Foreign buying of Canadian real estate has been tapering, but is it the taxes? The CEO of Juwai, doesn’t think so, instead she claims the lack of demand has to do with prices. “Overpriced” real estate has driven Mainland Chinese buyers to places with better value. The foreign buyer tax has a very limited impact, especially when it comes to wealthy Mainland Chinese buyers. For them, paying a tax is just the cost of buying what they want.
Juwai Is China’s Largest Overseas Real Estate Platform
Carrie Law, is CEO of Juwai, China’s largest international property portal. Many Canadians haven’t heard of them before, but the Chinese behemoth plays an important role in the Mainland Chinese buying process. The platform’s users are known to drop hundreds of thousands of dollars on international real estate, often site unseen. Recently they’ve developed sales partnerships with Berkshire Hathaway, Sotheby’s International, and Engels & Volkers. They also power the international real estate listings on Tencent, China’s largest internet company. Oh yeah, and an Alibaba executive sits on their board.
They’re kind of a big deal, and know international buying patterns just a little better than even most governments. Law was a big player in the Asian real estate scene, before being appointed CEO at Juwai. Her opinion has quite a bit of weight when interpreting international markets.
Foreign Buyer Taxes Don’t Impact The Wealthy
“The new and extended property taxes in this week’s budget will have some negative impact on buyers from overseas,” explained Law. However, it won’t be as impactful as some expect. “For higher-income buyers who are committed for personal or professional reasons to buying in Vancouver, the tax will not keep them from purchasing.”
Law anticipates it will change the buying behaviour of lower income foreign buyers. “The increased taxes are likely to put further financial pressure on families from overseas who are already stretching their personal savings to the limit to enable a move to Vancouver,” she explains. “It would be reasonable to expect the average price of homes that middle class buyers acquire to decrease in line with the amount of the tax increase. That would leave their total transaction cost about the same.” Further adding, “of course, if these families can obtain permanent residency in Canada, the tax does not apply to them.”
Few words, but a lot to unpack. She broke down the market into two segments – wealthy trophy hunters, and immigrants. Trophy hunting types of buyers aren’t restrained by income, because… those buying $10 million homes don’t have problems like us scrubs. There is no financial hurdle large enough for these buyers.
Immigrants, she believes, will buy lower priced properties by factoring in the tax, or delay until post-immigration. This point would have an interesting impact. More demand for lower priced property, would place more pressure on the floor of prices. That’s Monopoly Man talk for the cheapest homes get eliminated. Although if they delay until after immigration, there’s no foreign buyer tax.
Vancouver Is “Overpriced,” Mainland Chinese Buyers Peaked In 2015
Law argues that Mainland Chinese demand for Vancouver has peaked, and passed. “Our data shows that Chinese buying interest in Vancouver peaked in 2015,” she explains. Adding “The overpriced market and lack of inventory has restrained Chinese demand since that time. This [BC’s 2018] Budget is two years out of date in addressing a problem we believe no longer exists.”
The declines of Mainland Chinese buying activity are confirmed by several data points. People’s Bank of China (PBoC) numbers show outflows from China were at its worst in 2015. They then tapered until reversing last year, meaning more money is going into China than leaving. The BC and Ontario governments have both produced property transfer data showing a decline in non-resident buying. Neither government was quick enough to measure 2015 data.
Law did have some insights on the future of prices action for the Canadian market, but we’ll leave for next week.
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