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Originally Posted by Harry Lime
The point is that this is not normal market fluctuation. Demand driven through speculation puts pressure on the residents of each city, that eventually prices them out of the market entirely. Not long ago, the impact of foreign residential investment was said to be contained to Vancouver and Toronto, but we have seen expansion to Calgary and Edmonton (not to mention resort towns), and now into Saskatoon and Montreal. This is an issue becoming a national concern very quickly.
Yes, major impact.
As for cratering home value in places like Vancouver, there is no doubt that the market is overvalued right now. There are ways to ease prices into normalcy without cratering. How about doubling or tripling property tax for foreign residential investment across the country, to slow down investment and help the infrastructure of the cities themselves directly?
One potential issue that we can get ahead of, instead of reacting to, that was a throw away mention in this article...
... is this an issue that we want to be dealing with in an already strained health care sector?
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I still don't see foreign investment as a big problem for non-major centers and resort areas, and the real estate markets in these other areas will remain primarily impacted by the usual economic factors. That seems to be pretty much in line with what the article says:
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A new report on real estate trends says foreign investors may start looking beyond Toronto and Vancouver and begin targeting markets in Montreal and Saskatoon in the coming year.
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PwC says Calgary and Edmonton were, until recently, among the country's most promising real estate markets. However, as the price of crude has plummeted and investment in the oilpatch has dried up, both residential and commercial properties in the region have stopped switching hands as owners take a wait-and-see approach.
Meanwhile, real estate markets in Ontario and Quebec home to the bulk of the country's manufacturing sector are poised to benefit from the lower loonie as well as the economic recovery in the U.S., Canada's biggest trading partner.
And that could spark greater interest from foreign buyers in the Montreal market, PwC predicts.
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Chris Potter, a partner at PwC Canada, says farmland around Saskatoon has also become attractive to foreign investors, although it remains to be seen how much of an impact the oil price shock will have on the province's real estate market.
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Basically, it seems like pure speculation that foreign investment will have a big impact on the Saskatoons of the country.
I think Vancouver's a special case really. It's in the Pacific Rim real estate market moreso than the Canadian market (except the rental market of course). People have been talking about Vancouver being overvalued since single detached homes hit $1 million a decade ago. Now duplexes are at a million and continuing to rise. I don't think there's any bubble in Vancouver at all, unless we create one by taking measures to discourage foreign investors and drive them out, in which case the prices of detached homes will plummet. That's the trouble with upping property taxes on foreign owners: it compels them to sell. I think a better idea would be a foreign buyer property transfer tax or fee tied to the purchase price of the house - something that discourages new foreign buyers without motivating the existing ones to flood the market with properties.
Truthfully though, I fully expect that your middle class Canadian is either (a) going to have to settle for a condo in Vancouver for the long haul; (b) buy in the burbs and commute like crazy; (c) rent forever; or (d) move. And the choice would be the same in any major international city.
But I'm less convinced that the same will be true for Saskatoon or even Calgary. Oil goes down, interest rates go up, those markets take a big hit. But they likely remain a long way from the situation Vancouver's in, where property prices are basically not tethered to the local economy (and even the 2008 recession didn't smack the property market too hard).
It's an interesting issue for sure. But I'm not persuaded it's a Canada-wide one yet.