On February 7th, reporters Laura Kusisto and Kim Mackreal of the Wall Street Journal consulted executives and members of the Asia Services Group of Realogics Sotheby’s International Realty to conclude that the imposition of a 15-percent foreign buyer tax in Vancouver, BC has indeed shifted demand from mainland Chinese investors to Seattle. The rising trend was first noted by RSIR moments after the BC Premier Christy Clark announced the tax, effective August 2, 2016. Just a day later, RSIR predicted the diversion of foreign investment towards Seattle in a blog post and further opined on the topic in a featured article entitled “Seattle: Is it Vancouver Deja-Vu”, which was translated to Mandarin for the Seattle Luxury Living magazine, which was reprinted in September. The news triggered a series of high-profile articles by Bloomberg, The Vancouver Province and Seattle Times, to name a few. Each outlet cited contributions by RSIR, further validating that this trend was, in fact, firmly in place. Even mainland Chinese TV media visited Seattle, including CCTV, which surely highlighted the opportunity within China. By the end of 2016, RSIR was already reporting a “gold rush” of Chinese buyers responsible for many of the firm’s top sales, including several new benchmark prices paid in Eastside neighborhoods.
This noted pivot occurs almost precisely two decades after the 1997 Hong Kong handover back to mainland China, which precipitated much of the initial interest for capital flight from the otherwise westernized marketplace as global wealth sought financial safe harbor in Vancouver, BC. This was, of course, followed by unprecedented foreign direct investment and immigration from mainland Chinese cities as the past twenty years generated extraordinary wealth from China’s booming emergence as a world economy. Favorable residency programs, good schools, a vibrant international culture, and close proximity to China were just a few of the motivations for this region choice but the meteoric gains in real estate portfolios was perhaps the most significant driver, especially for single-family homes near downtown Vancouver. The average sales price of a home in the region was around $400,000 and peaked to more than $1.8 million in 2016 before correcting after news of the foreign buyer tax. The ultra-luxury market was most impacted where some single-family homes, in neighborhoods like Shaughnessy, tripled in value since 2010 alone. Unsolicited offers to purchase homes in excess of $30 million were shockingly common in these areas, albeit such inquiries have now subsided.
“There may be no other market in the world that had such an immediate and sustained influence from Hong Kong and mainland Chinese cities than what was experienced in Vancouver and its surrounding suburbs,” said Dean Jones, President & CEO of RSIR. “But now we may be witnessing the first correction in the market as foreign buyers are looking at alternative markets like Victoria, Toronto and Seattle.”
Jones says Vancouver’s housing market was clearly buoyed by international demand. Conversely, he says, the Puget Sound region is structured by diverse economic drivers and is sustained by both population growth and high median household incomes. The fact that such a significant volume of international home buyers, primarily mainland Chinese, are now descending on the region is just another factor to consider.
“This is an accelerant to an already super-heated market,” adds Jones. “It’s not just the lifestyle or relative home values driving the Chinese interest – they are watching the market fundamentals closely and realize that foreign direct investment can create a self-fulfilling prophecy in a rising home market. That’s precisely what happened in Vancouver and now it appears to be taking root here.”