Dramatically growing numbers of mobile, wealthy individuals around the world promise to push up demand for luxury real estate, making high-end properties in Canada's biggest cities increasingly valuable.
In 10 years, there will be 50 per cent more people on the planet with more than $30-million (U.S.) in net assets – or about 286,000 – according to a new report from British-based real estate consultancy Knight Frank. Emerging markets in Asia and Latin America will see the most dramatic growth, with China's wealthy population expected to more than double by 2022.
In Canada, the numbers in that category will rise by about 35 per cent over the decade to roughly 6,640, the study says. The largest concentration in Canada will be in Toronto, which currently ranks 20th among global cities for the number of high-net-worth individuals.
One of the consequences of the growing number of wealthy people is that there will be an increasing demand for high-end real estate, even though the supply of luxury properties will remain virtually static, the report suggests. That means the most popular cities for the wealthy – New York and London are at the top of the list – will see increasing upward pressure on prices.
For Canada's key luxury markets, particularly Vancouver, that will mean a long-term jump in prices for high-end real estate, despite recent softness.
The Vancouver region's premium real estate market took a breather last year, although sales of properties valued at $3-million or higher remained well above levels of a decade ago.
The current weakness in Vancouver's luxury market "is probably a temporary thing," Andrew Hay, head of global residential property at Knight Frank, said in an interview from London.
The amount of money pouring into high-end real estate in any specific location shifts as wealthy people look for new places to put their funds, currency rates fluctuate, and governments put in place measures to cool overheated real estate markets, he said. "There is an increasing amount of money waiting to be spent, but it is better informed and changes direction quicker than ever before."
While Vancouver is clearly on the radar screen for wealthy Chinese investors, they will assess other options such as Sydney, London or New York, depending on the situation at any particular time, he said.
Still, over the long term, Vancouver's attractive attributes will draw even more international wealth and put upward pressure on prices of luxury properties, Mr. Hay said. Over all, he predicted, Canada will become increasingly popular as a destination for international wealth along with New Zealand and Australia. That's because of "the rule of law, strong domestic balance sheets, political stability, and [the fact that] they are lovely places to live."
Vancouver is definitely the most favoured Canadian location for the newly wealthy, he said, outstripping Toronto or Montreal.
Dan Scarrow, vice-president of corporate strategy at Macdonald Realty in Vancouver, said some of the high-end market in that city is being driven by immigrant investors, including many originally from China. "It's not like there's a group of investors who are sitting in China and are playing around with the Vancouver real estate market. That is not happening, but there are many Chinese buyers who are already here or will eventually become Canadian citizens," he said.
Don Campbell, a senior analyst at Real Estate Investment Network in Vancouver, noted that the pattern of home price growth in Vancouver closely tracks the movements of Chinese GDP – an indication that Chinese investors have a considerable influence on the Vancouver market .
Mr. Campbell said the overall increase in the number of wealthy individuals in Canada will also be good for premium real estate markets outside the biggest cities. There is new wealth being created by the oil business and other industries, and many of the newly rich aren't in Toronto or Vancouver. "You are starting to see the wealthy not being concentrated in the heart of old Toronto and [Vancouver's] West Van and British Properties," he said, but also in Calgary, Edmonton, Saskatoon and even in Atlantic Canada. There is now demand for luxury accommodation in all those places, he said.
With files from reporter Brent Jang in Vancouver