If real estate market ‘gurus’, experts and journalists don’t have anything to say, then what makes them an authority on the subject?
That’s why most of them make sure they have lots to say on just about every real estate topic. And there’s been no hotter subject in real estate over the past few years than the record home prices in the Greater Toronto Area, and particularly here in Markham.
As prices continue to show healthy gains, the ‘experts’ struggle to find new ways to explain why it’s happening. Here’s an example of what we mean. One of the main drivers of the ever-higher prices, if not the biggest single reason for them, are the near-record low interest rates that have been maintained by the Bank of Canada for the last seven years. In its most recent rate review, the Bank of Canada kept rates at the same low levels.
But if you googled the reasons why real estate prices continue to advance, you’ll not find too many references to low interest rates in current headlines. That’s because the experts have already touched on interest rates in previous interviews, articles, etc.. They can’t say the same thing every month.
So they are always on the hunt for a new ‘culprit’ behind the price gains. And most recently, they have focused their attention on foreign buyers, particularly those from China.
The Reasoning Behind the Foreign Buyer as Real Estate Price Booster
The idea behind foreign buyers being the reason for ongoing increases in real estate prices is that, as foreign investors look for ways to make money, they have been attracted by Canada’s real estate market and are buying in as a way to make money. That increased interest, and the resulting influx of money from outside the country, is blamed for at least part of the increase in house prices
But, literally from the moment the ‘foreign buyer’ theory surfaced in Vancouver, it’s been debunked. At the time, Vancouver home prices were far outpacing even Toronto and it was the first large city in Canada to eclipse million dollar average prices for detached homes.
The foreign-investor idea took hold so strongly, the BC government even instituted a 15% foreign buyers’ tax in August, 2016.
Yet there’s no evidence anywhere that show’s any more than 5% to 10% of real estate sales in Vancouver coming from foreign buyers, before or after the tax. What’s more, after dropping immediately following the introduction of the tax, levels of foreign buying have begun to increase again in Vancouver.
More Evidence That Foreign Buyers are Not a Significant Factor in Increasing Home Prices
The key findings of a wide-ranging report show that, while inquiries into the Toronto and GTA markets increased last year following the imposition of BC’s tax, they did not result in corresponding or significant sales increase. The report also reinforced previous findings, by Ipsos on behalf of the Toronto Real Estate Board, that found fewer than 5% of 2016 transactions in the region involved foreign buyers.
The Real Reason Foreigners Buy Homes in the GTA
The recent study was conducted in Canada by Sotheby’s International Realty, and in China by local real estate hub Jubwai.com, and reported by the Toronto Star. It shows that Chinese buyers, who account for the bulk of foreign real estate purchases in Canada, are looking to be able to take part in our highly-respected education system, not speculate on real estate.
41% of study participants, who were Juwai.com property enquirers, said ‘Education’ was their main motivator for real estate interest in Toronto and the GTA. The next highest motivator, cited by 37.1% of respondents, was to find real estate for their own use. Investment was cited by only 27.2% of respondents.
So Why Are Experts so Quick to Link Rising Pries to Foreign Buyers?
Sotheby’s CEO, Brad Henderson, indicated that there’s a shortage of “reliable and verifiable data,” on foreign ownership, so residents and realtors are instead relying on anecdotal information.
“People look for someone to blame. A very convenient person to blame is the foreign buyers. We’ve seen that happen in Vancouver in particular, and it’s starting to happen more and more in Toronto,” said Henderson.