BCBusiness

16 BCBusiness nOVEmBER 2018 R eal estate markets are no longer about location, location, location. Rather, from Canada to the U.K. to Australia, they've become about global liquid- ity and, in particular, Chinese liquidity. After record capital out- •ows of more than US$500 billion in 2015, according to the Washington-based Insti- tute of International Finance, China's credit binge stimu- lated the nation's economy the following year with a 25-percent increase in M1—the most liquid portion of the money supply, which includes physical currency, deposits that can be withdrawn at any time, traveller's cheques and interest-earning chequing accounts—and further hiked debt relative to GDP. (China's debt-to-GDP ratio now tops 250 percent.) This helped to in•ate house prices worldwide—including in B.C., especially in the city of Vancouver. Here and across the coun- try, foreign capital boosted credit creation and leverage as local buyers rushed to keep pace with rising property prices. That dynamic pushed up Canada's private debt–to- GDP ratio, which has grown nearly 20 percent over the past "ve years, the Swiss- headquartered Bank for International Settlements reports, the fastest pace among advanced economies. But with Beijing's credit stimulus wearing o– and global liquidity tightening, housing markets are beginning to roll over. That's left B.C. vulnerable to a debt hangover, at least according to provincial gov- ernment data. Although the numbers probably don't cap- ture the full extent of the mad- ness, because they exclude o–shore capital that arrived via Canadian permanent residents and family members with citizenship, land title registrations for July show that foreigners accounted for just 1.49 percent of all residential property purchases. The last time they were this scarce was in August 2016, right after B.C. introduced its foreign buyer tax. As the proportion of deals from foreign buyers declined, so did dollar volume. Of the $9.9 billion spent on residential real estate through the prov- ince this July, foreign purchas- ers accounted for a mere $201 million, BC Stats reports, a 50-percent plunge over the same month in 2017. ¡Just look at Vancouver, where detached home sales are at a 27-year low and August rent prices were •at year-over- year, as shown by local data scientist Louie Dinh. For July, according to BC Stats, total residential transactions involving foreign buyers trick- led in at just 1.83 percent.¡ With China continuing its e–orts to stabilize foreign exchange reserves by mandat- ing stricter capital controls, and a global credit cycle near- ing its end, the impact is rip- pling across property markets. Slowdowns have been docu- mented in places like London, New York, Seattle and Sydney. In China, house prices in tier 1 cities have turned negative in recent months. ¡As foreign bids shrink, Canadian banks haven't com- pensated for the withdrawal of o–shore capital. Instead, they've tightened local credit, too, pushing mortgage growth to its lowest level in 18 years, the Bank of Canada notes. For an asset now dependent on ever-greater leverage to sup- port higher valuations, that isn't a good combo. B.C.'s real estate debt headache could be just starting. Offshore dive With foreign buyers deserting the B.C. real estate market, are we in for a debt hangover? by Steve Saretsky ( the informer ) P R OP E R T Y WAT C H $500 400 300 200 100 0 Slipping Away Value of B.C. home purchases by foreign buyers ($ millions) feb 2017 feb 2017 mar 2017 apr 2017 may 2017 June 2017 July 2017 aug 2017 sept 2017 Oct 2017 nov 2017 dec 2017 Jan 2018 feb 2018 mar 2018 apr 2018 may 2018 June 2018 July 2018 feb 2017 feb 2017 mar 2017 apr 2017 may 2017 June 2017 July 2017 aug 2017 sept 2017 Oct 2017 nov 2017 dec 2017 Jan 2018 feb 2018 mar 2018 apr 2018 may 2018 June 2018 July 2018 5% 4 3 2 1 0 Overseas Vacation share of Vancouver residential property purchases by foreign buyers COURtEsY Of faith WiLsOn gROUp; sOURCEs: BC stats, stEVE saREtskY

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