As a REALTOR® working in Vancouver, I get to connect with a broad client base from around the world, including buyers and sellers from China1. People often ask me for my predictions on Chinese investment in Canadian real estate. I am not an economist but I don’t think I have to be one to offer my two cents: China will remain a major and positive investing force in Canada for the foreseeable future.
China has become the second-largest economy in the world. However, last October the Financial Times reported that China surpassed the U.S. in terms of Gross Domestic Product (GDP) based on Purchasing Power Parity (PPP) to become the largest in the world by this measure. In 2014, China reached $17.6-trillion or 16.48 per cent of the world’s purchasing-power-adjusted GDP, while the U.S. made slightly less, 16.28 per cent or $17.4-trillion.
Economists have been predicting a slowdown in China as it shifts from a manufacturing-based to a consumer service-oriented economy. But today, there are still a staggering 500 million people in China’s middle class and that number is growing every year.
While many countries around the world have seen an economic slow-down, it is useful to remember that China is the third-largest outbound direct-investment country after the United States and Japan. Earlier waves of Chinese investors were led by state-owned enterprises in search of resources in Africa and Latin America. But today’s pioneers are often private firms seeking brands, talent, and technology to bring back to the Chinese market.
The Business Times reported that outbound direct investment rose 21.6 per cent in the first nine months compared with last year to $75-billion and was on track to top $130-billion. In Africa, Latin America, the U.S., Europe, and Canada, cash-rich Chinese investors are already gobbling up real estate. One notable example occurred earlier this year when a Chinese real estate developer bought a ghost town in British Columbia for just under $1-million.
Despite that relatively tepid growth (if we can call the four per cent forecasted growth rate for 2015, “tepid”), there is still $4-trillion in government-administered foreign exchange reserves. With Beijing’s policy of supporting offshore acquisitions and new measures relaxing the approvals needed for larger investment deals over $100-million, there is enormous potential for an even larger flow of investment abroad.
The rise in outbound investment over the past decade has been dramatic. In 2002, Chinese investors spent just $2.7-billion on acquisitions and Greenfield projects abroad but by 2013, the total had increased 40-fold to $108-billion. Although the figures for 2014 are not yet public, experts predict that outbound investment could be close to $130-billion.
So what does this non-economist and REALTOR® think of the future of Chinese investment in real estate in Canada? I let the facts speak for themselves!
1 Editor’s Note: According to CREA’s 2013 Membership Survey, roughly three out of every ten members (31.4%) worked with international clients in 2012. China was the top country of origin of these international clients (21.4%).