More Young Foreign Buyers Are Taking Out Mortgages For Canadian Real Estate… Kind Of

More Young Foreign Buyers Are Taking Out Mortgages For Canadian Real Estate… Kind Of

Canadian real estate is seeing an increasing number of mortgages go to non-permanent residents. A report from Canada Mortgage and Housing Corporation (CMHC) shows a rise in the number of mortgages serviced by non-permanent residents. The report is shocking to some, but it’s worth remembering it only covers 2014 to 2016. Despite the data showing a rise, the series ends before the landscape of foreign buying was drastically changed by the Chinese government.

Increasing Share of Mortgages Up To 2016

The share of mortgages going to non-permanent residents in 2016, sat at all-time highs in Vancouver, Montreal, and Toronto. Vancouver, where it’s been a known issue for some time, saw a total of 3.9% of mortgages go to non-residents in 2016. In Toronto, 2.7% of mortgages went to non-permanent residents. In Montreal, that number reached 1.9%. Looking at the data over time, we can see how this trend evolved (or peaked).

Source: CMHC. Better Dwelling.

Total Share of Non-Permanent Resident Mortgages Is Huge In Vancouver

The share of mortgages held by non-permanent residents is really high in Vancouver. CMHC estimates 2.6% of all mortgages, are held by non-permanent residents in Vancouver. To contrast, Toronto is in second place with 1.1%, and Montreal is in third with 0.5%. Vancouver has more than twice the ratio of Toronto, and nearly 5x the ratio of Montreal. This is why it’s laughable to people in Vancouver, when Montreal says it has a foreign buying problem.

Source: CMHC. Better Dwelling.

These Foreign Buyers Are Mostly Young

CMHC analysts also highlighted how young these non-permanent resident mortgages holders are. In 2016, Vancouver saw 4.7% of mortgages issued to people under the age of 45, go to non-permanent residents. Over the age of 45, 3% of mortgages go to non-permanent residents. In Toronto, 3.4% of mortgages issued to people under 45, go to non-permanant residents. Only 2% of mortgages to people over 45 in Toronto, go to non-permanent residents. In Montreal, 1.4% of mortgages issued to people under 45 went to non-permanent residents. That falls to 1.4% of mortgages issued to people over 45, go to non-permenent residents.
Looking below at how that number has changed highlights a pretty big issue. Non-permanent residents are increasingly consuming a larger share of mortgages. Most of this share is coming at the expense of young Canadians.

Source: CMHC. Better Dwelling.

That Was Then, This Is A Post-Capital Control Market

Is foreign buying a trend that’s still exploding in growth? In typical government fashion, the CMHC is taking note of the issue after it has started to resolve. The overseas real estate buying process for  Mainland Chinese was dependent on the circumvention of capital controls. These controls limit each person to converting US$50,000 worth of yuan to foreign currency, per year. Not even enough for a downpayment on a house in Vancouver. The way around this, is a process called smurfing.

We’ve done a whole write up on how smurfing works, but the gist is you borrow other people’s capital allowance. This increases your US$50,000 capital export limit, to an amount limited only by the number of people you can find to smurf money for you. From 2014 to 2016, one of the largest capital migrations in history occurred, with over US$1 trillion leaving China. Much of this ended up in real estate, an asset that has a long history of being used as an inflation-sensitive hedge in Vancouver.

Starting in 2017, China cracked down on this – hard. The strictest round of capital controls were rolled out to curb the outflows in January 2017, and “save China’s reputation.” Borrowing other people’s capital allowances became forbidden, and you now need an approved reason for the exchange – real estate buying not being one of them. There’s still methods to circumvent the controls, as we’ve discussed with former JP Morgan VP, Dr. Joseph Wang. It’s just not as easy as it once was. The People’s Bank of China (PBoC) also recruited 400,000 people to crackdown on outflows, to make it as difficult as possible.

Global real estate markets noticed this almost immediately. Markets favoured by Mainland Chinese buyers, like Australia and New Zealand, are seeing significant declines in buying activity. Even Hong Kong, the easiest place to smurf into, is now seeing developers turn away due to Mainland Chinese capital controls. Canada, which has one of the most opaque real estate markets in the world, continues to debate whether this is an issue. It’s super easy to spread FUD, when there’s no verifiable data for the market.

I’m sure in two or three years, we’ll get an official government answer. Until then, those looking for more immediate numbers, should look to the 34% decline we’ve seen in wealthy immigrants last year. I know this is going to make many Vancouver agents shed a tear, but the money train has probably left. Although I’m sure many of you are being told you need to buy before a foreign buyer scoops your only chance at homeownership.

Note: Non-permanent resident buying is different from foreign pre-sale financing. Many presale projects are sold overseas, and sold back to the market as assignments before the building registers. This form of buying is minimally impacted by Chinese capital controls, although judging by the surge in overseas selling fees, it’s becoming harder to sell these as well. Investors aren’t stupid, they’re looking to make a buck – which is more difficult once the market starts falling from peak.

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  • Michael Z. 6 years ago

    Definitely saw a lot less Mainland Chinese buyers last year, or proxies for them, and this explains a lot. The main issue is with immigrants buying passports, and just going overseas afterwards. No intention of contributing to the country, but occupying prime real estate in the country’s economic hearts. THIS is the problem.

    • Trader Jim 6 years ago

      Keep in mind that these buyers that manipulate our immigration system are permanent residents, so they don’t count in any of these numbers. Same with millionaire visas Quebec issues. These people wouldn’t even be impacted by a complete ban on foreign buying.

      The only way to resolve this would be a vacancy tax on anyone that doesn’t occupy their home for 181 days. If you work overseas for 181+ days, you may not have to pay local taxes. You should have to pay a local occupancy fee then.

  • BA Baracus 6 years ago

    What’s FUD?

    • Mika 6 years ago

      FUD = Fear Uncertainty Doubt. It’s business slang for when an executive goes on the news to give a “breaking” detail, but the detail is just false or misleading information to drum up business.

      It’s a funny observation in hindsight. The agents I’ve seen probably don’t deal with foreign buyers (i.e. white agents), and are on the news every other day now to say foreign buyers can’t be stopped. Dummies are mislead into thinking they’re geniuses when they get to the conclusion “I need to buy a house, before they buy them all! Then I can sell it back to them!” In actuality, your genius conclusion was by design of sleazy sales tactics.

      Same thing happens with pot stocks, bitcoin, etc.. It’s Canada, so there’s no way to check whether its true, and the news generally doesn’t require any data points.

  • Ali 6 years ago

    Foreign buyers are going to continue to buy real estate in Canada because a) it’s a safe country to stash your money in, and b) Canadian real estate has and always will be a good investment. No boom and bust cycle like our neighbors to the South.

    • Alistair McLaughlin 6 years ago

      No boom and bust cycle like our neighbors to the South.

      Google “recency bias”.

    • Cliff 6 years ago

      yes, we are the only market in the history of mankind (peoplekind?) that will never experience a bust.


    We need to ban all non-residents from buying real estate in Canada. New Zealand is doing it. We need a government that will react to these issues.

  • Investor 6 years ago

    “foreign pre-sale financing. Many presale projects are sold overseas, and sold back to the market as assignments before the building registers.” If it’s what I interpret it to mean, then the foreign buyer numbers being put out is a joke! How can this be allowed by the government – isn’t this why the market is so speculative in nature?

    • Not A Sketchy Developer 6 years ago

      Pre-sale numbers are much, much larger than the foreign buying numbers we receive from the government. Most developers aren’t going to tell you where their money comes from, but Brad Lamb once said 50% of condos are foreign owned.

      We now know that’s not the case, but I’m assuming he said that because he half of his assignments were being sold to foreign buyers. He probably had no idea they were going to flip them all into the market right before the buildings register.

    • Minsky's Moment 6 years ago

      Toronto pre-sales are being sold overseas at a huge discount to bulk buyers right now. I’ve seen some development prospectus for 20 – 30% below local prices. Or cheaper unit configurations sold overseas, and only luxury ones sold here.

      Developers price at future valuation. If developers are unloading at 30% below market overseas, that means they think the value will be down 30% in 2-3 years. Those units sold overseas are probably breakeven sales, and the local ones are their “profit,” which are sold last.

      • L 6 years ago

        Can you show an example? I have doubt about what you’re saying… cause
        1) developers don’t make 20 – 30% margin (your assumption already means they’re willing to take a loss on each unit).

        2) which developer would predict that values would be down 20 – 30% cheaper; they would never be able to underwrite a deal at current land prices / hard costs.

        3) most big developers would just land bank and only sell when they’re making a profit.

        • Davos Was Fun 6 years ago

          Not the original poster, but the questions you asked are remarkably easy to answer if you think about it.

          >> 1) developers don’t make 20 – 30% margin (your assumption already means they’re willing to take a loss on each unit).

          Developer decides to build a condo in Jan 2016, does the math, buy the land, calculates the cost to carry, works out profit. By Jan 2018, the market price of units is 40% higher. If margins were only 20% at the time, that’s an extra 40% of the value as pure margin. The 40% is also inflation adjusted by CREA, so the cost of labour and materials adjusted as well. You think all of a sudden, he lost their previous margins, and the new margin? Poor developers. He should be making almost 60%, but instead he’s just giving away his money for kids. So sad.

          This also assumes they didn’t own the land before 2016.

          >> 2) which developer would predict that values would be down 20 – 30% cheaper; they would never be able to underwrite a deal at current land prices / hard costs.

          You were doing the math wrong. Does your question get answered now?

          >> 3) most big developers would just land bank and only sell when they’re making a profit.

          Totally not being mean, but I’m not sure if you have a land economics background (or general exposure to it). If this is the end of peak development cycle, they’ll be holding for another 15-20 years to get peak land valuation again. This is why mega developers like Concord Pacific are finally developing the last of City Place, which they bought 20 years ago, just after the last crash.

          Better to develop now, than land bank plots. Remember, only 3% of land was earmarked for residential development was used in between 2006 and 2016 in Greater Toronto. There’s plenty of land, developers just want to get the government to give up some cheap greenbelt development space. Real estate agents are just not educated enough to understand the development cycle, and we’re sure as fudge not going to explain it to them.

          • L 6 years ago

            @ Davos – Not sure how well versed you are in the space but you’re certainly doing the math wrong.

            Assume current UW on a piece of land DT today.

            $950 per saleable (Lets ignore tax)

            Land – $250 per saleable zoned
            Softs – $225 per saleable
            Hards -$ 325 per saleable
            Total Costs – $800
            Pre – tax and discount Profit $150

            Discount (25%) – $250 per saleable

            profit: -$100

            * costs aren’t changing for developers, please tell me how deals are underwritten at any cheaper than today. In fact developers are seeing cost continued escalations across the board and will need to continue to raise prices to make deals work. You can argue that 2 years ago, land was only $80 per buildable (which equates to $100 per salable.) but assuming a 2 year planning process and were to build today, softs / hard costs are as noted above.

            It’s people like you who have the perception that Developer’s are the ones who are the sole benefactors of this price hike and go into the space blindly thinking exactly that.

            If there are groups selling condo’s at 30% discount bulk, i suggest we gather and make purchases together.

        • Davos Was Fun 6 years ago

          In your mind, developers that land bank make nothing by holding? By your logic, the cost of land increasingly goes up, even after they buy it? No benefit to holding, which brings up why would you land bank at all?

          Your logic is pretty shaky at best. Better do another weekend worth of Realtor school, so you can continue to argue contradictory points at the same time. Glad new Realtors need more than a few hours starting this year.

          • L 6 years ago

            LOL nice rebuttal Davos…. nice one. It’s clear you have a lack of intuition and knowledge regarding this topic, let alone shaky… But let me educate you- If you were in-tune with whats happening within the development space, you would account that hards are expected to be up 10% YoY, DC hike may be over 80% pending review this fall, and another reason fueling 2017 push aside from price hikes is the abolishment of the OMB (creating uncertainty for all land unzoned). The reason why you can’t have developers expect prices to decline is because the (land seller expectations, low supply of trades, tight planning/ government policies) are preventing prices from going down.

            Without even doing the math, one would think ~ why would anyone sell a product 30% cheaper when demand forces are stronger than supply?

            Next time, do you research before you chime into a conversation you have no knowledge of.

  • Knotmi Reelnm 6 years ago

    This article says capital control regulations came into effect shortly after 2016, but this is irrelevant because China only cracked down on bitcoin recently (late 2017), so there was an entire year of 2017 for foreigners to continue racking up residential land banks. I suspect 2017 saw an increase in this percentage.

    • Old Bitty 6 years ago

      Why do people that have no idea how Bitcoin works, keep spreading garbage about Bitcoin? You can’t buy houses with Bitcoin, you need fiat, to at least pay the land transfer taxes. Withdrawing that amount of money would incur fees that would be far in excess of a foreign buyer tax. In addition, the purchase of that much Bitcoin would have alerted the PBOC, and the withdrawal of it would alerted FINTRAC and the CRA. I know some people think it’s magic anonymous money, but that only applies if you never have to make a fiat transaction (i.e. you’re buying drugs). Even then, not all that anonymous.

      Also, if you had Bitcoin one year ago, you think people traded it to buy a Vancouver detached house to lose 10%, rather than keep the bitcoin and make 400% ? The only reason they were buying a significant amount of real estate, was because Canadian banks were helping them circumvent China’s capital controls. If they already have the money in Bitcoin, they don’t need to circumvent capital controls. Who needs your Vancouver bungalow in this case?

      That’s why detached units have been falling so fast, and condos are rising. Local morons still think they need to fight to own before a big bad foreign buyer steals their chance at owning a stacked box. People that you that have no idea what they’re talking about, drive these idiots to the market.

  • Bob 6 years ago

    “the money train has probably left”

    Let me suggest this: before making definitive pronouncements, why don’t you offer to sell someones house for them on the west side of Vancouver?

    (I am not a realtor, but I’ve helped ‘sell’ a few house for the owners over the last few years, it is a $500 flat fee for an MLS listing, which is all you need. Now back to my point …)

    If you offer a house on the west side, there are only 2 classes of people that can afford to buy one: offshore investors (mostly from China, but not exclusively) or locals who just sold there even more expensive house to an offshore investor. That’s it. Nobody else will come look at your house (outside of nosy neighbors), because nobody earning a Canadian salary can possibly afford it!

    Bottom line: if you want to know who is currently buying: put up a west side house for sale and see who comes to look at it!

    Until every run-down shack in Dunbar is no longer selling for anywhere near $4,000,000, the train has clearly not left. You will know that the foreign-money train has left when prices match local salaries. Let’s say a power couple earning $200,000 each, take out a mortgage at the high end (5x salary). That means they can afford, at the top of the food chain, to pay $2,000,000 for their house. Which means a nice place in Dunbar shouldn’t cost over $2,000,000.

    In reality, Vancouver prices would need to come off at least 70% for houses to be priced for locals. Until that happens, the foreign money is obviously still in play.

    • bluetheimpala 6 years ago

      Hi ‘ComFree’ Bob, one oversight with your post is that it takes at least a couple quarters potentially 1-1.5 years to see the full extent of the correction. That’s in a normal market where uber low rates and shadow banking don’t come into play. Rates are coming up (I want 3 more woot!) and the capital controls as well as increase scrutiny over foreign $ is going to come to fruition in Q3-Q4. That’s what we know; I would expect/hope our PM Baby T to do some political vote buying after NAFTA is settled and make this a priority. Hopefully the Senate, for example, takes this cause on.
      Also, and take this for what you will, with heavy Chinese investment don’t forget how their culture works; it is closed from outsiders and a lot of transactions happen off to the side to reap a profit off of late entrants who generally come from lower castes (similar to South Asians). If I want my capital out I will overpay especially if my Chinese friend/relative makes it easy and EVERYONE says it is sure thing. And they like to save face; never undervalue what a rich chinese person will do to not look like a fool (heck Xi literally props up entires industries so not to look foolish). . Look at the chinese stock market and debt market; it is a complete mess partially due to the factors above and a general naivety about investing. So many interesting aspects


      • Bob 6 years ago

        So you are saying that wealthy communists still want their money out, and they are willing to overpay, because everyone is doing it and everyone says it is a sure thing (which kind of makes sense because prices have been untethered from local conditions for 15 years now).

        What part of this is supposed to make me think that the money train has stopped running?

    • Bob 6 years ago

      “Vancouver is now a kind of free trade zone for gangland money launderers, absentee offshore real-estate speculators, Chinese princelings on the lam and globe-trotting tax frauds. ”

      British Columbia had become reduced to “a jurisdiction where the rules do not apply to white collar crime, fraud, tax evasion and money laundering, where even if the rules do apply, enforcement is absent.”

      “Among the sleazier aspects of the Liberal legacy was a peculiar toleration for dirty money being laundering through B.C.’s licensed casinos. ”

      What’s this? A Christy Clark and Gregor sleaze expose? A bit late to help the natives now isn’t it?

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