Strict new government scrutiny on Chinese people who want to convert their money into other currencies threatens to slow the rush of foreign property buying that has stoked sky-high home prices in Canada and around the world.
For months, China has sought to dam the flood of money pouring out of its borders, which has rapidly diminished its stockpile of foreign reserves.
It has raised new barriers to companies buying abroad and moving money out of the country.
Now, authorities in China are taking new steps to bar individuals from putting their cash into overseas markets to buy homes and other investments, a change with important implications for cities such as Vancouver and Toronto where Chinese buyers had contributed to frenzied property trading.
Under the new regime, the number of buyers will “drop sharply,” said Andy Xie, a China economist formerly with Morgan Stanley.
Those selling homes to Chinese buyers should brace for their “business to shrink dramatically,” he warned.
The Vancouver region’s real estate market has already been cooling off for months, after sales volume and prices peaked last spring.
In February, the B.C. government slapped a tax on the portion of a property sale above $2-million and then implemented a 15-per-cent tax on foreign home buyers in Metro Vancouver in August.
In the seven weeks leading up to the tax’s implementation in the Vancouver area, foreign purchasers (including those from China) accounted for 13.2 per cent of the region’s total.
Since then, the influx of foreign buyers has slowed to a relative trickle, according to the B.C. government.
In October, Ottawa tightened mortgage rules in general and closed tax loopholes used by some purchasers who are not Canadian citizens or permanent residents.
Real estate industry officials said Wednesday it will take many months for the impact of various government measures in Canada and restrictions in China to play out. “There are so many factors in the housing market,” said Dan Morrison, president of the Real Estate Board of Greater Vancouver. “Vancouver is not a homogeneous market. Some people want to point to one easy problem or one easy solution, and there is no such thing.”
People in China, who can normally only convert $50,000 (U.S.) a year in foreign currency, have long been technically barred from buying property overseas, but those rules have not been rigorously enforced.
At the outset of 2017, however, China imposed a series of new documentation requirements on currency transactions and punishments for using money in ways the rules don’t allow.
Before, changing yuan into loonies could be done with the tap of a smartphone screen. Now, banks have begun requiring paperwork that entails submitting for approval the reason a person wants to obtain foreign currency and when it will be used. A new rule then holds people liable for what they do with that money – and could bar them from exchanging money for up to three years if they are found to have used it improperly, such as for the purchase of a home.