Vancouver foreign ownership controversy continues

[PHOTO COURTESY: CBC News]

Two companies selling real estate in Vancouver’s red-hot housing market are under scrutiny from the B.C. securities regulator after Chinese-language advertisements brought more controversy over foreign ownership of Canadian real estate.

Sun Commercial Real Estate and Luxmore Realty both solicited clients to invest in crowdfunded real estate portfolios using Chinese-language websites and publications.

The B.C. Securities Commission said neither company appeared to have the required documentation to offer a financial security, such as a crowdfunded real estate investment.

Calls to both companies on Friday went unanswered.

Foreign investment, specifically from China, has been a flashpoint in Vancouver’s overheated housing market, one of the most expensive in the country for residential and commercial real estate.

In September, Sotheby’s International Realty Canada said in a report that turbulence in the Chinese stock market could cause people to put their money in Canadian luxury real estate.

Elaine Hung, the company’s vice-president of marketing, told The Canadian Press that Canada is seen as “an oasis of political and economic stability.”

Volatility on China’s equity markets has continued since September, and earlier this month the company put out a report saying that the number of homes worth $1 million or more sold in the Greater Toronto Area (GTA) increased by 48 per cent in 2015 from 2014 to 11,112.

In Vancouver, the number of homes sold worth $1 million or more increased by 46 per cent in the same period.

PwC Canada real estate expert Frank Magliocco said on Friday that foreign investors were already putting their money in Canadian real estate before volatility hit the Chinese markets and the loonie’s recent plunge.

“The trends were already in place, but with the lower dollar, it makes the investment that much more attractive,” he said.

“I think you’re going to be seeing that more and more.”

Canadian real estate has continued to gain ground as the country emerged relatively unscathed from the 2008 financial crisis, the central bank kept interest rates, and therefore borrowing costs, low, and the population has continued to grow.

While the recent downturn in oil prices has hit Calgary and Edmonton, an October report from PwC Canada and the Urban Land Institute said Toronto and Montreal are poised to grow while Vancouver remains the top spot for real estate investment.

And foreign owners are a significant part of that. Magliocco said there are no reliable statistics on foreign ownership, so PwC compiled data from Statistics Canada showing all of the foreign direct investment into Canada.

The United States, unsurprisingly, accounted for the biggest chunk, 49.4 per cent of the total in 2014. But that had fallen from 64.1 per cent in 2004.

At the same time, investment from Latin America has gone from 1.7 per cent to four per cent of the total, and investment from Asia has jump from five per cent to 11.7 per cent.

Magliocco said foreign investors could begin to look beyond overinflated markets in Toronto and Vancouver and begin targeting places like Montreal and Saskatoon.

The Canada Mortgage and Housing Corp. said in an October report that 11 markets across the country have become overvalued, most obviously Toronto and Vancouver but including Regina, Saskatoon and Winnipeg.

Yet Magliocco said the biggest contributor to soaring prices in metropolitan areas isn’t foreign ownership, but simple economics.

“It’s not a function of foreign investment, it’s strictly a function of supply and demand,” he said.

In Vancouver, the urban area is naturally contained by mountains and the Pacific Ocean.

In 2003, Ontario looked to match that natural check on growth when it created a greenbelt around part of the GTA to protect the countryside from urban sprawl.

At the same time, Magliocco said, governments in Toronto and Vancouver looked to encourage denser construction in order to maximize the use of existing infrastructure.

“Intensification was government policy, and what we’re seeing now is a function of that policy,” he said.