There has been a lot of speculation lately about a large influx of foreign investors, notably Chinese nationals buying up real estate in Canada’s hottest housing markets, such as Vancouver, Toronto and Montreal. Much of the conversation has pointed fingers at this phenomenon for being a major factor in worsening the skyrocketing housing prices these cities. So we wanted to know, why would Chinese investors be interested in buying so much real estate in Canada? We did some digging and discovered the five most likely reasons for Chinese buyers investing in Canadian properties.
Instability in Their Home Markets
Investing in Canadian real estate is typically much safer than investing in real estate or the stock market in China, which is known to be quite unstable and prone to sharp declines. Keeping capital stored away in Canadian real estate insures that money is invested in a predictable asset, while not being subject to the strict capital controls which exist in China. The Chinese government has been tightening their grip lately on capital leaving the country. However, many of those regulations can be avoided by savvy investors.
Along with this instability, is the fact that in China, you never really own the property that you buy. In fact, it often looks more like a lease. The land is technically owned by the state. This means that the government can take control over the property when it pleases. In Canada, obviously this is not the case. So you can see why investing in something that you own outright is the more attractive option.
Education for their children is a huge factor for Chinese nationals investing abroad. In fact, for buyers in Quebec, it was the biggest factor. In buying Canadian real estate, parents not only have somewhere for their son or daughter to live while attending one of Canada’s top notch universities, but they also have an additional source of income for when their child is finished their studies. According to statistics by Juwai, 85 per cent of wealthy Chinese plan to educate their children overseas. Canada clearly is a huge recipient of this sentiment as Chinese students account for the highest percentage of foreign students in Canada at 32.5 per cent.
High Rate of Return
The low Canadian dollar has made it even more attractive to start making purchases in Canada over the past year or so (namely on real estate) while Canada is still “on sale”. Those who invested while the dollar was low and real estate prices had yet to fully skyrocket, are set to make a pretty penny when the loonie levels out. This has no doubt only magnified the finding from a 2014 Grosvenor Resilient Cities research report showing Canada’s two hottest markets, Vancouver and Toronto, as the top ranked cities for long term property investment.
Loopholes in Canadian Policy/Limited Regulation
Canada seems to be the perfect place for foreign investment in real estate. The government has very few ways of tracking property acquisitions by foreigners and due to to self-regulation, many industry professionals have few reasons to record them as well. This makes it very hard for the government to control (or even know how bad the problem is), so foreign investors are free to flood the market. This contrasts dramatically with other countries such as Australia, Switzerland, the UK, Mexico and Hong Kong, where measures to various degrees have been taken to limit the amount of foreign investment in their real estate. These measures include higher tax rates, increased fees, and even strict quotas and outright barring of real estate acquisitions by non citizens.
Canada is a Great Country!
On top of all these reasons for Chinese acquisition of Canadian real estate, is the fact that Canada is a great country! Why wouldn’t someone want to invest or even move here?
For those looking to move to Canada or have their children move to Canada there are several key factors at play outside of those outlined above. These include Canada’s already large Chinese population and that Chinese citizens have easy access to long term visas in Canada. This coupled with the fact that Canada is a leader is most quality of living statistics; sporting an extremely low crime rate, good education system, political stability, and high average incomes.
After a deeper dive into the rational for Chinese investment in Canadian real estate, it is a no-brainer that some markets are being flooded with foreign money. Foreign investment should be welcome in Canada, don’t get me wrong. The problem is that there are very few means of controlling the stream and direction of this investment, leading to problems for average Canadian residents looking to buy property, as the evidence is pointing to foreign (mostly Chinese) investment hiking the cost of real estate significantly. The question is: what are we, as Canadians, going to do about it?
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Chris is an editor and writer for Welcome Mat. He is based out of Moncton, New Brunswick, Canada.