Chinese House-Buying Binge in Canada Fuels Real Estate Bubble

July 5, 2015 Updated: July 7, 2015

Editor’s note: China’s newly rich, and even its middle class, have been seeking safe places to invest their money. In the current environment of economic and political uncertainty, their investment options in China are limited and highly insecure. With the Chinese real estate and stock markets showing dangerous bubbles, Chinese investors en masse have flocked to Western countries—mostly Canada, the U.S., and Australia—to buy up houses.

Chen Sijin, a Chinese-Canadian living in Toronto, reflects on the consequences of the huge amounts of real estate investment made in Canada by mainland Chinese.

Chinese have poured a lot of hot money into Canada’s real estate market in recent years. This has sharply pushed up prices and forced many locals out of the housing market in Canada’s major cities. With home prices rising beyond the reach of average Canadians, anti-Chinese sentiments are also on the rise. Some cities are considering putting limits on foreign real estate investments.

Canada ranks third among countries favored by Chinese investors. In Toronto, Canada’s largest city, 50 percent of new homes are being bought up by foreigners. In Vancouver and Toronto, 50 percent of apartment buildings are owned by foreign investors.

Canada now has one of the biggest real estate bubbles, and Canadian home prices have become the second highest in the world in relation to the average citizen’s income. Vancouver has a long-term home vacancy rate of over 15 percent. All this is having a big impact on Canadians.

Take my colleague Mike, for example. He’s a systems management engineer in my department, with an annual income of about $70,000 to $80,000 Canadian dollars, more than double the average income of his peers. Mike is married with two children. Three years ago he bought a big house. You’d think that he’s a happy man. But recently Mike seemed depressed. I finally let go of my Chinese trait of being reserved and asked him if something was wrong.

He glared at me and said: “It’s all because of you Chinese!”

Our Chinese people’s traditional image of being “hard-working” suddenly changed to one of being “opportunistic.”

I was taken aback and asked him to explain. That’s how I found out that Mike has serious financial worries.

Toronto’s home prices have soared and gone up at a much faster pace than people’s income, Mike said. When Mike bought his house, the market was already extremely high and quite unaffordable. The average home price in Toronto was over four times his and his wife’s combined annual income. So his financial situation has been tight. Then his wife was laid off a year ago. After six months she found another job, but with a big pay cut. Their household income had dropped quite a bit, and after paying all their monthly bills—mortgage, insurance, property taxes, car loans, and other living expenses—they ended up with a shortage of several hundred dollars every month.

I asked Mike, “But what does this have to do with Chinese people?”

Mike said it’s because Chinese people come here and buy up all the houses. Some buy four or five houses. They have an obsession with real estate investment, he said. Chinese buy up 70 percent of new homes, and they also rush to grab as many as they can in the secondhand home market.

“Chinese people are not interested in going to a restaurant, the cinema, or opera. They don’t care about buying books, watching games at the stadium, traveling, or going to the gym,” Mike said. “They just want to buy houses! Even if they don’t have the money, they will borrow it to buy houses.”

“Home prices in Toronto are inflated because of you,” he went on. “We cannot afford them! My parents are retired. They planned to spend their remaining years in their old home. But the value of their house has gone up and property taxes have also increased. They could not afford it anymore, so they had to sell and move far away to a small town in Ontario.”

“Our present living standard is all caused by you Chinese,” Mike added.

I was not happy listening to Mike. It never occurred to me that we Chinese look so bad in the eyes of the local people. But I did not say anything as I felt that Mike must be very frustrated to be saying these harsh words. Later, when I thought it over, I came to see Mike’s point.

Home price have gone out of control in places where Chinese people have settled in recent years, such as New York, San Francisco, Los Angeles, Vancouver, Toronto, Sydney, Melbourne, etc. Despite the global economic downturn, Chinese people are still buying houses while Westerners are unable to afford a house.

Meanwhile, Australia has implemented laws that restrict foreigners from buying existing houses, only allowing them to invest in new developments. This is rare in a free market.

In Vancouver, media often report about Chinese buyers—especially buyers from the mainland—grabbing properties in Vancouver. Local people, in emails to developers, have expressed their concern over high home prices that will harm the next generation. There is also talk about restricting Chinese immigration as there are too many Chinese already.

Peter Ladner, former Vancouver City Council member, once stated the government should limit foreigners, especially Chinese, from buying houses. According to Ladner, the large number of real estate speculators from China is the main reason for soaring housing prices and for a lot of locals moving out. “Vancouver’s housing has priced its average citizens well out of the market,” Ladner wrote in a column.

Toronto residents recently initiated an online petition asking the government to regulate foreign investment in the city’s real estate market. Ten thousand people signed right away.

Incidentally, a few days ago, a survey showed that only 9 percent of Canadians “like” Chinese immigrants.

Who would have thought that our Chinese people’s traditional image of being “hard-working” would suddenly change to one of being “opportunistic”?

This is an abridged translation of Chen Sijin’s article published on his personal blog. Chen Sijin is a senior risk management consultant at a large multinational firm and writes columns for First Financial and other Chinese finance publications. He is author of the book “Who gets rich through finance?”