There has been a lot of speculation that Chinese investment in Canadian real estate will decline due to the current conditions in the Canadian market.
The Prohibition on the Purchase of Residential Property by Non-Canadians Act, which came into effect on January 1, 2023, bars non-Canadian individuals and entities from purchasing residential properties in Canada. This ban was set to last until January 1, 2027, following an extension announced in February 2024.
However, an exception applies to work permit holders, who are allowed to purchase residential properties provided their permits have at least 183 days of validity remaining, and they do not already own more than one property in Canada.
While this was to improve transparency when it comes to property ownership, many postulated that this would also reduce the number of Chinese buyers and foreign investments in Canada significantly as a whole. But will it?
Quick Summary
- While Chinese investment in Canadian real estate remains strong, particularly in cities like Toronto and Vancouver, Southeast Asia is becoming a more attractive option for many Chinese investors due to lower prices and favorable investment conditions.
- Impact of Market Conditions: Despite concerns, Chinese investments in Canada still play a significant role. For example, in 2023, Chinese investments contributed substantially to Toronto's real estate, although inquiries have declined following new regulations.
- The Prohibition on the Purchase of Residential Property by Non-Canadians Act restricts foreign investments in Canadian real estate until 2027, with some exceptions for work permit holders.
- New taxes, like Toronto's 10% Municipal Non-Resident Speculation Tax, aim to discourage international buyers, including Chinese investors.
Let’s Backtrack
It almost seems as if it was overnight that Canada became a hotspot for Chinese investors despite the numerous flourishing real estate markets in North America [1].
An international listing by Juwai.com, a popular Chinese investor's real estate website, listed Canada as the third most likely country to invest in; with the United States and Australia winning the number one and two spots respectively.
The Canadian real estate market became particularly appealing to foreign investors from China because it offered more affordable investments compared to other countries. Earlier this year Colliers International stated that the majority of the inbound investments in Canada came from Chinese and Americans.
By 2023, despite regulatory changes, Canada remains a favored destination for Chinese investors, with cities like Toronto being particularly attractive.
Vancouver saw the first mid-rise condominium that was developed by a Chinese-owned company, which is being formed in Montreal where the company is also completing a 38-story residential tower. Many people from China and Chinese companies are also interested in buying Toronto real estate and preconstruction condos in Canada.
"Chinese investors still believe the Canadian market is a good one, and they are seeking a better life and are still taking Canada as one of their preferred destinations."
- Byron Burley, Vice President at Juwai.co
Distribution of Chinese Investments in Canadian Real Estate by City
Vancouver
- Investment Trends: Historically, Vancouver has been a top destination for Chinese investors due to its proximity to Asia, high quality of life, and strong educational opportunities. However, the introduction of foreign-buyer taxes has dampened some interest. Despite regulatory challenges, Vancouver remains attractive, with significant commercial transactions like the sale of the Bentall Centre for over $1 billion in 2022 by Anbang Group.
Toronto
- Investment Trends: Toronto has seen a resurgence in interest from Chinese buyers, especially following the decline in Vancouver's market. The city is appealing due to its diverse economy and cultural offerings. In 2018, Asian investment in Toronto's commercial real estate reached C$526 million and inquiries from Chinese buyers have increased significantly since then.
Montreal
- Investment Trends: Montreal is emerging as a new hotspot for Chinese investment, driven by its affordability compared to Toronto and Vancouver. The city's vibrant culture and educational institutions attract many Chinese buyers. Reports indicate that Montreal has seen a noticeable increase in interest from Chinese investors, with inquiries tripling in recent years.
Calgary
- Investment Trends: While Calgary has faced challenges with high vacancy rates, it remains on the radar for some Chinese investors looking for opportunities outside of the traditional markets. Interest in Calgary is growing as investors seek better returns beyond downtown areas.
Ottawa
- Investment Trends: Ottawa has also benefited from Chinese investments, particularly due to its stable housing market and government presence. Although specific investment figures are less frequently reported, Ottawa remains a desirable location for many foreign buyers.
Is China's Investment in Canada Wrongfully Blamed?
Many believe that investors in Canada will leave because they’ve been unfairly blamed for the rapid price increase in the market. International property portals from China; such as Juwai.com and many others have listed other factors as the main culprit; including the population growth and ridiculously low interest rates, arguing it should not be blamed.
Adding to this, many have started to fear government interruption through Chinese companies. Watch this clip from CBC News to understand their take on this topic.
Billions Worth of Properties Were Seized By The Chinese Government
On September 5, 2023, China’s National People's Congress approved a law that allows Chinese authorities to seize and freeze assets of foreign states [2]. This law was set to take effect on January 1, 2024. It enabled the Chinese government to respond to similar actions taken by foreign countries against Chinese assets.
The seizure of properties has created fear among foreign investors, particularly those from China, regarding their investments in international markets, including Canada. Analysts suggest that while it may deter some investors involved in wrongdoing, it should not impact those who are compliant with regulations.
The uncertainty surrounding these seizures has led to speculation about a decline in Chinese investment in Canadian real estate. However, many believe that legitimate investments will continue as the market stabilizes and regulations become clearer.
How Will Foreign-Buyer Tax Affect Chinese Property Investors?
The implementation of these taxes and restrictions has led to a noticeable decline in inquiries from Chinese investors, particularly in markets like Vancouver and Toronto.
Toronto has proposed a new Municipal Non-Resident Speculation Tax of 10%, effective January 1, 2025, aimed at discouraging international buyers from purchasing property and enhancing local housing affordability [3].
Both Ontario and British Columbia offered rebates for foreign buyers who become permanent residents within specific timeframes after their purchase. For instance, Ontario allows for a rebate if the buyer becomes a permanent resident within four years.
As of lately, Chinese investments are heavily concentrated in Southeast Asia, particularly in countries like Vietnam, Thailand, and Indonesia [4]. The region's growing economies and favorable investment climates have made it an attractive destination for Chinese businesses seeking expansion.
According to Byron Burley, “the fact that Thailand has pushed past Canada as a favoured country for investment doesn’t represent any loss of interest in Canada.”
He further stated that many of the buyers active in Southeast Asia are new to the market and don’t yet have the wealth necessary to purchase in a developed country like Canada, where average prices are much higher.
Resilience and Adaptation: Chinese Investors Respond to Market Challenges
Discussions around Chinese investment have highlighted the need to balance openness to foreign investment with national security concerns.
The Ministry of Finance has acknowledged that while Canada remains an attractive destination for Chinese investments, certain transactions will face heightened scrutiny due to security considerations. This includes concerns about state-controlled entities potentially acting in ways that may not align with Canadian interests
As with all things real estate related, we’ll have to wait and see how the future of Chinese real estate investment unfolds with the newly imposed rules and other factors. But as the conditions with the Canadian market begin to stabilize, it’s safe to assume that the Chinese interest will continue to grow.
References:
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- https://globalnews.ca/news/4312361/montreal-hot-spot-foreign-buyers-canada-report/
- https://www.thebureau.news/p/fake-chinese-income-mortgages-fuel
- https://www.toronto.ca/legdocs/mmis/2024/ex/bgrd/backgroundfile-242459.pdf
- https://www.china-briefing.com/news/chinas-outbound-investment-odi-recent-developments-opportunities-and-challenges/
