The foreign buyer tax may not have had the impact BC Liberals were hoping for. Juwai, China’s largest international property portal, has seen a surge in inquiries for homes. Huh? I know what you’re thinking, demand is down – but it’s not down in the way you would think. Foreign buyers are making less risky investments, and that will likely drive low-end prices higher.
Vancouver’s Lower Priced Real Estate
Juwai, China’s multibillion dollar property behemoth, saw inquiries surge 8.3% for homes under a million dollars, in their largest segment. It’s unclear if buyers are pricing in the tax, but the increased demand will likely have an impact on Vancouver’s market. Lower priced properties should expect a spike in Canadian dollars. Meaning this mule might be far from dead.
Vancouver’s Luxury Real Estate
They also saw a drop of 55.6% in luxury real estate. This represents a smaller segment of their business, but it does explain slowing demand. Not that people aren’t curious. “Property detail views have increased 14.1% in August” according to Matthew Moore, Juwai’s president of North America. People are likely waiting to see how values move.
“Before making a move in a new regulatory environment, people want to understand it,” Moore explained. “Our call center gets a lot of questions about the new rules, what the impact might be on the buyer’s budget and on the long-term safety of the investment.”
This adds an interesting layer to the story of Vancouver’s real estate. The last minute foreign buyer tax doesn’t appear to be a barrier financially. They more likely see it as an irrational move that could be followed by others. Like any smart investor, it appears foreign buyers are waiting for more information.
The media portrayal of Chinese buyers is that they are nefarious fraudsters, waiting to scoop up your home. In actuality, China produced 1,200,000 millionaires in 2014 – that’s a new millionaire every 30 seconds. The number one reason those millionaires purchase property overseas, is to house their kids. As a result, university demand is highly tied to the real estate markets they’re seeking out.
Moore added, “If the drop of buying is sustained, then it will be interesting to see if Vancouver schools and universities see a drop in enrollment”. An interesting point since BC’s foreign students are a huge driver of the economy. In 2014, 114,600 international students went to BC to study – spending $2.3 billion. That’s almost 1% of BC’s whole GDP, just from foreign students.
The BC government set a target to increase that number by 50% in 2016. No word on how close they are to meeting it, but China represents 25% of those numbers. If they feel unwelcome, this could represent another blow to the BC economy. One that was already heavily reliant on China’s real estate buyers.
Moving To Other Cities
Toronto has always been Juwai’s largest city in Canada, and demand is increasing. “The shift [from Vancouver] to other cities has actually been going on for months, with buyer demand momentum shifting to cities with similar appeal but lower entry prices” further noted Moore.
Los Angeles, previously the city with the largest foreign demand in North America has been displaced by Seattle. The luxury drop in Vancouver likely contributed to this. Moore added “we see Seattle benefitting most, along with Toronto, Calgary and Ottawa.”
It’s too early to tell what impact a foreign buyer tax will have, but it is interesting to see it may not be what people anticipated. The hastily applied tax could bring more affordability problems, as demand concentrates to lower priced properties. It could also be a blow to BCs education industry, further compounding the anticipated economic pressure. It’s no wonder Ontario wants to wait and see how it works out in BC before even investigating its own tax.