As Vancouver's Housing Market Implodes, Furious Chinese Envoy Slams Real Estate Tax
Some time in the early days of August, Vancouver's housing bubble burst with a bang, not a whimper, just days after the July 25 announcement by British Columbia of a 15% luxury real estate tax, whose purpose was first and foremost to stop the Chinese "hot money" invasion. It succeeded. As we reported two weeks ago, what happened next was dramatic: at least in the first days after the tax was implemented, the local market essentially imploded, with the average City of Vancouver home price dropping to $1.1 million, down 20.7% over a period of only 28 days and down 24.5% over the last three months.
Confirming that the market has found itself in a state of paralyzed shock, there were only three home sales in West Vancouver between Aug. 1 and 14 this year, compared to 52 during the same period last year. That was a decrease of 94% (full details here).
Needless to say, while most Vancouverites had long been priced out of the domestic real etate bubble - and some say were hoping for the recent substantial pullback in prices, if not outright crash - the biggest losers from this sudden, dramatic collapse, were foreign buyers, mostly the Chinese, whose aggressive, "buy at any price" money laundering "purchase tactics" have been duly documented on this website for the past year.
The result was swift: as Bloomberg reports, China’s top envoy in British Columbia slammed the Canadian province’s new 15% tax on foreign home buyers, questioning the justification behind the hastily imposed measure.
"Why a 15 percent tax? Why now? Why this rate? What’s the purpose? Will it work?" Liu Fei, China’s infuriated consul general in Vancouver, said in an interview with Bloomberg. "The issue is how to help young people afford housing," she added. "I’m not sure even a 50 percent tax would solve the problem."
Ah, ye olde redirection "think of the young people who can't afford housing" trick... just ignore the not so young Chinese money launderers who have been scrambling to funnel billions in (mostly illegally obtained) funds into local real estate to avoid the ongoing, and accelerating, Chinese currency devaluation. As for "solving the problem", we would say a 20% drop in one month has done a rather admirable job of just that.
Liu’s comments come amid signs of the expanding fallout from the levy, which took effect on Aug. 2 just eight days after it was announced and threatened to slow or scuttle many deals. The measure was a response to growing public pressure in Canada’s third-largest city, where anecdotes abound of offshore investors bidding up prices and then leaving homes empty.
The justificiation for Liu's fury was just as hilarious: the envoy said she has expressed qualms to some provincial ministers after receiving calls from distressed Chinese students locked in contracts to buy homes but unable to drum up the extra cash to pay the tax. As we reported before, even before the collapse in home prices and transactions, the tax had derailed thousands of deals, and prompted calls for legal action. Attempting once again to shift the blame on the local government, which had been derelict in its duties to protect local real estate from a seemingly endless wall of Chinese money, Liu also noted that the tax would hit Canadian home sellers who suddenly lose their buyers. Actually, the sellers in the ultra-luxury segment already cashed out, to all too willing Chinese buyers. It is they who find themselves in limbo, holding rapidly depreciating assets whose true value is suddenly unknown.
When the levy took effect, roughly 2,300 units valued at C$1.25 billion had been pre-sold to foreign buyers that may be at risk, according to estimates by Vancouver-based Urban Analytics Inc. Re/Max Holdings Inc., one of the biggest residential real estate brokerages in Canada, estimates 45 home sales could collapse this month. The tax has suddenly chilled the market and "virtually no business is being done," Western Canada Regional Executive Vice President Elton Ash said.
Failed deals could have a “domino effect" that potentially jeopardize as many as six subsequent sales, Ash said.
So far, however, the fallout has remained confined to the Vancouver market.
Liu saved the punchline for last, saying that "blaming high property prices on foreign buyers, especially Chinese, is unjustified" and adding that while Chinese nationals represent the biggest group of foreign home buyers, they comprise less than 3 percent of total transactions in the Vancouver region.
What she did not add is that it is the small, but cost-indiscriminate Chinese buyers who, on the margin, unleashed the unprecedented scramble for luxury properties, which in turn has pulled the entire local market dramatically higher. Prior to the bubble burst, Vancouver home prices were rising at the fastest pace in the world, up over 20% in the past year, and in many cases, far higher.
Liu, however, was undeterred and used Merkel's favorite diversion tactic: "This is a big country with a small population," Liu said. "It needs immigration to grow the economy."
Her solution? Liu called for a more holistic approach to make housing more affordable, such as timelier data to better match supply with demand, a more extensive public transit system and taller buildings to house a growing population.
In other words, China is happy to provide advice to the Canadian city of Vancouver on how to zone itself, and how to boost supply... for even more Chinese oligarchs.
Many Vancouverites, accustomed to unimpeded views of mountains and ocean, are fiercely resistant to increased high-rise development. About 65 percent of the city of Vancouver is zoned for only single-family homes, according to the Urban Development Institute. Meanwhile, a C$7.5 billion plan to fund public transit was voted down in a referendum last year despite increasingly long commutes that undermine labor productivity.
Her parting words were interesting: "Without a plan, everything is a disaster," Liu said. "We can send people to the moon - housing is just a small problem."
What she meant to say is that Chinese buyers had sent Canadian housing "to the moon." And now that reality is finally reassrting itself, and the bubble has burst, "everything is a disaster." If only for the wealthy Chinese buyers whose interests Liu represents.