I was reading this article about Foreign Investors and the Toronto Real Estate Board and how some people doubt the figure that 4.9% of buyers are Foreign Investors.
First of all, I have a problem with real estate board data, because of it’s lack of accuracy. Real Estate Agents are not statisticians concerned about the accuracy of entries and removals. The source of the data is therefore quite suspect.
Second the definition of “foreign investor” is extremely troublesome. Let’s take for example my very first client, that was a foreign investor. He worked for Canada Revenue Agency and was transferred to Singapore for his work. In the meantime his house in Mississauga was rented out three times to some lovely tenants. After the last tenants moved, he moved himself and his family back into the home.
This type of “foreign investor” is the sum total of my clients. They are or used to be Canadian residents and for whatever reason (usually work) end up overseas. Another “foreign investor” married an Italian and lives in Italy. She inherited a house here from her mom. Another works for a bank in Hong Kong.
That’s not the kind of Foreign Investor I think people are afraid of. I think the type of “foreign investor” people worry about is this nebulous person with suitcases of cash that comes to Canada and buys up all the property. Not all the property – just the good property. If this pure type of foreign investors exists, they may well have very legitimate reasons for buying property here in Canada: for example, to house their children that go to school here or even as a vacation home. I grew up in Temagami, Ontario which is hardly a place that people would be concerned about the Foreign Investor invasion; however, I can assure you that a large number of Islands on Lake Temagami are owned by Americans who vacation there. I daresay that Muskoka is in the same boat.
Lets talk about this Foreign Invasion that is happening and let’s be clear that we’re really talking about the Chinese that “ruined” Vancouver by coming there and specuvesting and leaving property vacant only to flip it or tear it down and build a big fat mansion and then sell it to the next Chinese buyer and outbidding the locals. The locals who have an average salary of 60K because not much is happening in Vancouver economy wise.
Another problem is families of rich Chinese people coming to Vancouver and not having any local taxable income and not paying any taxes on their worldwide income but getting services here such as medical services at tax payer expense without contributing to the local economy.
Yet another problem is money laundering of all kinds as Chinese citizens are only allowed to take $50,000 per year out of China.
I have also heard people complain about 19 year old kids buying expensive sports cars and driving them around. Personally I drive like a grandma now, I don’t need any speeding tickets.
Back To Statistics
My understanding is that TREB collects data from the houses they sell, and a large amount of homes are not sold by real estate agents using the MLS. Lots of new homes and condominiums are sold by developers, some are sold privately through sites like Comfree and probably even kijiji and craigslist. The point is that leaves a large chunk of data unmined.
TREB is just one of the 39 Real Estate Boards in Ontario and Toronto is just one city. What about the rest of Ontario or BC? The data we don’t have is perhaps more important than the data we have, specifically the data that the developers may or may not hand over.
Identifying the Foreign Investor
Unless the investor tells me or give me an out of country address I have no idea where people come from. As mentioned above a lot of these investors come from here and have relocated for love or money. They have bank accounts here, they have family and often addresses here. Generally I’m not performing a full scale investigation into my clients. I can’t imagine it’s any easier for anyone else in this business including the real estate agents. An asian or middle eastern accent tells you nothing, Toronto is one of the most diverse cities in the world with 51% people legally here from other places.
I do offer the CRA paperwork for Foreign Investors for free with property management so it’s good for investors, yet I still don’t see the hordes of foreigners you’d think I would.
Like Attracts Like?
A friend of mine argues that the people who are truly foreign won’t want to have anything to do with a caucasian lady like myself, after all they can find someone from their country of origin who speaks their language to help them buy and manage their income property. This is a much more likely explanation for the sad lack of hordes of authentic Foreign Investors lining up to get me to manage property. Certain cultures just want to deal with their own culture.
Focusing on What Matters
I think enforcing money laundering oversight, improving data collection on new property purchase, forcing the developers to stop cheating on collection of HST, and cracking down on certain brokerages that have already been caught not following the 25% income retention rule for CRA would go a long way towards dealing with the problem. After all foreign investors pay 25% income tax on their income and some more tax when they sell. They have no principal residence exemption when they sell their income property. Tenants claim their rent on their income tax. Follow that evidence.
Canada Revenue Agency is where all this data is already, forget TREB and Urbanation, those guys are just kids compared to the database that CRA has at their finger tips in combination with the Land Registry Office. That’s where the money is folks, mining that CRA data, for information and acting on it. We can tighten up on that a hell of a lot and cause some serious financial pain for the flippers/specuvestors and others that really are trading property like penny stock.