May 132015
 

Not in my Backyard 

I recently read an article about a lower mainland couple who doesn’t like how a neighbouring $2 million house sits empty all the time. The yard is unkempt, there are no cars in the driveway and the lack of human presence is “driving [the couple] slightly bananas.”

Sacré bleu! You mean to tell me that there are people who buy property only for investment purposes? How dare they offer above market price to purchase a house here, so that Canadians can unlock the full value of their real estate. What can we do with cash anyway? Buy a diversified portfolio of liquid assets like stocks and bonds to provide passive income for retirement? No thanks. I’d much rather put all my nest eggs into a single illiquid asset that produces no income, and lies on a major fault zone. 😛 Those pesky foreign investors who don’t even live here think they can just not contribute any waste to our sewage system, and not use the city’s garbage services, but somehow think they still have the right to pay the full brunt of utility tax and property tax. Some nerve! How dare those foreigners help fund our police, fire, and public education system when they don’t even have kids here to overcrowd our classrooms. It’s also unfortunate how quiet their house is all the time. Who would want to live beside quiet neighbours anyway? Not me. 🙄

Sarcasm aside, foreign ownership of real estate is a hot button issue around here. Should non-residents or non-citizens be allowed to purchase Canadian residential property?

There’s actually a petition to restrict foreign investment in Canada’s most expensive real estate market, which I’ve signed and shared on social media. To be frank I don’t believe this petition will bring about any meaningful change, but I think it’s an important discussion for fellow Vancouverites to have. 🙂

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click on image to sign the petition

There will also be a rally outside the Vancouver Art Gallery on May 24th, to focus on the problem of affordable housing for young people in a city where the average house costs more than $1 million. Feel free to attend and take a stand if you believe in the cause. 🙂

Foreign Real Estate Ownership

Some believe foreign ownership drives up the cost of housing which makes it less affordable to live in the city. But I think that’s largely a myth. The amount of foreign owned property is just a fraction of the overall market. Foreign investment laws haven’t changed much in Canada over the last decade. However mortgage interest rates have been cut in half over the same period. Raise the interest rate and watch as prices correct overnight.

The couple in the above article complain that foreigners have taken away the sense of community in their neighbourhood. But the fact that most of their previous neighbours have sold their properties, lined their own pockets with money, and move elsewhere indicates that they don’t share the same desire to prolong that “community” as the couple does. Yet those who sell to foreign buyers rarely get scrutinized by the public. They get a pass on criticism even though it takes two parties, equally willing, to participate in a real estate transaction. It’s never the fellow Canadian’s fault for downsizing and selling to the highest bidder. Blaming foreigners for all our problems is more convenient. But everyone is simply doing what’s best for themselves within the rules of this fast changing world of globalization that’s driven by money, debt, and power. 😕

Taxing Foreign Ownership ? 

Speaking of rules and regulations, one argument to limit offshore investment speculation is to tax foreign owners. The petition mentioned earlier is a good start, but I don’t think it’s a very realistic solution.

The problem with local taxation in Vancouver is that it will just redirect foreign funds into other parts of Canada and make housing less affordable in Toronto, Calgary, Montreal, etc. 😐 Once money enters the country it can be deployed anywhere within it. A person with $1 million sitting in an account with a credit union in Ottawa, can easily buy a $1 million house in Vancouver, thanks to the digital age we all live in. Long time blog readers will remember that I bought farmland in Saskatchewan a few years ago without even leaving British Columbia, lol. If our premier, Christy Clark, curtails foreign investment to here the money will simply flow into other provinces.

So if we are going to tax foreign ownership it has to be at the federal level. However I don’t believe there is any political will in Ottawa to discuss this issue. We don’t even have government data on foreign ownership statistics yet.

Foreign Investment vs Government Spending ?

When governments go into deficit to inject money into a part Canada it’s applauded as an economic stimulus. Yay! But when offshore investors dump their money here, it’s criticized as speculative, dirty money that makes housing unaffordable. Boo!

But from a personal financial perspective this double standard doesn’t make any sense. 😐

Money is money no matter where it comes from. Both government stimulus and foreign investment create asset bubbles, jobs, and inflation. The difference is government stimulus comes from the creation of public debt which tax payers are on the hook to pay back. But foreign investment is technically free money as far as Canadians are concerned because there are no strings attached . 🙂

It’s funny how some Vancouverites complain about foreign investors pricing the locals out of the housing market, and then they fly down to their vacation homes in Florida for the winter. Canadians remain the largest foreign investors in U.S. real estate. Last year 89% of homes purchased by Canadians in Florida were done in all cash. I wonder how Americans feel about Canadian snowbirds? What goes around, comes around. 😉

Do you think real estate ownership in Canada (or in the U.S.) should be more restrictive for foreign buyers, or should we let the free market decide and leave things the way they are?

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Mario
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I come at this from both sides — first as a real estate investor who’s been frustratingly trying for years to diversify into non-U.S. markets and second as a NYC resident whose rents are through the roof in part due to foreigners buying themselves a pied-à-terre or tax shelter….

I think the idea I’m warming up to is some sort of occupancy incentive.

If rent in a city is high because there are lots of jobs there (NYC) or it’s just a pleasant place to be (LA), then living there — including renting and buying — *should* be expensive. But this doesn’t need to be inflated by empty condos. Maybe there could be something like a higher property tax on places that you don’t designate as your primary residence and that no renter designates as their primary residence?

It’s not a fully fleshed out idea, but I think it’s headed in the right direction.

RICARDO
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RICARDO

CAN OF WORMS!
What about all the snowbirds (East of Vancouver) who have property in the southern USA.
Florida came up with somewhat of a solution to make it more expensive for non-residents to own property in the state. No matter who you are, even a US citizen from N.Y. or whereever, if your primary residence is not in Florida you get dinged with a higher tax rate that residents of Florida. SO non-residents pay more jsut to own property in Florida than the people who actually live there permanently Adn of course you are obluged to maintain the property so it does not look like a hayfield.

RICARDO

TheEighthDigit.com
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I’m not a big fan of having the governement regulate who can and can’t own property.

Like you said, when they buy, you have someone else selling. When they sell, you have someone else buying.

As long as taxes are paid and the property are properly taken care off, what differenct does it make if the owner is canadian or not ?

Asking for goverment intervention for such a non issue is killing a fly with a bazouka.

Brian
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Brian

I agree with this. I prefer the government stay out of as much of my dealings as possible. They are already more in my life than I would prefer.

Chris
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Chris

Hey Liquid – I don’t understand. Your post is about free markets and no restrictions, yet you signed the petition which is to “restrict foreign ownership”? Why would you sign the petition if you believe what your blog post says…or am I missing something?

ChrisCD (@jumbocds)
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That was actually my same thought. He wants to be able to make foreign investments in property, but doesn’t like it when foreigners own property in his neighborhood. And it was really odd given the points he made about foreigners basically supporting services they don’t use. Seems like a win-win to me.

Vivien
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Vivien

Aside from REITs and an actual mortgage, what would you recommend for someone who doesn’t want to take on a mortgage (for career flexibility reasons) and capitalize on the low interest rate?

PC
Guest

Vancouverites in general are rich. Million dollar houses no problem!! People who complain about money are just bunch of liars.

RICARDO
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RICARDO

I would presume the thinking is that you are not really contribuiting anything to the local economy – groceries, restaurants, gas – and therefore consumption taxes and keeping employment in the area (and therefore more income tax)

Financial Independence
Guest

I admit that a lot of it is a simple jealousy – looking that somebody decided to invest and occasionally not even looking /visiting property.
However, for a country like Canada or US it should not be an issue – the resources are vast and land is in abundance, taxes are being paid.
Sometimes it is safer to keep the house closed, that rent it out. Putting any barriers will lead to California scenario – where the prices skyrocketed. What people need to understand that the high real estate prices are due to government inefficiency and burden/restriction in developing new houses?

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[…] Freedom Thirty Five blog writes about how to solve the problem of foreign investment in Canadian real estate. Foreign ownership has driven up prices here to the point of unaffordability, and many feel […]