making their commission, the city is getting their taxes, the province is cashing it on their taxes. Everyone is happy.

I’m going to share my own personal anecdote because I think “it’s China’s fault” is both wrong and leads to the anti-Asian sentiment that is going around North America right now.

I viewed many properties during the pandemic, and when we saw other potential buyers (e.g. had the appointment before or after us), they were all white couples in their 30s or 40s.

After a couple tries, we bid on a home and won (I am white citizen). We have since moved in, and I’ve observed that the other homes that sold on our street all now have white families living in them.

This is obviously inconclusive, but I believe “it’s all foreign money” is mostly a convenient scapegoat and doesn’t really capture what’s going on.

(Also I find it strange that in your story, the homeowner would break a contractual agreement to sell and go with someone else. I’m not a lawyer, but that seems like obvious grounds for a lawsuit. Note that in 2017 in Ontario a buyer broke an agreement to buy and was ordered to pay hundreds of thousands of dollars in the ensuing lawsuit.)

https://www.thestar.com/news/gta/2018/04/11/couple-ordered-t...

Population of Canada: 38,000,000

Population of China : 1,427,647,786

Shanghai alone has 27,000,000 people. There are 12,500,000 households in Canada.

It would take less than 1% of the Chinese population purchasing a home in Canada to double demand.

https://en.wikipedia.org/wiki/Population_of_Canada

https://en.wikipedia.org/wiki/Demographics_of_China

https://en.wikipedia.org/wiki/List_of_cities_in_China_by_pop...

https://www150.statcan.gc.ca/n1/daily-quotidien/170913/t001a...

> I’m going to share my own personal anecdote because I think “it’s China’s fault” is both wrong and leads to the anti-Asian sentiment that is going around North America right now.

The root cause of the anti-Asian sentiment (and most anti-other tribe sentiment) is the loss of relative socioeconomic status.

For example, in previous decades, almost everyone in China was socioeconomically lower than everyone in Canada. You can insert any undeveloped country and developed country here, but you frequently saw Americans/Canadians/Europeans vacationing in developing countries, buying vacation homes, real estate to diversify, businesses, etc.

Now the populations in those developing countries has caught up, and they’ve caught up by taking some of the economic value that used to be provided by populations in the developed countries. See income/wealth gap widening over the previous decades.

So now you have people in developed countries having to compete with people from previously developing countries, and more competition means life is not as easy. And people get tribal when looking for who to blame. But really, the only tribes that matter are those who are able to capture economic value and those who are not.

In the defense of the narrative, they've spoken about Chinese money stashing in real estate in Toronto LOONNNGGG before Covid was even thought of.

I understand it has been a popular narrative for a long time. Most studies have shown it’s a tiny percentage of home sales. There are also now significant taxes on foreign ownership, and statistics show this is having the effect of deterring buyers.

“CBC's analysis suggests foreign buyers account for about 1.8 per cent of total home purchases in the GTA (Toronto plus the regions of York, Peel, Durham and Halton) since the tax was imposed in April 2017.”

A common rebuttal to this is “well they use corporations to shield the true origin of the money”. Why not just park your money in the US where no such taxes exist and is overall less hostile to foreign ownership?

https://www.cbc.ca/news/canada/toronto/ontario-foreign-buyer...

> since the tax was imposed in April 2017

Base rate matters here. They are measuring `Sales subject to foreign buyers tax`, not the impact of foreign buyers.

This percentage of foreign buyers THAT ALSO pay their taxes. The foreign capital that flows into residential real estate mostly held in numbered corporations which are not captured in the above data.

> Why not just park your money in the US where no such taxes exist and is overall less hostile to foreign ownership?

After 9/11 the USA (relative to Canada) got very serious about prosecuting money launderers. Tax rates are less important than getting dirty money clean.

> government inaction is putting Canadian banks in an awkward position as they seek more growth south of the border. Americans are keenly aware that criminals exploit [Canada's] weaker laws.

https://www.theglobeandmail.com/business/commentary/article-...

Why is everyone so eager to blame this on China? Of course there are some Chinese buyers here in Canada but if you’ve actually been in the market or know any builders you know that explanation doesn’t add up.

I’m sorry if my comment offended you. The goal of my comment was not to put the blame on China but rather share a real life story of a close relative and correlate his experience with the current state of real estate in Canada (Toronto specifically).

To add value to this discussion, it would help others and myself if you could elaborate on why it “does not add up”. Just stating that without providing details is a disservice to those who you claim are trying to shape the narrative.

FYI: I did not downvote any comments on this topic. I'm looking to hear everyone's thoughts.

Both of our comments appear to have been downvoted a lot, so it seems we’ve struck a real nerve here challenging this narrative.

Folks should note that New Zealand literally banned foreign ownership and is similarly going through a property bubble.

https://www.theguardian.com/world/2021/mar/23/new-zealand-mo...

>Which real estate agent would be out of their mind not to take it?

The owner or person who has control over the real estate is accepting the offer, not the real estate agent.

Thanks! Changed to: “Which seller would not want to make extra profit?”

> The solution(s) are pretty straight forward and I believe Vancouver already initiated a tax on not living in a residence. If the goal is affordability, those policies need to be increased as well as new building efforts (aka change zoning).

And there instantly came ads for services to keep appearance of home being occupied on https://www.vansky.com/ =D

Basically, property owners pay those guys to go and live there!

Not sure how this narrative plays out in Canada, but given that it's raised in California but doesn't pass the laugh test I don't have much hope for it. Not only is such foreign ownership rather limited in terms of the % of total units it affects, but this would really only drive up housing prices if not only were these investments being made but that the investors for whatever reasons were leaving the units empty and/or converting them from being residential and thus actually taking them off the market and putting upwards pressure on other units. But this is nonsensical and basically never happens, and I don't think you're seeing skyrocketing vacancy rates in any of these "overheated" housing markets.

First result I found:

> in San Francisco – as well as many other high-cost cities such as Vancouver, London, and New York – we see a different phenomenon: an extremely tight housing market with skyrocketing rents, that puzzlingly also has a high vacancy rate.

...

> It is difficult to know whether an “absentee” or foreign buyer has an intent to occupy the unit or rent the unit, or whether the unit is intended solely to be an investment property.

...

> In August 2017, CoreLogic estimates that absentee buyers purchased 15.8% of homes in the San Francisco Bay area. In September, this number increased to 17.1%. 23 Thus, while we do not know how many of these units purchased by absentee buyers in the Bay Area may be held vacant, it seems to be a significant amount of ongoing sales in the region.

https://ternercenter.berkeley.edu/wp-content/uploads/pdfs/CR...

If every empty house on the market in SF or Vancouver came on the market tomorrow it wouldn't make a dent in housing prices.

Vancouver has actually seen some price declines as recently as 2018 and CMHC says it is driven by new construction - any jurisdiction where you can't build will attract investors that can afford to sit on empty properties and still expect a reasonable return. It is just the iron law of modern real estate.

>> The solution(s) are pretty straight forward and I believe Vancouver already initiated a tax on not living in a residence. If the goal is affordability, those policies need to be increased as well as new building efforts (aka change zoning).

Wouldn't simply ONLY building new buildings/housing be more effective? This way, the wealthy can continue to purchase, but the investment would become worse and worse in returns and essentially provide subsidized housing to renters. This is somewhat the case in NYC where rents are far lower than ownership carry for identical units because the units are sometimes treated as stores of value.

In the NYC case the property taxes go the other way. A rental unit is taxed at a much higher rate than an equivalent condo. Nonetheless the effect you point (speculation) is so strong that renting still comes out ahead.

"Wouldn't simply ONLY building new buildings/housing be more effective?"

Yes, the vacant house tax is just politics, Vancouver has had some actual success with build-build-build but that strategy is limited by NIMBYs in many areas.

Same with downtown Toronto, the suburbs are a pricing disaster but condo prices are not following as steep a curve simply because there is supply being built.

No, in short term people hoarding apartments will be happy to buy whatever amount of new property built. Probably it will hit people 2, 3 apartments, but not ones with 20+ ones.

I'm sorry if i'm not familiar with the situation in Canada -- but the people hoarding apartments, why do they keep them empty? Why not at least try to rent them for a partial recovery of carry cost? Wouldn't it be irrational to keep apartments empty when you could at least rent them for a bit of money.

If they rent for a partial recovery, then isn't that good as renters get a good deal?

> I'm sorry if i'm not familiar with the situation in Canada -- but the people hoarding apartments, why do they keep them empty? Why not at least try to rent them for a partial recovery of carry cost?

Because they are too lazy?

And look this https://news.ycombinator.com/item?id=26610167

Paying people money to avoid the vacancy tax sounds bizarre, beyond idiotic, but somebody does it, and it's there. They will prefer to pay money rather than bothering flying to Canada every month to collect rent, and making sure that renters keep the apartment pristine.

One reason might be so that you have the option to live in the place yourself on short notice.

> the wealthy in China need a place to park wealth (in a diversified way). Best option is foreign land purchases.

Why is this the best option? Are wealthy Chinese forbidden from buying foreign stocks?

Clean money can buy financial assets like foreign stocks. Dirty money cannot.

> Canada is a great place to launder money because of our lack of ownership transparency ... criminals can park large amounts of illicit cash in real estate and hide the purchases behind numbered corporations or shell companies located in offshore tax havens.

> Canadian real estate has been “extensively exploited” by the problem of money laundering and all financial sectors need to fight against it.

~Half of all transaction fail basic AML/KYC compliance.

https://globalnews.ca/news/6608644/canadian-real-estate-abys...

The idea of a diversified portfolio is that you buy stocks and other assets too.

Stock market gains over the last 10 years may be impressive, but they're nothing compared to housing in certain key cities.

I disagree with your point (I’ll explain why below) but it shouldn’t have been dead so I vouched for it.

—-

There’s diversification across asset classes and within asset classes. If you add a large non-diversified asset even in a different class, to a diversified portfolio your average diversification goes down, not up.

Or in other words—REIT sure, but a significant fraction of your wealth in a single, idiosyncratic, illiquid, high carrying and transfer cost asset is not diversification.

An REIT (and other traded equities) have agency risk that you can avoid with something you directly own and control, but also, you can diversify your places of shelter by having somewhere to physically escape to if need be. So it’s less diverse in the financial return aspect, but might solve other diversification needs.

> Why is this the best option? Are wealthy Chinese forbidden from buying foreign stocks?

Yes, does it sounds surprising to you?

Well. In one sense no, but in another—-if you are going to do capital controls why leave giant loopholes like foreign land?

Not so giant, the $50,000 limit works for it as well.

The property is specially attractive because unlike socks, you can do one big effort to move money out in one go, and then forget about it for a few years. Plus, the customary blindness of Western law enforcement institutions to dirty money in property transactions.

The 50k limit is easy to circumvent. Anyone who's anyone in China has a Hong Kong bank account. They then hire a tour bus and a bunch of poor elderly people and each takes 50k across the border and deposits it into the HK account. This money can then be invested however they see fit.

Before the pandemic this was not an uncommon sight.

Yes, it is, but having a string of correspondence in between you, and broker, and a stream of legal records pouring from sock transactions is much more bothersome, unlike pouring money into a stone cold piece of concrete in Ontario which will assuredly not go anywhere, and would not bother you with requests to prove your place of residence 4 times a year.

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