It seems as though the subject of Chinese investors and Vancouver is one that will never make anyone happy. When they were all over the city scooping up some of the most enviable properties, people thought that they should back off and leave them for those that actually lived within the city limits. Once they all started packing their bags and moving out, people again worried. This time because along with the investors also went that cash flow, into the city and the rest of Canada, too. For those who fall into this latter group, there’s no need to worry. Chinese investors will be back; and Bloomberg has recently taken a look at what will bring them back.
As you can see from Bloomberg’s chart above, what happens in Vancouver’s real estate market is very closely tied to China – their economy, and how it is doing. As you can see, when China’s GDP starts to rise, so too do Vancouver home prices. When China’s GDP falls, along with it goes Vancouver’s real estate prices. Bloomberg suggests that this trend will see both Vancouver’s home prices and China’s GDP growing again within the next short while, and it all has to do with China’s economy, and their own rules regarding down payments on properties.
During the years of 2002 – 2008 China saw a huge spike in their own real estate prices, with properties far outreaching the cost on even the priciest Vancouver homes. They too, needed a severe cooling in their housing market and in 2009, the Chinese government instated rules in that country just as Jim Flaherty did here in order to achieve that cooling. And those rules will have even the loudest Flaherty critics saying that the rules he imposed aren’t really all that bad.
This is because China’s new rules are severe. Compared to the 20 per cent down payment that’s needed in Canada to buy a home, in China it went up to 30 per cent in 2009. But that’s just for the first property someone buys. If you were a property owner in China and wanted to add to your real estate portfolio by buying more properties, you would need a massive 60 per cent down payment in order to do it. These rules were instated to deter people, mainly investors, from scooping up properties faster than they could get their latest one on the market; and to lower home prices.
It worked. In the first year that the new rules were instated in China, property prices in major cities such as Beijing fell by 30 to 40 per cent. And while this did give an answer to the extremely hot real estate market at the time, things simply can’t go on that way forever.
That’s because real estate accounts for 11 per cent of China’s GDP. And when other industries, such as furniture retailers, construction, and others that are closely tied to the housing sector are taken into account, that percentage of the Chinese GDP increases to anywhere from 22 to 25 per cent. Any way you look at it, that’s a lot. With so much of the GDP at stake, China will need to start encouraging buyers and investors to start picking up properties once again. When that happens, those who have been waiting to get into prosperous places such as Vancouver will quickly start to make their way back overseas to Canada.
There’s also the fact that the government who instated those rules are no longer in power. With the new leader, Xi Jinping, many believe that he will also overturn those mortgage lending rules in order to return prosperity to China, and get the country’s housing and mortgage market back to once again, being a major boon to their overall GDP.
What do you think? Will Xi Jinping overturn China’s strict mortgage rules? And if he does, will investors start flocking back to Vancouver? And if they do, is that a good thing for this Canadian city, or does it need to continue seeing some softening in order to return to balance?
