Join 3,416 readers in helping fund MetaFilter (Hide)


Real Estate Goes Global
May 25, 2014 11:18 PM   Subscribe

We’re all familiar with the stories of Russian oligarchs buying up mansions in London, but this is a much broader phenomenon. A torrent of capital from wealthy people in emerging markets—from China, above all, but also from Latin America, Russia, and the Middle East—has flowed into the real-estate markets of big cities in other countries, driving up prices and causing a luxury-construction boom. ... The globalization of real estate upends some of our basic assumptions about housing prices. We expect them to reflect local fundamentals—above all, how much people earn. In a truly global market, that may not be the case.
James Surowiecki writing in the New Yorker on the rise of a truly global market in real estate.
posted by Jasper Friendly Bear (87 comments total) 17 users marked this as a favorite

 
Interesting article. I wasn't aware that Vancouver real estate was viewed as a hedge against climate change, partly because the class of investor buying Vancouver condos from afar would seem less likely to acknowledge that climate change is an issue.

It might make more sense if the Vancouvers of the world simply charged foreign buyers a premium for the privilege of owning there.

This seems like an obvious way to shift the incentives towards local buyers and away from investors, incrementally, and has the virtue of being both revenue generating for the city and basically a market solution. Done prudently, it shouldn't even cause volatility, just a cooling down in the velocity of the market in the same way the interest rate is treated as a lever on the economy. Perhaps that's naive, though: If you're going to tinker with something that a large number of people have a very quantifiable stake in, you're going to trigger some opposition no matter you do it.
posted by fatbird at 11:25 PM on May 25 [3 favorites]


Seems pretty thin.

I know in Melbourne there are the occasional stories about Chinese buyers driving up prices, but I wonder how real it is. The stories always seems to be at the level of "anecdata" rather than an actual survey of buyers and their origins.
posted by awfurby at 11:25 PM on May 25 [2 favorites]


Rock the realtorsphere.
posted by planetesimal at 11:32 PM on May 25


It's not just for the rich people's personal speculation either. For only $3000 you too can own a bit of the US property market by buying into the Vanguard REIT Index ETF.
posted by Talez at 11:39 PM on May 25 [6 favorites]


I know in Melbourne there are the occasional stories about Chinese buyers driving up prices, but I wonder how real it is

If you walk around the city in the evening, how many apartments have the lights on?
posted by devnull at 11:49 PM on May 25 [2 favorites]


I used to have a job in North Vancouver across the water from Coal Harbour in Vancouver.
My work space faced the water and in wintertime, when occasionally I would work late, and it was dark, there were very little lights on in the Coal Harbour condos.
This was when most, if not all the towers were pretty much sold.
So yeah, on those late nights I used to wonder about that.
Investment properties indeed.
posted by Phlegmco(tm) at 11:49 PM on May 25


What I don't get about this explanation is why you would invest in such a place and then leave it vacant. Surely a profit maximizing entity would seek to rent out the space they're not occupying, and while this might move property prices up, it shouldn't affect rents all that much.

I guess what I'm saying is, if this is all true, there's a huge property management business opportunity for someone who speaks Mandarin or Persian.
posted by pwnguin at 11:52 PM on May 25 [3 favorites]


So the three sources in that article regarding Vancouver are an architectural firm, a realty company, and a "think tank" notorious for promoting property developers' interests. Caveat lector.
posted by junco at 12:05 AM on May 26 [5 favorites]


While the article's sources may be biased towards rah rah real estate, I'm aware of a paper done by an SFU professor of public policy that came to largely the same conclusion, about foreign investment in real estate being a major driver of the lower mainland economy and condo market. In some ways it was viewed as a positive, a diversifying stream of money that balanced fluctuations in BC's heavily resource-extraction and film-industry based economy, but the problems are also obvious.

Surely a profit maximizing entity would seek to rent out the space they're not occupying

And they do, as much as possible. There's tons of high end rentals in Vancouver, especially downtown, but unlike New York or San Francisco, you don't have a colocated economic engine driving occupancy. Short version, there's a glut of premium rentals available, and Coal Harbour being especially rich, it's that much harder to get 'acceptable' tenants.

From discussions with realtors, the situation in Vancouver is especially chancy because the investment money isn't flipper money, it's holding money. In other words, bubble prices in a sluggish market full of owners who can afford to wait, so no one's that sure if the market price is accurate.
posted by fatbird at 12:20 AM on May 26 [7 favorites]


previously in London
posted by bleep at 12:37 AM on May 26 [1 favorite]


There's something so very late-stage capitalism about the wealthy buying property to just sit and rot because they can't think of anything else to do with it but god forbid you let someone else use it and lower your property values.
posted by Ghostride The Whip at 12:55 AM on May 26 [47 favorites]


fatbird: "Short version, there's a glut of premium rentals available, and Coal Harbour being especially rich, it's that much harder to get 'acceptable' tenants."

This still doesn't reconcile with the whole supply and demand thing, which offers a simple method for finding tenants to fill your glut of premium rentals when you can't find anyone who can afford them: lower rent. I don't have any evidence either way on Vancouver BC, but I assume that's not happening. So why would owners prefer to leave rentals unoccupied? Is it easier to get and keep financing for a high vacancy, high rent building than a normal vacancy, normal rent building?

Or maybe rents are falling, since the article cites price-to-income ratios and price-to-rent, but not the actual rent level. And if rent is flat while prices are rising, who cares? Enjoy your rental unit, subsidized by Chinese policy. And the public services, financed by property taxes that do not appear to affect your rent. Homeownership is not and should not be the only avenue to the creation and storage of wealth, nor should we treat it as the end goal of every law abiding citizen's toil.

I guess what would really help me understand this is good old data. We have (reportedly) a census survey where says 25 percent of Coal Harbor units did not respond, but I have no idea if this is normal, or if response rates vary by income.
posted by pwnguin at 12:55 AM on May 26 [2 favorites]


Adverse possession aka Squatter's rights exists precisely to address such inefficient resource allocation. And carving a nice squatter's symbol into a building's facade might help with the property value even if no one lives there. :)
posted by jeffburdges at 1:32 AM on May 26 [2 favorites]


If that is what is is designed for, then adverse possession law is inefficiently designed, given that it takes typically 10 or more years before it provides protection. And that it requires illegal behavior (trespass..etc) to carry out its goals.
posted by Gyan at 2:22 AM on May 26


Vancouverite here. The house next door to me just sold for 900K, to an offshore investment group and the plan is to tear it down and put up a fourplex. Based on similar properties, I expect each unit to sell for around 700K. A nicer home in this area (not a wealthy area, kind of a semi-gentrified working class spot but with good transit access) will cost you over a million dollars. House prices are totally out of line with average incomes and it's driven by offshore investing. Home ownership is beyond the reach of most working people and rental prices are reflective of the real estate values.
posted by alltomorrowsparties at 2:56 AM on May 26 [14 favorites]


There was an article in Vanity Fair this month on how this phenomenon has played out in NYC with these really thin skyscrapers that are being built, not to be lived in, but just like safety deposit boxes where you keep valuables. They don't rent because nobody could afford it, and it would be a security risk for some (or so says the article).
posted by bluefly at 3:46 AM on May 26


There is an undercurrent objection to 'foreigners' implicit here, which mirrors the thread on the EU elections. Home-grown financial speculation has done plenty of damage by itself. From February: "The tally has reached 200,000 single-family vacant homes for which they’re now trying to find tenants." Now the hedge funds are looking for a better ROI, but there are a couple of policy issues which work to prevent housing prices from crashing.

One is local government receiving revenues from taxing land prices. The last house to sell on our block sold at 70% its assessed value. Our county is one of two (out of forty-nine) counties where housing values did not fall. Surrounding counties so revenue-starved that some are letting roads go back to gravel.

The bigger factor is the linchpin aspect of the tottering froth of leveraging and derivatives that the financial sector is built on. As far as I can tell, the Fed is still purchasing $35 Billion a Month in junk Mortgage Backed Securities.

Global wealth inequality is the underlying issue. But these are domestic policies which exacerbate the problem rather than dampening the impact.
posted by dragonsi55 at 3:49 AM on May 26 [2 favorites]


I wasn't aware that Vancouver real estate was viewed as a hedge against climate change, partly because the class of investor buying Vancouver condos from afar would seem less likely to acknowledge that climate change is an issue.

You would be appalled at how many of them know damn well that climate change is happening but figure that delaying efforts to fight it by a few more years will help their bottom lines more than it will hurt the eventual solving of the problem.
posted by Etrigan at 5:11 AM on May 26 [12 favorites]


House prices are totally out of line with average incomes and it's driven by offshore investing.

I have family in the Vancouver area, and this is precisely how I've heard the real estate market explained for years now, just as a matter of fact.

The same phenomenon can happen internally, as when people were cashing out of California's real estate boom and some of them moved to smaller towns in the northwest -- the local market becomes driven by demand from elsewhere, and gets disconnected from things like local wage levels and economic growth.
posted by Dip Flash at 6:14 AM on May 26 [3 favorites]


There is an undercurrent objection to 'foreigners' implicit here, which mirrors the thread on the EU elections.

Vancouver is interesting. About 50% of the population has a first language other than English. It's often called the most Asian city outside of Asia.

Occasionally there are feeble protests against Chinese-language signs in Richmond, but those folks are outliers.

If anything, the "foreigner" or Asian population is massively under-represented in Metro Vancouver political life.
posted by KokuRyu at 6:34 AM on May 26


Adverse possession aka Squatter's rights exists precisely to address such inefficient resource allocation. And carving a nice squatter's symbol into a building's facade might help with the property value even if no one lives there. :)

No, it isn't. Adverse possession is there to avoid cloud on title and confusion about ownership. It creates a statute of limitations on ownership and possession. e.g. I go to buy property from someone who's got a house on the property, paid taxes on the property, and otherwise treated it as theirs for decades; without adverse possession there's no way to be sure that someone with an ancient claim on the land isn't going to come in and yank it away after I've made the purchase.
posted by leotrotsky at 6:37 AM on May 26 [3 favorites]


climate change is happening but figure that delaying efforts to fight it by a few more years will help their bottom lines
It's worse than that. The sitting government has actively promoted the idea that climate change will be a good thing for Canadians' wallets.
posted by Poldo at 6:40 AM on May 26


So why would owners prefer to leave rentals unoccupied? Is it easier to get and keep financing for a high vacancy, high rent building than a normal vacancy, normal rent building?

My impression is that they're not preferring unoccupancy, they're just waiting longer between higher paying tenants, who by landlord wisdom are likely to be better tenants. Part of the equation is also that property management agencies are usually left alone to manage these things for groups of foreign investors, so maximizing occupancy is less important than keeping average rents high.
posted by fatbird at 6:58 AM on May 26


House prices are totally out of line with average incomes and it's driven by offshore investing.

Canadian house prices decoupled from economic fundamentals a decade ago, but it's the fact that it's too easy to borrow too much money that's driving it, not foreign investors.
posted by one more dead town's last parade at 7:04 AM on May 26 [2 favorites]


The focus on Vancouver baffles me because it's so poorly explained. A huge part of Vancouver's Chinese population comes from Hong Kong, people who bought property in Vancouver or left Hong Kong entirely ahead of the 1997 handover. That was a one time event driven by a weird political situation, particularly the aspect that both countries are in the Commonwealth. The relevant question for "is this a trend now?" is whether the current Chinese buyers are coming from mainland China, or HK, or some mix. Some data would be nice too, this article is nothing but lousy anecdotes.

Also: a truly global market in real estate is only possible with a truly global system of property law. I hear having a pied-à-tierre in Berlin was all the rage in the 30s.
posted by Nelson at 7:04 AM on May 26


I seem to recall a bunch of similar articles back in the 70s and 80s about OPEC countries buying up real estate around the world. I don't know that a global real estate market is really such a new development.
posted by yoink at 7:28 AM on May 26


I think of capital sometimes as oxygen. It's necessary for the kind of economy I know to live and thrive, but too much concentration* could be as unhealthy as too little concentration. (* by percentage or just sheer amount).
posted by ZeusHumms at 7:41 AM on May 26 [2 favorites]


My elderly parents have lived in the same modest house in North Vancouver for over 50 years. They bought it for less than $20,000, which was affordable on a middle-class income at the time but similar houses in the neighbourhood now go for 1 to 2 million, as tear-downs. Thanks to relatively large lot sizes, the older houses (which sell in a matter of days when they hit the market) are invariably replaced by McMansions.
Rents in Vancouver for non-luxury units are also high because developers have little incentive to build rental properties, which have a longer-term return on investment, when they can build and sell condos for a quick profit.
There are many people like me who grew up in Vancouver but will never be able to afford to own a home there.
On preview and anecdotally, there was an influx of Hong Kong buyers in the mid 90s but now there is more of an international mix, including mainland Chinese.
posted by islander at 7:59 AM on May 26 [2 favorites]


A huge part of Vancouver's Chinese population comes from Hong Kong

Not just HK, but increasingly mainland China too. As it's been explained to me by my Chinese colleagues, banks and other paper investments are so untrustworthy in PRC, that land is seen as a highly desirable assets. Similar property and housing speculation is common in mainland China, with a host of associated problems.

I think the Vancouver situation, while dire locally, is caused by spill-over from the larger problem in China. That's a huge problem for the Canadian west coast though, as even a minor influence from the large Chinese markets is enough to completely disrupt the local economy. However, because Canada has so few levers to change the basic problem, it's going to be hard to deal with without changing investment rules and potentially running into trade disputes. Bad choices and few good ones are available to BC and to Canada (it's starting in Toronto too, apparently).
posted by bonehead at 8:07 AM on May 26


I seem to recall a bunch of similar articles back in the 70s and 80s about OPEC countries buying up real estate around the world.

That, and Japanese money in the eighties. Remember Rockefeller Center? Of course they lost their shirts on it eventually, but the whole thing did cause a bit of excitement at the time. I expect much the same will eventually happen with this nonsense, though not before a bunch of continued misery for the outsiders looking in.

Seems to me this is in no small part the result of too many years of zero interest rates and the Fed's insistence on buying up mortgage backed securities. I suggest that if they push interest rates up a bit, thus allowing safe return on investment, this kind of bubble speculation becomes less interesting.

But the Fed disagrees with me and I gather that Janet Yellen can do no wrong. (Meanwhile, Ben Bernanke now makes $200,000-$400,000 a pop on the global lecture circuit. The money men do take care of their own.)
posted by IndigoJones at 8:13 AM on May 26 [2 favorites]


Yeah, but if the oligarchs don't make billions, where will we get our crumbs from?
posted by blue_beetle at 8:17 AM on May 26 [9 favorites]


There is a difference between speculation on high-end commercial real-estate and on individual houses though, as is happening in Vancouver. Buying and selling office buildings and stadiums is a game that mostly affects the 1% (or .001%). Speculating in housing affects everyone, and large scale marginalization and disruption.
posted by bonehead at 8:29 AM on May 26 [1 favorite]


There is an undercurrent objection to 'foreigners' implicit here, which mirrors the thread on the EU elections.

The issue here isn't that they're "Foreign" per se, it's people buying real estate and then not living in it. I see no contradiction in two positions I hold, namely, that immigration is great and that people buying homes and not living in them is a bad thing for the communities that those homes are located in.
posted by Tomorrowful at 8:39 AM on May 26 [4 favorites]


Not just HK, but increasingly mainland China too.

I believe you. Any idea how many? I wish the New Yorker reporter would have done some research and reported, you know, actual facts and data about Vancouver's housing market instead of "I was hanging out with this friend and he heard that Vancouver was really expensive omigosh!". I mean, the guy is a financial reporter. How about reporting some financial data?

Another factor driving this global real estate market is the commoditization of real estate, particularly residential. It used to be if you wanted to speculate on the housing market you had to buy individual buildings, then manage them yourself. Not a convenient investment. REITs started making it possible for investors to buy real estate more like a mutual fund, with the management function invisible to the investor. But REITs were mostly commercial and have some structural issues.

Now, at least in the US, there's a bunch of financially engineered products that let people invest in residential real estate more easily. Part of why the US housing market has recovered as much as it has since 2009 is there's a whole world of investment companies buying up devalued rental housing stock with investor money.
posted by Nelson at 8:39 AM on May 26 [1 favorite]


"One option would be to severely restrict foreign ownership, but that’s politically difficult, and not great for a city’s economy. It might make more sense if the Vancouvers of the world simply charged foreign buyers a premium for the privilege of owning there. “We’re one of the places where people seem to want to park their cash, and there aren’t that many of those places,” Yan says. “So let’s raise the parking fees.” As for the rest of us, we’d better get used to being tenants."

Genuflecting in the face of capital is practically in the style guide now. Golly gee, we clearly can't do these things I've assumed are incredibly hard, so I guess it sucks to be us.
posted by hronk at 8:40 AM on May 26


(I suppose I should say "people buying homes and nobody living in them," since obviously I have nothing against investment properties being rented out.)
posted by Tomorrowful at 8:45 AM on May 26


If Canada were to restrict foreign investment in real estate, China would be within their rights to do tit-for-tat restrictions back, which could affect things like minerals, forestry products or crude oil sales. They'd pick something that our Calgary-based, oil-patch-promoting PM would notice, I'd bet. Canada doesn't have a lot of good options here; BC and Vancouver even fewer.
posted by bonehead at 8:45 AM on May 26 [1 favorite]


The issue here isn't that they're "Foreign" per se, it's people buying real estate and then not living in it.

This. "Foreign" includes retirees in Victoria, Ontario, New York, etc. It's an influx of investment money that's out of all proportion to actual residents that's causing the issue.
posted by fatbird at 9:04 AM on May 26


One thing I've heard anecdotally is that rich Chinese families are buying homes to give to their kids as an inheritance. Which makes a lot of sense -- the older generation is probably very concerned about the stability of Chinese assets (after enduring the cultural revolution), and it is very hard to invest in foreign non-real-estate assets due to heavy regulation from China's government. And, if you envision your kid living in another country after you're gone, might as well pick a city with a healthy Chinese population. This is all speculation third hand from Chinese friends but I found it very interesting.
posted by miyabo at 9:06 AM on May 26


Any idea how many?

No, nobody seems to have a good understanding of home-ownership by nationality for Vancouver: "So far, B.C. politicians have shown no willingness to gather accurate data." There are entrenched interested which favour the current uncertainty, like developers and real estate agents. There is probably also a concern, raised in the article, that this would be perceived as singling out an visible ethnicity and thus racist.
posted by bonehead at 9:20 AM on May 26 [2 favorites]


House prices are totally out of line with average incomes and it's driven by offshore investing.

I have family in the Vancouver area, and this is precisely how I've heard the real estate market explained for years now, just as a matter of fact.


Yeah, this is hardly a new thing. I remember as long ago as 1990 traveling around a few other not so distant cities and being shocked at how cheap rents were. A full house for what a one or two bedroom suite was going for in Vancouver.

To my mind, it's all really a post Expo-86 thing. Vancouver put its brand out to the world big time, and the world's been buying in ever since. What annoys me the most is the profound lack of genuine vision we've got here -- like nobody local has even a grain of an idea of what to do with what we've got, except put it on the market, sell to the highest bidder, and then get out of the way.

The classic example of this was the Expo lands themselves -- the very heart of the city. Sold to mostly Hong Kong money at what amounted to a loss (after environmental clean-ups were factored in).

Venal morons (the hayseeds who engineered the deal, that is).
posted by philip-random at 9:30 AM on May 26 [1 favorite]


This. "Foreign" includes retirees in Victoria, Ontario, New York, etc. It's an influx of investment money that's out of all proportion to actual residents that's causing the issue.

Real estate prices are relatively high in Victoria (median price for a 3-bedroom home is basically $500 vs median household annual income of $69K) not because of "foreign investor" retirees, but because Victoria, like Vancouver, is constrained by geography.

I can tell you there is just a ton of construction going on around Greater Victoria at the moment. Tons of condos being built. Tons of townhouse developments in View Royal, Colwood and Langford. New schools are being built.

Victoria is a desirable place to live (when we returned from Japan I would not contemplate living anywhere else in Canada at all), and people are choosing to live here, as opposed to buying for investment and residing elsewhere.

We live on an island, for heaven's sakes.
posted by KokuRyu at 9:31 AM on May 26


This. "Foreign" includes retirees in Victoria, Ontario, New York, etc. It's an influx of investment money that's out of all proportion to actual residents that's causing the issue.

Isn't it Bob Rennie of all people that has made this stunning "discovery"? Smart guy, but then again he needs to hype Vancouver in order to buy more art for collection housed out of site in a warehouse someplace.
posted by KokuRyu at 9:32 AM on May 26


I don't get it -- why are folks investing in property that's already grossly overpriced? Why buy land in Vancouver instead of South Dakota or Iraqi Kurdistan? To this plebe, it seems comparable to investing in gold, except that you have to pay taxes on property every year.
posted by oceanjesse at 9:34 AM on May 26


You assume people are rational actors when it comes to real estate. They are not. Add in the ability to lever the asset and globally low interest rates et voila.

It will end and it will end badly but who knows when.
posted by JPD at 10:10 AM on May 26 [5 favorites]


yeah months ago the wife and I looked in to buying a small place in nyc and it is pretty ridiculous. 70 couples showing up to one open house, places going $100k over asking, cash, etc.

The one anecdotal piece of evidence I found for the theory is each broker I visited would only have a couple units for sale, but several dozen for rent that could be moved into immediately
posted by slapshot57 at 10:23 AM on May 26


The shock wave is spreading well out of Vancouver. We got priced out of the region and moved into the burbs (Langley) a few years back. Managed to squeak into a starter home that was "reasonably" priced for under half a million. There's a building boom around us now and the homes tend to range in the $600-$700,000 range for houses, and close to half a million for townhouses.

If the interest rates ever go up by any significant amount, there's going to be an apocalypse here.
posted by peterdarbyshire at 10:45 AM on May 26


I'm a little confused as to how Vancouver is a hedge against climate change. We're right on the ocean; any changes in sea level will surely affect us. Maybe I'm looking at this wrong, but much of the most expensive and desirable condo developments are right on the water. We're also on a major fault, too, but that's regardless of climate change, and a lot of insurers are getting hesitant on issuing earthquake coverage. It just seems like if you're looking at a hedge on climate change and natural forces in general, maybe this is not the right city?
posted by Hoopo at 10:50 AM on May 26 [1 favorite]


I don't get it -- why are folks investing in property that's already grossly overpriced? Why buy land in Vancouver instead of South Dakota or Iraqi Kurdistan?

Stability. Canada is seen as stable as compared to say, the US. Bank rates are low, and more importantly banks in Canada are very stable. Add coastal location, temperate climate, pro development civic governments, cheap(ish) building materials, low crime rate, low xenophobia.

And as KokoRyu points out there's a land shortage which keeps value high. In fact if sea levels rise and remove land from the market what's left get's even more valuable.
posted by Zedcaster at 10:58 AM on May 26 [2 favorites]


Water and food security. I can't find the link, but a report last week demonstrated that a hell of a lot of arable land in Vietnam, China, and Thailand will become submerged by the end of the century thanks to rising sea levels.

Theoretically, Vancouver has greater food security, but fast-diminishing glaciers mean that farmland in Alberta and Saskatchewan is going to run out of water (it's going to be interesting to see how Calgary and Edmonton fare without any rivers).

If you think about it, though, only Japan, Korea and (for now) Taiwan have the rule of law in NE Asia, and are therefore better able to plan for and mitigate climate change.

The other countries are kind of screwed because there is no effective system to change what's broken, except for coups and revolutions.

So I would rather live in Canada, land of "peace, order, and good government" if I was in a region now facing climate change.
posted by KokuRyu at 11:01 AM on May 26 [3 favorites]


Plus, if you're using your property not just as a way to invest, but also as a possible escape hatch should things go bad in China, Vancouver is going to be a far better place to escape to than Kurdistan or the Dakotas.
posted by looli at 11:02 AM on May 26


Vancouver proper (along with Burnaby and Surrey and the North shore) is likely safe from most of sea level rise, but Richmond and Delta may have real problems and require extensive diking. Climate change is expected to hit Vancouver comparatively lightly, with moderate increases in temperature and precipitation. Vancouver is also in a very protected harbour reducing the risks of violent storm surges and changeable weather. There will certainly be places much harder hit than lower BC.

Seattle has identical advantages though. I haven't seen the same reasoning applied there.
posted by bonehead at 11:05 AM on May 26


banks in Canada are very stable

Lately, this is only because taxpayers (through CMHC) bear the entire risk for mortgagors who have borrowed more money than they can really afford. Sounds familiar, except that Canada doesn't have the world's largest economy and control of the world's most widely held reserve currency to fall back on.
posted by one more dead town's last parade at 11:14 AM on May 26


taxpayers (through CMHC) bear the entire risk

That's only because prior to CMHC mortgage insurance, Canadian banks wouldn't make loans with less than 20%-25% down. Because Canadian banks were (and still are to some degree) very conservative.

Americans, and by extension their banks, are risk takers - this pays off big time for them when things go right, but hits them hard when things go wrong. Fortunately for the last 150 or so years, things have gone very right over all.

Canada's fiscal conservatism is one of the reasons we don't have any large home made industry. If you are a risk taker the banks don't really want to lend you any money.
posted by Zedcaster at 11:27 AM on May 26


Canada also has advantageous immigration laws for folks with cash relative to the us.
posted by JPD at 11:37 AM on May 26 [2 favorites]


Because Canadian banks were (and still are to some degree) very conservative.

Yes, with their own money. But when it's CMHC-insured, so they can't take a loss, prudence goes out the window.
posted by one more dead town's last parade at 11:46 AM on May 26


This house recently sold for $3 million in 24 hours without a single viewing and is expected to be a teardown.

There are many reasons for Vancouver's real estate prices, most of which have already been mentioned. KokoRyu mentioned the geography constraints of Victoria, and that also holds true for Vancouver. We're bounded by the ocean to the west, mountains to the north, and the US border to the south. The lower mainland population is sprawling eastward, but most people, and of course wealthy foreign investors, are mainly interested in Vancouver and its closest suburbs.

The density of housing in the region, outside of the West End and Downtown, is low. Vancouver is much younger than Montreal and Toronto and parcelled its land mainly for single-family detached homes in relatively spacious lot sizes. So now there's much more demand for prime housing that is available in stock.

Our current low interest rates also makes it easier for Canadians to purchase a home but that's irrelevant to most foreign investors who don't need a mortgage; they just show up and pay the whole amount up front.

The Chinese population in Vancouver did use to comprise mainly of immigrants from Hong Kong and Canton province. Since the late 80's, as Taiwan grew wealthy, we had an influx of rich Taiwanese. Then, as China's economy liberalized, we now get many mainland Chinese people here. You can see this reflected in the regional Chinese restaurants that abound in the Vancouver area: back in the 70's it was mainly Cantonese restaurants plus some offering Szechuan cuisine. Now there are many Taiwanese and Shanghainese restaurants everywhere.

You can also see the Chinese wealth daily on the streets of Vancouver: there is an outsized percentage of high-end luxury vehicles driven by young Asians. Not just your nice Mercedes and Beemers here; we're talking Ferraris, Maseratis, Lamborghinis, and Astin Martins.

That is not to say it's just Chinese money inflating Vancouver's real estate: Last year a wealthy Middle Eastern family bought a penthouse condo for a Canadian record of $40 million.

Nevertheless, the Vancouver real estate economy is greatly influenced by the Chinese economy. Some people are worried that if a Chinese bubble collapses, Vancouver's real estate will fall in lockstep. A wealthy Chinese friend of mine has an interesting theory, though. When the Chinese economy does fall, even more Chinese money will flow into Vancouver's real estate because it will be deemed safe.
posted by praiseb at 11:49 AM on May 26 [4 favorites]


The Crown Prince of Dubai recently visited Vancouver, where he owns a $55 million penthouse. Paid in cash, apparently.
posted by peterdarbyshire at 11:55 AM on May 26


My impression is that they're not preferring unoccupancy, they're just waiting longer between higher paying tenants, who by landlord wisdom are likely to be better tenants. Part of the equation is also that property management agencies are usually left alone to manage these things for groups of foreign investors, so maximizing occupancy is less important than keeping average rents high.

As a renter in the bay area where we have the combined issue of foreign investment and the tech sector's effect on housing, it all seems like a giant scam. These investors buy up all the houses for cash, putting prices and ownership out of reach of most local people who actually live here, who then are forced to compete in an ever increasingly brutal rental market. The rental market becomes so extreme that these same investors are then incentivized to let their properties sit unoccupied - because they'd rather hold out for that "better tenant" (in my Oakland neighborhood, this means whiter) who can pay these outrageous rents - rather than rent to someone at a "below market rate" as they say and get locked in without any good options to evict (except of course, for the Ellis Act). They're playing both ends of the deal.

And all of this came about of course because of the crisis in 2008, where racist criteria was used to give working and colored people in my neighborhood shitty loans that they defaulted on when everything went south. Their wealth was erased, then the investors move in to cherry pick these "blighted" and "dangerous" neighborhoods as their new investment vehicle now that we're all renters at each other's throats for a place to live.
posted by bradbane at 12:17 PM on May 26 [1 favorite]


We call Vancouver home (currently living in Calgary) and the pricing is crazy stupid. We were lucky enough to buy a condo on the old Expo lands before the market went utterly nuts in the early '00s. Property prices have doubled and tripled since then, I wouldn't want to be buying a house in Vancouver without my own sovereign wealth fund these days.
The move is definitely away from Cantonese/SE Asia buyers towards more mainland Chinese buying property as they try and park it safely away from the Chinese government. There's also more Chinese money coming into Calgary these days as overspill from Vancouver.

I'm all in favour of a "parking" fee for expatriate money (especially if the properties remain unoccupied), this would help make the area more affordable and provide for public services.

I think praiseb's friend is onto something, instability in China will only make Canada more attractive.
posted by arcticseal at 12:31 PM on May 26 [1 favorite]


There aren't enough wealthy mainlanders paying cash to move the market. There are, however, enough Canadians who've borrowed too much money.
posted by one more dead town's last parade at 12:40 PM on May 26


There aren't enough wealthy mainlanders paying cash to move the market. There are, however, enough Canadians who've borrowed too much money.

I know someone who was recently looking at $900,000 fixer-uppers in East Van. She works part-time in an average kind of job. Her husband does OK but I don't think they're pulling in that kind of money. They just really don't want to move to the suburbs.

As conservative as the banks may be, they're willing to fund people to dangerous levels. When we got pre-approved, the bank gave us a limit way more than we were ever going to get near. Everyone seemed puzzled that we didn't stretch ourselves and instead bought way less than we could afford. Personally, I thought the amount they approved us for was insane. We can barely afford our payments at our affordable home. I keep thinking, what if the interest rates jump up...?
posted by peterdarbyshire at 12:52 PM on May 26


The absolute number of people you need to move a market like Vancouver is really not very large. There are only like 30k home sales per annum.
posted by JPD at 1:12 PM on May 26 [1 favorite]


Personally, I thought the amount they approved us for was insane

I had the same experience, recently. I have spotless credit for 12 years, but don't make what I could consider to be "a lot" of money; the amount I was approved for seemed absurd. It was a slight ego boost, at first, but seemed like a trap — or the potential to become one — so I passed.
posted by Dark Messiah at 1:17 PM on May 26 [1 favorite]


The absolute number of people you need to move a market like Vancouver is really not very large. There are only like 30k home sales per annum.

Not only that, but China's population is 1.3 billion people. There are only about 4.5 million people in all of the province of BC. If only the top 0.01% of China were interested in Vancouver's market, it would be hugely significant.

I know someone who was recently looking at $900,000 fixer-uppers in East Van.

Are they considering a mortgage-helper? One common aspect of owning a detached dwelling by the modest locals is renting out 1 or more suites, usually in the basement. City hall pretty much doesn't care anymore about whether rental suites are legally zoned .. it's probably the only cookie that the municipal government hands out to make home ownership somewhat affordable.
posted by praiseb at 1:24 PM on May 26


Are they considering a mortgage-helper? One common aspect of owning a detached dwelling by the modest locals is renting out 1 or more suites, usually in the basement.

I didn't ask, but I would assume so. I'm not sure how they could afford a $900,000 place in need of reno without a little help.

We knew we could buy more house if we opted for a mortgage helper, but I really don't want to be a landlord. We don't use half of our smallish house anyway. I wonder what people do with these big houses. It must cost a fortune just to furnish all the rooms they don't use.

"Modest locals" -- I like that.
posted by peterdarbyshire at 1:40 PM on May 26


The fact you guys have a term of art to describe an informal rental apartment used to cover the mortgage with rates at generational lows pretty much says all you need to know.
posted by JPD at 1:56 PM on May 26 [7 favorites]


I know at least a couple of retiree couples in more remote parts of BC who keep empty condos in Vancouver and Victoria that they bought a decade ago as both an investment and as somewhere to stay once or twice a month when they're in town. Just more anecdata to heap onto the pile.
posted by ODiV at 2:25 PM on May 26


Even if it were a widespread phenomenon, absentee condo owners wouldn't be a huge issue in Victoria. The bigger issue is housing affordability in general. Things were really thrown out of wack in the years following 2004, when housing prices in Greater Victoria doubled. The amount of money being thrown around resulted in a lot of low-cost housing being demolished (I'm thinking of Sidney, where I was living at the time) in favour of new McMansions.

The other problem is density. Saanich and Oak Bay and many parts of Victoria are suburban, and totally built out. There just isn't the space (as things stand) to build more housing stock.

Langford has been doing some really interesting things. I have to drive out there a few times a week for hockey practice, and it's a vibrant community. Car-based, but still things are going on. If you don't mind driving everywhere, you can find some pretty cheap housing there, with more on the way. Not in Langford, but Royal Bay is a massive development that is going to further change the "West Shore."

The big problem for Victoria and Vancouver is cars. There are too many of them compared to the amount of roads. Victoria is already approaching gridlock for most of the day except Sundays on some key arteries, and I can only guess what the next ten years will bring.
posted by KokuRyu at 3:05 PM on May 26 [1 favorite]


Amen about the cars, especially in formerly sleepy Victoria (city of the newly wed and nearly dead at one time). One of the answers would be light rail or some other form of transit but no politician dares to suggest we raise taxes to pay for it.
posted by islander at 3:28 PM on May 26 [1 favorite]


Around 65% of Metro Vancouver households own their home. This is a map of owner-occupied households that spend more than 30% of income on housing. There's a lot of real-estate folk "wisdom" in this thread (there's a lack of land! rich foreigners are buying everything up!), but it seems obvious in the lack of any actual evidence to the contrary that prices have been bid up by locals borrowing loads of cheap money.
posted by junco at 4:32 PM on May 26 [3 favorites]


This is not confined to Vancouver. I recently moved to Seattle from the Washington, DC area, and the real-estate market here is rather unhinged. Houses already selling for $500K or more, are going for 20-25% more than asking price, and often in all cash offers. This is not just happening with "foreign" investors, but Wall Street as well is ruining things for everyone as usual.

In addition, people are waving all contingencies (financing, inspection, all of it). Can you imagine putting $20k in "earnest money" down on an 80-100 year old house without having an inspection contingency? Madness. Realtors are putting comments in the MRIS system that they "expect all offers on X date", which is often less than 4-5 days after the listing.

My realtor, who I love, won't play the game, nor will I, and we managed to find something at a price point that is actually a good deal it seems. But it's adversarial in the extreme, and creates a market dynamic that is self-destructive. It has pushed people "up market" faster, which creates a bubble, and a potentially untenable position for the economic model of home ownership.

As for the all cash offers, as best as I can determine from discussions with other realtors during open houses, and such, it is largely mainland Chinese families who are making those offers. In certain ways it makes sense given the historical context of "investments" in China for the general public. No rational actor would pay $750k cash for a house, when they could get a mortgage for 4-4.25% and invest it in other opportunities with a likely rate of return of 7-10%. That is, unless they actually expect housing prices to escalate that fast, or faster, which portends a massive bubble that will burst and tank the economy again.
posted by petrilli at 4:49 PM on May 26


petrilli: "Can you imagine putting $20k in "earnest money" down on an 80-100 year old house without having an inspection contingency?"

If you're planning on tearing the house down (and fighting whatever historical preservation laws might apply) I doubt you care much what condition the house you're preparing to destroy is in.
posted by pwnguin at 5:26 PM on May 26 [1 favorite]


Calgary isn't that far behind Vancouver in terms of pricing. That's also a shortage of decent rentals as a consequence of the floods last year. Houses in my neighbourhood are listed for about a week before being closed on, and prices are typically at or more than the asking price.

We were being coaxed by our realtor to view properties above our target price, they were lovely but all those empty rooms, and I rather like having affordable mortgage payments that I can sleep with even if the rates go up.
posted by arcticseal at 5:33 PM on May 26 [1 favorite]


Personally, I thought the amount they approved us for was insane

I don't know what the Canadian banks use to determine lending limits, but in the US (assuming not much other debt, a reasonable downpayment, and good credit) you can be approved for five times your annual income. To me, that's insane, but being leveraged like that is probably necessary if you want to buy a house in one of the really expensive coastal markets.

We owe just over twice our combined income, which feels sufficiently stretched to me, but wouldn't buy a chicken coop in Vancouver. Unless something changed, renting would be our only option if we moved there.
posted by Dip Flash at 7:03 PM on May 26


Can someone explain the line the article says about Vancouver offering protection against climate change? Is this a magical city impervious to weather - I'm clearly missing something!
posted by Jubey at 8:06 PM on May 26 [1 favorite]


Yeah, the climate change comment, while not from the author of the piece but from from one of his interviewees, wasn't followed up or explained so it might just be a case of poor editing.
posted by islander at 8:25 PM on May 26


We're already wet enough in Vancouver that a few more extra inches of water wouldn't be remarkable.
posted by arcticseal at 8:54 PM on May 26 [4 favorites]


Jubey: "Can someone explain the line the article says about Vancouver offering protection against climate change? Is this a magical city impervious to weather - I'm clearly missing something!"

As best I can tell, the author must believe that Vancouver is simply so far north that global warming* would represent an improvement to the local climate.

Depricated, I know, but the joke must go on!
posted by pwnguin at 9:30 PM on May 26


The general theory is that Vancouver is sheltered from rough Pacific weather by Vancouver Island, is mostly rock with at least a few metres of height on sea level, and actually could stand to warm up/dry up a bit, which isn't unlikely under most climate change scenarios. Of course, it's totally speculative, so who the fuck knows, but as you should realized from reading this thread, all real estate involves a lot of storytelling about what's going on.
posted by fatbird at 10:39 PM on May 26 [2 favorites]


I'm in the process of selling a modest home in an insane "premium" real estate market. We got two offers a week after the house went on the market, one from locals and one in cash from a woman in Asia. We ended up going with the locals because they seemed more committed to the deal; they wanted to keep their kids in our school district.

For what it's worth, we're moving to the Pacific Northwest, and part of our reasoning was based on climate change. We're in California now and this drought is seriously scary. We were breathing smoke from wildfires in *January* this year. We want to raise our kids in a place that doesn't feel like it might be a couple of bad years out from water riots. Sure, nobody knows how things are going to change, but it seems a lot more likely that Seattle will have plenty of water than many of other places in the US.
posted by town of cats at 11:11 PM on May 26 [1 favorite]


My parents bought a house in Kerrisdale (the West side of Vancouver, between Granville and Arbutus) back in the early 60s for 23,000. Dad died in it a year and a half ago: Mom sold it for 2.1 million, to a young mainland Chinese couple. The original 1918 house was torn down and is being replaced with a McMansion that will sell for between 3 and 5 million.

I don't see any local people buying in the neighborhood: prices in other areas of the city are closer to sanity (ie, below 1 million) but the West side requires a 500K to 1Million yearly income to pay for the house prices, and there isn't enough money in the local economy to generate that.
posted by jrochest at 11:13 PM on May 26


A bit of context: Canada has the third most expensive housing market in the world (Price/income). NZ and Belgium are worse.

In 2013, we were in third place too.
posted by bonehead at 8:53 AM on May 27


There have been quite a number of climate change effects studies of Vancouver.

This report goes into some detail about shoreline changes due to sea rise. Moderate sea rises may not have a large effect on the city, though Delta and Richmond are at most risk. Large rises (a few meters or more) could have pretty bad effects though. The report also talks about the costs of dyking that may be necessary.

Average temperature changes in degrees might be small, but that will greatly affect the average weather patters and accelerate the snow pack melt. The effects on Vancouver proper may not be huge, but the hinterlands it depends on for fresh water may become drier. Water shortages may become more common.

Agriculture in the interior, especially the Okanagan, is probably at greatest risk. The coastal areas may see a surge in rain, while the interior valleys may get much drier. Permanent droughts may lead to big changes in how much food BC can produce.

Increased scarcity and competition for fresh water is likely BC's biggest problem associated with climate change. What's happening in California now will worsen and come north with time.
posted by bonehead at 9:06 AM on May 27


awfurby - this is definitely happening, it's not just anecdata.
I read recently that in Sydney, approx 10% of houses sold are to Chinese investors.

This SMH article also points to a recent strong increase in the proportion of foreign investors.

A Chinese friend of mine told me it's happening because of 1) rise of the middle class in places like Beijing, and 2) changes to laws in China around property taxation, designed to cool down runaway prices there. The effect being that it's now more attractive for Chinese buyers to look overseas for real estate.

I think some of the effects are blown out of proportion in the media - (e.g. sentiments like "Foreigners are the reason you're being priced out of the market!!!") - but there must be at least some impact from this shift in investment.
posted by joz at 3:45 PM on May 27


Whoops, sorry about the broken link above.
Here is the correct SMH link.

This article speculates about some flow-on effects for Australia, of the demise of Canada's immigrant investment program.
posted by joz at 4:49 PM on May 27


See also this old gem.
posted by Seiten Taisei at 6:03 PM on May 27


« Older The results are in for the 2014 elections....  |  how one gay athlete's coming o... Newer »


This thread has been archived and is closed to new comments