Canadian authorities’ arrest of Chinese telecom executive Meng Wanzhou could depress Vancouver home prices, influential business journal Barron’s reported December 10, citing a recent report from Hong Kong-based Smartkarma Insight Provider analyst Charles De Trenck.
The report is significant because Barron’s has a significant global reach among investors. Smartkarma, meanwhile, is a digital platform that offers investment insight into Asian markets.
Huawei CFO Wanzhou’s arrest aroused anger in Chinese government circles because she is not charged with any crime. RCMP officers nabbed Wanzhou at Vancouver International Airport on December 1 while she was on a layover. They were acting at the behest of the U.S. government, whch alleges that Wanzhou misled financial institutions into providing money for corporate dealings that broke U.S. sanctions against Iran.
B.C. Supreme Court judge William Ehrcke on December 11 granted Wanzhou’s release on $10 million bail (including $7 million in cash) on the condition that she wear an electronic ankle bracelet, surrender passports, stay in Vancouver and its suburbs and confine herself to one of her family’s two Vancouver homes between 11 p.m. and 6 a.m.
Those restrictions are better than being placed in detention until extradition hearings end, but they are unlikely to please China, which has threatened “significant” consequences if Wanzhou is not released.
“China property investors and economic migrants flowing into Canada and North America got a loud message this week with the arrest,” De Trenck said, according to Barron’s.
“This is coming when property transactions continue to roll over in the formerly overheated Vancouver property market…. Price data are likely to be a little softer already, with new political drivers not yet reflected.”
Vancouver real estate prices have soared in the past five years, and the Real Estate Board of Greater Vancouver pinned the benchmark price for all homes in the region at $1,042,100 in November. That’s 72.8% more than the benchmark price of $603,000 for all homes in November 2013.
Barron’s explained to its readers that “Vancouver real estate prices have been buoyed by Chinese buyers for 20 years, as it became a favourite destination after Britain handed Hong Kong back to the People’s Republic of China in 1997. Chinese buying surged, and then waned in the past two years as Beijing has tried to limit capital flight and Vancouver imposed a 15% foreign-buyers tax. Recently as the market slowed, Chinese interest in Vancouver homes rose again.”
The B.C. government earlier this year increased its tax on homes purchased by foreign buyers to 20%.
Barron's then quoted De Trenck as saying that Chinese migrants may “reconsider their overall commitment to a Canada move for the extended family, as well as encouraging potential new China migrants to consider shifting migration patterns to more friendly climates – or perhaps even to consider that rising nationalism requires them to keep closer to home.”
De Trenck’s conclusion is that Canadian “property price corrections in key markets” might gain momentum.
Some former bulls on Vancouver real estate have already turned into bears.
Lululemon founder and billionaire Chip Wilson, for example, had been loading up on Vancouver properties for years.
His own home at 3085 Point Grey Road is the priciest in the province, with an assessed value of more than $78.8 million – up more than 124% in the past five years. Wilson also owns rental-apartment buildings through his Low Tide Properties.
When Business in Vancouver asked Wilson on October 24 whether it is a good time to buy Vancouver real estate, he did not skip a beat before answering, “Absolutely not.”
His comment came four days after the most recent civic elections and he did not sound pleased with the result.
“We have three levels of left-wing government,” he said. “Money will go to where it is most loved, and investment here is very, very, very difficult right now.”
Canada Mortgage and Housing Corp. is also projecting that prices for real estate in Vancouver will soften.
“We expect the average MLS [Multiple Listing Service] price to decline 7% in 2019, and then a further 4% in 2020,” said CMHC economist Eric Bond.