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Dan Scarrow: Vancouver Real Estate, A Chinese Investor's Perspective

On Jan 26, we had the pleasure of having Dan Scarrow, Managing Director of Macdonald Real Estate Investments (Shanghai), share his insights on foreign investment on Vancouver's real estate market.

Written by Crystal Lye and Alex Dembinski

Dan Scarrow joined Macdonald in 2006 as the Executive Assistant to Lynn Hsu, President & CEO of the Macdonald Real Estate Group (Shanghai). After selling over $50 million in his first year in sales and receiving an Award of Excellence in 2009, Dan moved back into management, becoming VP Corporate Strategy of the Macdonald Real Estate Group. In this role, Dan is responsible for developing strategies for the company, including corporate expansion in BC, the development of company and agent programs, and acquisition of property-related services. Dan has a BCom (Honours) from Queen’s University, is fluent in Mandarin, and enjoys competing in marathons.

Thanks to the media, many Vancouverites today believe we are in a housing bubble. This attitude has prevailed for over 30 years, with much of the talk revolving around the role of foreign investment from China. While some of us know that the China's political instability and economic uncertainty is causing capital to flee, we explore the reasons why it is coming to Canada and Vancouver in particular.

Racial tensions in Vancouver due to rising home prices have existed as far back as the 1980's.

The Chinese Environment: Political, Economic, and Personal Attitudes

It was a risky decision for Macdonald Real Estate to start conducting business in China - the government bureaucracy is relatively inefficient and the economy faces high levels of debt. There are constant talks of an economic slowdown or crash in the foreseeable future. Often unpredictable government actions further increase uncertainty about the direction of the economic landscape.

Embedded in China's fast-moving private sector is an incredibly entrepreneurial attitude - many investors quickly jump to new ideas, often without much research. A large number of young entrepreneurs with a "no-fail" attitude are emerging, aggressively taking on large, risky investments. Many are unafraid of putting their entire savings into investments. Young, intelligent, and financially-backed millennials are also a growing demographic, with strong aspirations of becoming successful modern-day investors.

Lastly, dangerous levels of pollution in many parts of China are making many locals eager to leave for the sake of their health.

The combination of an unpredictable economy, the appetite for investment, and a health-threatening physical environment sets the ground for seeking life and investment opportunities in safer places outside of the Chinese border.

Chinese Investors: An Eye on Opportunities Abroad

Contrary to popular Canadian belief, the general population in China knows very little about Canada and Vancouver. Their impression is like that of many other countries - cold.

In the world of investors seeking to move capital out of China, much more of it goes to places like Australia than it does Canada. For example, only a handful of developers go to China to advertise their new development projects; this is in contrast to a much larger number of Australian developers. According to Dan, it is common to see 15 Australian developers to every 1 Canadian developer advertising their projects at real estate conferences in China.

For many afraid of a slowing or crashing Chinese economy, the ultimate goal of moving capital abroad is to ensure the maintenance of their currency value - the risk of over-inflation and declining purchasing power is hard to stomach for many locals.

Vancouver Living and Investing: An Ideal Destination

Vancouver encompasses a set of "pull" factors not only for investors, but for those seeking a life abroad:

  • In comparison to the local Chinese economy, the Canadian political and economic landscape appears relatively stable. Its comparatively conservative nature signals financial stability.
  • Regardless of the economic landscape, many Chinese parents desire to have their children educated in western countries. Chinese education programs undergo copious amounts of standardized testing that can limit a student's ability to achieve further education, and parents do not want to miss out on education opportunities.
  • A strong Chinese presence in Vancouver provides opportunities for a continued sense of belonging and community outside of the Chinese borders.
  • There are more flights from Vancouver to China per week than any other North American city.

Undoubtedly, Vancouver is also an appealing destination for investment opportunities. The top reasons tend to be:

  • The combination of a slowing Chinese economy and conservative Canadian environment simply make Canadian investments look a lot more desirable.
  • A strong Chinese community in Vancouver represents personal reasons Chinese investors choose Vancouver. As an integral part of their culture, many highly value a sense of belonging and community in making life and financial decisions.
  • Since Chinese investors do not tend to seek much information prior to making investment decisions, the simple ranking of Vancouver as a global top city is sometimes the primary reason for buying into the market.

Vancouver Home Prices and the Foreign Buyer Tax

"By having so many single-family homes that take up a lot of square footage in a geographically-constrained city, prices are bound to go up. A simple mechanism of supply and demand demonstrates that an increase in population is not being met with sufficient increase in housing supply year after year.​"

Are high home-prices in Vancouver really the sole responsibility of incoming Chinese capital? Dan doesn't believe so. Rather, he believes another reason for Vancouver's high real estate prices is due to the mismatch of housing product - there are just too many single-family homes on the market.

Single-family homes take up much more space in comparison to condo or small apartment products. By having so much housing space per person in a geographically-constrained city with a growing population, prices are bound to go up. A simple mechanism of supply and demand demonstrates that an increase in population and housing demand is not being met with sufficient increase in housing supply year after year. We should be building upwards (high-rises), not outwards (single-family homes).

These days, however, the dreams of owning a single family home appear to be diminishing. Townhome and condo development projects are emerging as more popular dwelling options, both with young families and foreign buyers. Many condo projects on the market today are being sold out in record time, often during the presale listings.

And the 15% Foreign Buyer Tax? While headlines have emphasized a steep decline in transaction volumes since the introduction of the policy in August 2016, actual average prices have not moved nearly as much. This is because the majority of price shifts have occurred in single-family and luxury home markets - the investment types favored by foreign investors - with much less impact on the market for smaller condos or apartments. Additionally, the fuzzy definition of what constitutes a "foreigner" has resulted a lot of Chinese money finding ways around the tax. All in all, the policy has not suppressed demand as much as anticipated.

We thank Dan and his team at Macdonald Real Estate for bringing an engaging, insightful talk to our student members and sponsors at UBC.

For more information on Macdonald Real Estate, visit their website.

See more of UBC Real Estate Club's past and upcoming events here.

Our upcoming speaker series on Global Careers in Commercial Real Estate is on Feb 9th - visit our Facebook page.

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