Foreign investors prominent in Canada's luxury real estate market

Foreign investors have a prominent and growing influence in the luxury real estate markets of Montreal, Vancouver and Toronto, a realtor survey by Sotheby's International Realty Canada suggests.

Half of the luxury home buyers in Montreal are from other countries while in Vancouver it's 40 per cent, the Sotheby's Top Tier Trend Report found.

The company, which specializes in high-end real estate, surveyed around 30 Sotheby's realtors responsible for the firm's biggest deals in a dozen Canadian markets.

"In every market, they're dealing with more international buyers, and in a place like Montreal, it's significantly more than they've ever seen," said company president and CEO Ross McCredie.

Montreal has seen buyers from China, Syria, Mexico, Russia and the U.S. emerging as big players in the luxury market in recent years, and McCredie says agents also reported an increase in buyers from Egypt and the Middle East in the wake of the Arab Spring uprisings in that region.

The highest average entry price for luxury single family homes in Montreal is $3.5 million, with buyers favouring established neighbourhoods like Westmount and Outremont, as well as the downtown district of Ville-Marie and the tony Town of Mount Royal, a small municipality in the centre of the island of Montreal.

In Toronto, where international buyers make up 25 per cent of the luxury market, the average starting price for a luxury single family home is $2 million, the same as in Calgary. In Vancouver, it's $2.8 million, although that price can fluctuate from about $4 million in neighbourhoods such as the West Side to $2 million in North Vancouver.

Buyers from China continue to be the most dominant investors influencing the luxury market in Vancouver, the report said, but investors from Iran and the U.S. have recently increased their share of the market.

Foreigners buying luxury homes in Toronto are mainly from the U.S., China, Russia, the Middle East and India and gravitate to wealthy enclaves like Rosedale, Forest Hill or the Bridle Path, as well as downtown areas such as the Annex, Yorkdale and Hoggs Hollow.

While Toronto may have a smaller proportion of foreign buyers, it still has the largest volume of luxury sales, accounting for between 70 and 80 per cent of the market, McCredie said.

"Toronto has been a more established market, and foreigners have been buying there for a long time," he said. "The difference is the foreigners have not been buying in Montreal to the same degree — and Vancouver."

Calgary's luxury market is driven mainly by younger Canadian buyers. The city has the lowest proportion of foreign buyers among the large cities where realtors noted an increase. Foreigners account for only 15 per cent of the luxury market, although McCredie says that is still more than what it was a few years ago.

In all four cities, foreign investors are key players whose influence is felt, McCredie said.

"If you take those buyers out of our market …it would have a massive impact on the housing market — and certainly in the high end," he said.

To get a clear picture of what role foreign buyers are playing in the Canadian market, one needs to first ask what they're doing with the properties they purchase, says Ben Rabidoux, an analyst with Mark Hanson Advisers.

"For example, if all of a sudden, the U.S. starts to recover, will that money flow out of our housing market and into the States?" he said. "Is it hot money looking for a quick return? That would be my concern."

McCredie says his customers are not flipping properties but using them as second homes or vacation properties. The typical profile of a foreign buyer is often a member of a large wealthy family that owns at least three properties in different countries, and often more, he says.

"We recently worked with a family that was from Poland," McCredie said. "They had about eight properties worldwide. They arrived in Vancouver, and they bought a property in Vancouver, they bought a property in Whistler, they bought a property in Toronto, and they're coming back next year and they want to buy something in Montreal."

It's families like that that can turn a whole market around, says McCredie, by bringing in multiple buyers at once and by influencing people within their ethnic community to buy into the market — or conversely, to pull out. That ripple effect is also why certain nationalities will emerge as dominant in the market for a certain time and later be replaced by others.

Sotheby's qualified its findings by saying in the report that "while international buyers play a more prominent influence in urban markets such as Vancouver, Montreal and Toronto, it is largely Canadian buyers who are driving the purchase of top-tier family homes in the majority of markets surveyed."

But there's no doubt that it's the high-stakes foreign buyers who have been getting most of the press in recent years. Last spring, a $1-million sale of a modest bungalow in north Toronto to a university student from China made headlines around the country.

Rabidoux says that while the Sotheby's report does echo what analysts and realtors have been hearing anecdotally for years, it's hard to draw firm conclusions about foreign participation in the real estate market without the numbers to back it up.

"There's very little strong, hard data on the prevalence of foreign buyers," he said. "At this point in the cycle, I think that's something the policy makers need to be looking at, because it could well be an important part in understanding why house prices in Canada are where they are. I don't know, but I would think it's something the policy makers would want to look into."

Canada lags behind other jurisdictions, such as the U.S., when it comes to compiling solid statistics on the real estate market, Rabidoux said.

"They have a very strong sense of who's buying in what market segments," he said. "They can tell you the exact percentage of foreign investors that bought in a certain Florida neighbourhood in the past three months, and we don't have that data availability here, and I think it's problematic."

Having better data would also help inform the conversation about whether Canada should follow the example of countries like Australia and place greater restrictions on foreign ownership of property, he said. Currently, what limits do exist are at the provincial level and mostly pertain to agricultural land.