Commercial Real Estate: Vancouver developing a bad reputation for foreign investment

Commercial Real Estate: Vancouver developing a bad reputation for foreign investment


Jim Costello (foreground), senior vice-president of Real Capital Analytics, with Dan Scarrow (middle), president of Macdonald Real Estate Group. Also pictured in the background is Andrew Weir, global chair, real estate and construction, Hong Kong for KPMG.


Government intervention in B.C.’s property market is tarnishing the province’s reputation with international investors, says the head of a major local property brokerage.

“In our current environment, our political regime is basically saying that we don’t want any of this capital,” said Vancouver-based Macdonald Real Estate Group’s new president, Dan Scarrow.

He was speaking on a panel at the Vancouver Real Estate Forum earlier this month.

Scarrow didn’t specify which government intervention he was talking about, but since the B.C. NDP formed government in 2017, Victoria has increased the province’s foreign buyers tax, launched a speculation and vacant homes tax in urban areas, increased the property transfer tax, and created a school tax on residential properties valued at more than $3 million. Meanwhile, the City of Vancouver launched its own vacant home tax, and the federal government enacted its stress test on mortgage borrowers across the country.

“It’s a regime where they’re trying to say to the private sector, ‘You guys take all the risk and we, as the government, want to take all the reward, and we want to push away all of that investment coming in because we only see bad things coming from it’,” he said.

However, Scarrow was joined on the panel by other industry insiders from the U.S. and Hong Kong, who said Vancouver’s reputation for value and stability — and Canada’s openness to immigrants — would continue to drive investment into this market.

Scarrow, who previously led Macdonald Realty’s Shanghai branch office from 2014-2018, argued it would be difficult for B.C. to shake off what has become a bad reputation for foreign investment.

Metro Vancouver housing sales and values are clearly now in reversal, and it appears that the tap from Asian investors into commercial property is also starting to close.

Citing brokerage house CBRE, Bloomberg reported this month that Asian investments in Vancouver commercial assets fell to almost $350 million in 2018, a drop from the more-than $1 billion invested here in each of the previous two years.

The report said Chinese capital outflow restrictions put in place in 2016 have been closing off foreign investments around the world.

Chinese investment and immigration to Metro Vancouver is essential to this market, as 80 to 85 per cent of business immigrants who come here are now from China, Scarrow said.

His comments, though, earned some disagreement from fellow panelists Jim Costello, a senior-vice president with Real Capital Analytics from the U.S., and Andrew Weir, the global chair, real estate and construction with KPMG in Hong Kong.

From an American perspective, Canada and Vancouver still have many attractive elements in the eyes of foreign investors, Costello said.

“The knowledge economy is what matters moving forward,” he said. “The future is smart people who can do creative things.”

The U.S. is shooting itself in the foot by pushing out talented people for the sake of populist immigrant policies. Canada is seen as open and welcoming, especially to students and talented workers. Many of those skilled workers are coming to Vancouver.

“That’s to your benefit,” he said.

“Canada has a remarkably good reputation as having a predictable legal system (and) very stable government,” said Weir, adding, however, that the local papers seemed to be painting a different picture during his visit for the forum.

“Hong Kong, Singapore and other cities have foreign buyers taxes, but (those) markets have not collapsed,” he said.

Government intervention in investment can be positioned as a win-win, Weir said. “It’s my personal view that it’s probably right to have some kind of (demand tax) policy in place,” he said, adding that the government must also show it’s still open for business.

Despite capital outflow restrictions, there remains a lot of Chinese capital in the global markets looking for a home, the panelists agreed.

Scarrow said there are several ways Chinese investors can legally move their money out of the country. For one, Chinese export companies sell their products to foreign purchasers and then channel a lot of the profits into companies set up in Hong Kong.

“They only repatriate (to China) a small portion of that, and the remainder remains offshore,” he said.

Another way is through the issuing and funding of initial public offerings on international stock exchanges. “There are large (Chinese) companies that continue to go public and a regular basis,” he said. “Alibaba was listed on the New York Stock Exchange. Other companies are listed on the Hong Kong stock exchange. “

Weir agreed. “The scale of capital and liquidity out there is absolutely enormous.”

He said the rule of thumb in Asia has been that for every dollar of real estate, there are 12 dollars chasing it.

“The official data on capital coming out of China real estate is down about 90 per cent in the last year, globally,” Weir said. “But there is a lot of Chinese capital outside of China already sitting in Hong Kong, Malaysia, London, and Singapore — finding its way in (to markets like Canada).”

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