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What's driving Vancouver house prices? Add to ...

For those desperate for hard data on the effect of Chinese buyers in the Vancouver housing market, answers seemed to come from the most unlikely of sources – China's state run newspaper.

The China Daily ran a story – later picked up by a Forbes blog – which said that "according to Colliers International, a real estate service provider, the proportion of Chinese buyers in Vancouver's property market is on the rise. At the end of the first quarter this year, it increased to 29 per cent of all home buyers."

The buying is attributed to a desire to move money out of the country, preferably into hard assets, as China restricts home ownership in the country in a bid to cool the market.

This all matters because market watchers are increasingly anxious about the state of Vancouver's real estate industry, with recent reports suggesting it is now the third most expensive in North America.

Some are calling for restrictions on foreign investment – without knowing how much money is actually coming into the city.

But alas, nothing is so transparent in a market such as Vancouver, which doesn't actually track foreign investment. The Colliers report believed to be at the heart of the article – Marketshare First Quarter 2011 – doesn't actually quantify the number of buyers and goes out of its way to play down the effect they may be having.

"There seems to be more myths than facts about Mainland Chinese investing," Colliers president Greg Ashley wrote in the intro.

"This trend is certainly impacting single family housing values in Vancouver-West and Richmond. However, it is not the driving force behind all sales. A number of recent launches reported large numbers of Asian buyers -- yet a significant portion of these buyers are actually local residents not foreigners."

In the last six months, said the China Daily, Chinese buyers spent $200-million through Colliers' international property department with most of the money going toward Canada, the U.K. and Australia.

But all three destinations feature some very expensive real estate. Even if you divide that by three – $66,666,666 per market – that seems like a small piece of the action. The resale market in Vancouver accounted for $2.1-billion of activity – in May alone.

And there's no logical reason to split it equally – London's population is 7.5 million compared to Vancouver's 580,000. Australia is a whole country.

BMO Nesbitt burns recently said Vancouver appears primed for a correction, with the average house now costing "an astounding" 11.2 times a family’s average income – more than double the national average.

The report also mentions the Chinese, but not investors. Instead, it points out that many immigrants have decided to live in the city to take advantage of business relationships and the school system – quite a different scenario than investors buying up expensive properties and leaving them vacant.

It's a trend that the city's heaviest hitter backs: local high-end broker Bob Rennie said in a recent speech that while up to 90 per cent of the city's properties selling for more than $2-million were being sold to the Chinese, "they have relationships here, will use their home and contribute to the economy."

The report also states that "due to the latest financial push from China, the average price of a home in Greater Vancouver rose 12 per cent in 2010 and is expected to rise another 3 per cent this year, according to the Canada Mortgage and Housing Corporation."

CMHC – which actually tracks new housing prices – said in its latest report that prices are likely to increase by 14 per cent by the end of 2011.

The Greater Vancouver Real Estate Board said the residential benchmark price – a measure it uses to smooth its data – was $577,808 at the end of 2010, meaning prices gained 2.7 per cent in the year.

Unlike some countries, Canada doesn't track foreign investment in real estate. That leaves the private sector to fill the gap, and methodologies vary wildly. Colliers used Urban Analytics Inc. to gather its data, a company that relies on site visits and staff interviews to get an idea of what's happening in the market.

The research doesn't have Colliers looking to close the city's gates.

"While debate is healthy, restricting foreign investment will not only affect our real estate market, development industry, housing supply and our economy it may also damage how we are viewed in the world," Mr. Ashley wrote. "Personally, I'd rather live in a place that is envied and sought after by people all over the world."

Bank of Canada Governor Mark Carney said last week – from Vancouver – that some of the country's cities need to be watched closely.

But again, any data about foreign buyers is anecdotal and hardly the stuff to base policy upon. Instead, he's watching the effect of low interest rates and exuberant buyers.

"The risk is that expectations become extrapolative, prompting the classic market emotions of fear and greed – greed among speculators and investors, and fear among households that getting a foot on the property ladder is a now-or-never proposition," he said.

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