It’s 2013, aka the bounce-back year for Canadian real estate. We’ve weathered the economic storm and our national interest rate gum boots aren’t showing the slightest signs of seepage. It seems to be the talk of the town that this year is the year for real estate to brighten up our spirits and put money back into our bank accounts. But is it really?
It doesn’t take a scientist to figure out that the Canadian government hasn’t done a good job (if any) keeping track of some key statistics related to real estate and property investment — mainly, ‘What % of local purchases go to offshore buyers’, and ‘what is the reason they are buying.’ With access to statistics on these simple questions, not only would we understand where the demand for Canadian real estate really lies, but we’d also be able to appropriate policy that both protects local interests and still promotes economic growth via international investment. But thankfully for me, they haven’t been keeping track, and therefore my theory still holds klout. The theory that there is truly inherent difference between demand and the translation of that demand into hard sales. Just because the raw number of property transactions went down on average 10% in the past 6 months doesn’t mean that there is 10% less demand for Vancouver real estate. In fact, demand for Canadian property could be higher now than ever before, they just aren’t in as much of a rush. If you directly compare the Canadian real estate market on a percentage of growth basis to Chinese GDP growth over the same time period, the results are shockingly similar – as shown in the graphic below.
And seeing that China’s economy is currently on the upswing, it seems a bit hard to argue.
To the majority of international investors , Canada is affordable, but it’s not ‘on sale’. Markets like the United States on the other hand, are on sale. And since our demand is based on affordability, not sale based hysteria, we have to understand that patience is going to be one of our best friends for the next few years.
In 2013 we can be sure that immigration is, and will continue to play, a substantial role in how Canadian real estate is sold, marketed and developed. The year of the Snake marks the official shift of China’s nouveau riche from first wave to second. Family roots and money that has been coming over here, Vancouver and Toronto specifically, will now be used as a spring board into the rest of Canada. We’ll see a definite pick up in the overall amount as well as the volume of international transactions in cities such as Montreal, Calgary and Edmonton. This trend has happened in many other countries around the world. Most notably, the UK and Australia, as Chinese love to be part of the first movers advantage, yet will never seek out brand new opportunities on their own. China’s economic policies toward Canada have seen a radical shift in focus under the new rule of Xi Jinping. Having gone from 1st level retail and development, to a 2nd level commodity and resource focus, the investor level is sure to follow suit. Because as the Chinese say, “the deeper the roots, the further the leaves will fall from the tree.” And with the strength of the Chinese government’s ever-deep pockets lighting the path ahead, it will only take a few cups to tea for this trend to take off.
So in Toronto, we’ve got a mass of Russian and Iranian buyers, flush with cash, that are snapping up condos. In Vancouver, Chinese investors are buying luxury apartments and developing single family lots for themselves and their children. In the Maritimes, wealthy Americans and Europeans are acquiring coastal vacation properties for the summer months. And with all of this international action, it’s adamant that we as Canadians have a solid understanding of the underlying forces tugging on our real estate. So I’m coining 2013, the year of the Snake, “The explosion of the 2nd tier”. Where we will see a slow but contagious trend of both first and second generation foreign money penetrate the less popular but highly profitable cities in Canada. The Vancouver’s and Toronto’s will always remain hot, but those that can use them as a catalyst into the rest will be the ones with the biggest smiles at the end of the day.