April 14th 2015, Seasons Hotel Vancouver
Moderator: Christopher Rea Director, UBC Centre for Chinese Research & Associate Professor of Asian Studies UBC
Panelists: Richard Ross, Director of the Global Housing Watch Initiative at the IMF; Shaolong (Patrick) Li, President of Modern International Holding & President of Green Mountain Jade; David Ley, Professor in the Department of Geography at UBC; Tsur Somerville from the Real Estate Foundation of BC, also Professor in Real Estate Finance at the Sauder School of Business at UBC.
As moderator Professor Rea open up the panel discussion with a reference to a 2014 article in the financial pages of the New Yorker which describes how China's richest 1 percent is moving to Vancouver. Real Estate Goes Global written by James Surowiecki explain why Vancouver real estate is a prime market for wealthy Chinese investors and what economic policy measures to take so that it is truly profitable for Canadians. "[t]he city has found itself at the heart of one of the biggest trends of the past two decades—the rise of a truly global market in real estate."1
The panel began with Richard Ross, director of the Global Housing Watch Initiative at the IMF. Ross explained why certain cities are chosen over others for real estate investment. He talked about a global flavor for real estate investment trending among others, with New York, San Francisco, and Vancouver at the top list. One of his slides was titled "Housing as both a consumption good and an investment." In this analysis the fundamental factors are: 1) economic growth; 2) interest rates; 3) currency movements; 4) and trade balances. The non-fundamental factors are: 1) safe heaven; 2) diversification; 3) valuation. Ross goes on to explain the notable challenges in data analysis for this research, and suggest looking at land use policy. More analysis will be needed and done if this trend persists. The challenge for Vancouver and other superstar cities (Surowiecki , 2014) will be to properly manage the large flow of capital in these emerging real estate markets.
The following panelist, David Ley, a UBC Professor in the Department of Geography, brought forth the most recent financial report of capital flow in China-Canada. His presentation was titled Global China: Capital Outflows and Overseas Real Estate. One of the major points brought forth by Professor Ley is the synchronization of China-Vancouver global capital flows and house prices. Ley showed the correlating results in Bloomberg's data analysis (2013) "comparing real estate price trends in Vancouver and the growth of the Chinese economy."
"...This reflects the scale of capital flight under way as lower interest rates, worries about the economic outlook and the clampdown on corruption drive Chinese people to take their wealth out of he country. Fitch estimates gross capital outflows from mid-2014 to the end of 2015 at more than $1tn."
Capital flight is at the core of China's dilemma, Financial Times January 13, 2016
Professor David Ley explained that we are talking about China because we are talking about the present. People want to get money out of China not only because of the crackdown on corruption but also because of various factors including deep concerns about the worsening environmental pollution and serious associated health hazards. Chinese are also interested in Canadian education as a top world class education. Ley pointed out Expo 86 as a milestone. The Canadian immigration program developed the most lenient business immigration policy in the world designed to boost economic development in Canada. In the last 10 years, approximately 90 percent of immigrants in Canada were home owners. Professor David Ley explained that 35-40 billion dollars came to Vancouver from HK and Taiwan, and that these people invested heavily in property. He talked about a transnational housing market of millionaire migrants with liquid assets of more then a million. The leading destinations are Los Angeles, San Francisco, Vancouver for Chinese High Net-worth Individuals (HNI), and the real estate is by far their most favorite investment. Vancouver real estate is a world class commodity preferred to San Francisco. HNI are buying at the very high end of the market. Today's wealthy can be described by those owning contemporary art and lavishing apartments in New York, Vancouver and/or London. Professor Ley mentioned the fascinating fact that Chinese owners in the United States acquire property that are 3 times more expensive than American home owners.
The third speaker described himself as one of the first Chinese immigrants to Vancouver, and to this I will add in the context of this topic. Shaolong (Patrick) Li, the President of Modern International Holding & President of Green Mountain Jade. Groups of Chinese are different in different cities. When friends and family hear about the oversea lifestyle of their loved ones, they are curious and want to join in. Shaolong Li suggested that it is only a small number of people for the amount of capital flow entering the city of Vancouver.
Shaolong Li described the importance of traditional values in contemporary China and the central role of marriage. He continued to explain that for Chinese people, it is important to become a home owner before marriage. And because of the political culture in China today, the Chinese population can never be the owner of a house or property since residential permits for owning a house have a limited period of 7 years.
The last panelist was Tsur Somerville from the Real Estate Foundation of BC, also Professor in Real Estate Finance at Sauder School of Business at UBC. Professor Somerville discussed the relationship between capital flow and real estate. He explained that Vancouver is a small city, which has made the impact of the capital flow in real estate more intense. Since mid-1960s, immigration in Canada has almost doubled. Today, people immigrating to Canada are educated and shockingly rich.