I recently came across this interesting article written by Ian Young who blogs for the South China Morning Post about immigration, property prices and Vancouver.

No one in Vancouver better understands the impact that rich immigrants have had on the city’s property prices than Professor David Ley.

Ley, holder of the Canadian Research Chair in Geography, literally wrote the book on the subject. Millionaire Migrants, published in 2010, is the definitive account of latter-day East Asian migration to Vancouver, describing how wealthy newcomers and their migratory patterns moulded the city.

It’s no surprise that he has been closely watching the fallout from the Canadian government’s surprise decision last month to terminate the 28-year-old Immigrant Investor Programme (IIP), which has brought tens of thousands of Chinese millionaires to Vancouver.

Oxford-educated Ley has particularly noted attempts to downplay the impact of the scheme and its closure on Vancouver’s sky-high property prices, which he said represented deliberate “suppression”.

“There are interest groups who are in denial and the moment that you or I make a suggestion [about the impact of rich immigrants on property prices] we are immediately racist and this is how the discussion has been closed down,” the University of British Columbia academic said.

“We are very polite in Canada and if anyone raises the red flag of racism then everyone shuts up. To my mind that is an irrelevance. The issue is investors, wherever they are coming from, creating an issue of affordability in the market.”

Ley’s previous research revealed the exceptional correlation between international immigration to Vancouver and the city’s property prices. He charted this from 1977 to 2002, with the results presented in eye-popping clarity on page 153 of Millionaire Migrants. A graph (above) of the two factors shows them moving in near lockstep.

Ley calculated the correlation at +0.94; that’s about as close to a statistical sure thing as you can get.

By contrast, “made in Canada variables” – interest rates, employment, domestic Canadian migration and rental vacancy rates – proved rather hopeless as price predictors. Interest rates, routinely touted as the most significant factor in Vancouver’s property boom, had a negative correlation, of -0.12.

During this period, prices peaked in 1995, then fell when migration from Hong Kong all but ceased. The drops that followed were concentrated in areas favoured by rich Hongkongers, such as wealthy Shaughnessy. “The overall prices dropped, although it was concentrated. In Shaughnessy, prices went down by 25 per cent … that’s a big drop,” Ley said. “But it was not as great across the market as a whole.”

Now for the big question: is the current Vancouver market similarly tied to mainland Chinese migration? And is the cessation of the IIP analagous to the way that Hong Kong migration under the scheme halted in the mid-1990s?

Sadly, Ley isn’t sure. “There are a number of similarities. It’s not perfectly the same,” he said. He notes that the Asian financial crisis coincided with the Hong Kong handover, exacerbating the sell-off in Vancouver as immigrants repatriated their funds to the SAR.

“The combination of the exodus [back to Hong Kong] plus the repatriation of funds led to significant sales and declines in the high-price property markets here,” he said.

Nevertheless, Ley takes issue with some observers who have sought to disregard the impact of the IIP on Vancouver prices. These critics point out that arrivals in British Columbia under the scheme (recently averaging 4,600 individuals, or 1,340 households, per year) are dwarfed by greater Vancouver’s 25,000-30,000 annual residential sales.

“The problem with that argument,” said Ley, “is that if that estimate of a couple of thousand does not include secondary migration from other parts of Canada then that is an underestimate.

“The other point: are people coming in buying only one property? Undoubtedly, it has been that property is the primary form of class mobility and property is a very easy investment to manage. I would question that these folk are only buying one property.”

Ley said the investor migration scheme also fuelled Vancouver’s market in indirect ways – namely, by helping word get out among China’s rich that the city’s real estate market was a convenient, friendly and profitable place to invest. If such word-of-mouth turns in the other direction, will prices do the same? That remains to be seen.

Real estate agents in Vancouver say property prices could take a hit, after Canada scrapped a program which allowed wealthy immigrants to fast-track the visa process.

The Immigrant Investor Program, launched in 1986, offered visas to business people with a net worth of at least $1.6 million who were willing to lend $800,000 to the Canadian government — for investment across Canada — for a term of five years.

By 2012, the scheme had to be temporarily frozen due to a huge backlog of applications from wealthy mainland Chinese hoping to come to B.C. Now, the government has announced it will end the program for good and scrap all 59,000 applications backlogged worldwide.

The decision came less than a week after the South China Morning Post published a series of exclusive investigative reports into the controversial scheme.

In West Vancouver, real estate agent Clarence Debelle is still receiving offers from mainland China for luxury property, but he’s concerned the end of the investor program will have an impact on the local economy and the high-end housing market.

“I deal directly with these people who bring a lot of wealth, who are creating lots of jobs for local Canadians — builders, trades, architects, realtors like myself,” said Debelle.

“Most of the buying is coming from Chinese immigrants who are wealthy, so if we make it difficult for them to come into this country, we have killed 80 to 90 per cent of the buying in West Vancouver.”

Immigration lawyer Richard Kurland agrees.

“When you suddenly stave off the intake of literally hundreds of millionaires in the Vancouver property market, prices can only go one way and that’s down,” said Kurland.

Others aren’t so sure. Even with the investor program frozen, housing prices continued to rise.

Tom Davidoff with UBC’s Sauder School of Business says the market is driven by other things like low interest rates and the local and global economies.

“Given that in the last couple of years, we haven’t seen the market cool off, it’s hard to believe that freezing the investor market is going to kill even the high-end in Vancouver,” said Davidoff.

The government has also announced the end of the Entrepreneur Program, a smaller scheme for business people who plan to own and manage a business in Canada.

However, wealthy investors can still come to Canada through the Start-up Visa Program, which encourages immigrant entrepreneurs to partner with private sector organizations to invest in local start-ups.

Source: CBC News

If you thought Chinese investors were starting to lose interest in Canadian real estate, think again.

According to a new report, both Vancouver and Toronto are forecast to be this year’s most popular destinations for Chinese overseas property investment.

“Buying sentiment for overseas properties among Chinese mainland investors has been gaining strong momentum over the past few years,” said Derek Lai, director of international properties for Colliers International real estate services and the author of the report. “To date, about 20% to 40% of the foreign property investors in these destinations are from the Chinese mainland.”

The report goes on to cite Vancouver’s Chinese population – what it pegs as 30% of city residents – as one of the driving factors for that investment choice.

Mainland Chinese investors are also lured by the Lower Mainland’s educational opportunities and proximity to home, according to Colliers.

Still, Canada’s two largest cities are facing some competition for Chinese investment, with London and Singapore rounding out the top four real estate destinations.

In the UK, rising property values and a very limited supply have accelerated the push into London, with Chinese investors now buying as much as 20% of all new builds.

Singapore’s low mortgage rates of 1.2% to 2%, relatively high and stable rental yields of around 5% and a transparent transaction system are responsible for attracting its share of mainland Chinese interest, according to the Colliers report relying on both interviews and investment declaration states.

In Canada, Vancouver’s appeal helped to drive up price gains in large parts of the Lower Mainland last year, with domestic investors concerned another year of strong transaction growth could present a real challenge to their own acquisition plans if sellers continue to hold out for well-heeled foriegn buyers. Many have only begun to lower their asking prices to meet the current market realities; ie, more supply than demand.

That said, there has been some movement.

The dollar value B.C. properties sold in January dipped 7.6% to $2.1 billion, compared to the same month last year. The average MLS residential price was 3.8% lower at $527,219 compared to January 2011.

Source: Vernon Clement Jones, Canadian Real Estate Wealth