Chinese buyers are affecting Vancouver's luxury market, not wider property prices, according to B.C. real estate company Macdonald Realty Ltd.DARRYL DYCK/The Globe and Mail
Buyers from China "dominate" the luxury segment of Vancouver's red-hot housing market, according to new data from prominent B.C. real estate company Macdonald Realty Ltd., which says mainland Chinese buyers in 2014 accounted for 70 per cent of the firm's transactions of high-end Vancouver homes over $3-million.
At the same time, however, Macdonald's data show the influence of wealthy mainland Chinese buyers – a subject that stirs strong emotions here on the West Coast – declines in tandem with the price of the property. The firm said mainland Chinese buyers accounted for 21 per cent of the transactions last year in which homes sold for between $1-million and $3-million, and just 11 per cent of those in which the price tag dipped below $1-million.
The new data offer fresh granularity into Vancouver's cosmopolitan housing market, where the average cost of a detached house has soared to $2.23-million, amid talk of a housing affordability crisis and rampant speculation about the possible role of buyers whose income is disconnected from the local labour market.
Although Vancouver has historically been shaped by immigration from Asia, particularly from Hong Kong in the years preceding the 1997 handover to China, there has been intense debate in Vancouver as house prices climbed in recent years. Many have said demand for high-end housing was boosted by tens of thousands of mainland Chinese millionaires arriving in Vancouver on provincial and federal immigrant-investor programs.
Dan Scarrow, a Macdonald vice-president who runs the firm's Shanghai office, says buyers from China are having a clear impact on house prices – but only in the luxury market, and not on broader real estate prices, which have risen for other reasons. That creates a conundrum for those who are blaming foreign buyers alone for Vancouver's affordability crisis, he says, but also contradicts those in the real estate industry who are trying to play down or entirely discount the role Chinese buyers play in the market.
"It's absolutely had an impact on the top end, on the luxury market. But when you look at the rest of the market, [mainland Chinese buyers are] only participating at an 11-per-cent rate," Mr. Scarrow says.
"What it's resulted in is unaffordability in the luxury segment. Those are the people in society who need the least amount of help. The unaffordability issue at the entry level – it's a function almost entirely of a lack of supply and low interest rates."
The data emerged from an analysis of 1,500 real estate transactions from Macdonald's three main Vancouver offices over the course of 2014, Mr. Scarrow said. Apartments and attached houses accounted for 962 – or 62 per cent – of the 1,500 properties, while the remainder were detached houses. Almost all of the properties above $2-million were detached houses, Mr. Scarrow said, and the firm isolated buyers with ties to mainland Chinese by their names – which differ in spelling from Cantonese names from Hong Kong and those from Taiwan. The firm said these buyers "likely are Canadian citizens or have status as immigrants," and mentioned that a "critical mass of around 50,000 high-net-worth mainland families" will continue to bring in money from Hong Kong and China to "invest in local real estate" over the coming years. Mr. Scarrow – whose mother Lynn Hsu is the president of Macdonald and immigrated from Taiwan in 1979 – says he is confident in the accuracy and analysis of their data, and suggests that though it is imperfect, it is likely indicative of the broader real estate market as a whole.
Macdonald said that, last year, using a different methodology, 33.5 per cent of the 531 detached homes they sold in Vancouver in 2013 went to buyers from mainland China, who also happened to buy more expensive houses, on average, than other clients. That data generated a lot of debate in Vancouver partly because it is so rare in Canada to get such a detailed glimpse at the origin of real estate buyers in any one market: Vancouver, the province and the federal government do not collect objective data on foreign real estate purchases, unlike other jurisdictions globally – leaving Vancouver industry watchers arguing over the scope of the phenomenon and scrambling for whatever random data they can find.
Sotheby's previously issued a report in 2013 that said roughly 40 per cent of its Vancouver luxury sales went to buyers from mainland China, and one local urban planner, Andrew Yan, even looked at electricity use in Vancouver, finding that nearly one-quarter of condo units in Vancouver's downtown Coal Harbour neighbourhood appeared to be empty – owned by investors, but not occupied or rented out. The lack of official data, however, has left many reliant on the local real estate industry sources for statistics, and many real estate industry players and developers have played down the phenomenon of foreign buyers, or raised accusations of racism – which some critics say is to avoid the possibility of any sort of additional scrutiny, regulation or new taxes.
Mr. Scarrow says one reason for the current high prices is that the supply of single family houses in Vancouver – a city that is also hemmed in by the sea and mountains – has been unchanged for at least 20 years. He says Chinese buyers have simply helped push house prices in formerly middle- and upper-middle class areas – such as most of Vancouver's west side – firmly into luxury territory on par with traditionally tony neighbourhoods such as Shaughnessy.
But Mr. Scarrow, who presented the data as part of a presentation to the CFA Society titled "Vancouver Real Estate: The China Effect," says the impact of Chinese investment over the past decade in Vancouver proper has not had a significant impact on properties below $1-million – and is not responsible for a situation in which young families are forced to look further afield for more affordable properties in suburbs such as Burnaby.
Mr. Scarrow says a broader transition is happening in Vancouver, one similar to other big cities – such as London – where most families have had to adjust their notions of home ownership away from the likelihood of being able to afford a detached, traditional house.
"It translates to a transition Vancouver is making from a suburban city to an international city," Mr. Scarrow says. "A generation ago, most people would say that being in that white picket fence environment was the dream. Now, being close to the cultural heart of the city is the dream. People are more willing to accept apartment living, even if they move on to different state[s] in their life."