It has long been suspected that the boom in Vancouver and Toronto, the two largest real estate markets in Canada, was fueled by illegal Chinese money. While it was initially held that the money came from corrupt Chinese officials, it has turned out to be businessmen and families parking their funds in the Canadian real estate market to avoid paying taxes back home. It still constitutes a money laundering practice when they do not disclose their income to their Government, but funnel it overseas.
In Vancouver, multi-million dollar mansions are officially owned by college kids with no income. The University of British Columbia has several of such students. Interestingly, they are all Chinese. The most common profession among Chinese homeowners in Vancouver is ‘homemaker’.
With billions of dollars flowing in, this pushed the average home prices in Vancouver and Toronto much beyond the reach of the average homebuyer. This prompted the Government to step in, and B.C. Premier Christy Clark announced a 15% foreign buyers’ tax in August 2016. Coupled with the Chinese Government’s efforts to check money laundering, the market has cooled and the average asking price for a home in Vancouver is now $878,242 (as of January 2017). This is an 18.9% drop from the $1.038 million price in January 2016.
According to the Canadian Real Estate Association, sales have plummeted by 39.7% in Vancouver, while dollar volume has come down by 51.1%. January also saw 1,777 home listings for sale for the Greater Vancouver area, and 179 of them – roughly one in ten – were sold for less than the asking price.
The ‘correction’ in the prices, as industry analysts, put it, happened because of reduced demand. The Chinese Government has come up with new rules concerning currency exchange. Those who want to convert their yuan into dollars need to sign an undertaking that the money will not be used to purchase real estate. If they violate this condition, a tax audit will be done – and that is the last thing that money launderers want.