Photo: Wendy Cutler/Flickr
It’s no secret that Vancouver, once undeniably Canada’s hottest housing market, began to cede ground to Toronto in 2016. Hit by multiple government interventions, chief among them a new foreign-buyer tax, Vancouver home sales and prices fell in the second half of the year, while in Toronto they continued to trend upward.
December stats from the cities’ respective real estate boards only serve to drive home that point. While Vancouver home sales were down 39.4 per cent year-over-year, Toronto home sales were up 8.6 per cent. What’s more, Toronto home price growth is accelerating while growth in Vancouver’s is slowing. In the former, prices were up 21.1 per cent year-over-year last month, whereas in the latter they were up 17.8 per cent — a far cry from the year-over-year increases of 30 to 40 per cent seen in the first half of the year.
Commenting on the divergence between the two cities, BMO Senior Economist Robert Kavcic said in a note, “[o]ne thing this highlights pretty clearly is that the nonresident buyer tax (unique to Vancouver) is having a much bigger impact than Ottawa’s mortgage rule changes (which applied to both cities).” He added, “[n]o surprise in that at all.”
That may be true, but measures introduced by the Chinese government at the beginning of the year could soon serve to dampen both housing markets. Aimed at slowing the flow of money from China, the new rules make it much more difficult for individuals to take their cash out of the country — for example, to buy homes or make other investments.
Put simply, previously Chinese citizens could easily convert up to $50,000 USD a year into foreign currencies, but now doing so will require paperwork, including documents showing what the converted money will be used for. Those who complete the process will then be held liable for what they do with their converted money.
Speaking to The Globe and Mail, Andy Xie, a former China economist at Morgan Stanley, said that while the changes are unlikely to have a significant impact on the country’s richest citizens, the middle class will almost certainly feel their effects. And because middle-class Chinese citizens have been such a driving force in places like Vancouver and Toronto, housing sales and prices those cities could also be affected.
Others aren’t so sure the rules will have much impact. Charles Pittar, CEO of Juwai.com, a popular international property website for Chinese buyers, said he “[hasn’t] seen any anecdotal reasons to believe that there will be a drop in inquiry levels from a year earlier,” while Li Zhanjun, director of the Shanghai Yiju Real Estate Research Institute, quipped, “[d]on’t imagine that once the government announces something, it will always reach its intended outcome.”
Either way, foreign buyers promise to play an important role in both the Vancouver and Toronto housing markets this year.