Is real estate foreign buyers tax the 15 per cent solution?

 
Kris Klaasen has been “gob-smacked” by Metro Vancouver’s housing turmoil.

While many worry the city’s bubble might be bursting, the 61-year-old communications designer is conflicted over how his modest Vancouver home has become worth almost 20 times what he bought it for.

“Housing has become a hyper-commodity in this city. Living in Vancouver has become very tense. And intense. Every day I’m in a conversation about the price of housing and what it’s doing to the city.”

Years after Metro Vancouver became one of the world’s most unaffordable cities for housing, the provincial government stunned British Columbians on July 25, announcing it would be slapping a 15 per cent tax on foreign buyers of Metro homes, from massive detached houses to modest condominiums.

This seismic policy shift came in the wake of real estate industry leaders and B.C. politicians long denying that offshore investment had anything to do with affordability.

 

Klaasen, the ostensible beneficiary of runaway real estate prices, bought his corner house in Kitsilano in 1982. With help from parents, he picked up the modest bungalow for $126,000.

Now realtors tell him it could sell for more than $2.4 million.

Although Klaasen recognizes he stands to haul in a big profit, he grieves over how “outside money” is hurting so many others in Metro Vancouver. Many who leave are young adults; others are retired. They’re moving to Maple Ridge, Prince George or Vancouver Island.

“My friends are saying, ‘I’m out of here.’”

Kris Klaasen enters the backyard of his Kitsilano home. ‘We need to focus on making the city a community, not a commodity,’ he says.

Kris Klaasen enters the backyard of his Kitsilano home. ‘We need to focus on making the city a community, not a commodity,’ he says. FRANCIS GEORGIAN / PNG

‘HORDES MYTHOLOGY’

The B.C. Liberals’ decision, which took effect Aug. 2, to cool Metro’s market by levying a 15 per cent tax on foreign buyers amounted to a startling about-face.

It was announced just one year after B.C. Housing Minister Rich Coleman claimed his government “does not have any policy” on foreign buyers. Coleman had argued Metro prices “were pretty reasonable compared to other cities like London, Singapore, Tokyo.”

The tax was also introduced well after Cameron Muir, chief economist for the B.C. Real Estate Association, routinely dismissed polls showing Metro residents believing there was too much foreign ownership.

“The mythology,” Muir said in 2014, “is that there are hordes of investors coming in Vancouver and driving up prices.”

Premier Christy Clark announces, with Finance Minister Michael de Jong in tow, that the government will impose a real estate tax of 15 per cent tax on foreign buyers on July 25.

Premier Christy Clark announces, with Finance Minister Michael de Jong in tow, that the government will impose a real estate tax of 15 per cent tax on foreign buyers on July 25. CHAD HIPOLITO / THE CANADIAN PRESS FILES

In the face of resistance from the development industry, which in recent years has donated $12 million to the B.C. Liberals and frequently dismissed critics as “xenophobic,” how did Metro get to a tax on foreign buyers?

UBC geographer David Ley, author of Millionaire Migrants: Transpacific Life Lines, says the B.C. Liberals’ 15 per cent tax was “out of character” and “ totally unexpected.”

Now for the first time in decades, Ley said, the anti-red tape B.C. Liberals took a stand for “re-regulation” and “anti-globalization.”

Ley, who has long tracked house prices in Metro and other “gateway” cities, feels the B.C. government finally felt political pressure to react to the“collateral damage” it has been instrumental in creating by relentlessly wooing Asian-Pacific investors after Vancouver’s Expo 86 world’s fair. 

The tax, which does not apply to commercial property, is proving highly popular in the city of 2.5 million, which suits a governing Liberal party just eight months out from a provincial election.

David Ley, author of Millionaire Migrants: Transpacific Life Lines, says investigative journalists in Metro Vancouver covering the real estate situation forced the B.C. government, and Ottawa, to finally take action.

David Ley, author of Millionaire Migrants: Transpacific Life Lines, says investigative journalists in Metro Vancouver covering the real estate situation forced the B.C. government, and Ottawa, to finally take action. JASON PAYNE / PNG FILES

The Angus Reid Institute found nine of 10 city dwellers applaud it. After announcing the tax, Premier Christy Clark’s dismal approval rating jumped seven percentage points, to 34 per cent.

Vancouver’s tax on foreign buyers is also catching on in Greater Toronto, where Angus Reid found three of four in that city of six million want it.

Is the levy working? It’s too early for firm conclusions, but the Greater Vancouver Real Estate Board’s report for September contained a chart showing the average price of a detached home had plunged about $400,000 from its peak of $1.9 million.

The total number of home sales fell by about one-third in September, compared with the same month last year. But the GVREB claims the typical  “benchmark price” has remained firm.

Many observers question the GVREB’s analysis, suggesting the industry has a vested interest in making people believe the bubble is not bursting.

Canadian real estate pricesSOCIAL COSTS

Why did B.C. finally feel the pressure to follow Hong Kong and Singapore, which have long had regulations to soften the deluge of East Asian capital?

The short answer is that runaway house prices have caused devastation and voter outrage.

Here is Ley’s partial list of the social costs:

“Out-migration of young, difficulty in retaining key employees, overcrowding, homelessness and couch surfing, heavy debt loads, long commutes and traffic congestion, the necessary rise of illegal suites in detached homes, and young adults remaining in the family home into their late twenties. Family reproduction is also affected as the necessity of two wage earners in a family delays or prohibits child-raising.”

At a recent SFU symposium, Mapping the Hedge City: Vancouver and Global Capital, Ley explained it was basically a handful of investigative journalists in Metro who forced the B.C. government, and Ottawa, to finally act.

Their articles revealed the tax necessary to rein in foreign speculation, and that more measures are needed to restrict the way fortunes made outside the country are being funnelled into Metro housing.

Life-long Vancouver resident Justin Fung is critical of ‘race-baiting’ by real estate developers and politicians who try to silence their critics. ‘The vast majority of Canadians who want a fair shot at an affordable roof over their heads simply don’t have a racist bone in their bodies,’ he says.

Life-long Vancouver resident Justin Fung is critical of ‘race-baiting’ by real estate developers and politicians who try to silence their critics. ‘The vast majority of Canadians who want a fair shot at an affordable roof over their heads simply don’t have a racist bone in their bodies,’ he says. JASON PAYNE / PNG FILES

One of the strongest protest movements that has arisen is HALT (Housing Action for Local Taxpayers), which includes many Chinese-Canadians and is led by Justin Fung, whose parents came from East Asia.

Fung, along with activist Fenella Sung, attack the self-serving “race-baiting” of real estate developers and politicians who try to silence critics byclaiming it’s xenophobic to link housing prices to foreign money.

“The vast majority of Canadians who want a fair shot at an affordable roof over their heads simply don’t have a racist bone in their bodies,” Fung said.

“It’s never been about the Chinese people as a race, but the fact that money is flowing out of China and finding its way into Vancouver real estate.”

FROM THAT ’70s SHOW TO NOW

This is not the first time Metro residents have fretted about house prices.

The problems can be traced back to at least 1976, when Vancouver economic researcher Gordon Soule put together a book titled The Housing Crisis.

In the book, then-Vancouver mayor Art Phillips and future B.C. premiers Mike Harcourt and Bill Vander Zalm discuss even then how Canada’s unusually high offshore immigration rates were fuelling relative unaffordability in Metro.

But in-migration has continued apace. And an early factor behind the rising flood of money into Metro has been the way the B.C. government sold off the Expo 86 lands.

B.C. NDP housing critic David Eby (above), who has helped lead the charge against rocketing real estate prices in Metro, described as ‘mind-boggling’ last year’s trip by Premier Christy Clark to China in which she included three real estate firms in her touring party.

B.C. NDP housing critic David Eby (above), who has helped lead the charge against rocketing real estate prices in Metro, described as ‘mind-boggling’ last year’s trip by Premier Christy Clark to China in which she included three real estate firms in her touring party. MARK VAN MANEN / PNG FILES

Bypassing an offer from local buyers, Ley said Social Credit politicians sold the prime waterfront property to Hong Kong’s richest man, Li Ka-shing. It was a signal for more Asian speculators to follow.

Prices would take off dramatically with the arrival of Hong Kong residents fearful of China’s gaining sovereignty over their region in 1997.

Left-wing community organizers responded by protesting the razing of houses and trees and increased prices caused by the influx of money from people from Hong Kong (and Taiwan), many of whom continued to work in Asia.

Real-estate industry officials in the ’90s responded by denouncing the protesters as “racist.”

The rapid sell-off of Metro real estate in the past three decades has been exacerbated, Ley says, by scores of taxpayer-funded trade missions that federal and provincial politicians have proudly led to Asia.

Their marketing efforts came to a head last fall, when Premier Clark included three real estate firms in what turned out to be a controversial mission to China, with Vancouver NDP MLA and housing critic David Ebydescribing the move as “mind-boggling.”

Household income ratio graphicDuring all this time, however, the most crucial factor driving up Metro housing prices has arguably been Ottawa’s Business Immigration Program (BIP), which was initiated in the mid-1980s.

Ley estimates the BIP has brought more than 400,000 well-off immigrants to Metro

BIP has helped make Metro one of the most sought-after markets in the world for the $52 billion Cdn each year that Chinese buyers now spend on overseas property, Ley said.

Josh Gordon, a Simon Fraser University assistant professor of public policy, says National Bank of Canada economists estimate “almost $13 billion Cdn was spent by Chinese investors in Vancouver in 2015 alone. This represents roughly one-third of all home sales volume in that year.”

The Conservative government eventually confessed that, as a group, those who took advantage of the BIP, many of whom own Vancouver mansions, paid the lowest amount of taxes in Canada.

The Conservatives finally killed the BIP in 2014. But the federal Liberals are considering whether to revive an immigrant investor pilot program similar to the discredited BIP.

$9,000 HOUSE IN 1948

The history of housing prices in Vancouver reveals the city has always been somewhat pricey compared to wages. But the gap grew wide in the 1990s and has become a chasm since 2010.

Earning a modest income running his business from his basement, Klaasen knows his family has only gotten by largely because he was able to buy his house for $126,000 more than three decades ago.

Kris Klaasen's west-side Vancouver home, circa 1993.

Kris Klaasen’s west-side Vancouver home, circa 1993. HANDOUT

Kris Klaasen has owned his corner house in Kitsilano since 1982, when he bought it for $126,000. Today it could fetch more than $2.4 million, he’s been told.

Kris Klaasen has owned his corner house in Kitsilano since 1982, when he bought it for $126,000. Today it could fetch more than $2.4 million, he’s been told. FRANCIS GEORGIAN / PNG

A land title search of Klaasen’s property and house, which was originally built in the 1940s, shows that before he bought it, it had been cheaper still.

Previous buyers had snapped up his home for $13,800 in 1965, $15,000 in 1960 and $9,000 in 1948.

What does this mean in today’s dollars? Since Klaasen’s purchase in 1982, inflation in Metro has gone up 132 per cent.

That means he bought his home for roughly the equivalent of about $300,000 today.

Many people would kill for the chance to buy a house for that price.

Statistics Canada data suggests Klaasen bought when the ratio of average Metro earnings to average house prices was about 3.5 to one, which is considered barely affordable.

But that’s a far cry from today’s catastrophic ratio of 13 to one.

Klaasen realizes he is among thousands of Metro residents who are basically like lottery winners — they’ve become wealthy for just sitting on their ass(ets).

RISE OF AN UNEQUAL CITY

In 2016 U.S.-based Demographia, which measures house prices against wages,  ranked Metro Vancouver as the third least affordable of 367 global cities. Only Hong Kong and Sydney are worse.

SFU’s Gordon is among those who say unaffordability is the leading social-justice issue in “unequal” Metro Vancouver.

Compared to the rest of Canada, Gordon found Metro’s unaffordability ratethis year is 2.5 times worse than the national average.

Vancouver residential average sales pricesIt’s also almost twice as unaffordable as Greater Toronto, which also faces a housing crunch. And it’s roughly five times worse than Edmonton and Ottawa, the latter being where (out-of-touch?) federal politicians are responsible for a national housing strategy.

Even though the 15 per cent tax is “several years too late,” Gordon said it’s one necessary component to bring local housing back in line with the labour market.

In addition to combatting foreign buying, the SFU professor believes the surcharge signals further policy action to come, which should discourage speculation. Similar surcharges in Hong Kong, Australia and Singapore (which has 15 related regulations) have been effective.

Unfortunately, Gordon said the tax will not stem the foreign-rooted buying that occurs through “local proxies,” including tax-avoiding Canadian-based shell companies, as well as offspring and spouses who may be landed residents. Nor will it curtail purchases by “newly arrived, non-working permanent residents with substantial (offshore) wealth.”

The other thing the 15 per cent tax does not confront is perennially shoddy law enforcement.

Many experts have cried out about the lax approaches of the federal immigration and tax departments. Reports reveal federal officials have looked the other way as money laundering and tax evasion spins out of control in Vancouver and Toronto real estate.

At least governments are starting to face reality, though, Gordon says. No one should be led astray, he says, by development industry arguments that housing price jumps are mostly caused by low interest rates, the “desirability of Vancouver,” its allegedly “strong” economy, geographic constraints, bad zoning or lack of social housing. The main problem, his research shows, is foreign demand.

Prime Minister Justin Trudeau greets members of the China Entrepreneur Club in Chelsea, Que., earlier this week.

Prime Minister Justin Trudeau greets members of the China Entrepreneur Club in Chelsea, Que., earlier this week. ADRIAN WYLD / THE CANADIAN PRESS

‘XENOPHOBIC’ CLAIMS

Still, dramatic things have happened in the 10 weeks since the 15 per cent tax was announced.

Some industry lobbyists have been apoplectic. Reviving their silencing technique of the 1990s, they have claimed the tax is “xenophobic.”

They also say it contravenes globalization agreements like NAFTA. MetroChinese student Jing Li, 29, is the lead plaintiff in a Canadian class-action suit that claims the tax contravenes 30 free-trade treaties.

A group of Chinese billionaires, members of the China Entrepreneur Club, was in Chelsea, Que., on Tuesday to complain about the tax to Prime Minister Justin Trudeau. It was the group’s second meeting with Trudeau in less than two months.

The handful of Metro journalists covering the housing crisis two or three years ago has also now turned into a small army. Housing has exploded into the province’s biggest story, with Eby, the NDP housing critic, receiving lots of coverage.

Metro Vancouver average home pricesIn the past six months, especially since August, a dizzying upsurge of news stories have exposed the many legally dubious and criminal ways that realtors, lawyers, immigration “consultants” and major banks have helped foreign or dual-passport clients speculate in Canadian real estate.

News stories have uncovered the scams and loopholes that have helped thousands triple-flip properties, fake Canadian tax residency requirements, launder untold amounts of offshore money, obtain mortgages more easily than Canadian citizens, avoid capital gains on mansions and pretend to occupy large houses that are actually empty.

The federal Liberals also seem to be waking up to the situation.

In early October, Ottawa moved to tighten lending rules, making it harder for people without adequate equity to get a mortgage. The federal government has also suggested it will close a loophole that allows Canadian lawyers to launder foreign money. And it’s hinted it may end the honour-system reporting that some foreign buyers have been abusing to avoid taxes on capital gains.

Many, however, remain skeptical. The federal government’s enforcement of tax and immigration laws has long been underfunded and weak, say specialists. Ottawa’s promises, they worry, may be mostly a public-relations exercise.

FUTURE FORECASTS

As for prices, it’s hard to get people to agree on what’s happened.

Much of the speculation since Aug. 2 has focused on whether Metro’s housing market bubble is bursting, as predicted in July by SFU economist emeritus Herb Grubel.

Helmut Pastrick, Central 1 Credit Union’s chief economist, has estimated Metro prices could fall five to 10 per cent into 2016.

Helmut Pastrick, Central 1 Credit Union’s chief economist, has estimated Metro prices could fall five to 10 per cent into 2016.GLENN BAGLO / PNG FILES

Even while the GVREB has claimed prices were about one-quarter higher in September than a year earlier, real estate journalists argue it’s underestimating the drop.

Postmedia has also reported that, since early August, prices have suddenly been rising in Victoria, Toronto and Seattle, which don’t tax foreign buyers.

With all the political manoeuvring and volatile economies in Asia, few want to guess the future.

But Central 1 Credit Union chief economist Helmut Pastrick has estimated Metro prices could fall five to 10 per cent into 2016.

He also predicts prices will double over the next 25 years. Pastrick says demand will slowly rise again because one million more people, predominantly from offshore, are expected to move here by 2041.

Whatever politicians are thinking, the pressure on them to act on behalf of citizens, not foreign interests, has grown more intense in the past six months.

Fung, of HALT, has made it clear he will not stop challenging developers. He wants more done “for the vast majority of us struggling to make ends meet … or trying to get into the housing market.”

And Klaasen, ensconced in his west-side bungalow, fully backs HALT’s efforts to restore the livability of Metro. Shifting into semi-retirement, he recognizes his housing security gives him options others don’t have. So he’s thinking of others.

“We need to focus on supporting the people who live and work here. We need to focus on making the city a community, not a commodity.”

dtodd@postmedia.com

Twitter.com/douglastodd

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Real estate developers shrug as flood of Chinese cash into Vancouver continues


Real estate developers shrug as flood of Chinese cash into Vancouver continues
 

Belford Properties is another a Vancouver-based developer with ties to mainland Chinese investors.

Photograph by: Steve Bosch , PNG

VANCOUVER -- With every fall of the Shanghai stock market and report on corruption and laundering of cash out of mainland China, there is hand-wringing about the impact of money coming from this instability into the local real estate market.

Much has been said about Chinese capital flowing into luxury homes from Sydney to London to Vancouver.

When it comes to land and other buildings, 2015 has been dubbed the year of the Chinese investor, too.

Around the world, large mainland Chinese funds have been snapping up well-known and coveted sites. Then, large developers, equity investors and insurance firms, also from mainland China, followed with a buying spree in the U.S. and across Europe.

One of the largest single purchases was made by Beijing-based Anbang Insurance, which paid $1.95 billion for the iconic Waldorf Astoria hotel building in New York.

For the most part, however, these institutional and corporate players from mainland China have been absent from the Vancouver market.

Instead — along with more immigrants and investors from mainland China buying homes in Vancouver — it’s been smaller companies, often backed by consortiums of private investors, who have emerged to buy commercial land and buildings here with the aim of re-developing them into mixed-use properties with condos, townhouses and retail shops.

They are attracting attention, and sometimes scorn, in a commercial real estate market that, like the residential one, is already tight, with low supply and rising prices.

The rub is in the timeline. Critics, including local developers who say they can’t afford to sit on land purchases, argue some of these buyers are snatching up prime plots at top dollar with no pressing plans to develop them.

It’s a situation that shrinks the supply of affordable housing options as more buyers who are priced out of looking at single-family homes turn to multi-family developments like condos and townhomes.

“Nobody wants to hold land intentionally,” said Hani Lammam, executive vice-president at Cressey Development Group. “You take it through the process, look at the deal, the numbers, and then you realize there are more costs, more realities, and so you have to hold it.”

The implication is new developers are paying more, especially for the best sites, because they have grand project plans they think justify the price. But they are betting, in some cases, that current zoning can be changed and other hurdles like height or density restrictions will be easily cleared, and that isn’t always the case.

“It’s not money we would risk. Sitting on land is not a good investment,” said Lammam. “There have always been speculators. It’s absolutely normal. We don’t have to stop speculation. It’s a free market, of course. But it does (drive up prices). It forces us to be more innovative.”

So, are these claims by local developers with vested interests exaggerated?

It’s not the first time inflated real estate and land prices have been blamed on investors and immigrants from greater China. In the 1980s and 1990s, when there was an exodus of people and money from Hong Kong to Vancouver, there was a similar rant.

The 1988 sale of the former Expo 86 lands to Concord Pacific, then owned by Hong Kong businessman Li-Ka Shing, followed by the subsequent presales of condos there to buyers in Hong Kong by his son, drew public outcry. Residential homes bought by immigrants and investors from Hong Kong were derided as “monster homes” for their size and showy details.

“I think the parallels are many,” said Henry Yu, a University of B.C. history professor who specializes in migration. “Foreign capital has a yellow face. If it’s British or American or German investment, it’s not foreign in the same way. There is this perpetually foreign element.”

Yu also said the networks bringing cash from Hong Kong in the past, and mainland China now, are highly mobile, stoking up questions of “loyalty. Are you really here?”

However, the big change is that “Hong Kong wasn’t seen as an economic threat to Vancouver,” said Yu of the city with a population of 7.2 million.

Investors from the era of Hong Kong migration to Vancouver grew up “under British rule with the rule of law. They understand licenses and development permits and have the capability to use local lawyers and are well versed with local customs. This helped to de-mystify them,” said Tung Chan, former CEO of S.U.C.C.E.S.S. and vice-president of Asian banking at Toronto-Dominion Bank.

“China is scary in a different way. That is the fundamental thing,” said Yu. “These (new) migrants as investors are (seen as) coming from a looming geopolitical force, and its rise, its corruption. Therefore, it’s (even) harder to see beyond their foreignness even if some are permanent residents with children who go to school here.”

There is deeper resentment, said Yu.

There is also increasing scrutiny over the involvement of Canadian banks, lawyers and real estate agents in facilitating the illegal flow of mainland Chinese cash here when Beijing, by law, limits the amount of cash its citizens can move out of the country to US$50,000 a year.

Perhaps this is why this new wave of developers, backed by cash from mainland China, keep such a low profile.

There are others buying land and buildings with cash from mainland China, but of those contacted by the Sun, most declined to talk in depth about themselves.

Instead, they are stepping out much more cautiously and there is only a tiny glimpse of who they are and what they are proposing. Details can be cobbled from land and company registry documents, as well as their websites.

One exception is Grant Lin, who was commuting between Vancouver and Beijing a decade ago when his company, Yuanheng Holdings Ltd., started buying, rebuilding and then selling some 30 single-family homes, mostly in the Shaughnessy area.

After he and his family moved from mainland China to settle in a west side home themselves in 2008, it shifted into developing townhomes and condos, including the 10-storey Cambie +7 on West 7th Avenue.

Since then, Yuanheng has picked up a cluster of prime commercial sites in the Cambie corridor, along West Broadway and also in Richmond.

In 2012, it paid what seemed a swashbuckling $30 million for a site on West Broadway at Hemlock Street and before that, some $50 million-plus for an eight-acre site off No. 3 Road in Richmond. This year, it added other sites on West Broadway near its head office.

So far, these have not been developed and Yuanheng has leased some of the spaces.

“I don’t want to say so, but we are able to wait, “ said Lin.

Yuanheng is one of the more visible names and it has been around for some time.

Some others have emerged more recently. Most have local offices and operations that are managed by young, bilingual and Mandarin-speaking executives who grew up in Vancouver, some with degrees from the University of B.C. or Simon Fraser University.

In general, wealthy investors, including Canadian citizens and residents, with ties and cash from mainland China are behind many of their purchases.

Lin is a native of Fujian province on China’s east coast, but worked in Beijing before moving to Vancouver. He is outgoing and prefers to chat in Mandarin when possible, but is also comfortable reaching out to host Canadian politicians who are equally keen to try, through Lin, to connect with mainland Chinese immigrants and students. Lin is current vice-chair of the board of the social services agency S.U.C.C.E.S.S.

In a wide-ranging interview at Yuanheng’s Broadway office, Lin brushed aside a reporter’s query about the company’s backers, insisting he is the company’s single shareholder.

He was also very careful when addressing the suggestion that cash from mainland China is raising Vancouver land prices.

“We are just a single (company),” he said.

Pushed to elaborate, he said: “Money goes everywhere in the world (now). San Francisco. Hawaii. If you have a good place, (investment) will flow there. Lots of people are like a frog sitting at the bottom of the well. They can’t see the world around them. They can’t see the change.”

Yuanheng is just one of several real estate development companies in Vancouver with connections to cash from mainland China. Here are some others:

COROMANDEL PROPERTIES

In late 2014, CM Bay Properties paid $15.8 million for a 15,860-square-foot site at the northeast corner of Cambie Street and 41st Avenue, across from Oakridge Mall. With a proposal for a 12-storey mixed-use condo and retail complex, the purchase was notable for its record-setting price per buildable square foot, pegged at $402.

Land documents show CM Bay has since spent about another $15 million picking up single-family home lots east of that former gas station site. It is marketing a condo development on West Broadway that is slated for completion fall 2016, and another in Fairview in 2017.

More recently, CM Bay renamed itself Coromandel Properties. In a statement, it also put forth Jerry Zhong as its principal and, without too many other details, acknowledged the company’s mainland Chinese ties.

“The name Coromandel is derived from the valuable screens that were created in China and shipped all over the world via the Coromandel Coast of southern India,” said Zhong. “We chose (it) to honour the heritage of our company’s principals who travelled from China to make Canada their new home.”

Zhong declined to be interviewed.

BELFORD PROPERTIES

It has an Anglo-sounding name, but Belford Properties is also a Vancouver-based company with ties to mainland Chinese investors. It, too, owns and has sold some single-family homes on the west side. More recently, it paid $38.7 million for an 80,000-plus-square-foot site in Burnaby near the Metrotown SkyTrain station that is occupied by five low-rise rental apartment buildings. It plans to build two towers on the site. It has also applied to redevelop four single-family lots at the corner of West 63rd Avenue and Manitoba in Marpole into 18 townhouse units. Company principals declined to be interviewed.

WESTLAND INTERNATIONAL INVESTMENT CORPORATION

Lucy Xu and Alex Zhang are listed in company documents as directors of Westland International Investment Corporation, which was established in 2006.

It, too, focused first on custom building multimillion-dollar properties on the west side. The company’s website highlights a few of the luxury homes, which are marketed with names such as Evian Capital, Shaughnessy Fenddi, Swarovski Home and Crofton House.

Later, Xu and Zhang started assembling and buying commercial lots in Kerrisdale and in Dunbar.

In early 2014, through West Boulevard Property Ltd., they bought three lots on a city block along West Boulevard in Kerrisdale for $19.95-million.

After investing hundreds of thousands of dollars to design a condo proposal, the couple sold the parcels to Cressey Development Group in April 2015 for $26.3 million, or a 32-per-cent lift.

Now, they are focused on putting together a city block of land at Dunbar Street and 16th Avenue. In April 2015, Xu and Zhang, through Exeter Property Ltd., paid $9 million for a building at the corner, long the location of Dunbar Lumber Supply. Farther down the block, there are several low-rise apartment buildings and a few homes.

Xu and Zhang, who have been living in Vancouver for some 10 years, declined to say too much about their plans.

“We would prefer to be more low-key since we don’t know if we will be able to make any money. We are just trying it out,” said Zhang, describing plans for a “Dunbar 16” condo project listed on the company website as their “first time with apartments.”

Reached at the company’s English-speaking contact number, director Austin Zhang was a little more specific: “Our plan is to buy the entire block and do a single development. If the owners (in the existing apartment buildings and homes) don’t want to sell, then our plan will be delayed. But if they do, we can go ahead.”

LANDA GLOBAL PROPERTIES LTD.

One of the most talked about new players, even though it sees itself as being slightly different from this group, is Landa Global Properties Ltd. It’s headed by Kevin Cheung and Scott Wang, who both grew up in Vancouver and are backed with capital from their Hong Kong-based fathers, who develop real estate in Shanghai.

In Vancouver, Landa’s Belvoir Homes division has also been building and selling luxury west side homes, but the company has been most noticed recently in commercial real estate circles after reportedly paying over $11 million for the Burritt Bros. site on Main Street. The deal has not been finalized.

The young company has been very active since it was started two years ago, recently closing a $24.6-million deal for a two-acre property on Elmbridge Way in Richmond. In 2014, it bought a retail building site at the corner of Oak Street and Laurier Avenue in Shaughnessy for $7.9 million. It also bought a site in Point Grey for $13.7 million. It has hired architects and has plans to develop multi-family condos on these properties. It is now building its first, a 30-unit development named Bold at Fraser Street and East 19th Avenue.

jlee-young@vancouversun.com

                



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Foreign buyers snatch Vancouver land with no immediate plan to develop

Wealthy buyers who are treating the Lower Mainland real estate market like one giant casino are proving to be a major obstacle for local developers trying to fulfill the city’s goal of providing more housing at an affordable price.

First-time buyers aren’t the only ones feeling the squeeze from the investor market. Marcon Developments Ltd. has been building housing for 30 years and the company’s development manager says speculators backed by foreign money are making it increasingly difficult to develop market housing that is relatively affordable.

The open-floor plan unit is a 1,010-square-foot loft with 10- 1/2 -foot high ceilings, high-end appliances, mosaic tile walls, translucent bath tub, walk-through shower and a parking space.
MULTIMEDIA
Seller makes profit on Gastown condo
The suite is on the 25th floor with panoramic mountain and water views from two large patios, and comes with three parking stalls.
MULTIMEDIA
Family-size condo in Yaletown sells quickly
Graham and Sarah Plant in their basement rental suite in Vancouver. With a baby on the way, they are trying to figure out if they can buy anything bigger than 900 square feet in their preferred area for under half a million dollars.
HOUSING
In the Lower Mainland, cities seek to ‘family-size’ housing developments

They’re reducing the supply and driving prices by sitting on chunks of properties with no immediate intention to develop. As we’ve seen lately, these wealthy speculators buy up houses as land assemblies. They then sell to a developer for top dollar. And that cost is getting passed on to the consumer.

“Foreign developer groups are getting especially aggressive on land purchase prices,” Nic Paolella, development manager for Marcon, said. “They are pushing prices to a place where developers are not able to make the project economically viable. If we are talking about creating more housing supply, at a more affordable threshold, there is less of it to do that on.

“In the last 18 months, the market has seen a lot of Chinese money coming in, with a first-time developer setting up shop and basically willing to pay a lot more than what other groups are finding realistic, because some of these so-called developers are doing it just to park capital. Very little of this land that’s bought comes to fruition as a development. They are purchasing for reasons other than making [housing that is as] affordable as possible.

“They are just holding land. We are thinking of capital growth – they are thinking of capital preservation. That can be seen all over Vancouver.”

In Marpole, Marcon is launching presales for Park & Metro, which is a 73-unit, low-rise, two-building complex designed to merge sensitively with the single-family housing that surrounds it. The complex contains many two– and three-bedroom units that are in huge demand since families who can’t afford detached housing are now looking to condo units. Mr. Paolella says that, because of the city’s plan to densify the area, there’s plenty more opportunity in Marpole, but a big challenge is competing with the new developers. As well, there’s a limited supply of land.

“I think it’s very fair to say that around Marpole and the Cambie Corridor the holding of land is constraining our supply of housing.”

This isn’t a new trend for developers, but it is getting more difficult because speculators are more sophisticated. Hani Lammam, executive vice-president for big developer Cressey Development, says the new investor is often well versed in city plans, so they know about any possible upzoning – which is akin to mining for gold.

“It’s happening everywhere,” Mr. Lammam, who’s dealt with speculators his entire career, says. “The development hot spots are pretty obvious – everybody knows where the next wave of development is going to happen because the access to information is so easy.”

As a result, these speculators are getting better at it. So they are being more aggressive and buying the land first.

“Cambie Corridor is a perfect example. The prices there are astronomical. To think, these are single-family homes – teardowns – selling for $4- or $5-million, is absurd. If you look back five years, those owners would have had a hard time getting over $1-million.

“What people don’t appreciate is that the majority of developers buy property to develop right away. We don’t speculate on property. We only buy if we know what the development potential is. The land speculators are long-term holders of undeveloped land. We just don’t have enough capital to park money somewhere.”

A more recent example is the Burritt Bros. property at the corner of Main Street and E. 20th Avenue, which includes Bean Around the World coffee shop. Central and already zoned for residential mixed use, it was a hugely attractive site for any residential developer. Everybody wanted it. But the site was reportedly sold to a young offshore buyer who drove the bidding to a record price for that area, upwards of $11-million. Mr. Lammam, who was bidding on the property along with several other local developers, says the buyer paid way too much, but he could probably afford it. He says a lot of the new wave of buyers are people with more money than experience. Many of them don’t even know that they’ll have to pay community amenity contributions to the city on top of the price. Those contributions, for a community centre, parkland, or whatever the neighbourhood needs, can add up. If they discover the numbers won’t make sense, that’s when they sit on the property until prices go up.

“In this case, there was a group of people who understood the market, and then there was this outlier. Absolutely he paid too much.

“It’s not because he’s smarter, it’s because the less information you have, the more aggressive you can be. That site is not simple. It’s going to be a lengthy process.”

The Vancouver real estate market is strong, but not a sure thing. The land gamblers have sometimes lost. Rezoning around Cambie hasn’t been as extensive as initially expected, Mr. Paolella says.

“There are people that got burnt for sure. That’s happening now.”

And Main Street is still a tricky market, Mr. Lammam says.

“If it was easy money we would be doing it,” he says. “The gamble is that the market doesn’t go up. Or, you can’t rezone the property, or the demand is not going to move east as quickly as we think it is. Main Street is the perfect example. I know I can sell Cambie Street right now for $800 or $900 a square foot, but Main Street is a millennial demographic. They don’t have any money.”

It’s not only offshore speculators driving prices. Developer Daniel Boffo had to pay top dollar to a local man in North Vancouver who’d assembled land around the hugely desirable Edgemont neighbourhood.

“In that scenario, it was a local real estate guy that was able to make a buck by doing that. He knew the plan and where it was going to go. He was creative in putting together an assembly that would be desirable for a developer to pick up. It’s low risk,” Mr. Boffo says.

He had also bid on the Burritt Bros. property on Main Street.

“There’s a lot more money coming from overseas. And I think why they like land is it allows them to place a large amount of funds in one spot. It makes it simpler from their end, where they are looking to relocate some of their capital. Unfortunately, it makes it hard for us.

“With all the other stresses that the industry faces – as well as tackling affordability – it’s coming more to the surface now. But ultimately, if costs go up on land, and there’s not enough of a return to make it viable, it does get passed on to the consumer.”

Boffo Properties supplies both market and non-market housing. Mr. Boffo believes that the rash of speculation is a byproduct of the city’s growth, and a challenge for city hall as well.

“It’s a big topic, a big can of worms. That’s [the city’s] biggest challenge, in trying to grow communities responsibly and sustainably. There’s a lot of change that’s happened and that will continue to happen.”

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Chinese money launderers snap up Vancouver real estate because of lenient border laws, loose regulations

 

Province reporter Sam Cooper explains how illicit money is flowing into Vancouver's real estate market.

Vancouver International Airport is the major port of entry for millions in hidden cash being smuggled into North America by mostly Chinese citizens, a federal document investigation by The Province reveals.

And according to money laundering investigators, the amounts identified in Canada Border Service Agency cash seizure data, obtained by The Province under freedom of information law, is only the tip of the iceberg.

Experts said Vancouver appears to be targeted by Chinese citizens because Canada’s forgiving border laws allow seized cash to be returned for minimal fines. As well, permissive property investment rules and loose reporting compliance in the real estate industry make Vancouver homes the perfect vehicle for illicit offshore investment.

“A lot of the illicit money coming into Canada from Chinese citizens is laundered through real estate in Vancouver,” Hayley Labbé, a senior forensic investigator with the firm MNP LLP, told The Province.

The Province obtained CBSA data months after undertaking a wide-ranging federal document search to learn more about China’s anti-graft initiatives such as Operation Fox Hunt and SkyNet — the aggressive crackdowns by the Communist Party of China on political corruption suspects.

Co-operation between China and Canada in the hunt for numerous suspects who have allegedly fled to Canada with ill-gotten gains is controversial, because of many differences between the two countries’ legal systems.

But The Province obtained several documents that indicate co-operation is increasing.

A variety of Canadian agencies cited national security or China’s diplomatic privilege as a reason not to release information; for example, CSIS and the CBSA refused to confirm or deny the existence of certain documents.

But the CBSA did release rare data on seizures of undeclared assets brought to Canada by foreign travellers.

The data shows customs agents at Vancouver and Toronto airports seized $15,019,891 in either undeclared cash or monetary instruments from 869 Chinese nationals from June 2012 to December 2014.

About $10 million — the majority of undeclared assets seized by the CBSA from Chinese citizens in the period — was taken at YVR.

CBSA data reviewed by The Province suggests that YVR has been the major port of entry for undeclared asset seizures in Canada since 2011, accounting for roughly 30 per cent of the total seizures across Canada’s hundreds of border entries in a typical year.

And YVR accounted for more than half the money seized from Chinese citizens entering Canada in this period. In total, the CBSA seized $17.4 million from Chinese nationals, in 976 seizures. That was four times more than the undeclared assets seized from U.S. citizens entering Canada.

Across Canada, $56.3 million was seized by CBSA agents from all travellers from June 2012 to Dec. 2014 — including $19.4 million seized from Canadians. These Canadian citizens do not all reside in Canada, the CBSA said. Recent data shows about 60 per cent of all undeclared money seized at YVR is from Chinese citizens — about five times the rate of money seized from Canadian travellers.

The situation is similar in the United States, but also shows that Vancouver is North America’s primary entry for illicit money from China. Data reported by U.S. customs officials five years ago shows that undeclared cash taken from Chinese nationals was double any other foreign nationality.

But amazingly, a comparison from a similar time frame shows cash seized from Chinese citizens at YVR was about double the amount taken from Chinese nationals at all U.S airports combined.

Data obtained by The Province shows that the top month for seizures from Chinese nationals at YVR was August 2014, when $744,659 was taken in 37 seizures. The second highest monthly total was June 2012, when $574,194 was taken in 23 seizures.

One seizure in June 2012 stands out. According to CBSA documents, an unidentified Chinese man failed to declare $177,500 in cash tucked into the lining of his suitcase and hidden in his clothing and wallet.

Under Canadian laws meant to hinder money laundering. international travellers can legally bring any amount of money into Canada, as long as they claim it. But any cash or monetary instruments — such as stocks, bonds or bank drafts — valued over $10,000 must be reported to the CBSA.

After he was caught with hidden rolls of Canadian and U.S. cash, the Chinese man told a CBSA agent that he intended to buy a house or car with the money. Although Chinese citizens are restricted by their government from removing any cash greater than $50,000 per individual each year — and the case raises red flags, according to money laundering experts — the man walked out of Vancouver airport with every cent of his hidden cash, minus a $2,500 fine.

Over the past 10 years, newly rich Chinese have increasingly sent cash abroad by a variety of legal and illegal means. According to U.S. anti-money laundering organization Global Financial Integrity, China leads the world in illicit cash outflows with a staggering $1.25 trillion US leaving the country in the past decade.

In 2012, the last full year measured by Global Financial Integrity, China saw $249.57 billion US in illicit money transferred abroad.

According to Chinese officials, Canada is a top destination for these funds. Yet Canadian border officials almost always return undeclared cash with light fines of up to $5,000 levied depending on the level of concealment involved.

By contrast, U.S. customs agents can hit travellers with fines up to $500,000 for undeclared assets over $10,000. And the seized cash often remains in U.S. government coffers.

According to B.C.-based fraud investigation executive Kim Marsh, that’s one of the reasons Vancouver is such an attractive destination for money launderers. Marsh, an expert on tracking dirty money worldwide, served 25 years with the RCMP and led the force’s international organized crime unit.

Marsh said he recently started work on a new case involving a Chinese man who absconded with $450 million in corruption money and has been laundering it in Vancouver for a number of years. Marsh said he is uncovering numerous Lower Mainland real estate assets that the suspect purchased with his stolen fortune.

“This guy is just one of many,” Marsh said. “The evidence is mounting of a lot of grey money coming into Vancouver’s real estate market from China. So we have some serious issues in Vancouver and we need more deterrents. The money seized at YVR is a good example. You pay a pittance of a fine, and it is worth the risk.”

Hayley Labbé told The Province that CBSA seizure data indicates only a tiny fraction of the illicit money pouring from China into Vancouver property. Labbé said experts believe there are major gaps in compliance for reporting of suspicious transactions in Vancouver’s real estate industry.

Several real estate industry sources have informed The Province they suspect colleagues are turning a blind eye — or even in some cases participating in illegal schemes. However, these professionals say they fear speaking on the record because they could be blackballed by peers, or accused of racism.

“The people buying these multi-million-dollar properties here in Greater Vancouver don’t care what the asking price is,” one experienced realtor said. “Some are corrupt government officials and insiders, and all they want to do is get the money out of China and use Vancouver to launder the money.”

Vancouver lawyer Christine Duhaime, an expert in money laundering law, said her contacts report that many Chinese money launderers hire mules in Hong Kong to carry illicit cash for a 20-per-cent fee. And the mules choose Vancouver airport as a soft target.

“I think Canada detects this pretty well, but we return undeclared money much more easily than the U.S. and we fine much less,” she said. “So there is not much of an impediment against bringing money illegally into Canada.”

Duhaime said Chinese citizens also use “trade-based” methods, including invoice manipulation, to transfer money illegally into Canada.

And even China’s strict capital controls can be legally avoided through coercion or use of family members.

She said in one case a Chinese businessman forced nearly 200 employees to each transfer $50,000 to his Vancouver bank account, all within several days.

“He bought a $7-million mansion in Vancouver and had some spending money left over,” Duhaime said.

Although Vancouver is seen as a convenient destination for Chinese money launderers, some experts believe rules, detection and enforcement could be strengthened over the next year.

There are indications state-level co-operation is already increasing.

In response to an Access to Information request for communication between the Canadian and Chinese governments on Operation Fox Hunt, the Department of Foreign Affairs provided a December 2013 letter from Chinese Minister of Public Security Guo Shengkun.

Shengkun’s letter — sent “under cover of a diplomatic note” — was completely redacted by Canadian information officials. A response to Shengkun from Canada’s Public Safety Minister Steven Blaney, said: “I am delighted that law enforcement cooperation is strong between our two countries, especially on ...”

The following sentence was blacked out by Canadian officials.

But Blaney noted in his letter that following a successful 2013 meeting in China between RCMP and Guo Shengkun’s security officers, a similar meeting would take place in Canada.

Although the unredacted information doesn’t specifically detail co-operation on Operation Fox Hunt, it appears that is what Guo Shengkun was asking for. In April 2015 Guo Shengkun and U.S. Homeland Security Chief Jeh Johnson met and agreed to stronger co-operation on China’s fugitive repatriation and asset recovery initiatives, including Operation Fox Hunt and SkyNet, according to statements from both governments.

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