The most important book on Canadian real estate you’ll read this year isn’t about demographics or interest rates. It’s investigative journalist Sam Cooper’s new book, Wilful Blindness: How A Network of Narcos, Tycoons and CCP Agents Infiltrated The West. The controversial best-seller outlines how business tycoons and China set out for a power grab 40 years ago. The quiet cities of Toronto and Vancouver played important strategic roles. What followed was a flood of narcos, corrupt officials, and hockey bags of money.
The issue has been occuring in Vancouver for decades, but it only recently became visible. This transition from a place with a discreet underbelly to Gangster’s Paradise happened after the discovery of Canada’s weakness — real estate. It turns out tax free capital gains was more than ideal for money laundering. Since Canada was so dependent on real estate, most officials ignored warning signs.
In fact, they actually cheered on the laundering. They even gave local buyers access to greater credit to compete. Over in rural Ontario, buyers now play bidding wars just like they do in big city Vancouver. Adorable, right?
There are hundreds, if not thousands, of takeaways from this book — for all parts of the economy. Let’s talk about three key takeaways, relating specifically to real estate markets.
Opportunity, Or A Well Organized Plan?
Cooper’s book is primarily about the global ambitions of the Chinese Communist Party (CCP). More specifically, how Canada played a significant role in achieving its ambitions. It may seem like a crime of opportunity, but he provides almost 500 pages of evidence painting a different picture. Foreign officials, drug cartels, intelligence officers, and business titans allegedly collaborated in ways most sports teams would envy.
Evidence of this meticulous planning and execution goes back to the early 1980s. Canadian intelligence officers acknowledged it publicly in the 1990s. Canada didn’t move to curb the power grab due to a lack of resources either — it was just poor governance. That and a few alleged bribes, and infiltration of high level Canadian officials.
One chapter in particular highlights why the issue became so public recently. Triads, transnational criminal gangs, and Chinese Intelligence exploited the country’s biggest vulnerability. “… they moved into real estate and finance, Canada’s soft spot for economic infiltration.” says Cooper.
Real Estate Insiders Were One of The Biggest Whistleblowers
A key point for understanding the market is when Cooper lets us know how MLA David Eby became concerned. The Vancouver politician, who is now the BC attorney general, received complaints from real estate insiders. They explained offshore buyers were using real estate agent addresses and accounts to buy homes. Not all that scandalous, but they stumbled onto something more interesting.
It wasn’t just rule breaking, in many cases it was a part of a scam to move money. Offshore buyers would purchase a home from a Canadian seller, and then flip it multiple times. Not a few months later either, the purchase contract was flipped a number of times to anonymous pools of buyer’s in a matter of weeks. Each time a profit was generated locally, providing a clean source of money in weeks. This is often indicative of money laundering, but most people don’t even think about it. Often, people just assume it’s a hot market, and mimic the behavior they see — everyone is doing it, right?
Money Laundering Can Drive Home Prices A Lot Higher, In A Short Period of Time
I’ve spoken more in-depth about money laundering and home prices, but let’s do a quick overview for new readers. When a money launderer buys a home, they aren’t looking for a home. They’re looking to move as much capital as possible, in as few steps as possible, as quickly as possible. It’s great, because it turns out sellers would like to sell for as much as possible too.
This alignment of interests is how home prices rise much faster than normal. Typically a buyer wants the best deal, and the seller wants the most money. Opposing interests help to balance demand. If both the buyer and the seller want the price of a home to rise as much as possible, prices jump very quickly.
The laundered home doesn’t happen in a vacuum though — it’s in the middle of a public market. This impacts people in two ways, comparables and competition. Once a home is sold, it’s used as a comparable or “comp” for figuring out the prices in a neighborhood. Now the home used to launder influences how much every home in a neighborhood costs.
Even if your home has nothing to do with money laundering, it’s nearly impossible to tell which comps do. Maybe it was a first-time buyer that was tired of bidding wars? Maybe it was a real estate developer looking to create a land assembly? Maybe it was a corrupt foreign official or fentanyl dealer, looking to clean a few hockey bags of cash? It’s near impossible for regular buyers, or agents, to tell.
Competition also plays an interesting part, since legitimate buyers run into these buyers. This allegedly leads to interesting situations, but more importantly it’s hard to tell. How can you tell if you’re in a bidding war with a legitimate buyer, or one with incentive to drive prices higher? You can’t.
No One Seems To Care Where The Money Is Coming From
China’s capital controls restrict anyone from transferring significant money out. This has led to a number of circumvention techniques to obfuscate the true source of capital. While the majority of capital from China is likely legitimately earned, there’s no way to tell.
Obfuscating the origin of cash means it could be someone’s mom sending a Lambo payment… or a criminal trying to move illicitly earned capital over the border. Once again, impossible to know, and Canada largely lets it thrive on the argument it’s probably mostly clean. It’s one of the biggest gifts criminals could possibly receive.
Knowing that brings up a lot of questions about some of the characters mentioned in the book. CCP officials in expensive homes, driving Ferraris for instance. I can respect the love of a fine car, but it’s a little odd on modest government pay.
At one point, Cooper realizes his reporting makes a big intersection at a little casino. He finds out some of the world’s richest people are hanging out with Chinese police and military in Vancouver… at the same casino where money laundering experts say the Vancouver Model was born.
How Canada’s Housing Crisis Is Related To Its Fentanyl Crisis
In a housing bubble, no one wants to touch any factors that pop it — even if it’s transnational crime. Criminals know that as well, which makes it a prime target for operations. Real estate laundering in Canada was so popular, Cooper even obtained a government document where an Australian anti-money laundering expert gave it a name — the “Vancouver Model.”
The Vancouver Model mixes legal and illicit cash, such as that from fentanyl sales. The pooled money is then used to buy high-end real estate, funded by capital flight and casino high rollers. The real estate is then used as a sort of deposit, helping to feed the insatiable need for luxury real estate.
The more fentanyl sold, the more luxury real estate is needed. It doesn’t matter how big it is, it just needs to be expensive. Diabolical, but genius. Maybe Canada should consider fentanyl deaths a market fundamental?
Surprisingly, I’m only unpacking three things related to real estate in the book. There are literally dozens of other issues presented, including Canadian intelligence warning about how real estate is a threat… back in the 1990s. Yes, the most important book on Canadian real estate this year is about spies and drug cartels. At least you’ll have some interesting beach reading.
If you wrote this situation into a movie, it would be considered too unbelievable. Yet here Canada is, the largest real estate bubble in the world.
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