China's latest export: home buyer

Half a world away, a handful of Chinese citizens are feverishly planning a Canadian real-estate shopping excursion.

A farmer, an engineer, a furniture maker and a caterer are among the 30 hopeful investors who have paid $5,500 each to take a real estate tour of Toronto and Vancouver in August.

This isn’t about tourism: Each of them expect to drop at least a half-million dollars on downtown condos during their 10-day visit.

While Chinese investors in Canada are nothing new, this delegation is thought by those in the industry to be one of the largest to travel in one group. The trip was put together by Ricky Zhang of TransAsia Investment Partners, a Chinese company that was created to help residents buy properties abroad, particularly in Canada.

He said it was difficult for investment groups to travel together before last December, because Canada and China didn’t have a deal that allowed large Chinese tours to Canada. But with a travel agreement now in place, he said interest has increased and Chinese investors are looking to spend heavily while abroad.

"With the rising risk of the bubble bursting in the Chinese real estate market, there is a demand for overseas real estate for diversification, safety and relatively high rental yield," he said.

"The purpose for this trip is to find good deals for immigrants and investors. We do not intend to bring speculators to Canada and, during the promotion events, we always highlight on the market stability as opposed to the great volatility in China."

To ensure investors are serious, he has deliberately set the price tag high.

"They stay in four-star hotels, eat $30 meals," Mr. Zhang said. "I am not sure if this is a really high standard in Canada, but in China it is only affordable by the upper class."

The Chinese government has discouraged its citizens from investing in local real estate, fearing that a surge of speculative buying could inflate a real estate bubble that would have dire consequences if the economy slowed.

In a sign the tighter lending standards are working, Chinese house prices fell by 16 per cent in June.

The restrictions are causing those with excess capital – a large swath of the rapidly growing middle class – to look overseas for safe havens for their capital. This is especially true as China’s export base continues to grow and foreign capital pours into the country.

"The fact is, China needs to be investing more of its capital abroad," said Patrick Chovanec, a business professor at Beijing’s Tsinghua University. "The fact that Chinese citizens have limited ability to invest abroad, even as they pile up earnings from exports, is one of the factors fuelling a real estate bubble within China."

Canadian real estate is seen as good value in China, even though 2009’s 5.2-per-cent year-over-year gain stoked fears of a bubble. But over the same period, prices in Hong Kong gained 27.6 per cent while those in mainland China gained 25.1 per cent.

Prices are expected to fall, however, as a flood of new listings and a slowdown in sales helps to cool what was a hot market. The Real Estate Board of Greater Vancouver said yesterday that sales fell 30 per cent in May compared with a year ago, while the Toronto Real Estate Board reported a drop of 20 per cent.

Support from foreign buyers could help to prop up the higher end of the market, agents suggest, because they tend to prefer properties that Canadians consider high end.

The group will visit two condo developers while in Canada – Tridel Corp., and Concord Pacific. Both have catered to foreign buyers, with several language options available on their websites, and multilingual agents to answer queries.

"You often hear they are attracted by the schools in Canada," said Jim Ritchie, senior vice-president of sales and marketing at Tridel. "The other reason tends to be that they want a place to stay when they are here, even if it’s not very often."

TransAsia Investment Partners plays up Canada’s education system in its promotional materials, and its representatives talked up the country’s universities during its information seminars show through the Yangtze River-Delta.

"Many of the visitors are upcoming immigrants or someone who is considering immigration," Mr. Zhang said. "Therefore, most of them plan to live there or send their kids to Canada for education. All the properties we will visit are near great schools and universities. There is still a significant portion of investors looking for safety and the rental income, but this group is smaller."

Barbara Lawlor, president of Baker Real Estate in Toronto, said about 10 per cent of her sales involve foreign buyers. She tends to work with international agents, rather than directly with the foreigners, as most tend to shop from their own countries and make the purchase sight unseen.

"Having large groups come through is an interesting development," she said. "Usually we deal with a buyer’s agent, but the investor portion of our market is constantly evolving as families emigrate and look for places to live."

(Source: Globe & Mail)