Real Estate

Thoughts on this Theory ?

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  • Jul 3rd, 2020 8:01 pm
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[OP]
Sr. Member
Nov 22, 2019
717 posts
537 upvotes

Thoughts on this Theory ?

I have heard many arguments for both RE prices in Canada to Go up, and to go down.
One interesting theory that I came across was that people from Asian countries like Hong Kong, India, China are now moving over their capital to Canada, and when they sell their RE back at home, which in some cases valued at even higher prices than Toronto prices, they would only be inclined to purchase RE here. I am not talking about the super rich, but even people who may have inherited the RE back home from parents, or people who own 2-3 RE properties in those countries, now moving over to Canada, and investing in RE here since its still cheaper than prices back home, and since they are living in world class cities, it makes sense for them to buy here. Hence, the theory suggested it should provide support and should push up prices in the next 10 years.

What are your thoughts on this ?

Also, if this theory was to be given some credibility, why hasn't it been true in the last 15 years ? We have had capital move in from countries like China which has driven up prices here. But if this movement of wealth was happening from some of the underdeveloped countries or politically unstable countries, shouldn't we have seen prices go up multiple times already, and to be more expensive than those countries ?

One reason that I could think of is the limitation of how much money one can send from those countries, as their governments usually have a cap on that. Any other thoughts ?
4 replies
Deal Addict
Nov 13, 2013
3519 posts
2131 upvotes
Ottawa
Well in general it is a factor. In Vancouver in some segments a significant one. At the same time there is still a limit to the number of people interested in investing abroad and also able to so that is another constraint. Probably still in the single digits percentage wise. Often if a student comes that gives them an opening to buy. In Toronto real estate is not finite. You can build more condos. Actually we can build a lot more. There is still a ton of developable land and construction costs are a shrinking percentage of selling prices. Many in Asia do not have the same obsession with a detached house and yard and even there we are still building more.

Meanwhile many are not selling their property at home so prices don't fall there. There are limits to getting capital out as well depending on the country.
Banned
Jul 8, 2017
628 posts
699 upvotes
NA
bobclair wrote: .I am not talking about the super rich, but even people who may have inherited the RE back home from parents, or people who own 2-3 RE properties in those countries, now moving over to Canada, and investing in RE here since its still cheaper than prices back home, and since they are living in world class cities, it makes sense for them to buy here. Hence, the theory suggested it should provide support and should push up prices in the next 10 years.

What are your thoughts on this ?

Why would you want to moving everything into Canada? I would rather leave 1/2 of my assets in my home country which this government can never lay hands on it. Also you don't even need to move your money over here in order to spend your money overseas, all you need is a credit card from your own country and you can charge everything that you spend in Canada and paid by your account overseas. This can avoid CRA trying to question you when you are frequently wiring money into Canada, because it create no traces at all.
Deal Addict
Jan 12, 2017
1622 posts
949 upvotes
I wouldn't say its a theory - it's a confirmed process that has been happening for a while now, and most definitely the last 15 years. Despite claims that average numbers don't support this, many realtors have and can confirm on a more granular level. It makes sense, especially when many pre-construction launches for Toronto RE happen in Hong Kong before Toronto!

The reason it may not be so obvious is the aggregation of our housing data into the GTA (Sorry, don't have as much insight into Canada as a whole). An overlay of where wealthier visible minorities (just as an example) are most highly concentrated will show areas of disproportionately high real estate price increases over the past decade (Brampton, Markham, Richmond Hill, Stouffville - 15 to 20 years ago, these areas were some of the lowest prices in the GTA and are now some of the highest in the GTA)

There are tons of other factors as well. Here are two:
- Concentration of government jobs - tend to be multi-generational Canadian areas (Ottawa, Newmarket, Square One, areas surrounding new hospitals, etc...)
- University towns - student room houses are highly profitable (Guelph, London, Waterloo)

From a future perspective, there are tons of influencing factors - newcomers to Canada will receive biased advice and institutional generations such as the MoneySense ranking. Without a doubt, housing in GTA as a whole, will go up for at least the next few years. As future generations grow up, there is no guarantee that they will choose to live where their parents are - younger people are leaving rural areas and heading to urban centres in droves. Urban sprawl here is epic and wholly unsustainable, so even within the GTA, there are many areas that are more rural than urban (think farms and cows across the street, limited internet connectivity choices, vehicles essential for all drivers, walkability is limited to your garage, 20 minute drive to the nearest store).

An easy way to tell if you are in these areas - during rush hour, traffic goes 90% in one direction, leaving the other direction almost empty.
bobclair wrote: I have heard many arguments for both RE prices in Canada to Go up, and to go down.
One interesting theory that I came across was that people from Asian countries like Hong Kong, India, China are now moving over their capital to Canada, and when they sell their RE back at home, which in some cases valued at even higher prices than Toronto prices, they would only be inclined to purchase RE here. I am not talking about the super rich, but even people who may have inherited the RE back home from parents, or people who own 2-3 RE properties in those countries, now moving over to Canada, and investing in RE here since its still cheaper than prices back home, and since they are living in world class cities, it makes sense for them to buy here. Hence, the theory suggested it should provide support and should push up prices in the next 10 years.

What are your thoughts on this ?

Also, if this theory was to be given some credibility, why hasn't it been true in the last 15 years ? We have had capital move in from countries like China which has driven up prices here. But if this movement of wealth was happening from some of the underdeveloped countries or politically unstable countries, shouldn't we have seen prices go up multiple times already, and to be more expensive than those countries ?

One reason that I could think of is the limitation of how much money one can send from those countries, as their governments usually have a cap on that. Any other thoughts ?
Deal Addict
User avatar
Dec 13, 2016
4214 posts
3704 upvotes
Toronto and Vancouver are not the cities where most rich Asians buy the property. Bangkok before corona virus was a hot bed for Chinese, HK and Japanese investors. Vancouver and Toronto simply do not accommodate Asian buyers with condos that offer 10% of luxury of what you'd find in Asia. Rich are simply not interested unless they have business or school ties with Canada.

I rent a 500 Canadian dollar condo in Bangkok and it has better facilities than Shangri La (Toronto).

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