Sunday, September 6, 2009

Time to clear something up...

I read on many bear blogs that rich outside investors from China, Hong Kong, the US, Alberta, The Middle East, South Africa, Israel etc are helping drive up real estate. (These are just some of the absentee owners in my building)

I think it is true, they are a factor. Especially in the high-end and down-town market.

However before we get too self-righteous about it, we have to remember that one of the reasons we get to live such a high standard of living is due to the constant infusion of outside money.

What do we produce in this Province that has monetary value:

Some of our fruit and vegetables and meat.
Natural gas and hydro power
Natural resources- coal, metals, wood, some oil
Gaming Software
Gold and silver

The price of many of the above have plummeted in value.

Meanwhile we have a lot of things to pay, trips to Mexico, TV's, fridges, medicines, huge medical costs for the greying population, doctors fees, huge costs for the permanently-on-welfare and drug-damaged populations. We also have to pay for a Province the size of a huge European country, where everyone expects clean water, electricity, a school nearby and to be flown down for free, for emergency treatment, by helicopter even if they live in the farthest flung corner or an inaccessible Island.

Then there is the Olympics...

How can we possibly afford all this?

We can't.

We have been kept solvent due to the constant influx of outside money. From tourists, unfortunately from drugs (with all the mayhem that brings) and outside investors. They maybe Taiwanese 'helicopter' families living on the Westside sending kids to Private Schools, they maybe Korean or Middle Eastern investors on the North Shore, Germans buying ranches in the interior or South Americans parking money in our banks.

What they all have in common is the dollars they bring with them. Millions of them to buy their properties, pay for the up-keep and enjoy our Province. Their money moves around, gets taxed, gets deposited in our banks, gets lent out, gets spent again and makes jobs etc etc.

So while us bears may complain about these folks competing with locals for properties, the truth is, without the constant infusion of outside money we could not sustain our life-style. A lot of us bears would probably lose our jobs and the medical and social system would not be sustainable.

Even now our Province is in a serious financial mess. Somehow the Liberals believed that despite the financial catastrophe down south and in Europe we would only have modest deficits, or that is what they told us before they were re-elected. Well that myth has been blown out of the water. Major cuts are coming.

If the money stops flowing from outside, you can expect those cuts to be a LOT deeper.



  1. The "outside money" has come in the form of immigrants and remittances from other countries but also, more simply, from lenders willing to lend out "outside" money to the local population. The latter source will eventually want that money back, with interest.

    There is more to BC's economy than just that list. Engineering services, software other than video games, manufacturing and construction have net monetary value too, though maybe not large enough a contribution for a line item.

    Maybe the answer is to figure out how to get a piece of the action. There are billions of people more desperate than we are, looking for a piece of the good life. As has been said before, money has a way of returning to its rightful owner.

  2. Jesse - maybe I was being a bit simplistic, there are other industries.

    However the 10% employed in construction are actually one of the areas that directly benefits from this outside money. Albertans buying ski properties out West, Whistlers' foreign buyers or Vancouver.

    We are living a very affluent life-stle, which is only possible because people are constantly sending money here.

    I have an elderly friend who lives on a Gulf Island and has a heart problem. He has been sent to Vancouver by the medi-evac helicopter several times, at many thousands of dollars a pop.

    Simply put there is no way we could afford this level of service, with what we produce. We need outside money to flow here. From the Globe and Mail:

    "But trade as a percentage of the B.C. economy is, in fact, significantly smaller than the rest of Canada, where trade titans such as Alberta and Ontario dominate, according to an Outlook 2020 study by the University of Victoria and led by business professor Jen Baggs. Just 17 per cent of the B.C. economy is merchandise exports, barely half that of Canada (30 per cent) and Ontario (32 per cent) and far behind Alberta (38 per cent). In dollar terms, B.C. exports just $8,000 per citizen, province statistics indicate, less than three-quarters of the Canadian level of $11,300"

  3. Australia and Canada have been described as third world economies with first world standards of living. I don't disagree that the province is not allocating labour efficiently. The construction boom was for the most part fueled by debt and not by trade (wage growth). The money has to be repaid sometime for these investments by increased GDP.

    The level of GDP growth required to keep prices high is significant. While it is possible I think the only way is a continual influx of remittances and leverage; on a local level it's possible -- the global pool of capital is huge compared to Vancouver's.

    The labour market is too weak and has little competitive advantage over other parts of the world for much real wage growth in the next few years. This is the same in most of the developing world but BC has often lagged behind global recoveries which means interest rates will tend to lead GDP growth by 1-2 years. That is torturous for prices.

  4. Not sure where you are getting the information that rich outsiders buy real estate here. According to the Landcor data, very few do.

    Do you have some stats from another source?

  5. You can add the overseas students as another source of outside money. They are subsidizing a lot of mortgages.

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  7. Asp- This based on my own observations. As I mentioned above a large part of my building is owned by absentee owners.

    Of the big projects in BC, Concord Pacific, Millenium and the Westwood Plateau development were either fully or partially funded by outside money.

    The amount of work and wealth created by these has been huge.

  8. The "wealthy Asian" myth is propagated by the Real Estate industry in a desperate attempt to keep the Ponzi scheme going.

    If they thought the public believed in unicorns then they'd say it was wealthy unicorns buying property in Vancouver.

    No matter, it will collapse of its own weight.

  9. Why would rich asians buy here when the US is a fraction of the price? Not to mention a better climate?

    It aint really the 'best place on earth' you know. I have a hard time believing this bubble wont pop - I make 150,000 a year, but have no down payment, due to a divorce that wiped me out - and I am struggling to get a decent house. How can average earners have a hope in hell?

  10. Oh wow, I never thought about the hidden costs of having all those aging boomer "hippies" in the Gulf Islands. In a few years, these medivacs are going to break our health system. I have a feeling that kind of service ain't gonna last.

    As for what all this money flowing into BC has done for the average British Columbian...worse than nothing. 30 years ago, the average Vancouver-area family owned a house on a lot and looked forward to a decent retirement.

    - Patiently Waiting

  11. Anonymous said...
    I have a hard time believing this bubble wont pop - I make 150,000 a year, but have no down payment, due to a divorce that wiped me out - and I am struggling to get a decent house.
    Welcome to the club, dude. You didn't read the rules posted at the door. You are supposed to close your eyes, tap your heels together and continually repeat "I think I can, I think I can...." and all your wishes will come true. If any doubt develops, head to the pharmacy and get your prescription renewed. Once this scenario seems normal, you are officially a "West Coaster."

  12. Question... if the bubble pops, does that mean that money from outside the country is going to ignore suddenly lower prices? If real estate is affordable for a 'wealthy asian' now, how would it be any different with a sudden collapse of the market?

  13. Anon- I think the wealthy outside money is just one of the drivers of BC real estate.

    Lower interest rates probably play a much larger influence, as does relative lack of land (we are not Las Vegas).

    Nevertheless it is one factor, especially in higher end and recreation properties and also large dvelopment money.

    Has it been a good thing- on balance probably yes. We have managed to bring in many Billions of clean money (rather than dirty drug money) and this outside money has either developed or bought many of the finest developments in Vancouver.

    However it cannot in itself sustain the RE bubble.

  14. West Van - 7 New listings 2 price reductions 4 sales.

    one was a foreclosure that needs work, it sold for 1% less than asking! Huh.

    I always thought the whole point of buying a foreclosure was to get a good deal, since it is ..'as is, where is'.

    Anyway some folks get all excited during the bdding process.

    Gavin's numbers are bearish tonight: