The truth about foreign ownership

ON THE X-FILES, they always said that “the truth is out there” – and that might be the case on foreign ownership, too, if the Government of Canada were willing to get the right information.

Those of us who live in major cities think purely foreign purchases of housing are big, but really they are likely not much more than 3% to 5% of all real estate purchases. There’s also a strong likelihood that foreign purchases in Moncton, Brandon, Lethbridge and Kamloops are slim to none, affecting the numbers that make up the national average.

So, what’s the truth? Foreign down payments are the truth – that is, down payments originating in another country being used to purchase property in major urban centres. If there were no foreign down payments in Greater Vancouver or the GTA, the property prices in those markets would not be quite where they are today.

Most of these offshore down payments have been sitting here for a while – they came with people when they immigrated to Canada or came here gradually when the children of foreign nationals gained citizenship or received PR cards. In other words, they are legitimate.

This is a natural outgrowth of the kind of immigration that is going on in Canada. After World War II, the people who came to Canada were dead broke when they got here.

These folks made massive contributions to this country, working tirelessly and saving relentlessly until they could purchase homes. Their down payments were created in Canada. But since the ’80s, immigration has changed, and the people coming to Canada today reflect backgrounds that often allow the transfer of large sums of money. Nothing wrong with that – immigration is the best thing that ever happened to Canada. It’s just the way it is.

Foreign down payments are likely 15% of all purchase volume in Greater Vancouver and the GTA. Our company sees 4,000 purchase applications annually, and that’s my anecdotal experience based on those applications. Are my observations unique? Possibly, but I doubt it. My conversations with other mortgage brokers tend to support my intuition about offshore down payments.

Is the government’s proposed $40 million database going to pick up on these soft facts? Is it even important? I believe it is. That $40 million is likely a complete waste because the intricacies of offshore money are just too hard to pin down.

Consider that if a person has lived and worked in Toronto or Vancouver their whole life, they must have saved a down payment and have had adequate income to support their mortgage payment based entirely on their position in the local economy. Their house purchase decisions would be tied to the economics of the place where they live.

If, on the other hand, their down payment for a house purchase originated in a whole different country, the economics and the income derived in that country determine the economics of the house purchase – meaning that purchasing decisions made in Vancouver and Toronto would be divorced from our local economies.

Read more: Down payment on a house: How much should you pay?

House purchase decisions with foreign down payments don’t intersect with local employment and economic realities.
Rather, these decisions flow from considerations such as: “I have sent my kids to Canada, and I would like to have a certain amount of my assets there as a hedge against bad policy changes from my local government.” That’s not the whole story of offshore down payments, but it sure as heck is some of it.

This trend is not the sole reason for runaway property values in the major centres; historically low interest rates are also part of it. Questionable legislation about greenbelts is another part of it, as is the lack of supply of new single-family builds.
Here’s something to consider: If you want to import 400,000 people in 2018, it would be a great idea to make sure there’s enough housing for them.