Assessing the China Factor

It is two months since The Mainlander hosted a story on new Chinese housing policy that is exporting real estate investment pressures — especially to favored locations like Vancouver.

Vancouver Real Estate Frenzy

Aspects of the situation have taken interesting turns, beginning with a big story on Chinese surge that appeared the very next day in the Vancouver Sun. That article found irony in the fuel that Chinese “crackdown” on real estate speculation is pouring on Vancouver’s price fire. According to entrepreneur Cam Good, “There are literally planeloads of Chinese coming here to buy real estate.”

Over a month later, Vancouver business publisher and former municipal politician Peter Ladner called for action “to discourage overseas property speculators” — and mentioned “spreading high single-family lot land costs over two or three homes on the same property [to] drive down the unit price of the new (smaller) homes and discourage the trophy homes on large lots beloved by so many overseas investors.”

The April 5 Ladner article sparked an immediate response from Vancouver City Councillor Geoff Meggs: a tout of Vision Vancouver’s controversial STIR giveaways to incentivize developers.

A week later Ethan Baron reacted with a weird equation: that Canadian purchase of Chinese goods (cheap here because of offshored worker exploitation) somehow means that Vancouver then owes a wide-open real estate market to the fortunes made by the overlords of those workers!

A few days after that, developer mouthpiece Bob Ransford pushed back at Ladner with what amounted to a call to develop as much as possible as fast as possible: “We need to focus on removing all the barriers that stand in the way of supplying the housing stock that is required to meet the demand.” In other words, whatever the degree of speculation, it must be sated, and attendant profits realized, regardless of any consequence to anything else. (Ransford also digressed to claim that the 1988 giveaway of the huge Expo 86 site to Li Ka-shing has been so good for Vancouver.)

Within a week, Cam Good — protagonist marketer in the February Vancouver Sun story — weighed in with a head-on assault against the Ladner protectionism that might impair the profits he is realizing from his Beijing office and his planeloads of buyers. After all, “in meccas like Richmond, 98 per cent of the hundreds of homes we’ve sold are to buyers who are Chinese.” Toward the end of his piece, this promoter went on to promise, “real estate is the best investment you’ll ever make.”

That promoter also cited a March 29 Wall Street Journal article, digging through cautionary freight to latch onto this sentence: “Chinese buyers have stampeded in to Vancouver and to Toronto, two of Canada’s hottest markets.” The unmentioned sobering part of that same article tots up these three factors: “the now-inflated ratio of house prices to income [which means] Canadian housing prices could be in for a 25% drop in the next three years,” a “debt-to-disposable-income ratio for Canadian households [that] rose to 148.9% last fall … surpassing U.S. borrowing for the first time since 1998,” and “Canadian recourse law [that] makes it harder for buyers to walk away from bad debt.”

Following in the footsteps of the Wall Street Journal, Gord Goble responded to Cam Good by highlighting a Vancouver unaffordability ratio of ten times income, a figure that points to the mania that precedes a broken bubble.

Near the end of April, David Ebner quantified the situation in broad and simple terms:

There are nearly 600,000 high-net people worth at least $1.5-million in China this year, according to the consultancy Bain & Co. About 10 per cent of them have already left, another 10 per cent are planning to apply for immigration, and about 30 per cent are considering it.

It remains to be seen whether China will continue to permit this flight of entrepreneurs and capital.

On May 2 Jay Bryan waved red flags about general real estate overvaluation in Canada and attributed the exceptionalism of “the rocket-propelled Vancouver market” — current annual increase of 13.4% — to “a flood of wealthy Asian buyers [that] continues to support sky-high prices.” He concludes with the obvious: “Few seem confident that the Vancouver market is stable.”

Three Telling Sidelights

One. Weeks after hitting the panic button on January 20 to abort the agenda set for city council, Vision Vancouver eventually handed Chinatown over to developer interests after five nights of hearing from the public why they should not. Who can resist the offshore money that stands poised to dehistoricize the core of Vancouver through “revitalization” with condos — especially after massive parking structures failed to do the job? (See Vancouver approves Chinatown condo for an overview.)

Two. In an April 19th marathon, all morning and all evening at Council, Vision Vancouver cobbled together some trailblazing last-minute repression into a bylaw that requires permits for protest structures and threatens to levy thousands of dollars in fines for infraction. In the lead-up to this decision — a decision deplored by the BC Civil Liberties Association — city officials admitted to direct involvement with the Chinese consulate.

Years of protest by Falun Gong outside Vancouver’s Chinese consulate brought on this measure, which is a bureaucratic attempt to lay down the law, following on a rights-and-freedoms court decision that went against the City of Vancouver. Thus does the foreign government of China extend the tentacles of its squeeze on human rights directly into the Vancouver that its own citizens so love to park their money in.

Three. South of the border, Citizens Against Government Waste has put together a powerful, controversial television advertisement that links American financial profligacy directly to the possibility of a Chinese takeover, because “China is the largest foreign holder of America’s national debt.” The mindset created by such propaganda — especially within the United States — can only reinforce that country’s natural desires to seek a belligerent solution to its economic woes.

When compared with that situation, the destabilization that now confronts Vancouver residents may prove a small matter.

Further Reading

[ List order is chronological, and supplements Jones (25 Feb 2011) below ]

Jim Sutherland. Is Vancouver in a real estate bubble? Globe & Mail (24 Nov 2010)

Joseph Jones. Vancouver needs to emulate Chinese housing policy. Mainlander (25 Feb 2011)

Brian Morton. Chinese investment surge hits Metro Vancouver housing market. Vancouver Sun (26 Feb 2011) F3

Steve Ladurantaye. Foreign buyers juice resale housing market. Globe & Mail (15 Mar 2011)

Monica Gutschi and Don Curran. “Housing booms north of the border — Some economists see Canada’s market ripe for a correction, with debt rising to worrisome levels,” Wall Street Journal (29 March 2011) C1

Peter Ladner. Vancouver’s real estate gold rush is totally out of control. (5 April 2011)

Peter Ladner. “Action needed to discourage overseas property speculators.” Business in Vancouver 1119 (5-11 April 2011) 32

Geoff Meggs. Would limits on foreign owners curb Vancouver’s skyrocketing housing prices? Geoff Meggs (6 April 2011)

Foreign property buyers restrictions needed? CBC News (11 April 2011)

Ethan Baron. Ladner’s Chinese rant ignores economic boom. Province (13 April 2011)

Bob Ransford. Do we need restrictions on foreign ownership? Vancouver Sun (16 April 2011) E6

Cam Good. The new real estate protectionism is misguided. Vancouver Sun (21 April 2011)

David Ebner. Foreign buyers buoy Vancouver housing. Globe & Mail (24 Apr 2011)

Gord Goble. In Vancouver, renting is a better option than buying. Vancouver Sun (26 April 2011) A9

Mark Hasiuk. Vancouver’s new anti-freedom bylaw takes cue from China. Vancouver Courier 102:33 (27 April 2011) EW09

Jay Bryan. Home prices are gliding to a pause — except here. Vancouver Sun (2 May 2011) A11

Allan Dowd. Frothy Vancouver housing market fueled by money from China. Vancouver Sun (1 June 2011)