Nine months after the B.C. government raised the foreign-buyer tax on Metro Vancouver homes to 20% of the property’s values, searches by potential buyers in China have surged through the Juwai.com, China’s biggest international real estate portal.
But the founder of the Vancouver chapter of the Asian Real Estate Association of America, who recently returned from addressing a Beijing real estate conference, advised home sellers to damper there enthusiasm.
“As much as we don’t like to think so, Canada is not as important to China’s buyers as other places, especially the United States,” said Tina Mak, an agent with Coldwell Banker Westburn Realty in Vancouver. Mak suggests that searches through Juwai.com are up for virtually every country as worried Chinese investors attempt to get money out of the country. “Canada was barely mentioned at the Beijing real estate conference,” she noted.
However, the number of inquiries on Metro Vancouver real estate between July and September exceeded even the height reached in 2017’s first quarter, the international property website reported in response to an inquiry by Glacier Media.
In raw numbers, searches rose from approximately 350 in the second-quarter to nearly 800 in the third quarter.
This follows a significant lull over the previous four quarters, where Chinese interest dropped dramatically and focused on other Canadian cities, especially Montréal. Metro Vancouver has this year slipped to being the fifth most searched-for city for Chinese buyers, after Greater Toronto, Montréal, Calgary and Ottawa – whereas in 2016 it was second only to Toronto, reported the website.
B.C. introduced the foreign-buyer tax, at 15%, in August of 2016 and then raised it to 20% in the provincial budget this February.
“We have seen an increase in inquiries from China buyers recently,” said agent Michael Hu of Re/Max Westcoast in Richmond, the city that led the province in foreign-home buyers prior to the introduction of the foreign-home buyer tax. Richmond was still among the top destinations for foreigners buying property in the first half of 2018, but they accounted for just 2% of residential transactions, according to the Ministry of Finance.
Carrie Law, CEO and director of Juwai.com, said: “Our inquiry data shows that Chinese demand plummeted during the first half of the year. This matches the official data showing that foreign buying in Greater Vancouver was down to just 1% of activity in the first half of 2017. In the second quarter, Chinese buyer demand actually hit its lowest level since early 2015. It’s like a sinkhole opened up and swallowed all the buyers. That was the result of several quarters of plunging demand.”
A dramatic increase in inquiries turned this around in the third quarter, with searches up 130.8% from the trough seen in Q2, and up 30.4% over the third quarter of 2017.
Law said, “This is an upswelling of demand that we frankly didn’t expect. What we can’t tell you yet is how many of these buyers will go all the way and acquire a home, despite the foreign buyer tax. Given the time it takes to research and complete a transaction, those who do purchase should begin to show up in the official statistics only from the first quarter of 2019.”
Yu and other local realtors say the increase in inquires has not yet translated into many sales. “Foreign buyers are hard to close,” Yu said.
Vancouver real estate agents say a drop in home prices this year is making real estate more of a bargain for China-based investors.
“House prices are down 18% to 20% on the Westside,[compared to 2017]” said Faith Wilson, president of Faith Wilson Group, Vancouver, “So there is the [foreign-buyer] tax right there.”
Law agrees that Vancouver may appear a relative bargain for Chinese buyers.
“Vancouver still offers Chinese the prospect of homes or apartments at a relatively low price compared to similar property in China. The price per square metre for an apartment in downtown Vancouver is 37% lower than in Shanghai, according to Numbeo,” Law wrote in a statement to Glacier Media.
“In China right now there’s a great deal of insecurity about the real estate and economic outlook. Most middle-class and upper-middle-class Chinese owe much of their financial security to their homes and investment properties in China, which have appreciated massively over the past two decades. But determined government policy seems to be bringing an end to price appreciation and could even cause prices to fall for the first time. In addition, political changes, the trade war, and the falling currency combine to make Chinese very nervous about their personal finances.”
Common public perception is that Chinese buyers seek out high-priced properties to invest huge sums of cash, but this is not borne out by Juwai.com’s data. The website reported that the average inquiry price for Chinese buyers in Metro Vancouver area in 2018 so far is $831,000.
Juwai.com also said that Canada remains the fourth most popular country in the world for Chinese buyers.
In global terms, B.C.’s 20% foreign-home buyer tax is not that high a barrier compared to other countries.
This year New Zealand stopped all foreigners from buying real estate after strong demand, primarily from China, drove property prices skyward. Australia has banned the country’s four major banks from lending to foreign property buyers who do not earn income in Australia.
- Frank O’Brien is the editor of Western Investor.