Sensationalist account of foreign investment

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McLean’s published what may be the most comprehensive take on foreign investment to date, and its grim view is one that a veteran broker finds slightly dubious.

In an opus just shy of 5,000 words, the feature – which is showcased on the front page of the national weekly magazine’s May 16 issue – paints a dire picture.

“A surge of money from China is pricing young families out of the market and tearing communities apart,” the cover reads. “It’s also making many Canadians rich and helping keep the economy afloat.

Inside the real estate chaos – and what could happen next.”

To be sure, the authors worked hard to include all the available data on foreign investment, and drew their conclusions based on that – and a great deal of anecdotal evidence.

However, the problem is with the data being cited, according to Dustan Woodhouse, a Vancouver-based broker with Dominion Lending Centres.

The article cites National Bank Economist Peter Routledge’s suggestion that a third of Vancouver’s home sales last year went to foreign buyers from mainland China. He arrived at that estimate by using U.S. foreign investment data and a survey of less than 80 property owners.

“77 people who came to your one bank – you cannot extrapolate 33% of all real estate in Vancouver was purchased by foreign buyers using such a small sample size,” Woodhouse said.

The article also referenced an academic case study, entitled “Ownership patterns of single family home sale on selected west side neighbourhoods in the city of Vancouver,” by city planner Andy Yan. Released late last year, the study found that 70% of buyers in west-Vancouver neighbourhoods over the past half-year are likely from mainland China.

That study employed name analysis methodology commonly used in public health, political science, and Asian American studies to identify the origin of names. According to that methodology, “non-anglicized Chinese” names suggest newer immigrants or Chinese nationals. Again, Woodhouse finds that data questionable.

“That study was based off 66 title searches. He bases it on whether they have mainland Chinese names,” Woodhouse said. “That is offensive and it is useless data.

“People who migrated here from China, even two generations ago, often give their children traditional Chinese names,” Woodhouse continued. “And even those children will give their children, second generation Chinese, traditional names.”

The McLean’s piece also referred to CMHC’s most recent estimate that 10% of new-build condos have been bought by foreign nationals, as well as a recent Canadian property exhibition in China, which drew a great deal of interest from potential buyers, especially when it came to Toronto and Vancouver properties.

The McLean’s article is comprehensive and, if nothing else, it proves more reliable data is needed to better understand the influence foreign money is having on real estate in Canada.

Before we have that, though, it may be a bit early to suggest its influence is causing “real estate chaos.”
  • Ron Butler on 2016-05-11 10:01:35 AM

    Dustin is correct the data is inaccurate. Here is something that is a fact however: 25% year on year increases in house prices is simply nuts. Stop and think what happens if it continues for 3 years in a row. One thing is certain, in a highly distorted market there will be a day of reckoning.

  • JSydneyH on 2016-05-11 10:01:55 AM

    This is just another tactic to sell more papers and magazines. The 'bubble is going to burst' has run its course and no one believes them or is surprised to hear it anymore. Sales have slowed so its time to create another reason to sell advertisers.

    This too shall pass. Like Justin stated in the article, it may be too early to suggest anything.

  • Susie on 2016-05-11 10:04:19 AM

    I completely agree with Dustin. It's ridiculous how some of these numbers are being determined.

  • @kiltedbroker on 2016-05-11 10:18:37 AM

    I heart DW and his delivery of straight goods. Every. Single. Time.

  • R Mac on 2016-05-11 10:29:39 AM

    ...why does Woodhead think the market has gone "crazy" (over the past 5 months in particular)? Did the Chinese stock market take a big downturn in January of this year and that's when the frenzy really started to heat up? Or, is it because the people employed and live in Canada have all received big pay raises from their jobs at Starbucks and now they can afford homes? Foreign investment is the obvious factor in the rise of our real estate prices and Chinese foreign investors are leading the charge. Once all the "investors" parking their money in our real estate see a slight downturn in our market they will pull out and hold that investment in cash and then all hell will break loose. Our market will very quickly become a buyers market and housing will come back down to reality. Our housing market is strong right now because of a strong housing market which is a recipe for disaster. Strong housing markets should be a result of strong employment in a given area (industry), and the lower mainland has it backwards right now...but nothing lasts forever and time heals all wounds and our market is wounded right now!

  • Tim on 2016-05-11 10:34:29 AM

    Unfortunately, sensationalism sells magazines.

  • 2D from TO on 2016-05-11 10:14:18 PM

    Another place to look is to look at the rentals on MLS.

  • Christina on 2016-05-13 10:17:00 AM

    My question is what percentage of sales to foreign interests can cause a run up on housing prices? Does 1% cause a run up in prices? Or does it have to be 10%, 20% or 50%? We all agree that higher demand causes price increases, but we don't know the tipping point. I wonder if the tipping point is lower than would be intuitive. The reason I think this might be the case is that foreign interests (it seems) are willing to pay well over appraised value. This causes a domino effect. My take home message is that even if numbers from foreign purchases become accurate, it will still not tell the whole story. Data collection and analysis will be challenging.

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