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Safe as Houses?

With Vancouver and Toronto ratcheting up pressure on foreign real estate investors, will Edmonton and Calgary be next? Not likely, say the experts.

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The word “Vancouver” may still evoke images of the balmy, mountain-ringed Pacific coast metropolis that is routinely ranked at or near the top of global livability indices; but in Canada, it is virtually synonymous with phrases like “real estate disaster” and, in the words of Macleans’ Terry Glavin, a “global swindler’s paradise for real estate racketeering.” Thanks to many years of unrestrained foreign investment, Vancouver has quickly become one of the world’s most absurdly expensive cities to live in, with 99 per cent of the single detached houses within city limits now valued at over $1 million and over 20,000 homes sitting vacant year round.

While Vancouver’s real estate crisis has received the most extensive (and hyperbolic) media coverage, Canada’s largest city has been grappling with similar problems. In May 2017 the average home price in the Greater Toronto Area (GTA) had reached a whopping $920,791, with foreign buyers accounting for close to 10 per cent of new purchases in the York Region (with communities like Markham and Richmond Hill attracting the lion’s share) and over 7 per cent in Toronto proper. But unlike Vancouver, where recent interventions by the province have yet to put much of a dent in property prices, the government of Ontario’s 15 per-cent foreign buyer tax, introduced in April 2017, appears to be having a noticeable effect on the city’s housing market.

With municipal governments in both Vancouver and Toronto now taking pains to clamp down on runaway foreign investment in residential real estate, a growing number of would-be investors are now eying other Canadian jurisdictions for investment opportunities. The Vancouver crisis has notably spilled over into Victoria, Kelowna and other smaller centres, a fact reflected in the province’s decision to extend its 15 per-cent foreign property buyers tax to Victoria, Nanaimo and the Okanagan region, and possibly elsewhere. It has also led to widespread speculation about the possibility of Alberta’s twin metropolitan regions becoming the next big targets for foreign investment into recreational properties.

Calgary in particular has been cited as a likely beneficiary of overseas investment largesse in the aftermath of recent moves by the governments of British Columbia and Ontario. Following the implementation of British Columbia’s foreign buyer tax, the popular Chinese overseas investment blog Juwai posted a glowing article touting Calgary – and Alberta generally – as a more attractive alternative to Vancouver, citing affordability, lifestyle draws and Hainan Airlines’ then-new non-stop connection between Calgary and Beijing (which, together with Air Canada’s Tokyo-Calgary non-stop flight, is transforming Alberta’s busiest airport into a new Asia-Pacific hub).

Moreover, observers have hinted that Alberta’s cities, with real estate markets still soft in the aftermath of the province’s most recent downturn, would welcome such a shot in the arm of foreign capital into its real estate markets.

“They would actually be welcomed here in Alberta,” says Todd Hirsch, chief economist at ATB Financial.

Welcomed, perhaps, but not particularly likely in the near future, say the province’s real estate experts.

“From what I’m seeing, we’re not dealing with a lot of foreign investment here in Edmonton, or in Alberta generally,” says Bill Briggs, owner and Realtor with RE/MAX and regional director for Alberta on the Canadian Real Estate Association’s (CREA) board of directors.

“There are certainly foreign nationals buying property here, but in contrast to Vancouver and Toronto, where people are using properties as a means of moving money out of the country, people who are buying here are actually looking to settle here.”

Briggs contends that the pricing structure in Edmonton (as well as Calgary) is simply not optimized for foreign investment on the scale of what has been seen in these larger cities. Unlike Vancouver, where $1 million-plus properties are the rule rather than the exception, Edmonton simply lacks both the international profile and the proliferation of high-priced real estate necessary to fuel such growth. Even Calgary, Briggs asserts, is unlikely to see a major uptick in foreign investment in spite of the city’s growing international profile.

“I can only imagine this happening in places like Canmore, where you have a lot of expensive recreational properties. Otherwise I really don’t think you’re going to see this happen in Alberta.”

He adds that certain areas in Edmonton, such as the neighbourhoods surrounding the University of Alberta, may well see noticeable increases in foreign purchasing, particularly in light of the new taxes in British Columbia and Ontario, but that such purchases will overwhelmingly take the form of “legitimate” housing purchases focused on children’s education, if not full-fledged migration.

Don Campbell, senior analyst with the Real Estate Investment Network (REIN), concurs with Briggs’ assessment of Edmonton’s real estate scene.

“Edmonton’s market is different. It does not attract anywhere near as large of a percentage of foreign investment as Vancouver, Toronto, or even Calgary. The Edmonton market is more driven by market fundamentals, which dictate the direction of the local housing market more than anything else,” says Campbell.

“Edmonton also has extra protection against high volatility thanks to its role as capital city and a centre for government hiring and spending. This helps to support and buffer the GDP during economic downturns that other cities in the province, like Calgary, have recently experienced.”

Campbell adds that what investment there has been in the province’s cities – and that which is likely to occur – is starkly different from the sort that transformed Vancouver and Toronto into residential real estate basket cases.

“We’re simply not seeing any dramatic increases in funds pouring into recreational properties. There’s definitely an uptick in foreign money in the city, but it’s pretty much all for regular residential property.”

Data from overseas sources would seem to confirm this thesis. As of mid-2017 Juwai’s search data showed that interest in Calgary has been flat, and while the number of inquiries for Edmonton was up 50 per cent in the first quarter from the previous year, such interest remains a drop in the bucket compared to Vancouver and Toronto.

While many in Edmonton and Calgary’s real estate industries would like to see the province and the cities put more muscle into promoting themselves to prospective overseas buyers, few – if any – are hoping for buying frenzies of the sort that have made Vancouver and Toronto prohibitively expensive for the average homeowner.

“I’m of two minds on the situation,” explains Briggs. “From a real estate perspective, of course we want to see more foreign investment. We always want more business here and we certainly want to attract investors from overseas. That said, I don’t think anybody would want to see a repeat of what’s happened in Vancouver here, where house prices shoot through the stratosphere and ordinary people are priced out of the market. I’m a lifelong Edmontonian who cares about this city, and I don’t want to regular people sacrificed in the name of a rising real estate market. On this issue my personal feelings outweigh my business interests.”

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