How the falling loonie and low rates could lure more foreign investors to Canadian housing

 

Canada’s two priciest housing markets may not need the boost, but Toronto and Vancouver could be on the verge of a spike in foreign investment.

With the loonie falling about 10% against the U.S. dollar in the last six months, foreigners who have their money parked in greenbacks or in currencies pegged to the American dollar are likely to ramp up their interest in the Canadian marketplace, say industry experts.

Alberta, which is now facing a crunch of new listings and weak demand, is unlikely to see any benefit as investors run away from the province over oil price fears.

“The reputation of the oilpatch here has been tarnished a bit,” says Dan Scarrow, the Shanghai-based managing director of Canadian Real Estate Investment Centre, which was set up just two months ago, and is run by Vancouver-based Macdonald Real Estate Group.

He says the opposite is true in Vancouver and Toronto, where prices in January were up 7.5% and 6.1% respectively from a year ago, according to the Canadian Real Estate Association. “With the Chinese economy slowing down a bit and with the Canadian dollar depreciating 20% versus the RMB, it might change the calculus of some people of how much they want to leave in China and how much they want to bring to Canada.”

Mr. Scarrow’s firm caused a stir last year with data it produced from its client base that showed 33.5% of all single-family homes sales in the Vancouver area could be traced to buyers from mainland China.

Foreign buyers and their position in the marketplace have been a  concern for some market watchers, who fear these investors are inflating housing prices. But there hasn’t been definitive data. Even the chief executive of Canada Mortgage and Housing Corp., Evan Siddall, conceded there were data gaps.

The Crown corporation finally produced data two months ago on the condominium market that showed as much as 2.4% of Toronto highrises were in foreign hands and 2.3% in Vancouver, with some people still disputing those findings.

Mr. Scarrow says in terms of Chinese investors they are divided between people still living overseas and people already living in Canada but with money still parked in RMBs. With Chinese New Year over, he expects investment to pick up.

“Decisions have been held off until this week,” he says. “There is a lag for these things in terms of stats and what we see on the ground.”

Brian Johnston, chief operating officer of Toronto-based Mattamy Homes, has never been a believer of the idea that foreign investment was a huge factor in Canadian housing, but he says when you get can a 10% to 20% currency swing it has to be positive.

“To [foreign investors], the Canadian market has gone on sale,” said Mr. Johnston, noting his company also develops property in the United States it tries to sell to Canadians. “The reverse is true for them. The price of U.S. real estate just went up by 10%.”

Lennon Sweeting, a Toront0-based dealer with US Forex which trades in currencies, says the loonie is making housing more attractive to foreign buyers.

“The Bank of Canada has tried to offset lower prices with a weaker currency making investing in Canada more attractive,” said Mr. Sweeting, adding most high net worth investors are likely holding U.S. dollars right now. “Absolutely it makes it easier to buy [Canadian real estate]. If you’re holding U.S. dollars you are looking at buying at a discount and there’s plenty of supply.”

Low interest rates have also boosted demand, even though foreign investors tend to have to put up larger down payments when borrowing to buy property.

Shaun Hildebrand, senior vice-president at condo research firm Urbanation Inc., noted new condo sales in the Greater Toronto Area in 2014 rose over 50% from a year ago but it’s hard to pinpoint how much is attributable to foreign investors.

“I wouldn’t be surprised at all to see more foreign investment in 2015,” said Mr. Hildebrand, adding surveys of Urbanation clients peg the foreign component of Toronto’s condo market at just under 5%.

Source: Financial Post