How Dependent is Canada’s Housing Market on Foreign Investment?

The question regarding Canada’s dependency on foreign investment in the housing market, is raised consistently by market analysts, but unfortunately, is not one that can be answered definitively.

Interestingly enough, Canada, unlike countries such as the U.S. and Australia, does not collect data on foreign investment, leaving market observers and analysts to speculate on the amount of foreign investment the country’s housing market is experiencing. The majority evidence that exists is anecdotal, coming from real estate agents and brokers who can speak first-hand on the number of sales they’ve made to foreign buyers. A handful or privately funded reports also exist, some of which will be highlighted in this article.

Al Daimee, a real estate agent with Royal LePage who specializes in downtown Toronto condo sales, stated in an interview with Hopkins and French, “There is definitely a foreign investment component to the new condo industry – it makes up the vast majority of sales right now.” The evidence he uses to substantiate his claim is the presence of a power of attorney on condo documents, a practice typically used by foreign investors. According to Andrea Hopkins and Cameron French of The Globe and Mail. Canada (along with Australia, who are experiencing similar housing market conditions) is attractive to global real estate investors “seeking a safe and stable place to park their money,” given as how Canada was able to avoid a full on housing collapse during the global economic crisis.

Just to get a sense of the amount of foreign investment Canada could be experiencing as a whole, a report released by the U.S. National Association of Realtors stated that, Chinese investors spent $22 billion on American real estate in 2013, and $17.2 billion on Australian real estate, with Canada likely being a close third. In April 2013, Sotheby’s released its Top Tier Trend Report, which found that foreign investment had a prominent foothold in the luxury market in particular. It suggests that half of Montreal’s luxury homes are foreign purchased, along with Vancouver’s 40%, and Toronto’s 25%.

Some, like Sunny Freeman of The Huffington Post, suggest that foreign investment from China is a result of Canada’s housing prices being inflated, which is discouraging to many domestic buyers, but appealing to wealthy foreign investors. News of Canada’s deteriorating home affordability coupled with low interest rates that spread internationally back in mid-2012, is believed, to have been the spark causing a rush of Chinese investment into the country. Is there a consequence to all this foreign investment? There is no clear consensus on this topics, but some suggest that it may drive up demand and inflate prices further. Freeman explores it well from both angles, arguing that, on the one hand, governments, realtors and developers should be welcoming of wealthy foreign investors because they provide a stable flow of money and competition that raises valuations. While on the other hand, economists, city planners and community activists do not necessarily view foreign owners as being invested in the community, and so, are most likely to pull out of the market quickly in the case of a downturn.

Jason Quintal | January 10, 2015

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