Canada’s housing market is a bubble about to burst in some cities, or in the midst of a soft landing. Either way, a crucial piece of information on just what’s driving the market is missing in action.
Unlike in other countries such as the United States and Australia, neither the Canadian federal government nor industry keeps track of the numbers of foreign buyers or where they come from. Anecdotal evidence about foreign buyers abounds, yet hard evidence is lacking.
It’s a crucial bit of missing information. Understanding what’s sparking demand in real estate can offer insights into the health of the market and what’s driving prices, and to better predict cycles – by knowing, for example, how a slowdown in China’s economy might affect local markets.
It can also help politicians make wiser decisions about the sector, such as whether restrictions may be needed if speculation becomes too high.
“It’s very hard to have a policy debate about what we should do when we don’t really know what’s going on,” said Tsur Somerville, director of the University of British Columbia’s centre for urban economics and real estate.
On a quiet leafy street north of Toronto, Mr. Zhang – who asked that his full name not be used – taps the walls and inspects the furnace of a $2.68-million home.
He’s got five days in the city to make his decision. This five-bedroom house, with Jatoba cherry wood floors and a home theatre, is a little over his $2-million budget, but he’ll see half a dozen others this week before making a selection.
He’s looking to buy because his 15-year-old daughter will be attending private school in Canada later this year. The owner of a steel business in Beijing has applied to immigrate to Canada, and figures he may as well purchase a home now.
“Canada is a beautiful country. It is good for living, for higher education and it is not that populated,” said Mr. Zhang, who ultimately bought a $2.2-million home in Oakville, Ont.
Rumours are rife about foreign buyers. In Toronto, Russian and Iranian buyers, flush with cash, are snapping up condos. In Vancouver, Chinese investors are buying luxury apartments. In the Maritimes, wealthy Americans and Europeans are acquiring coastal vacation property.
Estimates of the level of foreign buying are all over the map. In the Toronto and Vancouver markets, they can range from 3 per cent to – in some pockets of the condo market – upward of 60 per cent.
Debate percolated last year about whether Canada should place restrictions or slap fees on non-residents who buy property in the country. But “we definitely had policy recommendations in advance of knowledge,” Mr. Somerville said.
Published stats would help analyze ebbs and flows of demand, occupied units versus vacant ones, and the dynamics of over-supply – how foreigners factor in to the equation of household formation to new construction.
Shifts in the housing market can have huge spillover effects on the broader economy, on everything from retail sales to employment and the building of new shopping malls.
And yet, “we’re missing quite a meaningful part of housing activity in this country,” said Sherry Cooper, chief economist at Bank of Montreal.
Canada’s housing market has boomed since the recession, until lately. Without knowledge of the source of buying, Ms. Cooper said, “we have difficulty assessing just how sticky this money is, how vulnerable we might be to international capital flow changes, or what are the fundamentals that determine what has been extraordinary building and buying in our major cities.”
Canadians, meanwhile, are flocking to the U.S. market, snapping up holiday homes in the sun. They are now, by far, the biggest bunch of foreign buyers of American real estate.
Just how do we know this? Each year, the National Association of Realtors publishes a study on international buying activity in the U.S. It shows who the biggest buyers are, the fastest-growing nationalities of buyers (Canada, China), where they’re buying (Florida, California), why (bargain vacation homes!) and how levels of foreign buying change from year to year.
The industry has collected this info for more than five years, gleaned from questionnaires and followup emails to 50,000 real-estate agents. It’s valuable information for the public, government officials – and the industry itself, helping realtors better understand their markets, says Jed Smith, the association’s Washington-based economist.
Australia, for its part, tightened its rules in 2010 to ensure that investment in its market by foreign non-residents “doesn’t place pressure on housing availability for Australians.”
In London, U.K. property broker Savills asks its clients about their nationality and why they’re buying. Its latest report shows foreigners now comprise a third of buyers of prime residential properties, up from a quarter in 2007. It also found the biggest buyers are Western Europeans.