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To the construction site on West 51st Avenue, Caroline Hong has brought along a mental checklist and her critical eye. She notes the oak front door, the 10-foot ceilings, the Euroline windows, the solid maple cabinets, the massive slab of Carrara marble into which a fireplace has been set. She looks approvingly at the floor-to-ceiling tile in the bathrooms and examines one of the crystal light fixtures sprinkled around the main floor. “That’s Swarovski,” she says. “You can tell money’s been spent.”
A realtor with two decades’ experience, the Malaysian-born Hong is a specialist in contractor-built West Side homes, and will soon be adding this almost completed project to her roster of listings. Nice things are expected in any 5,800-square-foot house bordering Shaughnessy, of course, but Hong is also thinking of the specific features her prospects will be looking for. The house will be inspected almost exclusively by young families from mainland China, she thinks, and their money will likely have been made in manufacturing. She examines a door leading to a bedroom closet. B.C. wood, she notes. If the door were a cheaper one made in China, a buyer would probably spot it. A minor issue, to be sure, but one that would be tallied when the time came to make an offer.
And how much money might such an offer entail? From Coal Harbour penthouses to East Side bachelor suites, that’s been the dizzying topic of conversation for several months as bidding war after bidding war attracts media attention. On blogs and at West Side cocktail parties, the chatter picks at a series of immigrant-related puzzles: how many can there be, how rich are they, and will they keep on coming? And of course, matters like those wouldn’t be pursued with such intensity if it weren’t for the corollaries: what is my place worth, am I priced out forever, and what, oh what, is all of this doing to our city?
The answers to such questions lie largely in the numbers, though not necessarily the obvious ones. Anyone in real estate will tell you the wealthy arrivals dominating the market are mostly from mainland China, yet immigration from there has been dropping in recent years. In 2009, just under 9,000 mainland Chinese arrived in Vancouver, down from almost 13,000 in 2005. But, says Steven Meurrens, an immigration lawyer with Larlee Rosenberg, official numbers don’t necessarily reflect reality. About half the Chinese immigrants arriving in Vancouver are in the investor class and thus must prove a net worth of at least $1.6 million (doubled since new rules were instituted in late 2010).
That number might mean only 1,200 or 1,500 households—not terribly significant in a region where sales exceeded 40,000 in 2010—but Meurrens says the number of investor immigrants from mainland China landing in B.C. is actually considerably higher than what those reports suggest. In the 12 months ending September 30, Quebec (which has its own immigration system) turned away virtually no one, issuing almost 6,000 investor-class visas of its own. There are no restrictions on where visa recipients settle, and a significant number choose Vancouver over Montreal. “The money goes to Quebec,” says Meurrens, but “our office regularly advises people who immigrated under the Quebec Investor program and have a wife and child living in B.C.”
Nor does demand show any signs of receding in the face of tightening eligibility criteria. In fact, the backlog of investor-category applicants is years long and growing, with more than 80 percent originating in Asia, mostly China.
Given that the mainland’s per capita GDP is only around $4,000 (not quite 10 percent of Canada’s), does China really harbour such a large supply of wealthy investors? The world’s fastest-growing major economy spans huge regional disparities; some areas are rapidly approaching First World status. Shenzhen, Guangzhou, and Shanghai, with 40 million people among them, are at three to four times the national average, on par with the more prosperous nations of Eastern Europe. And that rise in prosperity will only increase.
To Chinese in the top two or three percentile of income—a number equal to the population of Canada—the savings required to buy a Vancouver home are not out of reach, especially considering China’s low-tax environment and family-oriented tradition. Meanwhile, prices here are considered reasonable. (See sidebar at left.) Affordability is undeniably a critical issue in Vancouver, but equally undeniably, local perceptions of sky-high property values have been affected by the recent American property bust and Canada’s long-standing status as home to some of the world’s cheapest real estate.
Still, it doesn’t take a fire sale on Olympic Village condos to confirm that the local market is fragmented and fragile. The economy is middling, personal debt levels are high, home ownership is at historic levels, renting costs only about half as much as owning, and interest rates will eventually rise, creating pain for many people with large mortgages. Greater Vancouver now has two distinct markets: one where prices are high and rising, and a second, where prices are flat or dropping. (See sidebar below.)
There are risks involved when real-estate markets become divorced from local conditions, as Vancouver found in the mid 1990s. Back then the chatter was much the same, only the immigrants were different: Hong Kongers and Taiwanese instead of mainland Chinese. Then a triple whammy (changes to Canadian income-tax enforcement, an easing of tensions between Hong Kong and China, and the 1997 Asian financial crisis) provoked a plunge in Vancouver prices, even though the local economy was perfectly healthy. And this time around? An economic bust in China, restrictions against emigration, fallout from the cascading revolution in democratizing countries, local speculative frenzy outracing offshore demand—who’s to say what the triggers might be?
Then again, everything could go smoothly. Back on West 51st, Caroline Hong is doing some math of her own. She’s standing on the ground floor now, where she’s noted the wet bar and screening room, both mandatory for a house like this. There’s no humidor, which would have been a nice touch, but there is a wine cellar. “For this kind of finishing, we’re probably looking at about $850 a square foot,” she says—about $5 million. At that price, she thinks, the place will sell quickly. VM