Canada needs to collect data on foreign homebuyers

[TORONTO] HSBC Holdings Plc, the largest foreign lender in Canada, said the country's officials need to start tracking cross-border purchases of homes because the high-priced transactions may be inflating values in Vancouver and Toronto.

Asian demand for Canadian real estate is high and will continue to rise as China eases restrictions on investing capital abroad, according to officials of the London-based bank. That appetite is contributing to rising home prices in the nation's two most expensive housing markets.

"We can't ignore that foreign money is playing a role," David Watt, chief economist at HSBC's Canadian unit, said in an Oct 9 interview at Bloomberg's Toronto office. "On the Canadian housing market, I'm getting more concerned now. It's becoming clear that we need some sort of regulatory tap on the shoulder, to get a better read of what's going on in order to gauge the influence on the market and potential measures." Housing has been on a tear in the two major cities, where increases in the average home price have outpaced income growth. Real estate experts have pointed to Asian investors looking for safe investments as largely driving up prices, putting average homes out of reach for locals. No Canadian government agency or regulator collects conclusive data on foreign real estate purchases.

In Toronto, Canada's largest city, the average home price rose 10 per cent in August from a year earlier to about C$630,000 (US$483,000), according to the Canadian Real Estate Association. In Vancouver, sales jumped 22 per cent, pushing prices up 12 per cent to an average C$902,000. Meanwhile, the median income in the two cities has climbed less than 10 per cent from 2009 to 2013, the most recent data from Statistics Canada show.

Asian investors' demand for luxury homes in Vancouver has made flipping, in which buyers sell rights to a home at a premium before completing their purchases, more commonplace, according to brokerage Sotheby's International Realty Canada. Even the city's mayor, Gregor Robertson, says there's enough evidence showing foreign buyers are pushing up prices that the province needs to take action.

The scale of offshore investment in real estate, when non- Canadians purchase homes while leaving them largely empty and potentially avoiding the taxes local buyers pay, has become a political issue. In Vancouver, the lack of affordable properties has prompted grass-roots campaigns and a push for more transparency. Prime Minister Stephen Harper, who's running for re-election, made it part of his campaign, saying he'd collect data on "foreign speculation" in the residential market starting in 2016 and may impose regulation if he wins on Oct 19.

"It's really important that we do get the data, we do understand who's buying the homes," said Sandra Stuart, chief executive officer of HSBC Bank Canada. "We need to let the political, the regulatory side play out."

BLOOMBERG