Chinese investors have fled the real-estate market, but they’ll be back.
Mainland Chinese investor buyers have all but disappeared from Vancouver’s real-estate marketplace, and their unexpected departure has left many developers, real-estate agents and construction trades with postponed plans and shelved strategies. The sudden absence of the once-omnipresent Chinese investor has also meant no media photo ops of buyer lineups and a softening market in metro Vancouver.
It’s my opinion, however, that when mainland Chinese buyers return to Vancouver it will be a feeding frenzy due to pent-up demand. And they could return as soon as the next six to 12 months, depending on when – not if – the Chinese government changes its tight mortgage-lending policy. The People’s Republic of China is slated to name a new leader in 2013 and historically every change in leadership brings with it new policies to create its own legacy. Of course, the Chinese government is not democratically elected by the people, meaning they get to do whatever they want, whenever they want, without civic input.
Here’s a little background: Vancouverites consider real-estate prices high, but in China during the first decade of the new millennium they were astronomic. So in 2009 the Chinese government introduced a policy designed to cool investor speculation in real estate while allowing ordinary citizens to buy their own home. This policy stipulated that buyers could purchase their first home with 30 per cent cash down, but if they bought a second property it would require a whopping 60 per cent down payment. That move halted the investor market in China and prices dropped by 30 to 40 per cent in major centres such as Beijing and Shanghai.
While it did allow many citizens to buy their own home, it also greatly reduced the amount of cash investors had to invest in real estate. If you’d just lost 40 per cent of the cash value of your Guangzhou condo, why would you buy two more in Burnaby?
Last Chinese New Year is when Vancouver real-estate developers and marketers first noticed the absence of the mainland Chinese buyer, as this is typically when they visit Vancouver and go on a shopping spree. But they went missing this past February, a telltale sign that the government’s strict policy was working and that the overall economy was slowing down.
The reality in China is that the real-estate industry accounts for a hefty 11 per cent of the country’s overall GDP. If you include related industries like appliances and furniture, it increases to between 22 and 25 per cent. The People’s Republic of China simply cannot afford to have the important real-estate industry stall and its economy go sideways, which is why I believe that, in short order, the government will start relaxing the restrictive lending policies, investors will start getting back into the market and, as their assets become more liquid, we’ll see them return to metro Vancouver. When China’s real-estate market returns to brisk buying and selling, many Chinese will once again look for a safe haven to park their newly regained wealth.
Vancouver is poised to become one of the biggest, if not the biggest, beneficiaries of that wealth looking for a new home. When asked why they like Vancouver, many Chinese investors have told me that they prefer to invest here because Vancouver is “safe” and “nothing bad ever happens here.” The sudden rise and fall in real-estate prices we’re seeing now in China, as well as fluctuations in the overall economy, mean that people view investing there as no less risky than placing bets on a baccarat table. It also means that parking money in Vancouver feels to them as safe as investing in treasury bills.
While the policy change has impacted investors’ cash flow in the short term, it hasn’t curbed their enthusiasm for Vancouver real estate. The Chinese government is predicted to have a change in leadership this fall and after that change, I believe, we will see major changes in the country’s mortgage-lending policies and the return, once again, of the Chinese investor.