Generally speaking, foreign investment in your country is a good thing. Not only does it bring in capital, it shows that outsiders consider your home to be a stable and wise place to invest their money.
But when it comes to home ownership, there are a few reasons why too much foreign investment can be problematic.
The Canada Mortgage and Housing Corporation recently released a report on the level of foreign ownership in Canada’s condo market and found that while it’s low, it’s definitely increasing.
In Vancouver, overseas buyers owned up to 5.4 per cent of the condos in the most desirable parts of the city, up from 3.4 per cent the previous year, while in central Toronto, the total foreign ownership level of 5.8 per cent had also increased from 4.3 per cent the previous year. One of the biggest gains was made in Winnipeg, where foreign ownership of condos jumped from an almost non-existent 0.1 per cent in 2014 to 2.7 per cent in 2015.
But some critics have argued that those numbers are lower than the true picture. In a speech announcing the latest figures, CMHC president Evan Siddall admitted that there is “a lack of accurate and reliable data.” (The CMHC interviews property managers and condo boards for their best guess on how many units in each condo are foreign owned.)
Investors Love the Weak Loonie
With the value of the Canadian dollar lower than it has been in the past decade (it dipped below 74 cents to the U.S. dollar in early December 2015), it’s cheaper than ever for foreigners to buy up Canadian properties. There are two potential downsides to this.
For one, with seemingly limitless pockets, these investors can often outbid locals looking to buy homes in their community – and help fuel a real estate bubble. This is particularly true at the top end of the market. In September, Re/Max released its Spotlight on Luxury report which concluded that “foreign buyers have continued to drive demand in the Vancouver and Toronto luxury markets….” It is so much the case in Vancouver that the realtor says, “With the luxury market increasingly geared toward Chinese buyers, some agents have begun offering additional services to help these buyers settle in their new city, such as helping to secure insurance or purchase a car.” In Toronto, China-based buyers with children are looking for four- and five-bedroom homes in close proximity to good schools.
Also read: How a Bidding War Can Cost You Your Mortgage>
The converse downside to over-investment by foreign buyers is that if there is a major global economic downturn, these buyers could start offloading properties at fire-sale prices.
“Foreign investment may be more mobile and subject to capital flight, which could increase volatility in domestic housing markets,” concedes Siddall.
Inhabited Ghost Towns
Another downside to foreign ownership is that in some neighbourhoods houses are being purchased by extremely wealthy owners who own multiple properties and only plan to visit them occasionally.
A recent Globe and Mail article looked at the phenomenon in a pricey west-end Vancouver neighbourhood.
Long-time residents voiced concerns ranging from the changing character of the streetscape (more often than not buyers tear-down the existing home to build a new, larger one) to feelings of insecurity with so few neighbours physically around to look out for each other. They also noticed a lack of trick-or-treaters – and occupied homes for the kids to call on – this past Halloween.
The trend is so prevalent it has even lead to a new local cottage industry: companies that special in maintaining vacant properties for owners that primarily live abroad.