Real Estate

Vancouver housing bubble?

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  • Feb 17th, 2019 11:51 pm
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Deal Fanatic
Jan 27, 2006
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In today's Globe and Mail, they have an article on a new wave of money transfer crackdowns by the Chinese government - http://www.theglobeandmail.com/real-est ... e33485996/. It's an interesting read as it basically splits the previous influx of Chinese funds into two groups - middle income and high wealth - and points out that the middle income 'investors' are the ones that the Chinese government is really targeting as the high wealth ones will always find a way to get their funds out. If the trend holds true, I believe that there should be not only a lower level of actual home purchases but also an overall reduction of foreign owned homes in general.

Why? Since many of the Chinese middle income purchasers are looking to move their families out of the China while the breadwinner stays in China to run the business (if you are high wealth, you can hire people to run the business but middle income can't), additional funds are usually transferred from China to Canada for the normal family expenses - ie. cars, food, school... According to studies in the past few years, there are many neighbourhoods in Richmond and certain other parts of the Lower Mainland (Vancouver and Burnaby mainly) which have a high concentration of owners who have 'no appreciable' income and qualify for free government services living in multi-million dollar homes. Most of these owners are probably the families of those Chinese middle income purchasers. With the Chinese government cracking down on these money transfers, the families won't have the money to stay where they are as they are dependent on those money flows from China.

Here are a few highlights from the article:
Now, authorities in China are taking new steps to bar individuals from putting their cash into overseas markets to buy homes and other investments, a change with important implications for cities such as Vancouver and Toronto where Chinese buyers had contributed to frenzied property trading.

Under the new regime, the number of buyers will “drop sharply,” said Andy Xie, a China economist formerly with Morgan Stanley.

Those selling homes to Chinese buyers should brace for their “business to shrink dramatically,” he warned.
People in China, who can normally only convert $50,000 (U.S.) a year in foreign currency, have long been technically barred from buying property overseas, but those rules have not been rigorously enforced.

At the outset of 2017, however, China imposed a series of new documentation requirements on currency transactions and punishments for using money in ways the rules don’t allow.

Before, changing yuan into loonies could be done with the tap of a smartphone screen. Now, banks have begun requiring paperwork that entails submitting for approval the reason a person wants to obtain foreign currency and when it will be used. A new rule then holds people liable for what they do with that money – and could bar them from exchanging money for up to three years if they are found to have used it improperly, such as for the purchase of a home.

The rich, with corporate assets and access to sophisticated market tools for stealthily routing money around the world, are unlikely to feel much difference from the change.

But for the middle class, which has become an important force in property markets in places such as Canada, the United States and Australia, “it will have a big impact,” Mr. Xie said.

Families that once bundled together converted currency to buy condominiums and modest houses abroad will face new inspection of their currency conversions and new risks to falling afoul of the rules.

Mr. Xie expects many to simply abandon the idea, particularly since the rules also give banks much more latitude to simply deny transactions. He expects authorities to give banks quotas, in a bid to keep the country’s foreign reserves from dipping below $3-trillion, a line Beijing does not want to cross, he said. In November, China’s foreign reserves stood just $50-billion from that mark.
The new currency rules could even motivate more Chinese buying by making “people more worried about the security of their assets and more eager to move them overseas,” said Anne Stevenson-Yang, co-founder of investment advisory J Capital Research.

Chinese investors tend to be nimble in finding ways around new rules, too. “It takes about a month before people find the next channel,” Ms. Stevenson-Yang said.
What China is doing with capital controls is similar to its successful management of the Internet. Access to censored websites “is not impossible from China, but it’s just a big hassle, and because it’s a hassle, very few people manage to do it on a regular basis,” said Victor Shih, who specializes in Chinese fiscal policy at the University of California, San Diego.

The goal with currency conversion restrictions “is exactly the same – to create enough friction to deter the vast majority of people from converting sizable amounts of money,” he said.
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True... if, of course, you believe the meme that China runs Vancouver's real estate market. Sure, it has an impact, but the impact of this news article on the local buyers is likely to have a larger influence than actual cash outflow in and out of the city... imho.

In short, fear drives markets up (or down). When you remove that fear in the eyes of the public... fear of loss can cause a cascade in the opposite direction.
I'd love to write history... in advance.
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atomiton wrote:
Jan 5th, 2017 4:59 pm
True... if, of course, you believe the meme that China runs Vancouver's real estate market. Sure, it has an impact, but the impact of this news article on the local buyers is likely to have a larger influence than actual cash outflow in and out of the city... imho.

In short, fear drives markets up (or down). When you remove that fear in the eyes of the public... fear of loss can cause a cascade in the opposite direction.
It's not that the Chinese money runs the real estate market in Vancouver... it's more a question of more supply and less demand. With the reduction in inflows, there will be even less demand that may come back even with possible declines in the Canadian dollar - even a small fraction of lower demand may be enough to tip the market even more. Also it makes it harder for the existing families to stay without any spending money so some of them may just sell now that the prices are still inflated, move to another area and use the difference to live on for a few more years and thus increase the local supply in an what seems to be an increasing over supplied market given the inventory builds in the past few months.

As for local buyers, they, for the most part, are still priced out of the detached market so regardless whether they want to buy a house or not, they simply can't afford to buy especially with the possible interest rates increases in the coming year. The condo market will still probably be robust as the government programs will help it move along.

Short term - there may be an increase in purchases but that increase would probably be in other geographical areas than Vancouver due to the fact that the market's momentum has changed in recent months. I would expect an up tick in Toronto or the US as the last of the current funds runs out for purchases.
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Jun 11, 2005
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canucky1 wrote:
Jan 4th, 2017 10:51 pm
How do you look hard? MLS?
MLS is just a starting point.

I would say if you were serious looking, you should start keeping track of DOM, listing price history, (recent) comparables in the pocket and what pockets are holding up vs which pockets are dropping. Then compare the prices to assessed value on the BC assessment website. The assessed values are only a guide and are not precise but they nonetheless provide a benchmark because July 1 2016 is close enough to the effective date of the FBT in Vancouver.
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mudd_stuffin wrote:
Jan 5th, 2017 8:39 pm
MLS is just a starting point.

I would say if you were serious looking, you should start keeping track of DOM, listing price history, (recent) comparables in the pocket and what pockets are holding up vs which pockets are dropping. Then compare the prices to assessed value on the BC assessment website. The assessed values are only a guide and are not precise but they nonetheless provide a benchmark because July 1 2016 is close enough to the effective date of the FBT in Vancouver.
Thanks mudd_stuffin - But where do you get that type of data? I know the realtors have it but they don't "share"
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adamtheman wrote:
Jan 4th, 2017 9:33 pm
The problem is that, given the high amount of inventory and the low amount of sales, prices can only be sustained for so long. My guess is that a lot of people are waiting until Spring to see if the market rebounds. For that to happen, however, listings would need to drop first, then sales would need to rise. Last year, Vancouver saw some insane listing-to-sales ratios. Almost unheard of. Look at the numbers for detached houses:

In December 2015, there were 2497 new listings added, and 1141 sales.
In December 2016, there were 3711 new listings added, and 542 sales.

So it's gone from a 2,19 to 1 ratio (listings to sales) to a 6.85 ratio.

That's basically triple. That means compared to last year, every buyer has 3 times the options to choose from. And for every person who lists their home, only 1 out of 6.85 will sell (basically 1 out of 7).

So to put that into a scenario... you and 6 of your neighbours list your homes. So there's 7 houses for sale on your street. Only one of the houses will sell, the other 6 won't. A buyer drives down the street in his car and gets out. Whoever offers him the best deal will sell their house. It's more likely one of the 7 sellers will crack and reduce their price.

Compare that to last year, when only 2 houses were for sale. Now it'a sellers market. The buyer only has 2 houses to choose from. Chances are he won't like one of your houses, so he is basically going to have to pay what you ask.

This is sales-to-listing ratio 101 for dummies. I am sure you know this, but I am posting it for others.

So when people say that they feel like the "market is picking back up" the stats don't show that, at least not right now. Everything is working against Vancouver.

Spring is either going to be make or break.
Actually, 1 out of 6.85 is app. 15% which is the sign of a balanced market, at least based on real estate industry. (What percentage is reflective of a balanced market is debatable... I am just saying.) This is using numbers which I will assume to be correct for a moment.

So i would definitely say that the price increases could not be sustained.

Where do you get 3711 new listings added for 12/16? I see 1312 based on REBGV.

The number of new listings for apartments and attached was actually lower for 12/16 vs 12/15.

If you look at the daily stats, there are signs that the market is picking back up. Look at the last few days of 2016 in terms of sales vs new listings: http://www.robchipman.net/
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canucky1 wrote:
Jan 5th, 2017 8:43 pm
Thanks mudd_stuffin - But where do you get that type of data? I know the realtors have it but they don't "share"
You are welcome.

It is a lot of homework and I follow the market quite closely. But as a start, I always have a handful of properties which would intrigue me (even though I am priced out, at least based on current financial situation).

Then I would follow the properties - seeing whether the properties are still on MLS (or Zolo which is a better site) after about 7-14 days on the market. If the property is priced right and assuming non-maniac market conditions, the property should sell. Zolo has DOM info but you would need to sign up with them. (The DOM info disappears if the listing disappears but if the listing remains and the price drops, Zolo will tell you.)

You can look at relatively recent sales for the pocket you want from the BC Assessments website.

But overall speaking you are correct - you need to work with an agent. I have an agent in Vancouver who I bug intermittently for an update of the market.

I would also caution that blogs and news may be written up with a bias. It may be that the writer or editor cherry picks sales data to show a certain price behaviour (recently, that would be crashing) but there is a lot more to the market that what you read in the news. There is definitely more than what meets the eye. When a news story reports that a house dropped $1M in listing price, they might not mention that the listing price was 40% above the July 1 2016 assessed value or the property might be a heritage property (or both). I say this even though I never dismiss any blog or piece of news which may have some bias.
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craftsman wrote:
Jan 5th, 2017 2:35 am
That's going to be in question... There are also stories out there that with the situation in the US, many Canadians who moved down to the States for jobs in the last 5 years that don't have a Green card or taken up dual citizenship may have issues staying down there and may start to move back up here. So, if you compare our prices with prices in San Francisco with the exchange, Vancouver is some what affordable.
Or what I have also heard is that they may stay down there but move money up here.
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Jun 11, 2005
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craftsman wrote:
Jan 5th, 2017 7:44 pm
It's not that the Chinese money runs the real estate market in Vancouver... it's more a question of more supply and less demand. With the reduction in inflows, there will be even less demand that may come back even with possible declines in the Canadian dollar - even a small fraction of lower demand may be enough to tip the market even more. Also it makes it harder for the existing families to stay without any spending money so some of them may just sell now that the prices are still inflated, move to another area and use the difference to live on for a few more years and thus increase the local supply in an what seems to be an increasing over supplied market given the inventory builds in the past few months.

As for local buyers, they, for the most part, are still priced out of the detached market so regardless whether they want to buy a house or not, they simply can't afford to buy especially with the possible interest rates increases in the coming year. The condo market will still probably be robust as the government programs will help it move along.

Short term - there may be an increase in purchases but that increase would probably be in other geographical areas than Vancouver due to the fact that the market's momentum has changed in recent months. I would expect an up tick in Toronto or the US as the last of the current funds runs out for purchases.
I would add that interestingly, Vancouver detached owners represent a much higher percentage of fully paid-off properties and the leveraged owners own the lower-priced properties such as condos. So it will be interesting to see what effect interest rates may have on each segment of the market.
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mudd_stuffin wrote:
Jan 5th, 2017 10:33 pm
Or what I have also heard is that they may stay down there but move money up here.
It depends if they can physically either return or stay down there. I've cross the border a lot of times for business and it doesn't take much for US Immigration to prevent you from crossing even if you have all of the paperwork and answer their questions correctly.
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Apr 27, 2015
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Another day, another great read about Vancouver's housing bubble.


http://www.theglobeandmail.com/news/pol ... e33625601/

"The Canada Revenue Agency is trying to recoup millions in allegedly unpaid taxes from B.C. businessmen who helped Chinese and other Asian investors enter Canadian capital markets, according to a court document obtained by The Globe and Mail.

Dozens of officials from the CRA, the RCMP and the Vancouver Police Service raided six locations last August in connection with the activities of Vancouver businessman Kin Foon Tai. The CRA document that was used to obtain the search warrants alleged that Mr. Tai (known as Joe Tai) and his business associates used firms in the Caribbean and Hong Kong to shield $7.6-million in income over a nine-year period.

The $7.6-million figure was described in the court document as “conservative” and is based on an initial audit that identified up to $17-million in unreported income. None of the allegations in the document have been proven in court, no charges have been laid and the investigation is ongoing. The CRA is the lead agency on the file, while the RCMP and the Vancouver Police provided assistance during the raids.

The CRA allegations show the complexity of the kind of methods it believes are being used to transfer and hide millions of dollars around the world. The issue is of particular concern in a province such as British Columbia, where foreign investment in real estate came under increasing scrutiny as the housing market exploded over the past two years.

The court document also shows the scope of the auditing and investigative resources the CRA needs to conduct its growing crackdown on tax evasion. The federal tax-collection agency received help in this case from the Internal Revenue Service in the United States, and a massive leak of confidential information in 2013 compiled by the International Consortium of Investigative Journalists (ICIJ).

“This search action is part of the CRA’s greater focus on serious tax evasion and offshore non-compliance,” the CRA wrote in a written response to questions from The Globe and Mail. “The CRA has reviewed every Canadian connection to the 2013 ICIJ leak and continues to apply the full range of civil and criminal compliance actions available to us, where appropriate.”

The CRA investigation is targeting Mr. Tai and five other individuals based in Vancouver and Richmond in a case that also involves corporations and individuals in the Cayman Islands, the British Virgin Islands and Hong Kong."
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Dec 1, 2012
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https://www.bloomberg.com/news/articles ... rt-on-cash

China’s escalating crackdown on capital outflows is sending shudders through property markets around the world.

In London, Chinese citizens who clamored to purchase flats at the city’s tallest apartment tower three months ago are now struggling to transfer their down payments. In Silicon Valley, Keller Williams Realty says inquiries from China have slumped since the start of the year. And in Sydney, developers are facing “big problems” as Chinese buyers pull back, according to consultancy firm Basis Point.

“Everything changed’’ as it became more difficult to send money offshore, said Coco Tan, a broker associate at Keller Williams in Cupertino, California.

Less than a month after China announced fresh curbs on overseas payments, anecdotal reports from realtors, homeowners and developers suggest the restrictions are already weighing on the world’s biggest real estate buying spree. While no one expects Chinese demand to disappear anytime soon, the clampdown is deterring first-time buyers who lack offshore assets and the expertise to skirt tighter capital controls.

“If it’s too difficult, I’m out,’’ said Mr. Zheng, 66, a retired civil servant in Shanghai who declined to give his first name to avoid attracting regulatory scrutiny. He may abandon a 2.4 million yuan ($348,903) home purchase in western Melbourne, even after shelling out a 300,000 yuan deposit last August. He’s due to make another big payment next month.

The change spooking Zheng and his compatriots came in a statement from the State Administration of Foreign Exchange on Dec. 31, hours before the reset of Chinese citizens’ annual foreign currency quotas. Among other requirements, SAFE said all buyers of foreign exchange must now sign a pledge that they won’t use their $50,000 quotas for offshore property investment. Violators will be added to a government watch list, denied access to foreign currency for three years and subjected to money-laundering investigations, SAFE said.

“A lot of clients are worried and have started hesitating,’’ said Wang Ning, vice president of the international department at Fang Holdings Ltd., China’s most popular property website. While the regulator has long banned the use of foreign currency for real estate, its call for additional documentation was seen as a signal that the government is serious about cracking down.

At The Spire in London, a 67-story tower with sweeping views of the River Thames and flats starting at 595,000 pounds ($751,901), prospective buyers were caught off guard by the new rules. Less than 70 percent of clients who signed purchase contracts last year have made their initial payments, with the rest now facing “problems,’’ a press official at Greenland Holdings Corp., the project’s Shanghai-based developer, said on Jan. 12. The official asked not to be named, citing company policy.

While Beijing’s policy tweak may appear symbolic on the surface, it’s likely to cause a “notable reduction” in Chinese purchases of Australian property, according to Christopher Todd ‘CT’ Johnson at Basis Point, a consulting firm that specializes in business relations between the two nations. Australia approved A$24 billion ($18.1 billion) of real estate investments from China in the fiscal year ended June 2015, the most recent figures available, making the country by far the biggest source of foreign buyers.

Read more: Chinese Pile Into London Properties

China clamped down further on corporate outflows late Thursday, asking firms with outbound investment plans to clarify the source of their funding for purchases and give additional details on their spending.

Even with tightened capital controls, brokers say motivated Chinese investors can usually find ways around them. In any case, many already have money parked offshore, according to Michael Finger, the head of Ray White Double Bay, a real estate agency in Sydney’s eastern suburbs. Just before Christmas, he sold a multi-million dollar home to Chinese citizens who had moved money to Australia before the clampdown. Finger says he’s seeing more e-mail inquiries from buyers eager to buy offshore assets before authorities clamp down any further.

A more complete picture of Chinese demand may only emerge after the Lunar New Year holiday, when wealthier buyers often combine overseas property hunting with sightseeing. Agents surveyed by Chinese property portal Juwai.com say they’re expecting a busier holiday season than in 2016.

Still, broad measures of China’s capital flight suggest government curbs were having an effect even before SAFE’s Dec. 31 rule changes. For the first time since the yuan’s devaluation in August 2015, Chinese banks last month registered net inflows under the capital account, the currency regulator said on Jan. 19. Offshore payments in yuan have also moderated, while the currency has strengthened 1.2 percent against the dollar since touching an eight-year low on Dec. 28.

“There will certainly be an impact,’’ Eric Lam, chief executive at the overseas broker unit of Shenzhen World Union Properties Consultancy Inc., China’s largest realtor for new-home sales, said by phone from Hong Kong.

For Zheng, the decision on whether to walk away from his Melbourne property or risk breaking China’s foreign-exchange rules is fast approaching. He’s scheduled to wire another 800,000 yuan to Australia in late February to cover the rest of his down payment.

“I can probably meet future mortgage payments with rental income from the villa, but a more imminent problem is whether to wire money abroad now,” Zheng said. “I’m not too sure about that. It’s safer not to stick my neck out."
Deal Fanatic
Jan 27, 2006
9830 posts
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If the reports are true, then there might be three important impacts to the market place:

1. The obvious reduction in purchasers.
2. The possibility of more pre-completion homes coming back into the market place as payments may not be able to be made or decisions that it's not worth going through with the deal.
3. The possibility of more housing inventory coming on the market due to owners needing to liquidify assets/investment properties in order to support family members currently living overseas (might be hard to support a high spending lifestyle if funds can't be sent from overseas).
Penalty Box
Dec 27, 2013
8003 posts
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Toronto
inv1ctus wrote:
Jan 28th, 2017 4:07 pm
https://www.bloomberg.com/news/articles ... rt-on-cash

China’s escalating crackdown on capital outflows is sending shudders through property markets around the world.

In London, Chinese citizens who clamored to purchase flats at the city’s tallest apartment tower three months ago are now struggling to transfer their down payments. In Silicon Valley, Keller Williams Realty says inquiries from China have slumped since the start of the year. And in Sydney, developers are facing “big problems” as Chinese buyers pull back, according to consultancy firm Basis Point.

“Everything changed’’ as it became more difficult to send money offshore, said Coco Tan, a broker associate at Keller Williams in Cupertino, California.

Less than a month after China announced fresh curbs on overseas payments, anecdotal reports from realtors, homeowners and developers suggest the restrictions are already weighing on the world’s biggest real estate buying spree. While no one expects Chinese demand to disappear anytime soon, the clampdown is deterring first-time buyers who lack offshore assets and the expertise to skirt tighter capital controls.

“If it’s too difficult, I’m out,’’ said Mr. Zheng, 66, a retired civil servant in Shanghai who declined to give his first name to avoid attracting regulatory scrutiny. He may abandon a 2.4 million yuan ($348,903) home purchase in western Melbourne, even after shelling out a 300,000 yuan deposit last August. He’s due to make another big payment next month.

The change spooking Zheng and his compatriots came in a statement from the State Administration of Foreign Exchange on Dec. 31, hours before the reset of Chinese citizens’ annual foreign currency quotas. Among other requirements, SAFE said all buyers of foreign exchange must now sign a pledge that they won’t use their $50,000 quotas for offshore property investment. Violators will be added to a government watch list, denied access to foreign currency for three years and subjected to money-laundering investigations, SAFE said.

“A lot of clients are worried and have started hesitating,’’ said Wang Ning, vice president of the international department at Fang Holdings Ltd., China’s most popular property website. While the regulator has long banned the use of foreign currency for real estate, its call for additional documentation was seen as a signal that the government is serious about cracking down.

At The Spire in London, a 67-story tower with sweeping views of the River Thames and flats starting at 595,000 pounds ($751,901), prospective buyers were caught off guard by the new rules. Less than 70 percent of clients who signed purchase contracts last year have made their initial payments, with the rest now facing “problems,’’ a press official at Greenland Holdings Corp., the project’s Shanghai-based developer, said on Jan. 12. The official asked not to be named, citing company policy.

While Beijing’s policy tweak may appear symbolic on the surface, it’s likely to cause a “notable reduction” in Chinese purchases of Australian property, according to Christopher Todd ‘CT’ Johnson at Basis Point, a consulting firm that specializes in business relations between the two nations. Australia approved A$24 billion ($18.1 billion) of real estate investments from China in the fiscal year ended June 2015, the most recent figures available, making the country by far the biggest source of foreign buyers.

Read more: Chinese Pile Into London Properties

China clamped down further on corporate outflows late Thursday, asking firms with outbound investment plans to clarify the source of their funding for purchases and give additional details on their spending.

Even with tightened capital controls, brokers say motivated Chinese investors can usually find ways around them. In any case, many already have money parked offshore, according to Michael Finger, the head of Ray White Double Bay, a real estate agency in Sydney’s eastern suburbs. Just before Christmas, he sold a multi-million dollar home to Chinese citizens who had moved money to Australia before the clampdown. Finger says he’s seeing more e-mail inquiries from buyers eager to buy offshore assets before authorities clamp down any further.

A more complete picture of Chinese demand may only emerge after the Lunar New Year holiday, when wealthier buyers often combine overseas property hunting with sightseeing. Agents surveyed by Chinese property portal Juwai.com say they’re expecting a busier holiday season than in 2016.

Still, broad measures of China’s capital flight suggest government curbs were having an effect even before SAFE’s Dec. 31 rule changes. For the first time since the yuan’s devaluation in August 2015, Chinese banks last month registered net inflows under the capital account, the currency regulator said on Jan. 19. Offshore payments in yuan have also moderated, while the currency has strengthened 1.2 percent against the dollar since touching an eight-year low on Dec. 28.

“There will certainly be an impact,’’ Eric Lam, chief executive at the overseas broker unit of Shenzhen World Union Properties Consultancy Inc., China’s largest realtor for new-home sales, said by phone from Hong Kong.

For Zheng, the decision on whether to walk away from his Melbourne property or risk breaking China’s foreign-exchange rules is fast approaching. He’s scheduled to wire another 800,000 yuan to Australia in late February to cover the rest of his down payment.

“I can probably meet future mortgage payments with rental income from the villa, but a more imminent problem is whether to wire money abroad now,” Zheng said. “I’m not too sure about that. It’s safer not to stick my neck out."
i read that article as well. I'm not sure how much I believe it.... These peopole have $50,000 US hanging around, and they have trouble getting it out? These are wealthy individauls, I;m not sure I buy it.
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Nov 26, 2005
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daivey wrote:
Jan 29th, 2017 9:15 am
i read that article as well. I'm not sure how much I believe it.... These peopole have $50,000 US hanging around, and they have trouble getting it out? These are wealthy individauls, I;m not sure I buy it.
for large amount, they cannot do bank transfer and can only send out money underground, which is increasing costly and risky and difficult with all money laundering measures.
for small amount, the transaction costs are getting higher. people literally have to hire people to move physical moeny in bank notes to cross china boarder to get money out to hk before it can be freely move out...

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