Do overseas buyers have too much influence on property prices?

A report into the Vancouver real estate market, which is one of the more popular at the moment, has cast a very interesting light on the influence which overseas buyers have on local property markets. While some are questioning the mechanics of the survey, conducted by Andy Yan of Bing Thom Architects, it does at least bring to the surface a number of issues which many people have been discussing.

Are overseas buyers squeezing prices higher, out of the reach of the local population?

Overseas finance

The report covered 176 property sales over the last six months in one of Vancouver’s “hot” property markets on the west side. Anecdotal evidence suggests that “more students than doctors” are buying real estate in this particular area with a suggestion that the vast majority (believed to be around two thirds of buyers) have links to China. When you bear in mind the relatively high price of property in this area of Vancouver this has opened up a potentially controversial discussion about how they are accessing finance to complete these sales.

Astronaut family

There is a growing phenomenon called the “astronaut family” which effectively describes a situation where one parent remains in another country while the rest of the family move overseas. The vast majority of these situations occur where children require access to schools and other further education facilities in foreign lands which may offer better opportunities than their homeland.

If this report is correct, it would appear that a number of Chinese families are moving to Vancouver although the father of the family is remaining in China to earn money to finance this new life. It is unclear whether all of the family will be reconnected at some point in the future in Vancouver or indeed whether they were repatriate to China once the children have gone through the Vancouver education system. This is not a phenomenon which is unique to the Chinese population although the financial muscle of Chinese real estate investors has brought the Chinese “astronaut family” to the attention of property experts.

Mortgage regulations

While the decision to split families in the short term to finance further education for children is something which has been ongoing for many years, this report also cast a very interesting light on the Canadian mortgage sector. There is a suggestion that the vast majority of these property purchases by Chinese investors are at least part financed by mortgages. If these properties are being acquired in the name of students, as they look to broaden their education experiences, it begs the question on what level of income are they based?

Indeed the Royal Bank of Canada recently relaxed its lending cap for borrowers with no local history suggesting this move was made to accommodate the “astronaut family” phenomenon. While nobody is suggesting there are any issues with regards to underlying funding for these properties there is a growing concern it puts the local market at the beck and call of overseas investors.

Is this a free market in action or is there potential for problems in the future?

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