2018-06-11 22:47:42 UTC
Governments from Vancouver to Sydney to Toronto are using taxes and
other restrictions to tackle real-estate bubbles
By P. Vieira in Vancouver, R. Pannett in Sydney, D. Fong in Beijing
June 6, 2018, Wall St. Journal
Crowds swept into the Beijing Exhibition Center on a recent morning
for a real-estate expo that drew thousands of people interested in
That kind of surging interest has created a flood of capital that is
washing over cities throughout the globe, distorting home prices,
irritating local residentsand defying almost every attempt to
In Vancouver, Chinese home buyers snapped up properties so fast in
2016 that prices escalated at a rate of 30% a month compared with a
year earlier. Officials imposed a 15% foreign-buyers tax, and Chinese
buyers turned to Toronto, where they soon bid up home prices.
Seeking to curb the market surge in the Toronto area, officials in the
province of Ontario introduced their own 15% foreign-buyers tax in
April last year.
Chinese buyers had by then begun returning to Vancouver, driving
prices to fresh highs in mid-2017 and provoking a new round of
measures in February. By May, sales numbers had fallen 35% from a year
earlier, but prices, on an adjusted basis, still climbed 11.5%,
according to the Real Estate Board of Greater Vancouver.
Chinese foreign property purchases
The hot pursuit of places to park money abroad by Chinese investors
drove an estimated $100 billion in property purchases outside China in
2016, according to Juwai.com, a Chinese real-estate website. The
buying frenzy, which grew from $5 billion in 2010, helped swell prices
for housing and commercial real estate in cities on the Pacific Rim
Chinese buyers have scooped up condos, apartments and houses from
Vancouver to Auckland to Sydney. While foreign capital was welcome in
the years following the financial crisis, officials have found that
trying to control the flood of foreign money into housing is like
squeezing a balloon: Taxes on foreign buyers in one city only divert
them to another spotand sometimes buyers return, taxes or no taxes.
Governments world-wide are still at the trial-and-error stage, said
Aaron Terrazas, senior economist at Seattle-based Zillow Group , an
online real-estate listing service. They are trying to figure what
works and what doesnt.
Officials in Canada and Australia, where relatively affordable homes
and large Mandarin-speaking populations attract Chinese buyers, worry
the price bubbles threaten their regional economies.
Montreals housing market has shown no signs of overheating, but after
Valerie Plante was sworn in last year as mayor, she asked provincial
officials for authority to tax foreigners buying property in Canadas
After seeing what happened in Vancouver and Toronto, Ms. Plante
worried her city was next. We need to be very cautious, a
spokeswoman for the mayors office said.
At the Beijing real-estate expo in April, Bao Yingqi of B.Y. Realty,
was, in fact, making a pitch for Montreal, saying the city has yet to
impose high taxes on foreign buyers. This makes Montreal stand out
for investors, she said.
Montreal has new housing and an interesting French-speaking culture,
said Ms. Bao, who was wearing a black beret. She sat in a booth
decorated with a Canadian flag and described Montreal as the Paris of
Zhang Yuxing, a 43-year-old Beijing resident, listened. He had planned
on Vancouver, but taxes have gone too high.
Now, he said, his top choice is Montreal.
China's Spending Spree
Local governments in Canada, Australia and New Zealand have tried to
slow real-estate sales to foreign buyers.
New South Wales doubles its foreign buyer tax to 8%.
Australia's New South Wales state, home to Sydney, introduces a 4% tax
on foreign buyers.
New Zealand announces it'll ban foreigners from buying existing homes.
Victoria state, home to Melbourne, increases its foreign buyer duty to
7% from 3%.
Canadian province of British Columbia unveils a 15% tax on foreign
British Columbia increases its foreign buyers tax from 15% to 20% and
expands area levy covers.
Sources: REINZ (New Zealand); Corelogic (Australia); Canadian Real
Estate Association (Canada)
The impact of foreign buyers on home prices isnt entirely clear,
according to analysts and the International Monetary Fund. Low
interest rates, liberal immigration policies in Canada and Australia
as well as a tight housing supply in some areas also contributed to
rising home prices.
Accurately tracking foreign home buyers isnt easy, although some
local governments can now tally the number of people paying
Some purchases arent counted, for instance, when foreign buyers hold
dual citizenship, or if the transactions are made through companies or
local proxies that obscure a buyers identity.
In Australia, Jonathan Kearns, the Reserve Bank of Australias head of
financial stability, said in November that he estimated foreign buyers
accounted for 10% to 15% of homes under construction, equal to about
5% of total residential sales in the country.
The share was highest in Melbourne and Sydney, Mr. Kearns said, where
foreign buyers accounted for around a quarter of newly built
apartments. Around three-quarters of the foreign buyers were from
China, he said.
Sydneys home state of New South Wales doubled its foreign-buyers tax
to 8% in July 2017, but that didnt arrest demand.
The rise in home prices has recently slowed in Sydney and Melbourne,
but Chinese developers still dominate foreign investment in
residential development across Australia, according to real-estate
company Knight Frank. Chinese nationals bought $1.5 billion in
residential sites last year, about a third of Australias total.
Chinese property buying is an unstoppable juggernaut, said Jon
Ellis, chief executive of Investorist, an online portal for
cross-border property transactions.
Outgoing Vancouver Mayor Gregor Robertson described it as the water-
bed effect of capital flooding wherever taxes are lowest and
regulation is weak.
For-sale signs in Vancouver feature Chinese characters. Older abodes
are leveled to make way for the construction of new homes, which
real-estate agents say Chinese buyers prefer. Bus shelters and benches
in Richmond, a suburb south of Vancouvers airport, carry real-estate
ads, also in Chinese.
Mr. Robertson said rising home prices dominated much of his decadelong
tenure. One reason was a lack of coordination among the three main
levels of Canadian governmentfederal, provincial and municipal, he
Its a complex challenge between regulating offshore investment,
local real-estate practices and addressing housing supply within
cities, all in sync, Mr. Robertson said in an interview. The reality
is that interventions take time and arent wholly predictable.
After the first Vancouver 15% tax failed to put a lid on foreign
buyers, Mr. Robertson worked with the province of British Columbia on
more aggressive steps. In February, province officials raised the
foreign-buyers tax to 20% and expanded coverage well beyond Vancouver.
Officials also imposed a new levy0.5% of the property value and
climbing to 2% next yearon homeowners who dont pay income tax in
In April, British Columbia also announced measures to deter the resale
of condo units before construction was completed, to discourage
investors from flipping units before they are occupied.
At the Beijing expo, Florence Chan said she originally wanted to buy a
home in Vancouver but changed her mind. The taxes are too high, she
said, adding that Melbourne is looking better.
Chinese buyers like the swanky 661 Chapel Street, a luxury condominium
complex in Melbourne.
In December, Aw Sei Cheh, general manager of the project for Malaysian
developer Gamuda Land, said Chinese buyers accounted for roughly 10%
of sales at the complex, which has private dining rooms, a wine
cellar, a theater and a library. Prices start around $410,000 for a
one-bedroom, to more than $2 million for three-bedroom units.
One appeal is location. The complex is close to several top
universities where some Chinese buyers intend to send their children,
Mr. Aw said.
Loopholes in limits
Beijing has tried to limit capital flight, fearing it shakes
confidence in the national economy and could potentially weaken the
A recent crackdown prompted several Chinese tycoons to unwind foreign
purchases by their companies acquired in debt-fueled global shopping
sprees, including trophy office towers and luxury hotels.
Officially, Chinese citizens are allowed to exchange no more than
$50,000 worth of yuan a year. Yet people in the industry point to
Chinese mom-and-pop investors sidestep limits, for instance, by
linking real-estate purchases to the college education of children
living abroad; buying such luxury goods as Rolex watches in yuan and
exchanging them for dollars to use toward property; or friends and
family paying to an overseas account.
One desirable target has been the harbor city of Auckland, New
Zealand, home to just over a million people.
Auckland was named the worlds hottest city for luxury real estate
based on sales in 2015 by a Christies International Real Estate
survey. Its open-door immigration policy and light regulation of
foreign property deals helped drive 63% annual growth in $1
million-plus home sales in 2015.
Last year, a political backlash erupted over complaints that the city
had grown too expensive. New Zealand homeownership rates are at their
lowest since 1951, national data show; a quarter of residents under 40
own their home compared with half that age group in 1991.
The center-left Labour Party campaigned on housing measures, and once
elected in October pledged a ban on foreign speculators buying
existing residential property. The new government also wants to reduce
We are determined to make it easier for Kiwis to buy their first home
so we are stopping foreign speculators buying houses and driving up
prices, Prime Minister Jacinda Ardern said at news conference last
House prices initially rose as lawmakers considered restrictions in
foreign investment. Benjamin Liu, an agent with Ray White Real Estate
in Auckland, said one Chinese buyer booked a flight after hearing
about the proposed ban.
Foreign capital is now returning to Canada, driving the latest surge
in home prices. Buyers from China and the U.S. have found Victoria,
the small capital of British Columbia that sits on an island west of
Victoria was declared the worlds hottest new housing market last year
in Christies International Real Estate survey, based on a 29%
increase in annual sales of million-dollar-plus homes. Single-family
homes in the Victoria area hit a record high of about $570,000 in May,
up 9% from a year earlier, according to the Victoria Real Estate
Victoria is experiencing the same rapid growth in housing prices and
sales volumes that have strengthened Toronto and Vancouver in recent
years, Christies International said in its survey last month. If
Toronto and Vancouver can be a measure, it is likely Victoria will
continue to perform well despite [new] regulations targeting foreign
Attention has already turned to Malaysia and Thailand, which now tops
the list for Chinese buyer inquiries, ahead of the U.S. and Australia,
according to Juwai.com. Two years ago, Thailand ranked sixth.
Over the next decade, Juwai.com predicts that Chinese investors will
spend $1.5 trillion abroad, as much as half of that in foreign
The real-estate portal recently teamed up with JD.com Inc. one of
Chinas internet retail giantsto market property in the U.S., U.K.,
Australia and Canada. At the click of a button, online shoppers can
connect with a sales agent who will assist in the purchase of an
Write to Paul Vieira at ***@wsj.com, Rachel Pannett at
***@wsj.com and Dominique Fong at ***@wsj.com