By Jonathan Cooper and Daniel Scarrow
Last month, the Canadian government announced the termination of the Immigrant Investor and Federal Entrepreneur programs. This canceled the applications of approximately 65,000 individuals who were on the waiting list backlog for these two programs.
Given that 70 percent of these applicants were from mainland China, and given the importance of Chinese investors to the Vancouver property market (especially in the high end), many analysts have predicted that this change in government policy will have a significantly negative effect on Vancouver-area real estate values.
Before assessing what the true impact will be, let’s consider how these programs functioned, and where they had the most impact.
The Canadian government introduced the Immigrant Investor Program in the mid-1980s in order to promote immigration by business people and their families. Quebec subsequently negotiated with the federal government to have its own, parallel program.
The programs enabled qualified investors to obtain permanent resident status in Canada and put them on the pathway to full citizenship. To qualify, applicants needed at least two years of business management experience, have minimum net worth of $1.6 million (Canadian) and be willing to make an investment of $800,000 in the form of an interest-free loan to the government for five years. They also had to meet certain health and security requirements.
Under these programs, the federal government admitted about 2,500 families per year, with Quebec admitting a similar number. While 2,500 families is not insignificant, there are many reasons to believe that the cancellation of these investor and entrepreneur programs will not have a drastically negative effect on Chinese real estate investment activity in Canada:
- In the most recent set of data available (2012), Canada admitted 257,887 immigrants.
- Of these 257,887 people, 2,616 families, representing 9,350 people, entered via the Immigrant Investor category (3.6 percent).
- Quebec continues to run a parallel Investor Immigrant category that (as of now) continues to process applicants at roughly the same number as the now-discontinued federal program (roughly 2,500 families per year).
- Canada now has a 10-year, multiple entry visa that many immigrants in the queue may find even more attractive than citizenship.
- With its stable economy and clear legal framework, Canada remains an attractive destination for commercial real estate investment.
- Canada has announced that a new program will be created to replace the discontinued program, although details have yet to be announced.
On the other hand, the majority of the 65,000 applicants were high net worth individuals from mainland China, two-thirds of whom would likely have purchased real estate in Greater Vancouver.
If, for example, 1,200 Chinese families were each planning to buy $1 million homes (the current median price for a detached house in Vancouver is $1.5 million), the cessation of these investor immigrant programs equates to $1.2 billion per year in foregone investment in a relatively small market area.
On the face of it, there certainly is potential for a correction in the property market. But remember, this is foregone FUTURE investment — the money that has already entered the housing market will likely stay here. If there were rampant speculation happening in the lead-up to this announcement, we would be worried, but our data shows that speculation has been at a relative low point for several years now, after a flurry of activity from 2008 through 2010.
Returning to our original question, how will the change in Canadian government policy impact the western Canadian housing market moving forward?
Dan Scarrow, Macdonald Realty’s vice president of corporate strategy, has been in China since early February, which has given us the chance to gauge reaction at the source.
The response of our immigration consultant contacts in China — who between them have daily interactions with thousands of potential emigrants — has been relatively muted.
Most have already diversified away from Canada and are now focused on the U.S. immigration programs — even though all things being equal, they say Canada (generally meaning Greater Vancouver) is still a preferred destination.
Because of the long processing times, some of their clients who were in the federal program queue had already given up on Canada and applied to other countries.
Others whose hearts are set on Canada may find other, admittedly constrained, avenues to immigrate. These avenues include British Columbia’s “Provincial Nominee Program,” 10-year multiple-entry visas, as “international students,” or through the revamped federal investor program.
Irrespective of current immigration policies, there are still multiple avenues for Chinese capital to flow into Greater Vancouver real estate.
While there will certainly be some effect from these changes, our view is that they are only one in a host of factors that affect B.C.’s housing market.
Jonathan Cooper is vice president of operations and Daniel Scarrow is vice president of corporate strategy at Macdonald Realty Group (MRG). Based in Vancouver, British Columbia, MRG has 20 offices and 1,000 staff and Realtors, and offers a full range of real estate services across the province, including residential and commercial brokerage, property and strata management, and project marketing.