Chinese buyers are gobbling up commercial real estate in Canada and are now the largest foreign investors in the market.
After years of buying houses and other small properties in Vancouver, Asian investors are venturing into bigger and more expensive Canadian real estate.
Buyers from China and Hong Kong collectively spent $1.3-billion on commercial real estate in the first half of this year compared with $309-million last year, according to CBRE Ltd., a global real estate firm.
"It has accelerated significantly over the past year," said Paul Morassutti, Toronto-based executive vice-president of CBRE. "They are now looking at very significant assets. There has been a buildup coming from China. It hasn't happened overnight."
Chinese investors have nudged out American and European buyers. Asian buyers have accounted for 65 per cent of all foreign investment in commercial real estate so far this year, CBRE said. Meanwhile U.S. investors accounted for 2 per cent and the Europeans represented a third of the total foreign purchases. Americans used to be the dominant buyers from 2010 through 2015, making up three-quarters of all commercial real estate purchases, according to CBRE.
One of the most high-profile deals this year was China's Anbang Insurance Group's $1-billion purchase of the Bentall Centre office towers in downtown Vancouver.
"It has been happening in Vancouver gradually for longer than people realize. But it sort of hit the radar screen recently because it now involves some very high-profile assets," Mr. Morassutti said. "The fact that foreign buyers won those assets is proof that, when they want to, they can elbow aside domestic purchasers," he said.
Data show that offshore buyers are making inroads into a market dominated by Canadians. Offshore investment represents 20 per cent of the total $10.6-billion value of deals year to date. In comparison, foreigners accounted for 5 per cent of the $26-billion worth of deals in 2015, according to CBRE. Of those amounts, Chinese investment made up 10 per cent of all commercial real estate deals this year versus 1 per cent last year.
The jump in Chinese ownership of commercial real estate comes amid growing concern that offshore capital is driving up house prices in Vancouver. The Bank of Canada recently warned that soaring house prices in the greater Vancouver and Toronto areas are unsustainable, while the Vancouver municipal government has proposed a tax on vacant homes in an effort to help alleviate the housing crunch in Greater Vancouver, where the benchmark price for detached houses surpassed $1.4-million in April, up 30 per cent from a year earlier.
At the same time, Ottawa is trying to gain a better understanding of what's happening in housing markets across the country and any potential risk that may pose to the wider economy. The federal government has unveiled plans to study offshore buyers of Canadian real estate and has said it will work with the provinces and municipalities to determine whether new rules are needed to stabilize the housing market.
According to CBRE, which uses data from commercial real estate tracking firm Real Capital Analytics, the money is coming in from a variety of sources, including high-net-worth individuals and state-owned enterprises.