Instituting tighter regulations on the currently unrestricted flow of foreign money into Canadian real estate will ease a lot of the upward pressure that the sector is currently experiencing, according to a renowned legal professional.
In his blog post published by LinkedIn on June 10, real estate lawyer Kenneth Pazder noted that his Vancouver practice Pazder Law Corporation observed a “drastically” sharp rise in the city’s home prices starting January 2016.
“For example, homes in Vancouver on Connaught Drive which were selling for $3-4,000,000 a few years ago are now on the block for $10-15,000,000,” Pazder wrote. “Correspondingly, homes which were $1-2,000,000 are now $4-5,000,000. Even condominiums which were valued at a half a million dollars a last summer are now worth $800K to $1M.”
“In my view, this lunacy is being fueled to a large extent by foreign money which is pouring into the Lower Mainland at an unprecedented rate and pulling the prices UPWARDS from the top end,” he stated.
A large portion of the overseas buyers are Chinese, according to Pazder, although Americans, Iranians, and Indians are also amply represented in the foreign investor segment.
Holding these buyers accountable by making them reveal their funding sources would be an effective first step in improving the current regulatory regime, Pazder argued.
“Right now any foreign buyers can wire any amount of money into their lawyers’ or notaries’ trust accounts from any bank in the world to buy a property in BC with no questions asked,” the lawyer said. “Realtors and mortgage brokers are required to fill in a bunch of useless FINTRAC forms and obtain client identification documents, but NO ONE is asking where the money came from in the first place!”
Aside from ensuring that wealthy foreigners do not price domestic buyers out of the increasingly competitive market, such a step would also prevent unscrupulous individuals from gaming the Canadian housing system to launder money.
“I believe that many foreign buyers when confronted with a requirement to show where their funds came front would balk and refuse to complete the purchase,” Pazder said.
“Stemming the flow of dirty money into Canadian real estate would terminate a number of high end purchases, which may push down some of the prices at the $10M - $15M range which would in turn push down the medium high end prices and so on,” he added.
Potential solutions must distinguish between types of foreign investors—analysis
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