Asian Cash Losing Its Cachet? A Vancouver Realtor offers comfort to Reuters American readers

On a day when all the local attention is focused on the release of the BC Provincial Budget, let's turn our attention to a small news item that probably slipped under your radar today.

NASDAQ.com posted an article by Reuters news service titled "Chinese investors find their cash is losing its cachet".

Apparently China's tightening capital controls are beginning to be felt in North America as Chinese firms struggle to close deals owing to lack of FX. As a result,  overseas direct investment is dropping sharply.  North American sellers want Chinese buyers to provide proof of funds and such deal scrutiny is hurting investor confidence.

According to Reuters:

"Chinese investors have been highly sought after the world over. Now, their cash is losing its cachet. China's increasing efforts to prevent capital from leaving the country are eroding the confidence of domestic and foreign investors about getting deals done inside and outside of the world's second-biggest economy. Chinese bidders had become ubiquitous in deals in the past two years and were welcomed, said Severin Brizay, head of Europe, the Middle East and Africa mergers and acquisitions for the investment bank UBS. 'Clients were asking if it would be possible to make sure they are involved. Now, we are seeing the reverse: some clients are asking if we can do it without Chinese bidders because of the domestic challenges they face,' he said.

Those at the heart of brokering investment deals with Chinese investors say that many Chinese firms are unable to close deals because they can not secure official permission to transfer yuan into foreign exchange.

This, of course, follows a series of capital control measures China implemented late last year to tighten restrictions on capital outflows and rein in what officials have called "irrational" outbound investment.

The Institute of International Finance estimated capital outflows surged to a record $725 billion last year and it expects even higher outflows this year. The yuan fell more than 6.5% last year against the US dollar, its steepest decline since 1994, prompting the central bank to spend hundreds of billions of dollars in reserves to prevent the slide from turning into a slump.

The most interesting of the facts presented are that Overseas Direct Investment (ODI) by Chinese in December fell almost 40% from a year earlier to $8.41 billion, the lowest monthly level in 2016.

In January, overseas property purchases by Chinese corporations plunged. In one case, a Chinese investor was unable to get permission from authorities to exchange yuan into $30 million to close a U.S. deal, a consultant involved in the project said. The planned $100 million investment in a U.S. residential property portfolio fell through.

"Sellers nowadays will request certain proof," said Jeffrey Sun, a Shanghai-based partner at the legal practice of Orrick, Herrington and Sutcliffe. "From the sellers' side, the worry is justified."

Reuters goes on to outline how fund managers that help Chinese investment abroad are "freaking out" and are searching for creative ways to circumvent capital control regulations.

But perhaps the best part of the article is the ending, which turns to the Village on the Edge of the Rainforest for reassurance and I'm sure will warm the hearts of all local real estate agents... and infuriate many frustrated with government complacency:

"Chinese conglomerate HNA Group announced about $20 billion in outbound deals last year. Thomson Reuters data shows it raised at least $17.05 billion in loans abroad in 2016. Overall, China's outbound investment hit a record last year but could have been much higher, said the Rhodium Group, a consultancy that tracks direct investment from China. It said a record 30 deals worth $74 billion and involving Chinese companies were cancelled in the United States and Europe in 2016.

"Right now everybody is thoroughly freaked out by capital controls," Daniel Rosen, a Rhodium partner and adjunct professor at Columbia University, said. Still, on Vancouver's upscale West Side, a neighborhood popular with foreign buyers where the price of homes runs in the millions of dollars, realtor Tom Gradecak was less worried about Chinese demand. In the past, Chinese investors have tended to find ways around capital controls, he said. "It won't take them long," he said. "The people that really want to come here, I don't think it's going to stop them."

Of course Gradecak would say that. Krusty just gutted the Foreign Buyers Tax to help make that happen, didn't she?

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So how come we haven't heard much about the Chinese New Year home buying spree this year?

So it's mid February and usually the real estate cartel is barfing out stories about how Chinese have come over to our shores on home buying trips for their kids.

It's become an annual tradition to hear this crap.  Here's just a couple of twitter posts from 2015/2014 to illustrate (click image to enlarge):

And with Premier Krusty gutting the Foreign Buyers Tax at the end of January (presumably it's news of this glorious move that's in those little red envelopes above), expectations soared that Cam Good's yellow helicopter might once again fly over the Lower Mainland.

In fact the Real Estate TV Network (RETV)... err... Global BC announced the wet coast's annual heralds of spring just three weeks ago...

Said Global BC:

"Vancouver’s slow-churning real estate market might see a slight uptick next week due to an influx of Chinese New Year vacationers. 

The Chinese national holiday – celebrated widely in Vancouver and around the globe – begins Friday night with a week-long holiday. Many take the time off as an opportunity to travel abroad. Last year, six million Chinese left the country for vacation.

Juwai.com, a China-based website for international real estate, says a quarter of Chinese consumers surveyed plan to travel internationally during Chinese New Year, with 42 per cent of those saying they plan to shop for property while away. In total, just under 11 per cent of all people surveyed said they’ll spend the holiday property hunting. 

The website also surveyed 163 realtors in Canada and found 17 per cent of international agents and 16 per cent of Canadian agents had been contacted by buyers who plan to visit during Chinese New Year. 

“We also see Vancouver getting a steady stream of Chinese visitors seeking a ‘lung cleansing’ holiday,” Charles Pittar, CEO of Juwai.com, said. “Canada is a top-five country for these trips. Other top lung-cleansing spots are Japan, Thailand, Australia and Switzerland. One-half billion Chinese were affected by hazardous smog this winter. They come to Vancouver for clean air, among other things.”

So how has the 'lung cleansing' gone so far this year?

Not that we have heard it on RETV Global BC, but reports are that Chinese New Year Sales of Vancouver Real Estate Are Down 78%.

Now besides debilitating Cam Good, an 80% drop in sales is nothing short of devestating. But the  drop in single family home sales - the bread and butter of the foreign Asian market - is even more spectacular. As the above article notes, "Sales of detached homes had the largest drop during this Chinese New Year vs the years prior. Just 119 sales were logged this year, an 87.28% decline from last year."

Yikes. And it's not just the detached market. Chinese New Year Condo sales are reported to be down 72% and townhouse sales down 78%.

Rumour amongst some agents is that pressure is being applied to the BC Liberals to cut what remains of the Foreign Buyers Tax, currently sitting at 15%, to something much lower.

We will see what happens next.

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Cynicism? Krusty says, "Stand aside Moonbeam and hold my beer!"

Yesterday we made note of the cynical populist political shift of our beloved Village Mayor Gregor 'Moonbeam' Robertson as he responded to the 2016 Census Data revelation that there were twice as many 'unoccupied' homes in Vancouver as the City's survey had found in mid 2016.

Said Moonbeam, “Seeing data that shows there may be even more underutilized homes than BC Hydro suggests gives us more reason to aggressively move on the empty homes tax, and other measures that will help bring homes back within reach to residents in all corners of the city."

Giggidy.

Course, such exhortations are a little hard to swallow given his mid year pronouncement that he was against any suggestion of a housing tax targeting non-residents.

But is that real cynicism? Enter the BC Liberal's shouting "hold my beer!"

In July 2016 the BC Liberal's weren't afraid to support a housing tax targeting non-residents. In a surprising move, our beloved Premier Krusty Clark boldly declared a 15% tax targeting foreign buyers and implemented it without much warning.

Now everyone and their dog in the real estate industry (except this dog, of course) was feeding the public the line that foreign buyers were such a small portion of the market that all the fuss about them was a non-issue.

We all knew it was bullshit, but you have to wonder if the BC Liberals thought the tax would be a simple vote-getter without fully appreciating the reality of the situation.

Because the tax had an immediate impact.  A massive immediate impact.

By the end of January 2017, real estate sales in the Village on the Edge of the Rainforest fell off a cliff. Luxury sales were down 91% and Vancouver home sales plunged 40%. The market was cratering.

Did we mention a provincial election is less than 100 days away?

It didn't escape the attention of muckraking reporter extraordinaire Bob Mackin. Bob put his ear to the ground and heard that wealthy developer donors were letting it be known to Krusty, Shrimp de Jong et al that political donations would dry up if they didn't address this catastrophe.

Such news was highly disconcerting to the BC Liberal accountants.

And just who are these $100K+ donors from Feb 2016 that Mackin refers to?

In a recent article, Mackin outlines how the BC real estate development community funnels massive amounts of cash to the BC Libs.

Chronicling one fund-raising extravaganza in February 2016, Makin noted:

The Feb. 26, 2016 haul was thanks primarily to eight individuals and entities that kicked-in a whopping $1.1 million:

• $200,000 x 2=$400,000: John Redekop Construction and his cousin Peter Wall’s 2300 Kingsway Residences. 

• $100,000 x 7=$700,000: Peter Redekop, Peter Wall’s PWO Investments and Wall nephew Bruno’s BJW Investment; Townline Homes owner Rick Ilich; Rossano De Cotiis’s RPMG Holdings; Berts Electric; and Seaspan ULC.

Those high rollers are no stranger to writing big cheques to the BC Liberals. Six months before the last election, some of them also injected six-figures into the BC Liberal kitty.

Peter Redekop — whose donations since 2005 now stand unofficially at $609,800 — gave $150,000 on Nov. 8, 2012. His brother John Redekop ponied up the same amount on the same day as a similar windfall from other real estate and construction concerns. 

Also contributing to the party’s Nov. 8, 2012 haul of $833,728 were: Rob Macdonald ($101,200); Intertech Construction Managers/ITC Management/ITC Services ($75,000); Townline Homes ($55,000); Holborn Developments/TA Management and Dayhu Investments ($50,000 each) and Francesco Aquilini ($23,375). The Sheraton Vancouver Wall Centre Hotel donated $4,700. 

Peter Wall and Bruno Wall each gave $150,000 on Nov. 23, 2012, when the Liberals counted another $829,780 in donations. Along with the $300,000 from the Walls came $40,000 from Hassan Khosroshawhi and $20,000 from Colin Bosa.

So it comes as no great surprise (albeit highly disappointing) that with the threat of having the taps turned off on this massive amount of cash that the BC Liberals blinked.

Thus, on Jan. 29, Krusty suddenly announced during Chinese New Year that the BC government would be amending its tax on foreigners buying property in Metro Vancouver. Clark says the levy will be lifted for "those who have a work permit and pay taxes in B.C., in order to encourage more people to come to the province."

The slight change to the Foreign Buyers tax was promoted as a minor adjustment to make the tax fairer so British Columbia can continue to attract the best and brightest to BC.

But given Mackin's revelations about the behind the scenes threats of withholding political donations as the province counts down to what could be another extremely close Provincial Election, it's hard to see the move as anything but selling out to the development community.

Next we will outline just how significantly the BC Liberals have gutted the tax.

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