Why China’s crashing stock market will drive up Vancouver home prices

The stock market has had a terrible year so far in China. But that might mean Vancouver's housing market has another good one

January 7, 2016

By Max Fawcett

China’s stock market is crashing—and it’s going to drive the prices of Vancouver real estate even higher. At least, that’s what Derek Holt, the vice president at Scotia Economics, said in a morning note today. In it, he described the Chinese government’s increasingly ham-fisted effort to manage its currency, and how that’s encouraging Chinese savers to get their money out of that country and into other, safer assets that aren’t tied to the yuan. “Stand by and watch your life savings go down as the yuan is deliberately pushed lower and confidence in policy communications deteriorates, or get out one way or another including buying the USD and more homes in Vancouver and thus creating further imbalances elsewhere,” said Holt. “That’s not easy for investors to do in China, but it’s getting easier.”

Elaine Hung, the vice president of marketing with Sotheby’s International Realty, told BNN this morning that many Chinese savers and investors will naturally look to Vancouver real estate as a place to park their wealth. “When it comes to uncertainty within the Chinese currency, as well as the global stock markets, that makes Vancouver a very appealing destination,” she said. “It’s a safe harbour for people to purchase real estate, and it’s also a safe place for people to immigrate and live. So with that uncertainty in the global stock markets and Chinese economic growth leading into 2016, that’s a positive for Vancouver real estate.”

Positive for those in the business of selling and marketing it, maybe, as well as those with plenty of equity and the cash flow to support it. But for those who are on fixed incomes and have watched their property tax assessments move ever higher, it could be another source of upward pressure in a market that doesn’t seem to need any. Indeed, Metro Vancouver homeowners were greeted in the New Year with re-assessments that included average increases of 15 to 25 percent in the assessed value of their homes. As CBC noted earlier this week, “increases of 15 to 25 percent will be typical for single-family homes in Vancouver, North Vancouver, West Vancouver, Burnaby, Tri-Cities, New Westminster, and Squamish. Single-family market movement in Whistler, Pemberton, and the Sunshine Coast is less dramatic, with typical increases in the zero to 15 percent range. Typical strata residential increases throughout the region will be in the five to 10 percent range.” All told, total assessments for Vancouver increased nearly $100 billion in just one year, and it will almost certainly mean higher property tax bills for residents throughout the region—a growing number of whom can scarcely afford them.

If there’s a silver lining here, it’s the possibility—mooted in a Reuters piece today—that China’s central bank will implement a sudden depreciation in the yuan of 10 to 15 percent, one that would give savers an immediate haircut on their household wealth and prevent outflows to other asset classes. That, he says, would be bad news for Chinese households but could limit the amount of capital that flows out of China and into other asset classes.

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