The Real Deal New York

Western cities are struggling to stem the flow of Chinese buyers

Governments have tried taxing foreign buyers
June 07, 2018 01:15PM

(Credit: Free Stock Photos, Pixabay)

As Chinese buyers flood the real estate market in Western cities, officials are seeking to curtail the trend — to no avail.

Chinese investors drove an estimated $100 billion in property purchases outside China in 2016, the Wall Street Journal reported. Though the foreign capital was welcome after the financial crisis, officials in Canada and Australia are now concerned price bubbles threaten their regional economies, the report said.

Governments “are still at the trial-and-error stage,” Aaron Terrazas, senior economist at Zillow Group, told the Journal. “They are trying to figure what works and what doesn’t.”

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Trying to curb the flow isn’t easy: Taxes on foreign buyers in one city may only divert them to another location. And sometimes buyers return regardless of taxes.

For example, when Vancouver’s 15 percent tax didn’t work, foreign buyers flocked to Toronto. When Ontario officials introduced their own 15 percent tax, buyers headed back to the West, only to be met with a new 20 percent tax in British Columbia, the Journal said. The province also took measures to discourage flipping condo units before they’re occupied.

The impact these buyers have on housing prices isn’t clear, as low interest rates and tight supply in some areas has also contributed to rising prices, the report said.

Beijing has also tried to limit capital outflows, amid concerns that it decreases confidence in the national economy and could potentially weaken the yuan. Officially, Chinese citizens are allowed to exchange no more than $50,000 worth of yuan a year. But there are loopholes, such as linked real estate purchases to children living abroad and buying luxury goods to exchange them for dollars, according to the Journal.

At the same time, Chinese investment is declining elsewhere, including London. In the first three months of this year, Chinese buyers poured only £432 million ($581 million) into property deals compared to last year’s total of £7 billion ($9.4 billion), according to a recent report. [WSJ] — Meenal Vamburkar