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Housing and Chinese investors

June 16, 2016   ·   0 Comments

Raising a family in a tent trailer? Maybe it’s not as bad as it sounds, but I’m sure glad I don’t live on the West coast.

It’s not that I don’t appreciate that part of the country, I just have no desire to become house-poor while paying a mortgage on a cardboard moving crate, which is what much of the population is apparently going to be living in the future.

It was recently announced that the average price of a single detached home in Metro Vancouver was $1.4 million in April. That’s a 30 per cent increase from a year earlier.

We’re not talking about 5000-square-foot luxury homes with a pool and separate quarters for domestic help. That’s a small, run-of-the-mill three-bedroom home. And an older one at that.

According to Statistics Canada, the median total income in a typical household in British Columbia was $74,150. That’s not a typical salary, that’s a household income, meaning most likely two people are working to create that total.

Try buying a $1.4 million home on that salary. Even if you could manage to save up the recommended 25 per cent down payment, which is very unlikely (that’s $350,000), you would still be carrying a $1,050,000 mortgage.

A quick check on the CIBC website mortgage calculator with a five-year fixed mortgage amortized over 25 years means your monthly payment would be $5,982. That’s not feasible for a typical family and pretty much eliminates a huge number of potential first time home buyers.

While Vancouver is leading the way in the super-heated real estate market, Toronto is not far behind, and of course when the Toronto market goes up it fuels the trend in the rest of the GTA.

So how is it a small, nondescript home can be ‘valued’ at over a million dollars?

It’s been an open secret that the Vancouver market has been driven up by foreign buyers and greedy real estate dealers.

Now a university study is pointing the finger directly at Chinese investors and shady real estate agents.

It’s called REAL estate for reason. A property and a building has a real value. They are tangible commodities and any qualified home appraiser can give you the ‘real’ value of a home.

However, the real estate market also has that price of ‘what the market will bear,’ which is the problem.

Every time someone over-pays for a house, the bar is then raised and every other house in that neighborhood will rise along with it. That’s not supposed to be how it works.

It used to be if you lived in a neighbourhood where the average house price was $100,000, and someone came along and paid $200,000 for the same type of home, they would be considered a fool for paying double for what it was worth. Now the trend is that all the other houses in that same neighborhood are suddenly priced at the same ridiculous level.

How are foreign investors are allowed to crush the home ownership dreams of born and bred Canadian citizens who can’t afford to buy a home in the city were they call home.

There’s too many questions here and yet very few answers and government, both federally and provincially, are doing nothing to get a handle on the situation.

First of all, why are Chinese investors paying more for real estate than it is worth?  Either they are being misled and misinformed on overseas real estate values, (us being overseas) or they are the worst educated investors in the entire world.

The second concern raised is that dropping a ton of cash on an overseas property that doesn’t hold a lot of value is a great way to launder money and invest it in a place other than China.

Then there’s the second group of individuals and institutions who love it when the market goes up.

There’s the banks and all money lending institutions, and the real estate people who live on commissions based on a percentage of the selling price.

In Vancouver there is a well-known practice called ‘contract flipping’, where real estate agents flip a property multiple times, each time at a higher price before the deal closes. Buyers avoid paying taxes and the real estate agents make a commission on each flip. It’s a shady practice, but perfectly legal.

I rarely endorse government involvement in a free enterprise system, but when it comes to having foreigners crushing our own population, it’s time for them to get involved.

It may be happening on the West coast now, but it will soon be widespread in Ontario if things don’t cool down.

The future for the next generation may be either renting or spending a lifetime working and toiling and putting literally all your money into a mortgage just to have a home.

That’s no way to go through life.

Written by Brian Lockhart

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