(Updated 6-May-2015) Here is a compilation materials on global money and its presence in Vancouver and the Metro Vancouver region. Some key themes and words: Speculation, price escalation, money laundering, affordable housing.
We know that many properties and developments are owned by numbered companies. To what extent are shell companies, money laundering, and dirty money, pushing up land and housing prices in our own region and communities? Are the vacant condos and houses in Vancouver a symptom of a problem.
What policy tools already exist at local, provincial, and federal levels? What new tools are needed. We will explore these topics.
1. VANCOUVER AFFORDABLE HOUSING AGENCY – IS IT DOING WHAT WAS PROMISED?
2. HOW SERIOUS IS THE PROBLEM OF MEGABUCKS FLOWING IN?
- Money laundering
- Failure of realtors to report under federal regulations
- Land assembly
- Extreme land price escalation
- Secret path revealed that allows wealthy Chinese to transfer billions overseas by buying pricey property in Vancouver, New York and Sydney
Excerpt: For years, wealthy Chinese have been transferring billions worth of their money overseas, snapping up pricey real estate in markets including New York, Sydney and Vancouver despite their country’s currency restrictions. Now, one way they could be doing it is clearer. Last week, when China Central Television levelled money-laundering allegations against Bank of China Ltd., the state-run broadcaster’s report prompted the revelation of a previously unannounced government program that enables individuals to transfer their yuan and convert it into dollars or other currencies overseas.
3. SOLUTIONS IN OTHER JURISDICTIONS
- Tax Liabilities for Canadians Buying Real Estate in Hawaii. (Example) https://mauipremierrealestate.wordpress.com/2013/05/03/tax-liabilities-for-canadians-buying-real-estate-in-hawaii/ Are there tax liabilities when Canadians buy a home or condo on Maui, Hawaii? Yes, most derived at the time of the sale of the property, and determined by capital gain earned, over and above the purchase. The primary taxes that are paid by foreign buyers, whether Canadian or not, are as follows: 1. Non-US citizens are subject to FIRPTA – The Foreign Investment Real Property Tax Act of 1980. The act requires that 10% of the sales price is withheld to make sure that any US taxes on the gain are paid after the sale is completed. 2. HARPTA is the State of Hawaii’s version of FIRPTA, with 5% of the sales price is withheld/collected from all sellers that do not reside in Hawaii.
- Foreigners Are Taking Over Canadian Real Estate — Definitely – Maybe (By Sunny Freeman, Huffington Post, 28-Aug-2014)
Excerpt: She argues for a radical shift in housing policy that would see income taxes reduced and property taxes increased; it would balance out for homeowners and make speculative investment in real estate less attractive. Although few global markets are as similar as Canada’s and Australia’s at the moment, both countries could look to the plethora of other jurisdictions for some balance between Canada’s lax foreign investment policies and Australia’s restrictive ones….Countries including the U.S., Denmark, France, Mexico, Japan, Turkey and Singapore have not only implemented methods to collect data on foreign investments but have also invoked tax policies to curtail the trend. Eyeing the potential for an investment bubble in London driven by foreign investors, the U.K is implementing a capital gains tax (https://wealth.barclays.com/en_gb/internationalwealth/your-financiallife/could-the-new-uk-property-tax-affect-you.html) for foreign investors selling homes beginning next year. … Hong Kong’s government has levied a 15 per cent tax for non-residents who buy property — in part to curb fears their market will be overrun by mainland Chinese speculation. Denmark forbids foreign buyers from purchasing waterfront property and the U.S. places heavy taxes on the sale of foreign-owned houses. Meanwhile, Canada’s hands-off approach — whether out of politeness, lack of know-how or self-interest — puts it in the minority among industrialized countries by remaining in the data dark.
- In “Homeowner equity vs. housing affordability: a tricky balancing act,” Peter Ladner (Business in Vancouver) writes: In France, a property sold after 10 years would get a 30% discount on capital gains tax, and one held for 15 years would get a 60% discount, with no capital gains tax at all after 22 years of ownership. Any move to dampen housing demand hinges on a gnarly political choice: improve housing affordability for new buyers or protect the soaring equity of existing homeowners.
- Vancouver’s housing affordability problem could have an Aussie solution
Excerpt: Australia is not the only jurisdiction taking steps to try to slow down foreign buyers. Singapore has raised its tax – called a stamp duty – on foreign purchases of local real estate to 15 per cent of the sale price. The British government, eyeing London’s soaring house prices and foreign buyers, moved in its 2014 budget to have its 15-per-cent stamp duty on buyers using a company name apply to a greater percentage of home sales, reducing the threshold from properties worth £2-million ($3.8-million) or more to those worth £500,000.
- Vancouver Needs to Emulate Chinese Housing Policy (by Joseph Jones, in The Mainlander, 25-Feb-2011 — the whole article and many references are worth a careful review): … recent changes to real estate taxation within China may ramp up hunger for this favored class of investment in offshore locations — and further exacerbate conditions local to Vancouver. In a nutshell, China seems to be on the verge of exporting even more financial froth. At the same time, China seems to be developing an internal approach to housing affordability that Vancouver needs to emulate. Beijing has now prohibited residents from buying more than two dwelling units, and non-residents are required to show five years of tax documentation in order to make a purchase (Feb 18: “China home”). Any Canadian public official who talks about affordable housing in Vancouver should be met with a demand to bring forward similar measures…. In a Lunar New Year speech on February 1, Chinese Premier Wen Jiabao committed to dampening speculation in domestic real estate and to increasing affordability of housing. On 26 January 2011 China raised required down payment on non-primary residences from 50% to 60%, instructed lower levels of government to implement controls, and directed specific taxes at residential properties in Shanghai and Chongqing….One reason for imposing these new property taxes in China is “to penalize speculators who purchase homes and then leave them unoccupied while waiting for the value to appreciate” (Jan 27: Barboza) … Beijing, Shanghai, and Guangzhou have imposed restrictions, and other cities are reported to have similar plans. A Guangzhou analyst expects “this round of curbs to have far-reaching impact on the property market as the restrictions on home purchases have been extended almost nationwide” (Feb 20: “Shanghai, Guangzhou”).
- Australia considers fees for foreign property buyers, The Telegraph (27-Nov-2014)
4. LINKS, MORE RESEARCH
Terry Glavin: The questions Canadian politicians don’t want us asking about Chinese money (with video) (Vancouver Sun, originally in Ottawa Citizen, 7-May-2015): There are quite a few things that Foreign Affairs Minister Rob Nicholson and Public Safety Minister Steven Blaney would rather not discuss about their…
A few factoids from the above article:
- The Canadian housing market is overvalued by 35 per cent compared to Canadian incomes, and 89 per cent compared to rents.
- Chinese money, of the hot and cold type as well as the clean and dirty variety, is no minor factor in the calamity. In Vancouver, as much as half the dollar value of detached housing sales went to Mainland Chinese buyers last year.
- Most of the $3 billion poured into the purchase of west-side Vancouver properties last year originated in China.
- … there is also the predicament of all those voters who have mortgaged themselves to the hilt on the bet that their houses are going to continue to rise in market value….
One-third of Vancouver House units scooped up by foreign buyers (Andrew Weichel, Online Reporter / Editor, CTV Vancouver, 7-May-2015). Excerpts: Foreign buyers have flocked to one of Vancouver’s most hotly anticipated housing developments, raising new questions about whether it’s time government intervened in the city’s increasingly unaffordable real estate market. Vancouver House, a high-profile tower being erected near the foot of the Granville Street Bridge, is nearly sold out, and a full 35 per cent of units were purchased by foreign buyers. It’s not an isolated case. Anson Realty said it’s seen a similar ratio of international purchasers on a number of condo projects it’s represented in recent years. … Given long-brewing concerns that international investment is helping drive up prices in the region, some experts argue the government needs to take a more proactive approach to keeping home ownership within reach of locals. University of British Columbia professor Dr. David Ley is working to compare the government’s approach to foreign ownership in Vancouver with four other major cities around the world: Hong Kong, Singapore, Sydney and London…. “We don’t have data, we don’t have policy. This is pretty unusual,” Ley said. “They are all taking action and we’re not.” What some cities have done is go after high-priced properties with more burdensome taxes and other measures in an attempt to push down prices. The top end of the market drives the rest, Ley said, so targeting the priciest property purchases can have ripple effects. … “They’re doing it because of the impact that high prices and lack of affordability have on their own citizens. So there’s a public need and government are responding to that need,” Ley said. B.C. Housing Minister Rich Coleman dismissed the idea of provincial intervention, however, arguing it would be unfair to people who have already invested in housing, including locals.
CityHallWatch comments: (1) Time to replace Rich Coleman with a leader who cares. (2) Our leaders are exhibiting willful ignorance, and have done so over the past few elections. The best time to start collecting data in an intelligent way would have been ten years ago. Delayed action has caused much damage. Time to change that. (3) Realtors are required by law to report suspicious or large cash purchases. Time for some enforcement.
Reaping the whirlwind of Canada’s unseemly intimacies in Beijing (Terry Glavin, Ottawa Citizen, 30-Apr-2015). Excerpts: Beijing’s “Most Wanted 100″ is the most audacious move to date in its Operation Skynet effort, which is what you get when you combine a fraud squad with an old-style Stalinist purge and a cunning geopolitical muscle-flexing shakedown. Operation Skynet agents have been combing through Vancouver’s real estate transaction records in recent weeks. Within hours of Beijing’s Most Wanted list making the rounds, police in Harbin, the capital of China’s Heilongjiang province, arrested and jailed Qu Zhang Mingjie, a local Communist Party official. Qu is the mother of the woman Vancouver Mayor Gregor Robertson calls his sweetheart, the pop star Wanting Qu, formerly Tourism Vancouver’s “ambassador” to China…. Last year, when Ottawa finally pulled the plug on the scandal-riddled Immigrant Investor Program, there were nearly 46,000 Chinese millionaires on the IIP [Immigrant Investor Program] waiting list, hoping to make their way to Canada. In the four years leading up to 2012, when Canada stopped taking IIP applications, permanent-residency certificates had been issued by Ottawa (and by Quebec under the Canada-Quebec Accord) to more than 50,000 investor-class immigrants, the overwhelming majority from China. … Beijing says the IIP was one of the main conduits used by corrupt officials to abscond with an amount of loot that Washington’s Global Financial Integrity agency estimates at $1.25 trillion during the decade preceding the 2012 IIP hiatus. [CityHallWatch question — How much of this ended up in Vancouver area property?] Beijing is finally tightening the noose around Canada’s neck, and it’s going to cost us all dearly, Christine Duhaime, a Bay Street specialist in international money laundering and counter-terrorist financing, told me this week. … “China is going to want to get it all back. This is not a casual exercise. This is an active recovery operation, and all that money is going to be removed back to China,” Duhaime said. “In Canada, it’s in the billions. I’m sure it’s in the tens of billions. This is a major monetary drain on the Canadian economy. The whole thing is being driven by China now. It should have been driven by us.” … You won’t hear a lot of cabinet-level noise about this in Ottawa.
Vancouver a ‘critical’ money laundering hub for transnational criminals, experts say (By Dan Fumano, The Province, 29-Apr-2015)renminbi
Glavin: Canada’s unhappy affair with China’s millionaires, Terry Glavin, Ottawa Citizen, 22-Apr-2015. Excerpts: It began back in 1986. London and Beijing had just concluded terms for the 1997 handover of Hong Kong to Chinese rule, and in Ottawa, Brian Mulroney’s Conservatives turned their thoughts to finding some Canadian advantage. … During the 21st century’s first decade, more than 18,000 Chinese state-enterprise executives were busted for siphoning money out of China in fake joint ventures, underground money shops masquerading as overseas-study agencies, phoney service gambits and dummy offshore subsidiary accounts. The People’s Bank of China reckons that $126 billion was pilfered in these ways during that decade, and Canadian real estate, and especially property in Metro Vancouver, was one of the main places the money was ending up…. China’s massive Operation Skynet fraud squad is now rummaging through Vancouver’s real estate industry. … Just one of the unseemly costs of Ottawa’s wheel-greasing for Beijing’s princelings is a sum that might well amount to billions of dollars in no-interest loans that should have gone to British Columbia’s provincial treasury. Instead, the money got spent on thousands of back-door keys the Canada-Quebec Accord made available with a wink and a nod to Chinese millionaires bound for Vancouver, in transit through Montreal.
- Banking city land in the mother of all housing booms: Developers buying entire blocks in Vancouver as land deals double property values
- Property sales spike sparks money laundering fears: Suspicions rising that ‘hot money’ is being washed through Vancouver real estate (by Frank O’Brien)
- Mad money squeezing more locals out of real estate market
- Global wealth flocks to Vancouver real estate: From Albertan black gold to globetrotting wealth to lucky heirs, big money is fuelling huge price increases….
- Homeowner equity vs. housing affordability: a tricky balancing act (Peter Ladner)
- Metro Vancouver detached homes hit record high for 10th straight month
- New York Times on the Singapore luxury property market:
<http://www.nytimes.com/2015/02/18/realestate/a-high-end-property-collapse-in-singapore.html> Note: The tax on foreign purchases was previously 15% and raised to 18% in the last Singapore budget. That will explain the discrepancy in some of the articles about the level of tax charged.
- Vancouver Sun: Chinese investment surge hits Metro Vancouver housing market. 26 Feb 2011. http://www.vancouversun.com/business/Chinese+investment+surge+hits+Metro+Vancouver+housing+market/4352746/story.html
- London property boom built on dirty money (The Independent, Jim Armitage, 4-Mar-2015)
- “Real-estate exec on Chinese money: ‘There is a huge stake for a lot of local people in keeping this thing going’ ” by Sam Cooper, The Province, 4-Mar-2015. MUST READ – WITH VIDEO.
4. CITYHALLWATCH – PREVIOUS COVERAGE
- Unaffordable housing: Driving factors in Vancouver. A tool for citizens to analyze candidates’ promises.
(October 23, 2014)
- BC casinos court China’s high-rollers, but it’s realtors who gamble with money launderers (Ian Young, SCMP)
- Real estate industry has major role in fighting money laundering: Info for citizens
- Vancouver prime property market sizzles, fueled by China cash (Reuters, 11-Sept-2014)
- Is there a peak for Metro Vancouver housing prices? What about the question of (infinite) demand? Posted on March 1, 2015
- Foreign ownership “the elephant crushing the table” of housing affordability: Brent Toderian, former planning director (14-Feb-2013)
- Canadian housing data dangerously incomplete, CIBC warns in “Flying Blind” report (CBC, 3-Apr-2014)
- Chinese buyers flee Hong Kong for overseas property markets (South China Morning Post, 25-June-2013) – Vancouver, Richmond, etc. (30-June-2013)
- Vancouver’s empty condos? Lack of data means bad policy. Government has duty to collect data. (21-Mar-21, 2013)
- Foreign Investment in Vancouver’s Real Estate Market, March 20, SOLD OUT
foreign investment (the study crunched BC Assessment data to find 0.4
per cent of tax notices issued for the 55,512 residential sales in 2010
were mailed to addresses outside Canada).
condominiums in the downtown core sat empty in 2008.http://thetyee.ca/News/2012/11/19/Vancouver-Foreign-Ownership/?utm_source=mondayheadlines&utm_medium=email&utm_campaign=191112http://thetyee.ca/News/2012/03/15/Vancouver-Foreign-Ownership/
A very impressive collection. Now someone needs to distill all this information to a summary and then make recommendations about what to do about it. Action should be taken by all three levels of Government. Federal for money laundering and capital gains, Provincial for transfer taxes, and Municipal for property taxes on vacant and multiple properties.