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Why foreign investors flood the Canadian real estate market

Blog by Marcie Panah BSc, MA Personal Real Estate Corporation | May 7th, 2016

We often get asked the question: Why do foreign investors flood Vancouver with so much money when exchange rates are so good for them?

Particularly in the case of China, when the stock market overseas is unstable, the wealthy tend to look for other investment options – boldly speaking, somewhere to move their money to get it somewhere, anywhere, safer than the tumultuous and unpredictable market in their homeland. While it’s more difficult for foreigners to convert their currency and buy on the Canadian market, there are – as of this time anyway – no laws preventing them from doing so.

When other conditions combine with this kind of market chaos in places like China, it creates the ideal situation that attracts these buyers to a market like Vancouver’s, which seems to be unstoppably robust. What are these other conditions? One contributor is the devaluation of the Yuan against the USD, which further decreases motivation to keep wealth at home where it could possibly continue to lose value.

Add to these factors the drop in the Canadian dollar, which then turns even expensive real estate into a bargain, and it creates a perfectly blended recipe for our market today.

The risk however is to do it properly, and that is where we come in as real estate investment specialists.

Skittish Sellers

With soaring prices, you’d think sellers – particularly in Vancouver and other strong markets like Toronto – would be rushing to put that for sale sign in the yard. On the contrary, a report from Re/Max reveals that potential sellers are hesitant to list their homes because they don’t want to be thrust into the position of being buyers on such a market. Some sellers also put off taking action thinking that prices will continue to rise, making a sale even more lucrative.

What is most important, no matter the intensity of a market or inflationary pressures, is to meet with a real estate professional to do a comparable analysis.

Commercial Property Keeps Pace

As the residential market remains immersed in the much-publicized throes of a real estate whirlwind, our experts such as Marcie Panah, Commercial real estate investment specialist, says commercial properties are enjoying equally high values. And, this is due to a combination of factors – one of which is the same low CAD value that’s driving the residential market peak. And moreover, according to Marcie Panah, that same foreign interest keeping Vancouver’s homes at sky-high prices is also a contributor to the commercial market’s health, due in large part to the stability of investing in the city’s rental units and downtown buildings.

What is even more interesting is that despite the high commercial property values putting pressure on cap rates, commercial Canadian real estate is attractive because it offers a reasonable return, even in a low-yield market. Vancouver – which has borne the brunt of the bottomed-out CAD – still seems immune to the economic depression of places like Alberta, which is struggling through retail and manufacturing closures and the associated property value dips. Experts predict continued commercial property investment growth in Vancouver throughout 2016, regardless of the weakened dollar.

Where Is the CAD Headed?

As for the loonie and its immediate future, one of the top forecasters of the Canadian dollar, Macquarie Group’s David Doyle, had previously predicted that the value would plummet to .59 on the greenback sometime during 2016. Doyle has since adjusted his prediction, saying that the loonie will likely reach that level over the next five years.

When it comes to the real estate market itself, predictions have been bandied about for several years now, warning of the imminent burst of Canada’s most bloated housing bubbles. It hasn’t happened yet, but experts are sure it will – it’s just a matter of when.

In the meantime, it seems slightly ironic that buyers and sellers alike are grappling to cope with such a robust real estate climate. Given all of this, our recommendation is always the same: engage with a real estate professional who understands all these complexities. Your investment is too important to not do this.