How much of an impact does a slowing Chinese economy have on Vancouver’s real estate market

A new commentary by the Conference Board of Canada is reigniting a debate over just how much influence China’s economy has over Metro Vancouver’s housing market.

Robin Wiebe, a senior economist with the Centre for Municipal Studies in Ottawa, offers the assessment in a column published by the Conference Board, warning that expectations of a slowing Chinese economy “could be considered as big a drag on the Vancouver housing market going forward as anything else, including the city’s notoriously poor affordability.”

Wiebe’s view is that Vancouver’s housing market has historically followed Chinese growth, with the accelerating Chinese economy over the past decade accompanied by surging Vancouver price increases.

“There is a clear correlation between Chinese immigration and real estate activity in Vancouver,” Wiebe said in his column. “In fact, the Chinese immigration peak of 2005 was matched by a peak in existing home sales in that same year. The 42,000 resale transactions that year were nearly 50 per cent above the previous decade’s average and remain a record high for this market.”

Similarly, Wiebe said the pendulum is now swinging the other way with a slowing Vancouver housing market coinciding with reports that China’s economy is cooling.

However, Cameron Muir, chief economist for the B.C. Real Estate Association, said that immigration from China has a far greater effect on Metro Vancouver real estate than foreign investors, and he doesn’t see the local market being greatly affected by a slowing Chinese economy.

“The vast majority of sales are generated by people who live, work and raise families here,” said Muir. “A [Chinese] slowdown might translate into some weakness, but foreign investors account for just a small percentage of sales.”

However, Muir noted that a slowdown might have some impact on areas that wealthy Chinese investors prefer, like Vancouver’s west side or Richmond.

The latest Real Estate Board of Greater Vancouver survey indicates that the number of residential property sales in Metro Vancouver hit a 10-year low in June.

The report noted that Vancouver’s west side, for instance, saw 769 single-detached homes sell in the first six months of 2012, down substantially from the 1,310 that sold there in the red-hot first half of 2011, while Richmond, another of 2011’s Metro Vancouver’s hot spots, saw 603 single-detached sales from January to June compared with 1,111 for the same period of 2011.

Wiebe added in an interview that there are “wealth spillovers” from China around the Pacific Rim, including Vancouver, as the wealthy diversify their assets away from Chinese real estate.

But it’s not just investors who are affected by changing fortunes, he noted, as Chinese immigrants to Canada also have less money to spend on housing locally when China’s economy falters.

He said the financial crisis of 2008 was hard on both Chinese growth and Vancouver house prices, but by 2010 both were once again in double-digits.

Wiebe noted that offshore investors do not need to live in Canada to own a property in Vancouver and it is possible to arrange property management by a professional or a family member.

“Accordingly, Chinese wealth probably has a larger affect on the Vancouver housing market than immigration numbers alone suggest, since Chinese investors can buy homes here while remaining there.”

Wiebe noted that China is typically the largest source of immigrants to Vancouver, accounting for nearly a quarter of all arrivals in 2010.

“These immigrants need a home and have supported housing demand growth in British Columbia for several years. Some come to B.C. with a significant amount of wealth and, thus, a strong appetite to invest in the housing market.

“Catering to Chinese residential demand is big business out here; the Chinese Real Estate Professionals Association of BC lists over 200 members on its website.”

Source: Brian Morton, Vancouver Sun

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