Economist: Foreign investment misunderstood

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Benjamin Tal, deputy chief economist for CIBC, believes the number of foreign investors in Canada is much smaller than many believe and that the effect they have on the housing market is overblown.

“The issue of foreign investors is largely misunderstood,” he writes in the bank’s latest economic insights report, The Many Faces of the Housing Market, penned with fellow economist, Andrew Grantham. “The share of those investors in total activity is much smaller than perceived.”

According to the pair, the largest share of ‘foreign money’ is spent on homes for people, often recent immigrants, that actually live in Canada – a situation that poses much less risk to the housing market.

“Is that foreign or domestic investment? Note that this kind of activity requires much larger down payment and the fact that the family lives in the house suggests a much higher level of commitment than a typical investor,” the pair writes. “So in terms of risk, this segment of the market is relatively safe.”

The economists note aggressive price appreciation of condos is a thing of the past and investors are focusing more on rental income than capital appreciation, but also that this poses a different threat than over-valued units.

“That’s where the vulnerability is. We estimate that roughly half of the stock of rental units in the cities belong to this category,” they write. “To the extent that higher rates and/or low rent inflation challenge the economics of rent, we might see a wave of sales in the resale market that will directly compete with the upcoming influx of new units.”

CMHC estimates just under 20 per cent of condos in Vancouver and Toronto are owned by investors – both foreign and domestic.

Tal and Grantham, meanwhile, believe around 70 per cent of pre-sales and 50 per cent of final sales are currently going to investors.  
 
  • JS on 2015-06-27 9:51:32 PM

    This is all criminal to manipulate collective opinion because of elections. Politicians are good in what they do, they do get elected. If Madanis' predictions are right with additional rate cut in September followed by another in December than the house prices will raise even further. . . . in spring market there will be blood in the streets and complete real estate holocaust negatively affecting currency value.

  • JS on 2015-06-28 1:04:29 PM

    Building real estate values based on employment incomes and increases thereon is the way to go people, not on unprecedented debt levels. The writing has been on the wall for some time. Get ready for carnage and that will involve Canadian currency collapse.

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