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Is $750M Coming into Toronto Real Estate From China Every Month?

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Some economists estimated recently that $9B came into Toronto Real Estate from China in the last year. That works out to $750M/month or $25M/day. How accurate are these numbers? What does this mean for local condo investors and the market? Should we be worried?

Click Here for Episode Transcript

Andrew la Fleur: Is $750 million a month coming into the Toronto Real Estate market from China? If so, what do we do about it? We’ll talk about that in just a moment.

 

Intro: Welcome to the True Condos Podcast with Andrew La Fleur. He plans to get the truth on the Toronto condo market and condo investing in Toronto.

 

Andrew la Fleur: Hi and welcome back to the show, thanks for listening. It seems it’s that time of year again, every so often, we see these headlines about foreign buyers and the Toronto real estate market. You seem them a lot about the Vancouver real estate market as well. But of course, this podcast, we’re primarily talking about Toronto real estate and Toronto condo investing so we’ll focus on that.

 

Like I said, the big headline recently in the news and I’ll include a link to this article in the show notes so you can read some more information on it. You can get the show notes for this episode and all the episodes of the True Condos Podcast over at TrueCondos.com/podcast.

 

Back to the story. We were hearing now estimates, very loose estimates it seems from economists, pegging the foreign investment in the Toronto real estate market last year at around $9 billion, $9 billion in foreign investment, or Chinese investment I should say specifically. That works out to, they say, approximately 14% of the Toronto real estate market. If you break that down, it’s about $750 million a month, around $25 million a day, or around a million dollars an hour, if you’re into that level of math.

 

I want to talk to you in this podcast about a little bit more. I want to ask the question really, who cares? Should we care? Should we be concerned? Is this a problem? Is it not a problem? Let’s talk about that a little bit more. We have talked about this issue quite a few times on this podcast before. We talked to a lot of experts in the industry about it. If you go back and listen to the archives, I’m sure you can pick many episodes about that or, if you listen to the podcast a lot, if you’re a regular listener, I’m sure you can think of some of the conversations we’ve had.

 

Nevertheless, like I said, it seems every 6 months to a year or so, we see a big headline about this. Obviously, anytime an economist, a trusted adviser such as an economist says that the foreign investment is a certain number, obviously the media are going to jump all over that and headlines are going to print like crazy around that number that’s been quoted. Not too many people are going to question it but of course, the True Condos Podcast and here at TrueCondos.com it’s our job to question everything and to look beyond the headlines and to understand what’s really going on in the market.

 

When you go beyond the headline and you actually just read the articles itself, they tell you about the methodology, how this number was created or estimated by these economists. I think right away you’ll agree with me that the whole thing just falls apart and it’s really not very newsworthy at all, if you actually look at how it’s created. The methodology behind this estimate, it truly is an estimate. There’s no scientific anything behind it. It’s just basically asking some economist their opinion and they’re basing their opinion on some other people’s opinions basically.

 

They took a look at two things apparently. One was a poll conducted in the United States, of course, the USA, absolutely nothing to do with Canada, nothing to do with Toronto, but hey, we’ll just include that in our study anyways why not? It will make it easier to get in the headlines I suppose. They looked at a USA poll of foreign investment and what kind of investment was being done in the United States. The second thing was that, there was a financial times poll apparently of, get this, 77 wealthy foreign investors, Chinese investors, 77 people were polled. Does that sound like a scientifically, statistically valid poll to you? Yeah, me neither. But anyways, they asked 77 people about what they bought in the past year, I suppose. Certain numbers came out of that, percentages came out of that. From that and from this USA, American poll, these economists, so-called scientists of money or whatever you want to look at that, they came out with this estimate of 14% of the Toronto real estate market, around $9 billion of investment from China.

 

Like I said, right off the bat, I think the number is just completely ridiculous. I don’t know why we’re even talking about this. But it’s in the news, people are talking about it, people are asking me about it so let’s address it, let’s talk about this topic. Like I said, my main point is really, this number means nothing. Until we actually get real hard numbers about foreign investment in the market, how about we just put a moratorium on talking about it in these terms and writing headlines about how it is or isn’t affecting the market. How about that for an idea?

 

Who do I go to? That’s point is like, who can we trust in these matters? Honestly, there’s no one we can really go to. There’s no tracking of foreign investment in Canada. There is not. Any number that we have is going to be a rough estimate for sure by definition. But who do it go to, who do I talk to, who do I trust? It seems to be that it’s a good idea to talk to people who are not selling one or two properties or 3 or 4 properties. Why don’t we talk to people who are selling thousands of properties per year? Who are those people?

 

Those are the major, big time condo developers of the GDA of Toronto. If you talk to them, those people who are selling thousands of properties a year, and you ask them how many of their buyers are foreign? How many of their buyers are from China? Then I would think that sample size and that expertise in the market and that track record of doing that for many, many years, these major developers, that’s going to give you, I think, a much better picture of foreign investment in Canada and in Toronto specifically.

 

I’ve done that. As I mentioned earlier in the podcast, we have been doing that. It’s one of the questions asked. A lot of the developers that we’ve interviewed on this podcast over the past 75-80 episodes or so, of the the True Condos podcast, we’ve interviewed many of these big developers. The consistent theme across all of them is the foreign investment in the condo market is very, very low. Some estimates are less than 5%. I think the highest estimate I ever heard from any major developer was around 20%. But the majority of people who are selling thousands of condos a year, like I said, big developers are telling me that it’s around 5% to 10% of the market.

 

That is, again, it’s single digits. It’s a very small number. It’s not a significant factor in the market over-all. We’re certainly not seeing anything there by definition to warrant a major significance. If you just said how many buyers of the Toronto Condo market are from [inaudible 00:08:21] or Richmond Hill or [inaudible 00:08:23]. You probably have a much, much higher percentage than this 5%-10%, maybe 20% or 26% are from [inaudible 00:08:31] or 32% are from Richmond Hill, just obviously tongue in cheek here. This foreign thing, I think, again, is just really being blown out of proportion time and time again and it’s this boogeyman that keeps rearing its head and it makes for interesting headline I suppose. What is the point?

 

The other part of this story is that now the federal government is coming out with their budget. They have allocated $500,000 apparently to study or to look into this issue of foreign ownership into Canadian real estate and to try… apparently, the goal is to try to figure out a way to actually determine or calculate or track foreign ownership with this. They’re throwing $500,000 at this problem.

 

Obviously, $500,000 in the hands of the federal government to do anything is really not going to accomplish anything. Even $500,000 in the hands of private industry to tackle something like this on a national scale is a drop in the bucket. To say that the government is going to be able to come up with anything interesting or significant or concrete with half a million dollars, I’m quite skeptical. I don’t know about you but, again, I think the question goes to, for me, is so what?

 

Why does anyone care? Why are we constantly debating this foreign ownership thing? It’s really, this whole, is it a good thing or a bad thing? It’s almost like a moral debate or something it seems with this foreign ownership thing.

 

My point from this podcast is, what if it’s neither? What if it just is? What if it’s not a good or a bad thing? What if it’s just a thing? It’s just something that’s in the market? It doesn’t have to be good. It doesn’t have to be bad.

 

Of course, I’m not saying that I’m in favor of massive amounts of foreign ownership of Canadian Real Estate. Fifty percent of properties are suddenly being bought up in Toronto and buildings were sitting half empty, their streets were half empty, all these empty properties everywhere, obviously that’s not a good thing and no one would be in favor of that. That doesn’t make any sense.

 

Again, I think this is just a reality of living in Canada, of living in one of the greatest countries in the world, of living in one of the greatest cities in the world, of living in a free country. There is going to always be foreign buyers and foreign owners. It’s just the reality. I think anything we do to discourage that or to shut that down some way, I think, that sends a really wrong signal to the world. Not to get political and/or anything here in this podcast, it’s not the point.

 

I do think that it is just a symptom. Any foreign ownership, whether up or down, it’s just a symptom of the city that we live in and the health of the city over-all. I think if we’re seeing foreign buyers, if people are coming in and buying our property, that is a very good thing for our economy as a whole. It says that we are doing something right. It says that we are a place that the world is looking to. Quite frankly, the world is a much smaller place now. We are competing on a global scale as a city with other cities around the world. We’re competing for talent. We’re competing for investment. We’re competing for tourism. We’re competing for everything against cities around the world. If we’re seeing money, big time money coming in from outside of our borders, I’m not against that. I think that is okay and I think that’s something that is normal in a free society that is doing well. We are doing well. We are doing very, very well.

 

Again, if 5% to 10% of the market is foreign, then that means 90%-95% of the condo market specifically, we’re talking about now going by developers estimates that we’ve spoken to on the podcast, 90% to 95% of the market is local. Ninety to ninety five percent of every building that’s sold, every pre-construction building that’s sold is local. On the re-sale market, not talking about pre-construction condos, on the re-sale property market, again, this is just my opinion anecdotal based on being a real estate agent and based on many years of experience in the market and my colleagues’ experience in the market, in the re-sale side if pre-construction is 90% to 95% local, on the re-sale side it’s probably 98% to 99%, I would estimate as being local buyers.

 

Again, I think this is a nothing thing. It’s something that keeps coming up. If it was some massive thing where properties were being left vacant because they’re being bought by foreign buyers and being left vacant, and there was a massive amounts of properties in the city, that would be an issue. I have seen zero evidence of that anywhere. Until I see anything to that nature, then this is really, in my opinion, it’s a non issue.

 

But it is there, it’s a reality. We’ll continue to talk about it. It will be continued interesting water cooler talk and podcast talk as we continue to learn and grow as condo investors. As we continue to look at all aspects of the market. Again, I want to wrap up this discussion here today with something that you take home as condo investors. What do you do about this? How do we attack this? How do we think about this? How do we act as condo investors given the fact that foreign investors are a real thing. They are always going to be part of the market whether they’re 5%, whether  they’re 20%, they’re part of the market.

 

I think the number one is we need to continue to buy smart as condo investors. I think that’s a big point that nobody talks about. What are these foreign buyers buying and what are they paying? Especially in the condo market pre-construction, foreign buyers, if they’re buying anything, they’re buying the scraps, they’re buying the leftovers, they’re buying the units that nobody wanted. The market is moving way too fast for foreign investors to come in and scoop up the prime stuff or to get the best units or to get the best floors. The market just doesn’t operate like that. It’s moving way too fast. There are way too much momentum, there are way too many local buyers for the market for developers of condos to slow down and to say, “Let’s set the foreigners get their crack in here first.” No, they’re going to… buildings are sold locally here. If there’s anything left over, in some rare cases, they might go overseas.

 

I’ve talked to many developers as well about their trips and initiatives overseas. I can tell you, if they go overseas for an event or some promotion or some marketing initiative, they’re spending a lot of money to do so to sell condos in many cases. If they can sell 10 to 20 units in a building thing, that is considered a pretty good success. This is not a case where hundreds of condos in a building or in an area are being sold to foreigners. It’s really very small, handfuls of units here and there. That is the makeup of this foreign investment.

 

Again, what units are they buying? They’re buying the stuff that nobody else locally wanted. There’s a reason why people locally didn’t want it. Because as locals we know the market, we know what’s happening, we know value, we understand things that a foreign buyer will never necessary able to understand. By definition, we as locals will always have an advantage over the foreign buyer.

 

Again, that would be the number one thing to take out of all of this, is to continue as condo investors, to continue to buy smart, to buy the right units that are going to make you the most amount of money, that are going to go up the most in value, that are going to give you the best cash flow. Continue to buy the best in terms of timing, the best moments that would be typically at the first initial platinum launch of the building or at later inventory or specific promotional stages where there might be additional incentives to help the developer reach construction financing.

 

Those are advantages that we as local investors will always have and will continue to have. We just need to continue on doing what we have been doing. Don’t worry about what the foreign investors is doing. If they’re coming in an buying up units, so be it. Just we know that they’re going to be paying higher prices than we pay. They’re going to be getting less incentives. They’re going to be getting less desirable units. There are [inaudible 00:18:41] is going to be less than ours. We encourage that on some levels because those buyers paying more than we pay will just continue to increase the value of the assets that we have.

 

Finally, again, it’s just another good reminder that in these crazy times of [inaudible 00:19:08] of foreign buyers and governments spending money and now the government announcing huge deficits over the next few years, stimulus spending, is there going to be major inflation ahead because of all this spending and printing of money that’s been happening over the last decade, or some people is there going to be deflationary pressure. Whether good times or bad, whether an inflation or deflation, we know that it is a good thing always to have cash flowing assets like real estate. If you’re got an asset that is paying you money every single month that you have control over, that you set the price on and that someone else pays for to use fro you and someone else is paying your debt down for you, you’re outsourcing that debt to someone else on an asset that is producing every single month, you’re always going to do well.

 

Again, if you understand that basic principle, if you’re buying real estate and you’re continuing to build your portfolio over time, and you’re buying great assets that are producing for you, then keep doing it. Keep on going on as condo investors and don’t worry about the so-called foreign investor boogeyman or whatever it might be. It’s not a good thing. It’s not a bad thing. It just is a thing. We need to just accept it and move on.

 

Thank you very much for listening. I hope you enjoyed this episode. I hope you found something useful in there today. If you liked it, you can share it with a friend, share it with a colleague, share it with a fellow condo investor, I really appreciate that. Hope you have a great week. Will talk to you soon.

 

Outro: Thanks for listening to the True Condos Podcast. Remember, your positive reviews lake a big difference to the show. To learn more about condo investing, become a True Condos subscriber by visiting TrueCondos.com.

 

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