The main question people asked about the appreciation was: "is appreciation really being driven up by foreign buyers".
Many came to the answer "no", because foreign home ownership was "only" in the 5-10% range depending on the neighbourhood.
This article lays out the case why foreign ownership % isn't the right thing to be looking at:
1. The goal of a money launderer is to launder as much as possible
2. The goal of a home seller is to sell for as much as possible
3. If the asset being purchased is a home, incentives between buyer and seller are aligned and prices are higher than the non-laundering market would support (esp if there's another launderer who's interested).
4. Since the market for home prices is based on comps, a few launderers can raise market prices substantially
5. Lather, rinse, repeat
The foreigner question was the wrong one to ask, though certainly a large part of the market was driven by foreign investment. The right question to ask -- and the problem to guard against -- was: "what's the impact of laundered money on the market".
BC added the foreign buyer's tax of 15% in 2016. But beneficial ownership laws come into effect on November 30 of this year. The former created a slight disincentive for foreigners laundering $$ to buy. But turns out what was really needed to slow the tide of illegal money flowing into housing was more transparency and disclosure rules.
 - https://financialpost.com/personal-finance/mortgages-real-es...
 - https://www.mondaq.com/canada/real-estate/988830/bc-real-est...
Louis Rossmann has a semi-recent YT video exploring one hypothesis: landlords have mortgages that contain clauses in then which specify that if rents have to be a certain amount, and if they drop too much then that means the property value must have dropped.
And if the property value has dropped, perhaps bringing the mortgage closer to being underwater, then the bank may want the landowner to put more equity in it so that adds to the bank's cushion.
And landowners don't want to put more of their own money into a leveraged investment, so they'd rather just deal with the carrying costs rather than trigger an 'equity event'.
The hypothesis was originally put forward in a Reddit comment:
The discounts are there for the same reasons as the grocery store. It’s better for sellers as a negotiating tool and for price discrimination.
Hence car sales, land sales, leases, company mergers etc all have a bit of back and forth as opposed to produce at a store. However, in poorer countries, I’ve seen haggling over vegetables too, but that doesn’t happen in developed countries since it’s not worth anyone’s time.
I've never heard of situations that have re-triggered PMI... but it doesn't seem outside the realm of possibility.
Just because you don’t want Ed’s Thrift shop in your retail space on a cut rate month to month lease, doesn’t mean you fight desperately want a tenant. A multimillion dollar investment yielding negative cash flow over years is a disaster, be ye investor or launderer.
That may be a factor but it’s not the primary cause. This has been going on forever because commercial leases are usually 5-20 year commitments.
I’ve danced the dance with many landlords where they act interested in having you lease, but clearly your business isn’t what they consider a “good tenant” so they draw things out while they continue to look for a “better” tenant.
The empty spots in the city do speak with prospective tenants but often have unrealistic requirements for small companies and unrealistic pricing. Beyond the rent you may be required to have seven figures liquid to be in a position to secure a lease. Especially for a restaurant. Especially if there is a buildout.
Things get a lot easier if you can take the space as is. But even then, if the landlord thinks your business is at a high risk of closing within a year, what’s the point? Why not spend most of that year finding a secure tenant likely to last for a decade or more.
This leaves many empty stores in Manhattan.
This is true but misleading. The money launderer doesn't want to throw away money. They want to launder money as cheaply as possible. That said, they are willing to pay far more than an asset is "worth" if they expect to be able to resell it for a price equal to or even slightly lower than they paid. The loss is the "price" of laundering. This supports higher prices for real estate, but not arbitrarily high prices, because if the launderer pays too much, they will simply have to resell for less, leaving money on the table that they could have kept.
And it also attracts other generally wealthy investors looking to get in on a hot market.
The investors are the like-minded people who banded together to raise property values and benefit from it directly, while also exerting their will to keep new people out, or at least keep out everyone except the very wealthiest.
Calling this behavior "protective" of the city is tantamount to saying that the city is only for the investors.
The exact topic of this article: Small quantities of investors with different economic incentives can result in big effects.
> The investors are the like-minded people who banded together
I rather doubt that it was a concerted effort to band together. It's more akin to "curse of the commons": Each individual actor acting in their best interest results in emergent behavior.
The solution being pursued is to change the rules to dissuade certain behaviors that negatively impact the populace as a whole.
By your logic, liberal silicon valley techies should band together to fire/cancel/censor conservatives who do not share their values. After all, like-minded people need to band together to out-compete the outsiders who think differently right?
Of all the people in the world the people geographically close to you and that share citizenship or nationality are the most likely to think like you or share goals that benefit both parties.
Even if nationality is sometimes moderately correlated with the values you hold, when a stronger correlation exists, your alleged ideological commitment to forming in-groups and out-groups based on shared values should mean that people have the right (or even obligation) to discriminate based on non-nationality-based factors (e.g. liberals discriminating against conservatives in tech).
Nationality is correlated with the values you hold in the broadest sense. Easy example: a natural born citizen in the US is far less likely to believe in the validity of Sharia law than someone born in an Arab state.
In even more abstract terms, what is good for you is likely to be location dependent. People in Germany have different problems from people in the US or France, and those are different from African, Asian, and South American countries. There are of course common trends, but to pretend all of politics is some shared set of problems is ridiculous.
People discriminate based on traits all the time. Liberals in tech do discriminate against conservatives (or perceived conservatives) all the time. They are free to do so, most people don't see many things as something you can protect as a class.
Why would the most beneficial group of people that we want to band with be optimal when limited to a subset of the population, whether that's simply a random selection, or a potentially bigoted selection/identification mechanism like skin color, wealth, religious sect, family name, etc.?
I don't understand why a broader grouping (possibly global) of people wouldn't outcompete a smaller group, the larger group by definition has a larger capability...intra-group communication may be slightly more difficult with language barriers and cultural differences, and the relative contributions of sub-groups of members may differ based on their resources, but the sum total would still be greater.
As opposed to the domestic billionaires who have deep compassion for the interests of the working class?
I'm not trying to boil this down to "foreigners bad. locals good." But there are various factors that play in to how much one cares about their impact on others, with physical and political distance being two of them.
Ability to pool resources, ability and will to bend rules for the sake of promoting group's interests (ie. nepotism).
"Protecting" communities by excluding people means that the only people that get in are the wealthiest, and because exclusion is the baseline, every new wealthy person kicks out a less wealthy person.
The exclusion is an excuse to enforce austerity, the classic means of squeezing the less wealthy to the benefit of the more wealthy.
But the manner in which the community is "protected" in this case is by excluding wealthy foreigners who swoop in and pay huge sums over asking, sight unseen, for properties. Not sure how that could be detrimental to someone who isn't wealthy.
Seriously, "xenophobia towards investors" strikes me a bit like the Silicon Valley bit about comparing the plight of Billionaires to enemies of the third reich.
You completely ignored the point I made. How is an investor from China buying real estate in Vancouver purely for investment purposes with no intention of having anyone live there any different than someone from Toronto doing it? Why is the former punished harsher than the latter?
If you are solely worried about the tax base, wouldn't bringing in foreign investors into real estate investing while letting domestic investors focus on some other investment vehicles lead to more tax revenue?
That one group has less stake and can be discouraged through legislation while another has some constitutional-like protections is not a compelling problem compared to the one in the paragraph above.
I'm making no judgment calls here, just pointing out that an easy, pat answer is not sufficient.
What there are complaints about are foreign investors who bid up property prices but don't move to the city, at least not before retirement age.
This causes a huge disconnect between the price of land in an area, and the earning potential in that area. For people who hope to own land but don't already, it's always out of reach, because they aren't competing with their peers, and the wealthy pockets that are buying homes aren't customers of other local businesses. It's not quite the same as a cluster of unicorns driving up tech salaries to the point where teachers and nurses can't compete on the market. There are no unicorns based in Vancouver. It's hard to identify any career path, even doctor, rockstar engineer, or lawyer, that a high school graduate today could expect to follow while working in this city and be on track for home ownership when time comes to start a family. Assuming that the trend continues, that is. And if it corrects, then it's a question of who was unlucky enough to catch the knife -- because any young locals in the ownership market are going to be highly leveraged, there's no other way.
That might read like xenophobia, but actual immigrants who intend to live, work, and raise families here are generally warmly welcomed and appreciated no matter where they come from. There are some people who get their signals crossed but it's a small minority.
How do you differentiate it from xenophobia?
In this sense, these foreign investors are taking advantage of a functional social/legal system that lowers risk, but in the cases documented nearby, they aren't giving back to ensure the longevity of the system. Indeed, their remotely-executed purchases increase its instability.
The Government of Canada has the ability to published (anonymized) data (real estate sales correlated to the buyers historic income taxes/wealth, etc) that could eliminate most of the opaqueness of what is really going on in Canadian housing markets, but they do not, despite vowing to "get to the bottom of" the situation.
The media could point out that the Canadian Government has this ability but does not do it, but they do not, despite claiming to be trustworthy, unbiased reporters of the affairs that are important to the public.
As is often the case, what is actually true is unjustly (and "democratically") hidden from view of the public, coverage is provided (intentionally or not) by the media, and the end result is that the populace is split into various camps who then fight among themselves. Is this situation the actual "will of the people", as we are endlessly told is what Democracy (and nothing else) delivers? I believe there is a fairly substantial amount of evidence that it is not what people want, although that sort of topic seems a bit socially taboo, so all one can do is speculate.
3)An unexplained wealth order is an order requiring the respondent to provide a statement—
(a)setting out the nature and extent of the respondent’s interest in the property in respect of which the order is made,
(b)explaining how the respondent obtained the property (including, in particular, how any costs incurred in obtaining it were met),
(c)where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and
(d)setting out such other information in connection with the property as may be so specified.
How many foreigners are able to obfuscate "true" ownership is also a huge question.
For CA$200 you can set up your own Canada-resident corporation with obfuscated directorships:
The biggest residential purchase was splashed across the front page of the biggest newspaper as some great event yet it took them years to determine it was illegal and that was from a falling out between the owner and government.
If a $30 million luxury house in Sydney with national news coverage can't be exposed as being illegally bought, what fucking hope does any average property have? They basically catch no one for this stuff and if they do it's always due to some other crime instead.
UK/Canada/Australia/NZ are some of the biggest real estate money laundering destinations on Earth and all of their governments know it.
This was linked further down... a student owns 99% of a $31mm property. A Chinese business person owns the other 1%. That sounds like trying to get around KYC / AML requirements and obfuscating things to me...
When does that goal compete with the equally efficient method of just lighting the cash on fire?
The goal is also a place to store that laundered cash. When the time comes to take it out of storages, it's only worth 10 cents on the dollar, the whole the higher the price the better thesis falls apart.
Funnily 10c on the dollar might be worth doing if there are no other laundering methods available. It’s like investing - laundered money seeks the beat returns. And in the case of Vancouver the assets purchased with laundered money actually went up YOY. Seems like a good place to launder, no?
Such a weird rationalization.
Even very non-economist me "knows" that small changes in supply (<1%) leads to big changes in price. Either up or down. More so when factoring demand.
Some things add friction to efficient price discovery, like rent control and landlords servicing debts. But the first order factor is supply and demand.
I've read stats that indicate that nearly 20% of home owners in the Toronto area own at least one additional "investment" property. This rings true with my own experience, as the cult of home ownership is ridiculously strong in Canada, and many have been betting on and fueling rampant speculation for the past decade -- buying boxes in the sky for hundreds of thousands of dollars under the assumption that real estate just keeps going up.
But the anecdotal stories about the occasional foreign buyer is somehow much more satisfying and comforting than the thought that Canadians are also responsible.
Core problem is housing shortage. We need more. I don't care how we get there. So I support upzoning, MIL units, penalizing unused (vacant) units, and any other idea for increasing supply.
We just need to figure out what policy mix works. The blame game is just a distraction by the incumbent players.
To give an example of how exaggerated it is: before implementing the empty homes, the city of Vancouver estimated that 25,000 homes were empty. The final result: only 2,500, one tenth what everyone thought.
Demand curve is number of houses available for sale, supply curve is people looking to purchase those homes. As the curves shift, if the price goes too high, then the lack of supply of people with sufficient money would cause prices to stall or come down. But it’s apparent that the supply of people with a lot of money (or credit) is a lot higher than the supply of houses.
Maybe it’s even more accurate to say that the supply of inflation protected assets in stable societies is in low supply compared to the supply of capital trying to buy those assets.
I never saw the report itself, just the interviews on multiple news agencies interviewing the RCMP representative.
They did NOT do explicit numbers other than totals in the public, just the example above is my memory of one of their examples.
Everyone put in a bid. The realtor representing the remote client gave an offer 200k over asking. Never saw the buyer. Drove by months later and still no one living there. Neighbor told me a young Chinese couple showed up a few weeks after purchase, got out and looked at the property for a minute and drove off, didn't even go in. Property was still empty 2 years later.
Extended family remember sells house in Toronto (Bloor West Village). House is at least 100 years old and in rough shape. Gets an offer for 1.4 million (about 150k over asking) as is from a 20 something year old Chinese University of Toronto Student. The student tells family member not to be alarmed if the name on the contract is different from hers. House was rented out a few months after sale.
I have dealt with many Chinese factories in a previous life. Many were State factories and everyone from the sales person to the accountant to the factory floor supervisor is on the take. They skim and over time accumulate some serious money. This money leaves the country in capital outflows into the real estate market in Canada. The thinking is I don't care if it makes any money as an investment, I just got to get it out of China so the CCP can't take it away. Banks are no good, so lets just put it in real estate. Who cares if we lose 200k on property, better than losing it all to the Chinese Gov.
Another interesting story, real estate agent representing me tells me this story. He's on the phone with an agent representing a Chinese client who wants to buy a Condo in a new development in downtown Toronto. Realtor says client will take one. My Realtor asks him what kind of unit? Chinese buyers tells him not a unit but the whole 8th floor.
The average price of a house in Toronto will be in the millions in the next decade. Anyone earning less than 200-300 k a year will not be able to afford one, unless they have a windfall inheritance. Now with a possible Hong Kong exodus, there is no limit to the insanity. Young Canadians in major cities are screwed. Renters for life.
Fast forward 15 years and an article pops in their local paper (I had long since moved away), and it turns out it was true!
From the Daily Press :
> Lured by the prospect of massive transportation projects that could skyrocket land values, the Victor Valley has become a jewel for foreign and domestic investors looking to make a fortune in a practice called land banking. In land banking, investors buy raw land and hold onto it until the value goes up because of inflation or development.
For those who aren't familiar with the area, it's a remote and extremely low-income, low-education area of California. Anyone making investments in property there is looking for them to pay off a generation or two from now.
In fact I thought of "land banking" there myself a decade or two ago, because I could see that the commute over Cajon would become thinkable.
Unfortunately at this point a large amount of the Canadian and Australian real estate markets (and thus national wealth) are driven by Chinese money, so there's little chance of this happening.
This is equivalent to taxing away the land rents: the unearned appreciation of value in property that comes from those around you, rather than what you build.
In this sort of system, other taxes can decrease quite a bit as well.
However, this idea originated from a time before we had zoning restrictions like we do today. Which also means that any change in zoning would result in a big change in land value too. One could also imagine transferring zoning allowances, much like air rights are sold in NYC, so that people that don't want to change their property can instead give their greater density allowance to person down the street that wants to change their duplex into a fourplex, or something. Such transfers would also be near to zero dollar activities.
But given our current difficulty with handing out any sort of zoning change to allow more people to live in high demand areas, I start to think that this idea is hopelessly poisonous to land politics of entrenched powers (land owners). Still, one can dream.
If there is no registered resident for a domicile then the owner gets charged. Not sure how useful it's been:
Each house sold to a chinese person makes canada as a whole one house-worth richer.
Attempting to keep a buffer for that away from the various interest groups is impossible even if you defy the physics of money in politics to adequately tax profits that can buy politicians.
That's an idea of what could happen, but it is not what is happening. Of course it would be better if the properties bought by foreigners were rented out, and the incentives to do so are very strong already (making rent money!), but even if they aren't, the worst case scenario is an eventual reposession of the property meaning again that Canada is one house-worth richer!
It has an immediate effect in LA, where a number of buildings under construction were financed by Chinese investors. In one case, the developer itself couldn't get it's own money out, and now they have a giant unfinished hulk right across from Staples Center.
On paper, but like all things in China enforcement is a completely different thing. There are many ways around it and it's much easier when Canada's AML and KYC requirements would make a 1980s' Caribbean Banker blush.
Even a municipal vacancy tax is just a new cost of doing business. Further, the Canadian Liberals and BoC have both signalled that they intend to devalue the CAD and prop up real-estate. You'd be a fool as a Chinese foreign investor to not dump money into Canadian real estate. It's de-facto government-backed at this point, comes with a Canadian passport, and the Canadian Liberals will never move a finger against you or China.
China's been pretty heavy-handed in its enforcement of these rules. As noted earlier, they basically killed off Chinese cash buyers in the US market in California, and have done the same to Vancouver.
> On paper, but like all things in China enforcement is a completely different thing. There are many ways around it and it's much easier when Canada's AML and KYC requirements would make a 1980s' Caribbean Banker blush.
Yes, if you have the right connections, which almost all these investors have, it's no biggie to move money out of China. I don't know about Canadian laws to make a comparison about Canadian laws to a Caribbean banker in the 80s. But I do know that the Chinese are plowing money everywhere - Malaysia, Thailand, parts of Europe, Singapore, almost all of them are being massively bought by Chinese investors. Does not take a genius to figure out that the CCP plan has either failed, or more likely was just political grandstanding for their Weibo and QQ fans.
> Even a municipal vacancy tax is just a new cost of doing business.
When you're a monied investor, taxes just become operating costs. I remember back in the day, my family in a Gulf country had to pay an exorbitant part of our income to get a "license fee" to set up a tiny restaurant no bigger than a Subway. Now, I just opened a satellite office for investors in one of the fanciest districts in the country and those license fees are just a cost of doing business. Not to mention, I'm getting a fuck ton of local subsidies to do that, driving my costs further. This is the case with almost all major cities in emerging markets I know of struggling to build an ecosystem (Singapore, KL, Dubai, Riyadh, etc).
> Further, the Canadian Liberals and BoC have both signalled that they intend to devalue the CAD and prop up real-estate. You'd be a fool as a Chinese foreign investor to not dump money into Canadian real estate. It's de-facto government-backed at this point, comes with a Canadian passport, and the Canadian Liberals will never move a finger against you or China.
I don't know if it's tied to the Liberals, but the CAD has seen significant devaluation against the dollar the past 5 years or 10 years (excluding the effects of USD appreciation too). I also do not know about Canadian govt incentives to boost real estate, but that's not far fetched to assume from #2. Current requirements for citiznship by investment (in Quebec, the federal programme was shut down) show a requirement of only CAD 2 million as net worth, not even direct investment, and an intention to settle in Quebec. Alternatively, one could set up a BS company and get a federal pass through. Both of which aren't hard for the typical Chinese investor to prove. So yes, the government programme does come with an easy passport at the end of it.
Lastly, let's be honest - Canada only took on Meng Wanzhou because the US told them to. If they were really serious about Huawei breaching the Iran sanctions, they would have to arrest a number of other Chinese businessmen who own property in Canada, as well as a number of Arab and Iranian businessmen, who don't have qualms skirting the sanctions. Canada is only standing up to China at the moment, because they have US backing, and because it's Meng Wanzhou.
2. If Canada was serious about taking on Huawei it would have done so when Huawei allegedly stole IP from Nortel back in 2008-2009. However the Harper conservative government at the time did nothing in fact only bailed out auto companies during the financial crises instead of helping out tech.
3. And yes, of course Canada is standing up to China because one of the benefit of Canada is that the US us their closest ally.
4. Can't speak to your first statement but it seems hyperbolic ("Caribbean Banker blush") - and like I said earlier not going to do the research given the other statements.
5. Yes MVT is an added cost of doing business that can tilt the scale to the point at which it isn't worth doing the business anymore for foreign buyers. I did read that the Vancouver and Toronto market cooled significantly after that was implemented. It is can also be construed as a signal that the behavior is now being watched and monitored.
edit: for formatting
2.) I don't mind criticizing the Harper government. In fact, I'd readily place them below Trudeau's. But I don't think Trudeau's would have aggressively pursued Chinese IP theft. In fact, no Western government would have. What did Obama do when the Chinese were stealing IP from Western universities?
3.) Again, as I said, I don't really know about Canadian KYC and AML laws and the "Caribbean banker blush" thing. But one cursory glance, and it's easy to find so many loopholes in the current policy which was created to dissuade investor citizenship.
4.) Canada is only positioning itself for its strongest ally, just as Australia. Till the trade war began, I dearly remember how Canada and Australia had these nice treats and fancy dinners for Chinese investors that weren't available to investors from other places. Not that I'm complaining, but some special treatment was certainly meted out to the Chinese, via regulations and otherwise. Which led to the current shit show.
5.) Vancouver and Toronto are still on the high side. Let's talk when those places become affordable to buy into for native city folks. But as always, for most big issues, we'll continue putting a Band-Aid solution over it.
There are a few ten thousand Chinese investors with U.S. projects that wish this were still true, so if you have a method for doing this, you should let them know immediately because you will become an extremely wealthy individual (if it works).
But it hasn't been since 2017, when they cracked down on the use of surrogates to move money out of China. (China first cracked down on direct transfers in 2014/2015. I had a number of clients at the time that were directly effected by these measures.)
By connections, I meant CCP connections. Knowing the right people in the party hierarchy (Xi followers, not overtly ambitious, some common sense between the ears, etc) can make you go a long way.
Sure a bunch of hot-money can easily bid up asset prices. But at the same time it should also drive down yields on those assets. Like you say, the vast majority of these houses aren't being lived in. Nor are the owners sensitive to returns. Why don't more of them put their dwellings up for rent, flooding the rental market and driving down prices?
Renters are not worth the hassle and earning an income renting a property might throw up some flags and other Income Tax headaches. What you get is a lot of properties just sitting empty going up in value because of the lack of inventory screwing potential Canadian buyers or renters. I don't know if I remember correctly but I read somewhere that there were Condo buildings in Vancouver that were almost dark at night because so few people actually lived in them. Complete neighborhoods were void of people because of the foreign ownership.
This is about parking money in an asset that would be hard for the CCP to get their hands on. If it were in a foreign bank account as currency, the CCP would have easy access to it. The CCP probably doesn't even know there are 1oo's of billions over the last 2 decades sitting in Canadian housing.
> The CCP probably doesn't even know there are 1oo's of billions over the last 2 decades sitting in Canadian housing.
We have very low to no property taxes. All of our taxes are based on income. So a condo could have annual property taxes of like $1800-$2000... So what is the point of renting it out if it is increasing in value 10% a year and you are going to use it maybe 2 months a year. The west side of Vancouver were all the mansions are, and had a the greatest new concentration of rich foreign buyers actually paid the lowest taxes in the province.
We also have very big immigration influx in Canada, foreign student population and a 10 year visa program with China. These all started shooting up rents. But also caused what is known as satellite families which drop of their kids and caretaker, use the public schools, health care etc but make all their money back in their country of origin not claiming income tax here. We had University students with their names on $30million houses. House wife seemed to be the most lucrative job going in real estate.
We got a new provincial government a few years ago who brought in the "speculation tax". Basically if you don't pay income tax here but own a house you have to pay a tax of 2% of the properties value. This is compounded on top of an empty homes tax the city put in place of 1% if it is not rented out. There was also some new laws/procedures put in place with data sharing across province/city/real estate board that is helping clearing up some malfeasance as well.
Most people are unaware of the specific bet they are making, and buy just because Canada has a crazy cult of home ownership. From my own experience, it is far more intense than anywhere else. Paying anything other than a mortgage is widely seen as "throwing your money away", even with the above financial realities.
Unfortunately, although people are unaware of the nature of the bet they are making (unbridled speculation fueling price growth), they have been right for a long time, even through the housing collapse in the US. But the music's gotta stop at some point.
Though locals may talk about how young Canadians are "screwed" or that no one can afford a house anymore, the reality is that home ownership in Canada is higher than it has ever been in history. Young Canadians simply need to accept that, for now, owning a house shouldn't be their one goal in life: they should opt-out of the cult of home ownership, and just wait until buying makes financial sense (i.e. the bubble bursts or deflates).
I personally delayed buying a house in Toronto since 2013, thinking that it's too hot and it can't keep going up. I missed out massively. I don't recommend young Canadians to wait, but rather buy your primary residence if you can before you're completely priced out of the market. Just don't put all your investment into housing in the GTA, it may pop one day.
But I wouldn’t encourage FOMO by saying “buy or you’ll be priced out!” since it’s just perpetuating the assumption that it’ll last forevér. It won’t. But it might last a while.
If you really want a house and can afford it, buy a house. But understand the reality of the financial risk. That’s not just coming from me, it’s coming the Bank of Canada and many other international organizations.
2. "opt-out of the cult of home ownership, and just wait until buying makes financial sense (i.e. the bubble bursts or deflates)"
For the bubble to burst, the things driving it have to change. Since the 90s, floods of global money have been driving up the cost of housing in canada's major cities. The bubble has been bubbling for 30 years. "just wait" is not actually a viable solution.
Recent changes - an empty homes tax and a foreign buyer taxes - have been attempts to curb the problem, but it's not like we've tried all the tools in the toolchest - we've barely tried anything.
The cult is that it is seen as such, and people have it in their heads that home ownership is the most important component in financial success.
The reason that you note “just wait” is not a viable option is surely because you also view home ownership as something you need to do. But you don’t need it, you just want it.
Blaming global money is the easy thing to do, but I don’t think there’s compelling data that supports this. Sure, it has had an effect, but Canadians themselves hold a large share of responsibility for the market today. This is why the empty homes and foreign buyers haven’t really done anything — they are just populist measures. If you really want to have an impact, fight local speculation too.
Regarding the middle class wealth accumulation, Canada is in for a world of hurt when the bubble bursts. A shocking proportion (1/3) of Canadians nearing retirement have no assets outside their primary residence, and their plan is to use reverse mortgages or downsizing to fund their retirement. This is because so many Canadians live at the edge of what they can afford, commonly known as “house poor”, which is the phenomenon driving a lot of local prices.
What is happening now is a massive intergenerational transfer of wealth from the younger generation to the older generation. When the bubble deflates, everyone who sold their house is making bank, and young people who were desperate to have a piece of dirt are the ones who will be holding the bag.
I’m not saying you shouldn’t own a house if you need it and can afford it, but the idea of a home as a “wealth generation” device will not age well in Canada.
The incentive to buy, hold and not rent, even with the speculation tax is higher than having their entire money confiscated by the CCP. The (discounted) money generated by rent does not justify the costs mentioned earlier either.
If all the productive land in an urban area is effectively owned by foreign investors and left to sit, then renters bid up the remaining dwellings until they're priced out of the area. It also becomes more expensive to build in that area so the housing stock can't keep up with demand. It's terrible to let a vital commodity lay to waste.
"Pending" legislation to prevent money laundering via real estate has gathered dust in Canberra for well over a decade!
Lawyers, accountants and real estate agents are still exempted from reporting anything suspicious (including briefcases full of cash), providing an easy avenue for foreign buyers to launder funds through property.
On the surface we are a western nation, but lift the covers and we are enabling money laundering into real estate, to the tune of billions and billions every year.
Real estate agents report unprecedented numbers of overseas’ buyers of residential and commercial property in Melbourne and Sydney paying cash…
An estimated 70 per cent of Chinese buyers pay in cash
One common thing, however: building far less housing than the population is growing in the US.
This is the primary effect, decades of downzoning and decreasing housing production, without taking into account the needs of the population, just the desires of landlords and homeowners.
What this does is push up what percentile of wealth sets the market price. And if at the top of the wealth percentiles there are 10%-20% foreign money, then it seems like a tiny number of people are having a much bigger effect than they are.
Cutting out the purchases of those 10-20% wont have a huge effect on prices, but they make a great scapegoat, and let homeowners and landlords continue their profit-seeking schemes for a few more years.
Vancouver has both vacancy taxes and foreign purchase taxes. They do not solve the real problem, but are good window dressing and help a tiny fraction of the population.
IMHO more transparency would help.
This isn’t a particularly clever insight, yet many still don’t seem to get it and draw the right conclusions.
Something I'm wondering: Why then are young Canadians overwhelmingly voting for a party that supports these sky high immigration quotas and lax policies around foreign ownership?
How exactly does this part work?
> Snow washing refers to hiding illegitimate financial transactions often for purposes of tax evasion in Canada. The term is an amalgam of the words snow meaning purity as well as the cold Canadian climate and washing referring to money laundering. It is easy under Canadian law to set up a company, even for a fee as low as $200 (Canadian), while shielding the identities of the firm's real owners from the eyes of tax authorities. The global elite, as well as criminals and foreigners avoiding economic sanctions, can set up shell companies to "make suspect transactions seem legitimate" under the cover of Canada's reputation for fiscal integrity.
Fine point: The goal is not to make it indistinguishable from legitimate business. Rather it is to keep it distinguishable from illegitimate business long enough that police look elsewhere.
The money launderer isn't trying to hid as a legitimate profit-seeking business. The goal is to add so many layers that the burden of investigation dissuades prosecution. So they aren't going to setup false cash-based storefronts so as to mix the bad money with the good (ie the laundromat joke in Archer). Such concrete actions are too dangerous. What they will do is bounce money across as many jurisdictions as possible. There may be no legitimate reason for doing this but they aren't really trying to seem legitimate. They just want to look like a very difficult target so that the cops will go after easier prey. That burden increase is more effective and less dangerous than the lies required to hide.
Lovely city though, beautiful nature, excellent restaurants.
...and yet with all of this development, the rental vacancy rate still hovers around 0...
...and it’s not like we have a huge number of empty homes because we have 2 layers of empty home taxes at this point and we’ve precisely quantified how many there are (~6000 private residences out of a total of ~900000 in the metro area) and there aren’t that many...
...and the population keeps exploding at 2%/year...
...and most of the residential land in the metro area is still restrictively zoned for only single family homes.
I don’t think that we need money-laundering to explain the crazy real estate market here. We just need plain-old NIMBYism, break-neck population growth, and historically-low interest rates.
If you (or no one else) don't make the declaration, the property is taxed. If the province and/or city can't find you, a lien is put on the property (which can eventually be used to force a sale).
If you falsify the declaration, this is legally equivalent to a false affidavit, and you can be prosecuted. The tax is fairly small, to encourage compliance.
When everything is the fault of those foreigners, a truly remarkable amount of cognitive work just doesn't have to happen.
This is bad for everyone else in our global economic system. It would be akin to someone in a game of monopoly accepting counterfeit money. The rest of the players have to play the game with actual monopoly rules while one player is allowed to make up whatever they want. Guess who's going to win that game?
Of course its a shadow banking system for a reason, because keeping everything hidden gives them a cheaters advantage. Revealing what happens there would be admitting to cheat and fraud.
China is seriously going full force with deception, passive aggression, claiming innocence, claiming moral high ground, while doing everything that is in the book of machiavellian/art-of-war tactics, and the rest of the world is doing nothing about it. (hardly surprising given their cultural mythologies and inclinations which differ vastly from for example a "liberty, justice, and freedom-for-all" mantra that is the foundation and aspiration of a different nation)
In SF, NYC & London you can also partly blame their superstar industries and economic growth on the RE market, but NYC/London also has their empty Condo buildings too, and their equivalent of 'wealthy chinese' is 'wealthy russian'.
We should be glad that the Chinese view our countries as safe and want to invest into them.
The real problem is that our local governments are unable to adjust the supply to the demand. THAT drives up prices and nothing else.
/edit: You could even make a law that foreigners can only invest into new construction which would make it impossible to invest without value creation for the local economy.
Re-reading your comment, it feels like you've missed the point that these units are largely not being made available to the housing market.
On the direct trade it's a win for both sides, the side with bad money turns it good, and the the side with the asset converts it into capital (just like every other trade, which is always a win for both sides), but not at a broader level where illegitimate funds enter the system and become legitimate, whereby the one producing the illegitimate funds are the true victors, stealing away with real value while the rest of the market is destabilized for introducing illegitimate turned legitimate extra capital.
To clarify, by not doing due diligence and allowing funds created in a nontransparent shadow banking system to enter the real market, you are giving the power of printing money to a foreign entity.
It's like with high culture and art; Lots of art is simply being passed around multi-millionaires and billionaires. Since there's such a limited pool of buyers, the price is essentially whatever the next buyer is willing to pay for it.
Same goes for buildings - If I decide to pay $5MM for a $1MM house, just to park my money in it, I better find some buyer whose willing to pay in the same price-range, or else it's gonna be a substantial loss. Driving up prices, and keeping them artificially high, is not sustainable - unless the area happens to see some major influx of people, and the demand starts to grow organically. Bonus points if it's a very difficult area to develop in, which limits new buildings / real-estate development.
But as for the reasons, who knows - could be:
- Tax evasion in their native country
- Ill-gotten gains they want to hide, or money laundering
- Alternative investments
It is not like high priced art.
Similarly, many Canadians own rental properties (often bought without viewing them) in Florida and Phoenix.
Planes full of these folks used to head to those regions for a few weeks or a month in winter months.
Your political issues do not free you from following tax law.
The issue is there are just too many wealthy Chinese people. Essentially any Chinese citizen who owns property in tier1 Chinese cities, many snatched up 20 years ago for nothing, can afford to buy 1M+ homes in Vancouver or Toronto if sold. None of it involves black money, just being lucky at the right place at the right time and having a desire to live in Canada. The TL;DR: is there's like more legitimate Chinese millionaires by wealth than there are Canadians.
No, because that’s not illegal in free countries.
However, money laundering isn’t the only driver of that vibe. I just got the sense it was a lot of money from Hong Kong that flooded Vancouver. So no industry was needed to support the high housing prices, it was being supported from foreign money.
But again, that’s different than laundering money.
Very attractive for certain kind of wealthy people.
So even if a price rises for normal reasons that people tend to always mingle and drive prices even more.
First lesson my tax attorney taught me. ;)
It does not sound implausible that housing prices are soaring.
Also perhaps a lot of government regulation that make it difficult to build more housing.
And there are other sources of money besides "money laundering" - why assume of all sources, "money laundering" is the driving force?
Like lets say newly rich Chinese people appreciate the investment in Vancouver. Is that then "money laundering"? Do they just equate "foreign investors" with "money laundering"?
> next to the sea and the mountains
Next to the US is probably another big reason but I'm not sure how much that matters with planes.
Maybe the money comes from abroad, has this occurred to you?
> This article may offer little evidence, but it rings very true for people who live there.
It's a boogeyman used by politicians to have a set of "bad guys" to point to. The truth is most of those wealthy foreigners buying up Vancouver real estate are not money launderers, they're just wealthy foreigners.
Elsewhere. It can be surprising only when you look at it through an industrial, 20-century world view. Now, even middle class people are free to move and work wherever they like, so it's only natural that people who made a fortune would seek the most comfortable cities in first world countries and bring their wealth with them. Is there any specific reason to suspect that this wealth is laundered and not simply imported?
Aside from that concrete claim, they offer a plausible explanation for why something that may make up a small proportion of sales could cause an outsized increase in prices. And they do draw comparisons to known cases in stock markets. So I think it's still an interesting article.
Sort of like how people are walking into BC casinos with half a million dollars in $20 bills and authorities are being told not to ask questions? Yeah, we don't "know" there's money laundering, but reasonable people ask questions...
But we can't have vast sums of capital, of unknown origin, flooding our country and pricing out our own citizens.
I'm guessing regulation is the real problem, as it is so often.
Even if foreign investors let houses sit empty, the rising prices should be an incentive to build more houses, leading to more supply of housing eventually.
Speculation is after all a bet on future demand, and useful for anticipating future demand.
From a policy point of view, it's easy to see why the picture is a bit trickier. Allowed to proceed unchecked, the underlying mechanism you describe will displace a pretty large fraction of the current population, especially as the offshore money fundamentally doesn't bring in much local economic activity after the new construction. These are the people you represent as a government, not the putative future immigrants and speculators.
"Surely it would be wasteful for a while" here represents a multigenerational disruption to a large fraction of your voting public, the majority of whom will see little or no benefit from the incoming money, and the overwhelming majority of whom will see negative impacts.
That an influx of money doesn't benefit the economy would also be interesting for most Western governments. "Stimulus" by monetary means seems to be a very popular approach currently. (I don't know, but it seems debatable).
I also don't think prices are going up only because of Chinese investor. I also live in a city with the problem of steeply rising prices (Berlin, Germany), but the fact is simply, it is a very popular city with many people wanting to live here.
I think your last point is clearly true also, but the balance isn't obvious.
As for b), if a Chinese investor buys some house from a Canadian, why is the money parked?
Trickle down or not, it seems in general if you can sell something (in this case houses to Chinese people), it is good.
If you build houses to sell to Chinese people, you also employ people from the building industry, for example. I'm not convinced that "trickle down theory" is the correct theory to apply there.
Special issues presumably arises with land and housing as a good - you shouldn't simply sell all your land to some foreign powers, presumably. Still, in general it holds.
If you worry about land area, you could build a huge skyscraper in a corner of the town that doesn't disturb too many people, and sell the flats to Chinese investors. Very little land use, huge margins.
I'm sure it's both, and it's really hard to determine in advance.
Yes, prices are set by the margin, so small changes in supply and demand can have outsized effects on prices.
But the article completely falls apart here:
> If you are money laundering... The objective is to move as much cash, as fast as possible. This often involves large assets, and the bigger the price – the better... Both the seller and the money laundering buyer want the highest acceptable price... Competition between interests align, and there’s minimal friction preventing prices from going higher.
This gets it completely opposite and wrong. It doesn't matter if you're laundering money or not -- you still want the best deal on an asset. You still want to sell eventually, and the lower your buying price, the more profit you'll make later. Everybody still wants to make a profit.
A launderer will always prefer to buy 2 properties at a market value of $1 million each, over buying one of those at an inflated $2 million. Always. The laws of supply and demand don't disappear just because you're laundering money.
The idea that "the objective is to move as much cash, as fast as possible" is totally made-up and totally ludicrous. The idea is to move the amount you have, in a reasonable timeframe, at the most profitable price.
The only reason money launderers can have an outsized effect on the real estate market is because they generate more demand. Period. But that demand is no different from legitimate buyers. Demand is demand. That's the entire story.
(Of course, if laws around LLC's and scrutiny around real estate deals were changed then that demand might dry up. But that doesn't have anything to do with the laws of economics.)
This happens all of the time for EBT and food stamps. Buy a case of pepsi for 30 dollars and sell it back for 15 (sometimes to the same seller). 30 electronic dollars that can only be spent on a limited set of goods is converted to 15 dollars cash that can be spent on anything.
My point is that the definition of "value" may actually align. It's ok if they new owner sells at a monetary loss because they are still making a gain.
The real situation is this: you have $200 of illegal money. Now you have the choice between using that $200 to buy a widget that's worth $100, or a widget that's worth $200.
Obviously you'll buy the widget that's worth $200.
EBT/food stamps are a bad analogy because the missing $15 in your example goes to transaction costs -- a middleman needs to buy, market, sell.
In real estate, that simply corresponds to the real estate broker's fee -- 5% or 6%. Not 50%.
The point remains: it doesn't matter if you're laundering or not, you never want to lose money you don't have to. Just because it was illegal in the first place doesn't make you magically charitable. Everyone always wants the best bang for their buck. Period.
> Obviously you'll buy the widget that's worth $200.
Sure, but what if we are talking about $200M instead? Now you want to go for the most expensive assets because you want to reduce the number of transactions (each transaction has a time overhead that is probably more significant than the dollar cost overhead). You know you aren't getting it done in one transaction because that $200M widget isn't out there.
Now assume you know that there are plenty of other money launderers operating in the same market. And you know logic behind the article. Now you aren't so worried about overvaluing an asset by 5 or 10%.
Just a thought experiment, I don't have any evidence or even anecdata to back it up.
i think nobody is arguing that you want the best bang for your buck, but there's a reason why someone will just flat out offer 20% over asking or letting these properties sit unrented. that's a terrible return on investment...
i duno, makes sense to me. when laundering the priority is always don't get caught > profits. housing seems to be at the moment the most unregulated and harder for authorities to pin and hold those accountable.
Bizarrely, the article and several commenters here are saying precisely that money launders don't want the best bang for their buck.
> but there's a reason why someone will just flat out offer 20% over asking
But nobody is doing that. The article seems to be assuming that, commenters are assuming that, but where's a single piece of evidence? If offering the asking price guarantees you the deal, offering 20% more is insanity. Nobody would do that.
You seem to be claiming that, somehow, overpaying for real estate... diminishes your chances of getting caught? (And several commenters here are assuming that too.) But it doesn't. Why would it? What would the mechanism even be?
I swear I don't understand where this idea is coming from, that overpaying for real estate does a better job at laundering money or something than simply paying market rate. It doesn't make any sense.
and i wasn't claiming that paying more prevented you from getting caught purely from a price perspective. i meant more that maybe there are mechanisms at play where this premium is somehow built in. like say you have a shady developer that caters exclusively to this type of clientele. why buy 10 units in a normal complex and invite scrutiny, when you buy this multimillion dollar unit in a boutique building and everything is setup to help you and all parties get the benefit.
manhattan real estate at the top end (i'm talking like 10M+ price units) are absolutely "tanking" during this pandemic.
those prices are not subject to the typical market force.
i'm just speculating of course, but i see it like how people speculate on art as laundering. the value is completely just whatever the heck these rich people say it is as it changes hands.
You washed the dirty $200 for clean $100. However, the seller of that widget has made $100 additional profit; to the seller, $200 is clean.
Source: I know someone who, along with their family, was prosecuted for it on a very large scale.
Is the opposite of "launderers want to buy extremely overvalued things."
The low interest rate environment and the levarage works both ways :)
My point is that laundering demand is no different from regular demand, economically -- demand is demand, period. Laundering doesn't push prices up more than they'd get pushed up if it were actual families coming to down. It merely pushes them up the exact same amount.
If i am laundering money, i am OK paying some "tax". That's how laundering works in general. Even in case of car wash, they show it as a legitimate income, and they do pay tax on it - they just happen to make the money through illegitimate means.
> The only reason money launderers can have an outsized effect on the real estate market is because they generate more demand. Period. But that demand is no different from legitimate buyers. Demand is demand. That's the entire story.
You're not seeing the full story, and it's a point that's touched on in the article. These transactions don't happen in a vacuum, and the market doesn't know that the buyer was legit or a launderer. The transaction sets a comp, which then gets used by everyone to set their prices. Enough transactions from launderers, and you can effectively reset what the market value for a property is. There's also impact on supply as many who are deciding on when might be a good time to sell now see the market 10% higher than expected. Suddenly you can get an increase in supply, higher market values, and transactions that make it more favorable for launderers.
>A launderer will always prefer to buy 2 properties at a market value of $1 million each, over buying one of those at an inflated $2 million. Always. The laws of supply and demand don't disappear just because you're laundering money.
A launderer prefers transactions that are least likely to generate attention from the authorities. Depending on the legal legwork, the "suspiciousness" of a given transaction, and other factors it's tough to say what they'd prefer.
But like everyone else, even if there's a loss, they want to minimize it. They're not seeking a loss, so it doesn't matter. Nobody gives up money they don't have to -- that's the entire point I'm making. I'm not missing the mark, it's the article that's missing the mark.
> Suddenly you can get an increase in supply, higher market values...
That's the demand I referred to originally. Demand is demand. You're just describing demand. That's the full story.
> A launderer prefers transactions that are least likely to generate attention from the authorities.
Once the provenance has been hidden through layers of LLC's, they still have plenty of options. They don't need to give up half their money, which is my point, so they won't. So it's very easy to say what they'd prefer -- they prefer to keep as much of their money as possible.
The article, and you, seem to be arguing that money launderers have no problem throwing away money for no reason, as if money doesn't matter and prices can be driven up arbitrarily without limit. My point is that this is false: money launderers seek to keep as much of their money as they can while still laundering it effectively. By the time they've made it to the stage of negotiating over a price of purchase, they function economically as a buyer like any other.
Is nothing like "desire to take the greatest loss on an asset."
Seems opposed to a desire to pay far too much for a thing.
The desire for people exfiltrating money from their home countries to buy real estate is because they are buying something that will never crash to nothing. Like you said, they don't really care too much if it's overvalued - the one thing that overvalued property always is, by definition, is widely available right now.
A nice side benefit is that you can park your kids in it, now, with the excuse of going to university, while you either continue to embezzle money and stay as quiet as possible to avoid discovery or arrest, or play revolution push-your-luck as a courtier to a dictator.
The first-order obvious rational solution is to "learn to swim". If you're going to buy a house, figure out a way to also launder some money with the purchase. That way you're competing on a level playing field with other money launderers.
The second-order observation is that there is a business opportunity here. Shortly, I expect to see a Y-combinator funded startup developing an AI-driven mobile app that connects BC home buyers with criminals looking to launder their illicit gains. The market becomes more efficient and everyone wins.
Economic theorising and/or "storytelling," as my econ professor termed it, can create plausible explanations. They're not strongly predictive though. In-context (say, a stock market) these theories can be somewhat dependable. "Predictive" is a strong term, but it's less wrong within highly similar contexts... that's how trading algorithms (non NN ones) work. They theorize within highly limited contexts.
In practice, these theories can be predictive enough to be successful trading strategies. In most cases, to be investably predictive a theory needs to be narrow. Certain asset classes, certain epochs, etc. Certain market conditions.
Even though they use similar concepts (supply, demand, price, and their marginal determinations), a theory about energy bonds cannot be applied to urban real estate. More academic theories go for generality. Broader theory, but not tradable predictive.
"Government and academics are still debating how much money is needed to distort a market. The truth is, not a whole lot is required to distort any asset market. This is a problem the stock market has been dealing with since the 1920s"
Sure. Not much is required, but that just makes it plausible. I'd wager some real estate markets are much harder to nudge than others. The highly sensitive marginal dynamics this article is theorising aren't a feature of all real estate markets at all times. They're almost certainly very linked to bubble/bull markets.
One rare example of broader theory being applied to actual trading is Soros. I think his concepts probably apply here. "Reflexivity," specifically.
> a theory about energy bonds cannot be applied to urban real estate
That's why capitalist thinkers like Smith and Ricardo came up with separate theories for land. See https://en.wikipedia.org/wiki/Law_of_rent and https://en.wikipedia.org/wiki/Rack-rent
Now, it's another matter for people in the modern day to actually know about and use these theories, instead of the reductive "land = capital" model...
I once remember seeing a video where people described the steps needed to buy a property in Canada, obtain a mortgage, etc
Some banks allowed college students to get a mortgage (wink), and depending on the country, there were different KYC/AML regulations that had to be followed. Notably, China was not in the list of countries with additional KYC requirements (double wink)
Interpret this as you want.
“Land title documents list Tian Yu Zhou as having a 99-per-cent interest in the five-bedroom, eight-bathroom, 14,600 square-foot mansion on a 1.7-acre lot at 4833 Belmont Ave.
Zhou’s occupation is listed as a “student.” The other owner of the property, which boasts sweeping views of the North Shore mountains and Vancouver, is listed as Cuie Feng, a “businesswoman.””
Students in university cold calling brokers, looking to buy the “most expensive condo” in an agent’s book, sight unseen, and willing to pay in cash or wire transfer.
As a broker, it must be very hard to ignore those incentives. The commission on just one of those sales must be incredible.
You mentioned in an old thread a few months back about using pandoc for versioned documentation in your organisation. I'm looking at doing that now -- converting to markdown, putting files in git. What we really want to do is allow users to comment their copies and the comments be kept across versions. I wondered if you had ideas on that. Currently we use PDF but Acrobat pins comments to page numbers and so they can be completely in the wrong place of pages are removed. We're using manuals that are 1000+ pages.
(Un-)fortunately, we started in a place where we already had plaintext-ish documentation (we never started with PDFs), so we were converting text to PDFs, not the other way around.
People edit the files in markdown and "publish" them in pdfs.
Generally, we do comments in a combination of google docs views of the PDFs (not-preferred, because they die with the document version) and our code review system (preferred, because they live forever, but unfortunately exclusive to engineers).
I actually don't know to what extent pandoc supports the conversion of existing PDFs with comments to markdown, but that sounds like a really hard problem!
The way I'd move from your situation to mine, is to say "no more comments in pdfs", convert the manuals to plaintext at once, make a comment-less PR of the plaintext manual to the repo, and then hack the comments in as comments on the PR, in a way that depends on your code revision tool.
This might be very hard depending on your CR tool.
Let me know if you have any more specific questions, though, I'm happy to help.
I'll also add contact info to my profile. :)
Straw buyers who are entirely price insensitive may exist, but are so rare as to be unicorns.
If you are actually “laundering” money, ie from a crime other than fleeing oppression, the cost of laundering matters. Buying a $1M condo for $2M costs you a 50% of your ill gotten gains, and there is still risk of seizure.
At those costs there are far cheaper routes for laundering your money.
So what’s occasionally happening is that Chinese trying to escape the control of the PRC dictatorship send money to a trusted expatriate, sometimes a student, and tell them to pay up to $X for a property at market prices. Naturally this can lead to paying slightly over market because the proxy isn’t motivated to negotiate, or often equipped to.
If I price my home at $1M when it’s worth $950k, they’ll pay the $1M. But they aren’t offering me $1.4M. And it’s questionable what the specific market price really is at any moment.
My friend recently bought a home for $605k that was listed at $599k. He got an early preview the day before it’s initial open house. That night He made a full cash offer at $6k over ask that expired the moment the open house started. The buyer accepted 15 minutes before expiration.
Did he overpay? The buyers received over a half dozen backup offers during the open house, some as high as $30k over ask.
These kinds of people usually do not normally get past the KYC stage required by NYC for large real estate sales, and therefore do not end up recorded in the public record.
By definition, the only data that you can reasonably expect to exist about this phenomenon is "anecdata".
I make no statements about the frequency of this phenomenon. I have no reason to believe that such tales are common. However, given the preponderance of stories on the topic, it's hard for me to believe that it never happens.
This all being said, there are worse money laundering and real estate crimes out there. This is just a particularly amusing one.
Conventional market theory assumes that supply will rise to meet demand, but between green belt laws, NIMBY movements and the difficulty of crating new land where people want to live, that's often a big problem in property markets.
There's also the fact that we all need somewhere to live, and once we have a family we'll devote a very large fraction of our resources to get the best place to bring up our children in.
So we have a limited resource we all (many of us) want. The result is people, us, compete with each other to bid up the price. We do it to each other.
Yes there's definitely an impact from buy-to-let purchasers bidding up prices. Here in the UK the government recently revised property taxes to make it less advantageous to own and rent out property, which is a good start.
How do homeless people maintain wealthy people?
The supply of land (in the economic sense) is fixed, and will never increase.
> How do homeless people maintain wealthy people?
It's not homeless people that maintain land wealth, but rather those without land. Land only has any value at all because it commands a rent (in excess of its holding costs), and that is only the case because there are people who don't own in land (in areas they'd like to be), and thus have to pay rents to those with land.
The "increasing supply by increasing density" route will reduce costs on units, but it will leave the portion of wealth owned by the landed class untouched.
>Conventional market theory assumes that supply will rise to meet demand, but between green belt laws, NIMBY movements and the difficulty of crating new land where people want to live, that's often a big problem in property markets.
So... It's not a real market. Would we call a situation, wherein rice is $100/bag because local oligarchs have taken the bulk of imports/production and sequestered it in some private warehouse, a "real market"? Because that's essentially what's happening here.
>How do homeless people maintain wealthy people?
If your labor produces wealth that someone else claims, forcing you to become unhoused, your homelessness is intrinsically connected to their affluence.
Real markets do not require immediate adjustment in supply to match demand.
Vancouver and other cities in the West Coast have chosen regulations that ensure that the housing market channels maximum amounts of wealth from the less wealthy to the already wealthy. They started doing this when the middle class could be homeowners. After several decades of this sort of housing market, all those "middle class" homeowners from the last century are now asset capitalists worth millions. And they pretend that they didn't cause all the homelessness when they insisted on regulations to keep new people out, let only super wealthy people in, and maximize the growth of their housing assets.
This is exactly how markets behave. Incumbents collude to maximize their profit, unless regulations hold them back from doing that. It's a tale as old as time, and it doesn't get any more "real" than that.
Most of land isn't built on at all. Just go through west Virginia, even the stuff that is built is largely abandoned.
How many cities have both undeveloped space (that isn't protected land like parks), and high housing costs?
> Most of land isn't built on at all. Just go through west Virginia, even the stuff that is built is largely abandoned.
Sure, but land in West Virginia doesn't really do much for people who want to live in San Francisco or New York.
All land isn't equal, what's also important is where the land is. While land in the US as a whole is abundant, land in urban areas (where most people are wanting to live) isn't.
Nowadays, football clubs appear to be a better option, as they allow easy laundering of billions instead of millions...
Are you sure taxes are being paid in China before they take out the money?
There are documentaries on youtube which show Canadian real estate agents willing to look the other even when they are told that money coming from China is dirty. Ofcourse not all the money is dirty.
I don't know either way, but China is more capable than most of handling that.
I just can't get behind this xenophobic idea that every foreign buyer is a "money laundering criminal", especially when foreigner is near synonymous with "Chinese".
How do you know that?
> I just can't get behind this xenophobic idea that every foreign buyer
You are throwing the baby with the bath water. Its not everyone but some of them are.
The assumption I make when reading these stories mirrors what I think when I hear the phrase "Russian oligarch" - I'm envisioning connected and well-to-do Chinese who've profited off the authoritarian system they have. I may be wrong in that assumption. But you are assuming that they are victims, rather than co-conspirators in that regime.
Otto von Bismarck: "it is better that ten innocent men suffer than one guilty man escape."
I guess I know with who your views on justice align.
You follow the laws of the country you are in regardless of circumstances in your past, coming from oppressive regime isn't a free ticket.
“(a) the commission in Canada of a designated offence; or
(b) an act or omission anywhere that, if it had occurred in Canada, would have constituted a designated offence.”
I wasn’t aware Canada had a $50,000 limit on moving funds from China.
Doesn’t the buyer have to deposit the money in a bank for the title company to transfer it? Or May be in cash transactions they don’t care as long as the buyer is ok with it. So the money is transferred outside the cpu Rey or through shell accounts and the asset changes hands?
Perhaps though there is something here. If only there was a means of connecting these two groups, keeping in mind the additional parameters of those with the cash.
After all, nobody likes a haircut. I'm sure the 'big' boys are doing this - I'm really targeting the rich (not the RICH) supervisor that has enough to buy one to two properties. Might be after the fact - as others have pointed out, there are a number of additional controls in place.) Still...
You, a law-abiding, legitimate buyer, have paid all your taxes and committed no crimes on that money. You can do with it whatever you want to, so for you, it's one to one, a dollar for a dollar.
For a money launderer, however, the money is a hot potato. There's still a probability that it left a trail going back, so, he's not so free to use it as he pleases. It's basically very similar to counterfeit money in that regard: it's value to it's holder (who knows about the risks) is much less than a "real" dollar for dirty money dollar.
“All of a sudden, a money launderer shows up, and offers the owner 10% over ask for a “quick close.” You’re not too worried, your agent told you the place a few doors down is going to be on the market next week.
Unfortunately, the new place now uses the home owned by the money launder as a comp. Now the ask is 10% more than you were expecting, because the marginal buyer set the price down the street. Someone else bites, and buys it before it “goes too high.” Now the money launderer’s buy was just validated in the system.”
I wonder if evading Chinese capital control is technically money laundering if such capital controls does not exist in Canada. That's like punishing Chinese dissidents for speech in Canada because said speech is illegal in China. Rich people get to escape repressive governments too amirite?
Once a year a lady from China shows up for not longer than week. It is never rented out, just sits empty...
This is happening everywhere.
Why the needless dig at Baby Boomers? I am not one (and normally as ready to enjoy a dig at them as the next guy), it just felt … off.
I can't blame someone who thinks his asset is worth something and who has made decisions based on that belief wanting to preserve that perception!