Two significant Vancouver court cases regarding Chinese money in Vancouver Real Estate

In case you missed them, there were two interesting articles written today by Ian Young, Vancouver correspondent for the South China Morning Post.

The first, in his "The Hongcouver" column (they say only Nixon could go to China... and only an Asian could get away with that title in today's PC world), headlines "A Vancouver firm offers clients 'new identities'. It's customers have included Chinese criminals"

It's news sure to add to Vancouver's reputation as a centre for laundering illegal money through our bubblicious Real Estate market.

Apparently a Vancouver firm, Amicus International Consulting, will provide clients “new legal identities” via new citizenships, passports and "plausible cover stories?"

One of Amicus' customers, which Young profiles, is Kuang Wan Fang. Writes Young:

Kuang’s husband, Xu Chaofan, and Yu’s husband, Xu Guojun, were involved in a massive scam to defraud their employer, the Bank of China, that lasted from 1991 until their arrest in the US in 2004. Together with a third BOC manager, they made off with at least US$485 million. They fled to the US via Vancouver, acquired US citizenship and laundered their cash through Canadian and Hong Kong banks, Macau and Las Vegas casinos, and the Vancouver and Toronto property markets. 

According to the US indictment that would lead to all being convicted, the fraudsters used the stolen cash to buy at least three Richmond mansions, on Udy Road and Mang Road, that are now valued at about C$9.5 million. 

According to Amicus, it helped get Kuang and Yu transferred into Spanish custody on September 23 and September 11, 2011, respectively; the US Federal Bureau of Prisons confirms that they did indeed leave US custody on those dates, although their destination is not listed. 

Kuang’s movements between 2011 and 2015 are unclear. In the meantime, the BC Supreme Court ruled on April 16, 2015, that Kuang should repay BOC the entire stolen sum, now valued at C$670 million, which the RCMP said had been hidden and dispersed among 14 relatives, many living in the Vancouver area, according to The Province newspaper’s account of the case.

$670 million? One assumes more than a couple of $5 million + homes on Vancouver's west side were acquired with that tidy sum.

Giggidy.

Young follows that up with a second article, "In landmark ruling, Vancouver homebuyer is ordered to repay millions to China’s Citic Bank" in which we are told about Chinese mainlander Yan Shibiao.

It seems China’s Citic Bank has won a landmark judgment in a Canadian court against Yan Shibiao and has ordered him to repay the bank RMB50 million (US$7.3 million), plus interest, that the bank says was spent in part on real estate in Vancouver.

The fact that a mainland Chinese bank has won a judgement in a Canadian court is causing a massive stir on local Chinese online internet chat boards.

China has been working with Canada for years to finalise a deal on the return of ill-gotten assets seized from those suspected of economic crimes. The agreement was originally announced in July 2013 and has not yet been ratified.

But this case marks a turning point. It's rare for Chinese banks to use Canadian courts to pursue those who have left the country and it sends a chilling message to Chinese nationals in Canada on visitor's visa's (which was Yan's situation).

Vancouver lawyer Christine Duhaime, an anti-money-laundering expert who represents Citic and originally petitioned the BC court on the bank’s behalf last year, said the case “shows China and their banks that [Canadian asset] recovery is possible in the civil context”.

“There are so many more cases with similar facts of foreign nationals from China who owe vast amounts of debt in unpaid loans that are parked in other countries, that I suspect the floodgates will open to pursuing recovery of those debts. Much of that money is in Canada,” said Duhaime in an interview.

We wonder what west side realtor Tom Gradecak's thoughts might be on these developments?

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Tues Post #2: Chinese Millionaires In Beijing Upset Canada Terminating Investor Program, Threaten to Sue

Last month, while we were enjoying a bit of a break, one of the bigger news stories was the fact that Canada axed the Immigrant Investor Program (IIP).

The announcement, delivered by Finance Minister Jim Flaherty as part of the government's new budget, meant that an estimated 45,500 mainland Chinese in the queue for visas in Hong Kong would have their applications "eliminated" and their fees returned.

The program had been in a state of limbo since 2012, when applications to the scheme were frozen.

Under the scheme, would-be migrants worth a minimum of $1.6 million loaned the government $800,000 interest-free for a period of five years. The simplicity and low relative cost of the risk-free scheme made it the world's most popular wealth migration programme.

But as Flaherty noted in his budget speech which axed the program:

"For decades, [the investor scheme] has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require."

The Immigrant Investor Programme, which has brought about 185,000 migrants to Canada, was instrumental in facilitating an exodus of rich Hongkongers in the wake of the 1989 Tiananmen crackdown and in the run-up to the handover. More than 30,000 Hongkongers immigrated using the scheme. About 67,000 mainlanders have migrated to Canada under the IIP.

Many believe that influx flowed largely to Vancouver and was instrumental in rapidly inflating our current housing bubble.

Ian Young, who writes for the South China Morning Post, attempted to quantify what the elimination of the program might mean for Vancouver real estate:

High property prices are the defining factor of life in this city. Yet despite a wealth of punditry, few have tried to actually calculate the potential impact of the demise of the millionaire migration scheme, which has brought tens of thousands of rich Chinese and others to Vancouver. 

So here goes.

From 2005 to 2012, the federal IIP brought 36,951 rich people to British Columbia. That’s an average of 4,619 per year, representing 1,340 households at current averages under the scheme. A 2011 study showed 90.4 per cent buy homes, suggesting 1,211 actual purchasing households per year have been removed from the Vancouver market by last week’s decision (since almost the totality of BC investor migrants live in its largest city). This is equivalent to only 4.25 per cent of the 28,524 residential sales in greater Vancouver last year.

At this stage it’s crucial to note that reducing the sheer number of sales doesn’t necessarily move a market down (the worst week of the 2008 stock market crash saw record trading volume in New York). But extracting buyers who pay above prevailing prices certainly does.

And I can think of six “known unknowns”, five of which will undoubtedly increase the impact of those 1,211 lost households.

First the relatively good news - for owners, anyway. We don’t know how many would-be IIP arrivals will find some other way of getting to Vancouver. Some will. Most probably won’t, because if options other than a years-long queue for the costly IIP existed, they would have taken them.

And now for the five scary bits, that will assuredly magnify the impact of those lost purchasing households.

• 1. Investor migrants are rich, so they buy more costly properties, and it’s the price of expensive detached homes that fuel Vancouver’s market. Condo and townhouse prices rose by a third from 2005 to 2012, but detached prices doubled. Under the most recent IIP benchmarks, principal applicants must have been worth a minimum of C$1.6 million. Compare that to the Vancouver average household worth of C$662,600 (Environics Analytics).  

• 2. Some IIP households buy more than one property in Vancouver. 

• 3. Some high-value purchases have a cascade effect through the market. For example, when a Chinese investor immigrant pays C$3 million for an elderly widow’s rancher on Cambie Street, that sale triggers the purchase of a three-bedroom townhouse in Kitsilano and down payments on condos for her two adult children. Such things happen - not always, but sometimes.  

• 4. Now for one of the two biggest concerns. Our calculations so far only cover actual arriving immigrants. But how many of the 65,000 would-be immigrants who were dumped from the IIP queue last week had already bought in Vancouver? Of the applicants from 2009-2011 who made up the bulk of the backlog, 62.8 per cent were bound for BC. That’s an estimated 11,866 households. Not only have these households been removed from the pool of future purchasers, it’s reasonable to assume that some will soon be liquidating existing Vancouver holdings.  

• 5. The final unknowable is human nature. Already talk of an impending disaster in the market is a feature of Chinese-language forums. How many non-IIP owners will head for the exits too, and how fast will they do so? 

To be sure, there is no way of telling how much these five factors will come into play. But let’s make some conservative assumptions regarding the first three. Imagine that homes bought by IIP households cost twice as much as the average residential sale; considering that the rich Chinese who make up 81 per cent of Vancouver’s investor migrants are concentrated in expensive neighbourhoods of Richmond and the Westside, that’s not a stretch. Now imagine that each home-purchasing IIP household buys not one, but two properties (over how many years? Irrelevant, since the effect will be annualised over time). And let’s say that an IIP purchase triggers another purchase that would not otherwise have occurred in 25 per cent of cases.

The annual effect of the extraction of those 4.25 per cent of sales doesn’t look so insignificant anymore. On a dollar basis, our scenario balloons the figure to 21.25 per cent in lost sales per year. This estimate applies across the entire market; the effect will be magnified in the Westside and Richmond.

The actual impact remains to be seen and it's a story local real estate watchers are following very closely.

Which brings us to todays developments (and you gotta love this).

At a news conference in Beijing yesterday, 10 IIP investor applicants pleaded to the Government of Canada not to dismiss the 45,500 applications that had been frozen in the system.  Their desire?  Process those applications before terminating the program.

It seems while waiting for their approval, many of those 45,500 applicants had already come to Vancouver, bought homes and had enrolled their children in schools here.

Father-of-two Yu Qingxin, who manages commercial buildings, schools and hospitals in China, said he had already bought a house in west Vancouver for nearly $2 million Canadian dollars ($1.8 million) in preparation to emigrate… 

Another applicant, Du Jun, said he had moved his child out of the Chinese school system to a Canadian school near Beijing. Now, after two years studying at this school, it is almost impossible for his child to return to the Chinese education system, he said.

But now, with the termination of the IIP and the pending applications terminated, investor applicants (some of whom had applied five years ago) are discussing their options with lawyers in Canada and whether to claim compensation for the years they had been waiting.

Immigration consultant Larry Wang said that Canadian government's policy was "unjustified" and the investor applicants want Canada to "correct its mistake."

"They are not refugees. They can have a very good life in China. They just want to have a better life in Canada," said Wang, a Beijing-born Canadian.

Wang said it was Canada's right to stop its investor program, but it should not disqualify candidates who had already applied.

Umm… perhaps the issue here is that those applicants shouldn't have considered their application a fait accompli?

If you moved to Canada before being approved and then you application was, in effect denied, is Canada really to blame for your gamble?

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