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Are foreign buyers responsible for skyrocketing property prices?


03-08-2017


        
       
Governments must strike the right balance between inviting global capital and appeasing local sentiment
       
      

 
Luxury properties in Vancouver, which has introduced surcharges to foreign buyers © Bloomberg
      
       
by: Judith Evans
      
 
In recent years a flood of footloose international capital, much of it from China, has been searching for homes in which to invest. In parts of the world, however, that cash has become rather less welcome.
     
Over the past year, regional authorities in British Columbia in Canada and Australia’s New South Wales have both introduced surcharges aimed at overseas buyers of homes. They joined Hong Kong and Singapore, which already penalised foreign buyers. Switzerland, meanwhile, bans non-residents from outside Europe from buying altogether. In the UK, the stamp duty system has been overhauled to raise charges at the top end and add a surcharge for buyers of second and additional homes.In most cases, such charges are aimed at cooling overheated markets and keeping homes affordable for domestic buyers. Christy Clark, premier of British Columbia, which includes Vancouver, until last year one of the world’s fastest-rising property markets, said the administration would “make sure that we do everything that we can to try and keep houses affordable and to try and make sure that those very wealthy foreign buyers find it a little bit harder to buy a house in the Greater Vancouver area”. Her 15 per cent surcharge for overseas buyers duly sent the market into reverse.Are foreign buyers really responsible for skyrocketing property prices?

The case of Vancouver suggests they play a role. Chinese buyers who inundated that market accounted for a third of property purchases by value, according to a study carried out by the National Bank of Canada. A mansion for sale © BloombergIn London, buyers who live outside the country make up only a fraction of the total but have aided market distortions in other ways. For example, there are now an estimated 10,000 surplus luxury flats in a city with a dire shortfall of affordable housing. Globally, hostile measures aimed at foreign buyers helped to push the luxury housing market downwards in 2016 for the first time in five years, according to research company Wealth-X.

When it comes to Chinese cash, governments recognise the relationship is not one way.  Still, there are countries, especially in southern Europe, that continue to welcome the cash and the broader involvement that goes with it. “Golden visa” schemes became popular as countries ravaged by the euro crisis sought rapid overseas investment; in countries such as Spain, Malta and Greece, a property purchase can still be used as a route to residency or even citizenship. The case of Portugal demonstrates how countries can blow hot and cold on international property buyers. In 2012, it introduced a “golden visa” residency scheme that brought in thousands of buyers. But by last year, the system had come to a virtual standstill after legislative changes resulting from a corruption inquiry. Now, the country is planning to introduce a “wealth tax” on properties worth more than €600,000. Buyers there could be forgiven for feeling as if they are in a tricky, on-off relationship.

When it comes to Chinese cash, though, governments do recognise the relationship is not one way. Despite the stereotype of Chinese buyers as absentee landlords of often uninhabited homes, in Vancouver, London and other cities, they also represent a growing number of immigrants, students and businesses. Overseas property owners who do not live full time in a city might still consider themselves involved in local life, while large-scale investment helps to fuel property development. Indeed, some Canadian commentators have linked the hostility to Chinese property buyers to a history of racism in the region, for which Clark recently issued an apology on behalf of her province. In any case, the flow of Chinese money may abate. The Chinese administration has imposed new curbs on outbound capital, specifically targeting property purchases. If the flow of Chinese cash slows down, national and local governments will be left pondering whether they struck the right balance between inviting global capital and appeasing local sentiment.

This is a tough call to make, and not only when it comes to property.@JudithREvans

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