Real estate players in Greater Vancouver have reported that foreign investment in the area, particularly from Asian countries, has significantly declined in the past few months.
According to data from CBRE Ltd., the total dollar amount of reported Asian investment in the GVA in 2018 fell to around $350 million. Such a drop is quite significant when we consider that amount used to be over $1 billion in 2016 and 2017.
On the other hand, Canada’s largest real estate market, the Greater Toronto Area, didn’t see such a drop. In fact, Asian investment saw a slight increase in 2018.
Vancouver policy changes impact foreign investors
Of course, we have witnessed a global drop in Chinese investment. This is primarily due to capital outflow restrictions implemented by the Chinese government in 2016. In the case of Vancouver, the drop in Chinese investment was exacerbated by a series of taxes. These taxes were instituted by the government recently. Included in this is the foreign investor and empty home tax.
And it looks like British Columbia isn’t done with its policy changes. In an effort to curb dark money, and provide greater transparency regarding property owners, both commercial and residential, BC’s government has proposed a new bill. It requires the beneficiaries of corporate real estate acquisitions to identify themselves. No doubt, this will be a deterrent for foreign investors.
Recent money laundering scandals in the province have shown, it’s possible for individuals to purchase real estate anonymously. They simply use corporations or beneficiaries. If this bill is passed, any property owner that fails to disclose his or her identity could face a fine. The fine can be $100,000 or 15% the property’s assessed value, whichever amount is greater.
Instability scares off foreign investors
Although there are plenty of proponents to these measures, such a swift implementation is scaring off foreign investors. According to David Ho, the executive vice-president at CBRE Ltd,”You have policy changes on a snap, on a whim,” Ho said. “Investors typically look at stability in a market and this is not stability.”
Asian investors that previously had little interest in Toronto now see the city as a better alternative to Vancouver. According to Bat Awal, a principal broker at Avison Young, “[Chinese investors] are looking at Toronto now because they’re seeing a better arbitrage on that than they are here.”
However, is this drop in foreign investors in Vancouver permanent? Right now the answer is unclear.
Foreign investors have adopted a wait and see mentality. They want to see what the long term effects of BC’s policies will be.“It’ll be very volatile for a while but right now there’s no panic in the market, just some jitters,” David Ho said. “How the government works out the policies moving forward a year, two years from now if they haven’t stabilized the psyche of the market, then panic would set in? I don’t know.”