Friday, June 11, 2010

Putting Some of the Rich Chinese Investor Myth to rest

Some of the Bear blogs are hitting almost a frenzy over the rich Chinese investors who are buying up the whole lower mainland.

Couple of things I have to throw into this pot:

1) It isn't just the Chinese or other visible minorities. I went to an open house for a fancy suite last week and the two out of town couples looking were form Russia and South Africa. The Asian couple were Canadians who had moved from Calgary. So appearances can deceive.

2) Nevertheless there is significant buying from the Chinese Mainland. However these are generally expensive properties in expensive areas (West Van, Van West, Coal Harbour and Yaletown) . They aren't buying in Maple Ridge or Coquitlam or New West. (generally speaking- I know there were some guys laundering money through Real estate- but that is rare)

So while they may be pricing out the locals on the higher end of the market, they have no effect at the middle or lower end, except by displacement.

And we have all time price highs in Ottawa, Toronto and Montreal- is that from Rich Chinese buying too? I doubt it.

There are some good points associated with these Airport-shuttle buyers - they are paying with cash- No CMHC mortgages for these guys, they buy lots of pricey furniture, cars and pay property taxes and strata fees which goes back into the local economy.

Now if they would only move here and pay tax on their worldwide income, things would be perfect.

They also provide employment for locals who built, and then have to repair the badly built units all over again - some days our city looks like half the buildings are under tarp!!

They provide employment for workers to demolish the quaint westside homes and build McMansions in their McPlace .

On the bad side, they often leave the units empty. Now while the City and Province probably regard them as ideal occupants, and wish we could all be like them- pay taxes but stay away and don't use services too much- the truth is that unoccupied units stresses the housing supply in a City with limited space and degrades the standard of living for those that remain.

So Vancouver City officials reading this blog (I know some do) think out of the box- add a 30+% property tax surcharge for any unit unoccupied by owner or a renter for greater than 6 months a year. It would be very simple to verify this from utility bills. Use the money for social/subsidized housing- ooops I forgot there's the Olympic Village bills coming due. Ok use it for that, and the locals would be a lot happier with their rich off-shore neighbours.

The Swiss are the world's safe bankers. They CHARGE you to hold your money. If were have become the world's safe Real Estate bank. lets at least get something in return and not just screw ourselves for a few bucks, lets do it for serious dough :)

Also, Campbell and Harper, please make sure that the chunks of money you are inviting in don't come from theft or bribery or other malfeasance, we already produce enough dirty drug money in our Province, without getting other country's dirty laundry too.

In fact in Coal Harbour there is some social housing, which, from what I understand, was built by the developer to be allowed to put up the luxury units. They sit cheek-by-jowl, right next to each other- different quality of course and one-side is full ++, and the other is almost unoccupied. You can guess which it is.

I sometimes think us bears are not just whining about prices, but hanker for the old Vancouver. Quiet streets, empty trails and about half the number of people we have here now. But for better or worse, we are a large international cosmopolitan city, where a lot of us derive our income directly or indirectly from visitors, ESL students, rich buyers of RE, outside investors etc etc.

It happened elsewhere. Hong Kong was a sleepy fishing village that the Brits decided to make their Far east commercial hub. Taiwan was an equally peaceful sparsely inhabited Island, until mainland Chinese Nationalists moved in en masse.

I am sure those locals weren't too happy with the changes either. We have to go with the flow.

Am I buying RE here though? Nope.

Do I wish I had when I moved here (from another part of BC) nearly a decade ago or even searched for a bargain in the 2008 flash-crash? - Yup (Chad)

I think I will get another chance, Mainland Chinese buyers notwithstanding.


  1. I often wonder why people say that the rich Chinese are buying RE in Vancouver. And only Vancouver proper? And only those ugly Vancouver specials, or even the updated Vancouver special, you know, the pink monsters? Meanwhile I live in New West with tree-lined, quiet streets with houses that are owned mostly by white people. I walk in the neighborhood a lot and what do I see, white kids playing outside, white kids being taken to school by their phillipino nannies. Yes, white people. Do these so-called rich Chinese people have no taste and think that buying an ugly crack-shack in Vancouver is nicer than a heritage house in New West? It puzzles me. Meanwhile I see Asians living in the condos in my neighborhood, while for the most part, non-Asians live in the houses. This is why I don't think mainland Chinese are buying up real estate in the lower mainland. At least not in my neighborhood.

  2. The argument goes that pricing out some who are unwilling to pay $600K min for a teardown causes increased demand in other parts of the metropolitan area. This of course ignores that rents are not increasing significantly. People priced out of certain neighbourhoods are never forced to buy in others -- they can just rent instead. If they simply refuse to pay high prices in, say, parts of New West where the "rich Chinese" don't buy, I can't see how prices would increase in those areas. The "knock-on" effect is nothing more than another excuse to overpay for some and, for others, a way to absolve the guilt of seeing their home equity increase manifold at the expense of those who did not or could not buy earlier.

    Parts of New West are not popular with Chinese immigrants for some reason. I think it got a bad reputation for some racism issues and that was enough to guide the prevailing "common sense."

  3. yeah, good idea, I know that in Paris they have a law that if your property is not occupied for more than 6 months squatters can move in and there is no way in hell you can claim back your property, it becomes theirs by law.
    Now, think about it, if a handful of people controlles most real estate here, would we be going back to the feudal system? How is that different?

  4. Few posts back you talked about the American consumer de-leveraging, I commented that was more by default than by diligent payment. Here is a fresh article on that subject:
    Problem is, that’s(400billion plus) more than the concurrent decrease in household debts, which amounts to only $372 billion, according to the Federal Reserve. That means consumers, on average, aren’t paying down their debts at all. Rather, the defaulters account for the whole decline, while the rest have actually been building up more debt straight through the worst financial crisis and recession in decades.

  5. @alexcanuck: paying down debt is akin to going on a diet. It requires discipline, routine and little gratification until it's over. On a related note, stomach staples and liposuction procedures are more common today than ever.

    The link is well worth a read.

  6. Actually Alex- there are two groups out there. the defaulters and those who are solvent but reuse to take on more debt despite the low rates.

    That's why the US has been hit with such a double whammy. record default and foreclosure and at the same time the US savings rate has gone from zero % to over 5% a huge jump.

    US savings rate

  7. that should be 'refuse' to take on more debt..

  8. I agree, Fish. My point is only that the 5% savings rate is not entirely voluntary, and especially not due to debt being repaid, but rather through default, the result of said default not being fully recognized on financial institution books, and the implications of the default on existing debt not recognized at all.

    Your second group, the ones refusing to take on more debt are not the ones who caused the credit bubble to grow, have not changed their behavior much, and have and will be screwed by the system punishing prudent savers and rewarding foolish behavior.

  9. "They provide employment for workers to demolish the quaint westside homes..."

    Workers like these guys?

  10. Dang!

    Imagine driving along and a 'controlled' demolition almost crushes your car.

    At least there was a flag lady nearby :)

    That is amazing. Who was filming it?

  11. Havent a clue who filmed it, but they are certainly aspiring filmmakers with that choice of dramatic music. :)

    If you poke around youtube there are a couple of different angles. It was probably just onlookers with cameras.

  12. In case you thin it's just the Chinese who have money:

    MAny of these companies are losing money and still pay their CEO's Millions of dollars.

  13. As I told you in a previous post. Carney came out today in Charlotte town and basically said no more rate hikes for now.

    I knew he would stop at 0.25% for now.

    This means two things:

    1) The theft from savers to subsidize speculators and banks continues.

    2) The bears cannot count on rising rates for now, to help their cause. We have to depend on a collapse to the unsutainable weight of unaffordability

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