Foreign investors grow cautious—but stay active

Despite rising prices and new tax measures designed to deter foreign buyers, Chinese and other international investors remain keenly interested in Vancouver’s red-hot real estate market. But as it becomes harder to find quality opportunities, investors are growing more cautious, patient and creative. 

Vancouver ranked highest for real estate investment opportunities

Vancouver tops the list of Canadian markets to watch, according to Emerging Trends in Canadian Real Estate 2018, a recently released report by PwC and the Urban Land Institute. Industry players interviewed for the report ranked Vancouver highest among major Canadian markets for both investment and redevelopment opportunities, and Chinese investors continue to pursue deals throughout the Greater Vancouver Area. 

For Chinese investors, it’s not just about residential anymore

The search for attractive opportunities is driving Chinese investors to embrace a wider range of property types. There are still some ambitious developers aiming to add commercial and condominium towers into Vancouver’s well-developed downtown core. Yet many are now looking at industrial projects, particularly warehousing and distribution centres, to capitalize on the steady rise in online commerce; Surrey is now poised to supersede Richmond as the region’s hottest industrial market. Others are searching for acreage or farmland to buy now with an eye on future development.

Mixed-use developments combining residential, retail and services remain popular, although—echoing a trend we’ve observed in major markets in Canada this year—there seems to a move towards building mixed-use communities rather than mixed-use buildings. The aim with these development is to create affordable “living experiences,” that combine residential, retail, services and even some commercial to enable residents to live, work, shop and play without having to endure long commutes or terrible traffic.

Investors are also highly interested in opportunities in “second cores,” or secondary urban centres in metropolitan Vancouver. Projects along transit lines, particularly around key stations and transit hubs, are also attractive—a trend we’re seeing in major centres across the country as well. These main transit nodes are seen as an ideal location for higher-density development, incorporating retail, residential, services and office properties.

A number of Chinese investors, in their ongoing search for solid real estate investments and attractive returns, are beginning to look at long-term care homes—a growth area noted in the Emerging Trends 2018 report. Senior housing and long-term care are seen as an expanding market in countries with aging populations, and Chinese investors hope to be able to take their experience in the sector back to China to open up new opportunities on the mainland. Many investors also find medical clinics and projects focused healthcare services to be an attractive prospect, one that again capitalizes on an aging population and wellness trends. Finally, tourism properties continue to attract a certain segment of the Chinese investor community, who continue to search for opportunities to acquire or build resorts and boutique or larger hotels. 

Chinese investors challenged to find attractive opportunities 

While they may see Vancouver as the most promising market in the country, Chinese investors, like their domestic counterparts, are finding it more difficult to find opportunities they can turn into viable projects. In addition to tight supplies and rising prices, investors must deal with the uncertainty surrounding BC’s new NDP-Green government and the potential for rising interest rates in the year ahead.

However, Chinese investors face unique challenges compared to their domestic peers. They often lack domestic players’ connections with provincial and municipal governments and planners—vital inroads that can help move necessary levers of power to overcome obstacles, obtain approvals and smooth the way for projects to proceed.

As well, Chinese investors typically don’t have the same kind of access to local financing for construction. Traditionally, they’ve solved this problem by bringing funds from overseas, but over the past couple of years it’s become much more difficult to move significant capital out of mainland China. The result is that while Chinese investors can readily fund local projects in the $15 million–$100 million range, often with money already in place in Canada, more ambitious developers eyeing projects worth hundreds of millions or more will find it tough to obtain the financing they need. 

As Vancouver market tightens, investors look further afield

As it’s grown harder to find the right opportunities in Vancouver proper, Chinese investors are looking more widely, both in BC and in other Canadian markets, including Toronto. We’re seeing rising interest in projects up the Fraser Valley and across the Greater Vancouver area, as well as in Vancouver Island and the BC Interior. A few developers have begun to explore opportunities in Alberta, at least in terms of distribution and logistics centres and smaller retail developments; Calgary and Edmonton are abundantly supplied with commercial space and have not embraced condominiums like Vancouver or Toronto. Investors eager to pursue commercial properties are gravitating to Toronto, where the combination of corporate HQs, population size, job numbers and market demand make office properties attractive, viable investments.

While there are some investors also looking at both Canadian and US opportunities, there’s little sign of Chinese investors abandoning their interest in Vancouver or, more widely, Canada,  to turn their attention to the US. They continue to greatly value Canada’s social, political and economic stability, our commitment to multiculturalism, our healthcare and education systems, and our comparative safety. 

Investors shrug off the foreign buyers tax

As investors continue to pursue deals, it has become increasingly clear that last year’s government efforts to deter foreign real estate investment were more of a speedbump than a roadblock. To be sure, the BC government’s 15 percent foreign buyer’s tax had an impact over the short term. Sales to foreign buyers and house prices did fall following the tax’s introduction. Yet a year later, the market is on the rise once more. Vancouver year-over-year sales have dropped, but are still trending upward compared to historical averages. And prices continue to rise: detached home prices rose 2.2 percent between August 2016 and August 2017; the benchmark price for condominiums shot up 19.6 percent over the same period, and builders report there isn’t enough supply to meet demand.

Patience is the new virtue

In response to shifting market conditions and government actions on both sides of the Pacific, Chinese real estate investors are growing more patient and cautious. They’re recalibrating their expectations and refining their approaches to reflect the realities of the Vancouver and Canadian markets today. In the short to medium term, it’s likely what we’ll see somewhat less activity overall from Chinese and other overseas players. However, this investor group will remain an important actor in Canada’s real estate markets, driving significant deal volume and deal value. 

Emerging trends in real estate

Contact us

Ken Su
National Leader, China Business Network
Tel: +1 604 806 7660
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Wesley Mark
Partner, Deals & Valuations, National Real Estate Advisory Leader
Tel: +1 416 814 5877
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