Vancouver

Vancouver Real Estate Sees A 91% Decline In Luxury Foreign Buyers

Vancouver Real Estate Sees A 91% Decline In Luxury Foreign Buyers

The deep-pocketed foreign real estate buyers Vancouver has become famous may be gone. According to the latest numbers, foreign transactions above $3 million are dropping fast. No, foreign buyers didn’t disappear. They’re buying lower priced units, and it has more to do with China than BC’s tax.

Luxury Segment Is Declining

Foreign buyers looking for Vancouver’s luxury real estate declined very fast. According to the most recent numbers from B.C. Ministry of Finance, sales of homes over $3 million declined by a whopping 91% from the July peak. Only 8 luxury properties were bought by foreign buyers in November. In case you’re wondering, November is the last data point that was published. December seems to have been skipped, which leads me to believe it wasn’t a month worth bragging about either.

Foreign Sales Above $3 Million In Vancouver

Foreign Buyers Are Buying Cheaper Properties

Foreign buyers didn’t retreat – they’re actually showing steady growth. The 4 most recent months of data actually show month over month increases. The change seems to be the type of home involved in transactions.

The median price bought by a foreign buyer has declined for the 4 most recent months of data. From July peak, prices declined 28% to $516,650, 3% lower than the first set of data collected. In case you didn’t catch that, buying is showing steady growth in the data set for the number of homes bought. Foreign buyers are just buying at a lower price point. I haven’t confirmed with any of the BC Liberals, but I’m pretty sure that wasn’t the plan.

Median Price of Foreign Transaction of Vancouver Real Estate

It’s Not The Tax, It Was China

We should consider China’s involvement before we thank the BC government. 2015 was one of the largest years for outflows in China, and slowed with the February 2016 crackdown. BC experienced a decline in sales from that month on, although prices continued to climb. Capital then slowly poured out of China until November, when the State Administration of Foreign Exchange (SAFE) reported that foreign exchange reserves approached the $3 trillion mark.

The $3 trillion mark is a psychological support that China has tried to preserve, and with reason. Analysts estimate China needs $2.6 trillion to $2.8 trillion to meet the International Monetary Fund’s (IMF’s) reserve adequacy. Whenever reserves approach US$3 trillion, there are quick moves to defend the level.

New crackdowns occurred as this number approached, which  reduced the outpour. December saw only US$41 billion leave the country, 20% less than analysts were expecting. They didn’t stop there though. New restrictions were further added to reduce foreign exchange of capital last month.

Even if you’re unfamiliar with how real estate works, you know that cash is a major requirement. New capital controls have made it increasingly difficult to get capital out of China. From the looks of it, the initial crackdown throttled capital, and sent buyers to lower priced units. It’s too soon to confirm the impact of the latest new controls, but initial numbers don’t look great.

Photo via PNWRA


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6 Comments

  • Reply
    Vancouver makes about-face on taxing foreign home buyers | Property Report 7 months ago

    […] city, have been decelerating due to a series of crackdowns by Beijing on capital flight. Only USD41 billion in outbound capital flows left China in […]

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    Vancouver home sales are crashing 7 months ago

    […] the pain could just be getting started as foreign buying has evaporated. Luxury foreign buying has plunged 91% drop since July as a result of China cracking down on money flowing out of the […]

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    Vancouver makes about-face on taxing foreign home buyers - Cambodia Property 7 months ago

    […] decelerating due to a series of crackdowns by Beijing on capital flight over the past year. Only USD41 billion in outbound capital flows left China in […]

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    Rick Abrams 6 months ago

    I am writing about the Los Angeles article which I think is excellent. There are few points which I think you should know about Los Angeles.

    (1) We are not growing fast. According to USC Sol Price School of Public policy, we are only growing slowly that that is due to an excess of births over deaths and emigration. New-borns do not rent apartments. The death rate for the Baby Boomers is apparently low right now, but they should change as they age. If they had the death rate of former generations, it is possible LA would be losing population.

    (2) We are losing Family Millennials, Their birth rate peaked 26 years ago, That means there will be fewer young Millennials and the older ones are starting families and moving away from LA since the housing costs are exorbitant. The rate at which Family Millennials are leaving could cause LA population to drop. Things are deteriorating faster than predicted.

    (3) Affordable Housing is a scam — also in LA, “affordable housing” should not be used for rent controlled apartments [RSOs]. They are not the same thing. Affordable Housing actually has no real meaning, which is why the City uses it. It is harder to prove that they are lying when there is no definition of the term. Rent controlled units have to have been built before 1978 and thus once one is destroyed, it can never reappear. What they call “affordable” housing does not replace the destroyed rent controlled units.

    (4) While Los Angeles is beset with similar problems as Vancouver with its Smart Planning, LA’s most serious problem is the corrupt vote trading pact at city council. The reasons no one including Measure S will speak about the criminal voting trading (Calif Penal Code 86) are complex and idiosyncratic to LA. However, the vote trading pact is the engine which fuels our rapid decline.

    Under the pact each councilmember agrees to vote Yes on every project presented to the council by another councilmember and in return all the other councilmembers agree to Yes on his/her project. Thus, every project passes unanimously. The illegal vote trading pact is so ingrained in the system that the City Council’s vote tabulating automatically machine Votes YES. No councilmember ever has to actually vote.

    That is how the corruption is held together. When a councilmember is bribed, he can guarantee unanimous passage of the project no matter how many laws it violates. If the developer did not know that his bribes would result in approval, he would not waste his money. If the developers had to bribe a majority of our greedy councilmembers, it would be too expensive. As a developer got close to bribing a majority, the last councilmembers would hold out for a king’s ransom. Under the criminal voting pact, each councilmember is guaranteed his bribe money and the developers are guaranteed his unanimous approval. You can look at Penal Code 86 and see that it criminalizes all vote trading at the city level.

    Naturally the bribes are the greatest for the largeest projects. The district attorney is financially dependent on the same developers.

    (5) The city subsidizes the developers due to their high vacancy rate. Thus, the city is again insolvent but it can still borrow money. From what we gather, the city plans to Federalize its debt by threatening to BK in the future. That was before Trump was elected. The plan may be the same. I do not know.

    http://bit.ly/2hY8hGD January 5, 2017, CityWatch, Scientific Theory of LA’s Decline, by Richard Lee Abrams

  • Reply
    Vancouver home sales are crashing | Business Insider Malaysia 2 months ago

    […] the pain could just be getting started as foreign buying has evaporated. Luxury foreign buying has plunged 91% drop since July as a result of China cracking down on money flowing out of the […]

  • Reply
    Vancouver home sales are crashing | Business Insider Malaysia 2 months ago

    […] the pain could just be getting started as foreign buying has evaporated. Luxury foreign buying has plunged 91% drop since July as a result of China cracking down on money flowing out of the […]

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