Offshore money inflates real estate beyond reach of locals
The recent flap about an Ontario politician with ties to China is inconsequential unless serious charges are laid. Cozy relationships are commonplace in politics everywhere and China, like Exxon or Shell, is simply good at it.
China is a holding company, as much as a country, and its many state-owned enterprises and wealthy citizenry have targeted Canada for years for its resources, space and as a backdoor entry to the United States.
The door opener was Hong Kong tycoon Li Ka Shing in 1983. I attended a soiree in Calgary in his honor that year after he bought Husky Oil and announced he and his family would immigrate to Canada. He started a flood of Hong Kong residents who wanted Canadian citizenship as an “insurance policy” in case the handover from Britain in 1987 didn’t work out.
It worked out so Li didn’t stay, nor did his sons or another 250,000 others. Li Ka Shing became Beijing’s partner and the richest man in Asia, worth US$31 billion. (Canadian citizenship was better than U.S. citizenship where U.S. taxes must be paid on income no matter where citizens live.)
The point of all this is that China plays chess while we play checkers. Beijing is long-term, patient and strategic as are its corporations and partners, and the list of lobbyists, law firms and consultants who work around the world for them is long. (Canada’s former External Affairs Minister John Baird just left and has become an advisor to Richard Li plus other corporations.)
They want “resources” but these are not just oil and gas. One concern is that Canada restricts resource takeovers but has not impeded the rampant development of condos in Vancouver and Toronto that function merely as “safety deposit boxes in the sky”.
The result of foreign buying from China and elsewhere is that Toronto and Vancouver house prices are higher than Manhattan Island’s. This is a social problem and has driven up the cost of homeownership and debt levels for local residents.
Vancouver is now the most expensive city in the Western Hemisphere. And yet the sky cranes continue to dominate its skyline and Toronto’s (where there are more cranes than in New York City).
High housing prices are behind Vancouver’s inability to attract and keep head offices. A recent poll revealed that 18% of Vancouverites were “miserable and seriously thinking about leaving” because of exorbitant house prices and mortgages.
Not surprisingly, Australia had the same run-up in house prices, but did something quickly to staunch the damage. It requires foreigners with visas to obtain government approval to buy housing and then requires them to sell when their visas run out.
The Australians also require transparency of ownership, but in Canada many units are anonymously held in secrecy haven trusts or numbered corporations.
The point to all of this is that Canada Inc., like Australia Inc., should not be for sale to the highest bidders. Like foreign corporate takeovers, there must be an ongoing cost-benefit to the country for access or purchase of any of its resources from housing to health care and education.
Instead, a housing lottery in two Canadian cities has been created that is making them uncompetitive and unaffordable.
Likewise, Ottawa should not have rushed quickly into the arms of China with a 31-year trade deal that lacks reciprocity – or firm promises that Canadian investments and investors will enjoy all the rights and protections that Chinese companies enjoy here. To date, that deal has not been signed off due to backbench and public concerns.
The United States is also a magnate and condo prices in certain cities are beginning to nudge up considerably, coincidental with Beijing’s crackdown on corruption.
And the end is nowhere in sight. In 2014, the Huron Chinese Luxury Consumer Survey – a website that tracks the country’s wealthiest – said 64 percent of main land Chinese households with US$1.6 million or more had members who have left or planned to do so. Their preferred destination is the U.S. followed by Australia and
Canada then Britain.
All this popularity is fine, but not if short-term gain for a few, and real estate bubbles for all, result in long-term pain for the many.