Next week Chinese investors in the Vancouver housing market will face a new 15 percent transfer tax that targets foreign nationals specifically. This particular real estate market has been a favorite way for Chinese investors to get their money out of the country, and as of August 2, it will cost them 15 percent more.
Vancouver Real Estate Popular Among Chinese Investors
In Metro Vancouver, Chinese buyers make up about 33 percent of the housing market, according to ‘back of the envelope’
calculations by National Bank of Canada.
Prices for real estate in the city vaulted 30 percent to an average of $1.8 million Canadian dollars for detached homes in February. This is just some of the latest data in the trend that has caused the average home price to jump roughly 40 percent in five years, and the rate of growth has been increasing.
Popular Chinese property search engine website Juwai.com shows the Vancouver market has jumped 134 percent in the first quarter from a year earlier.
According to Juwai:
The total value of all Canadian properties that Chinese made inquiries for almost tripled to $14.9 billion in 2015 from $5.6 billion in 2014.
Financial analyst Peter Routledge told Bloomberg TV that “Chinese investors spent about C$12.7 billion ($9.6 billion USD) on real estate in the western Canadian city in 2015, or 33 percent of its C$38.5 billion in total sales.”
The Need to Move Money Out of China
A retired hedge fund manager who is also eying the Vancouver housing market, Marc Cohodes, explained to Vice the main reason why the Chinese are so interested in Vancouver real estate is China’s capital outflow restrictions. Chinese citizens can only move up to $50,000 out of China per year as the government is trying to slow down the country’s capital outflows. However, “Investors from China are breaking those rules in order to move massive amounts of money into Vancouver real estate,” he said.
Many Chinese millionaires even choose illegal methods such as “smurfing,” to go around the capital outflow restrictions, according to Vancouver-based anti-fraud lawyer Christine Duhaime. In an interview with Vice, she said:
There are other ways to move more money out with permission from the Chinese government.[…] But almost nobody ever goes for that permission because they don’t want the government to know how much they have, or they do not want to disclose how they came to acquire such a large amount of money.
That’s why Bitcoin has been a very popular method for the Chinese to move money out of the country. An independent banking and fintech consultant, Faisal Khan, explained on Quora that Chinese people buy bitcoin and transfer them to paper wallets or offline to ship money out of China. In fact, he said bitcoin is used in “Most of the trades where money is being siphoned out of China, in excess to the limits defined by the PRC.”
The quickest transfer method is Bitcoin and many companies that specialize in the exit of money, use Bitcoins for taking it out of China fast, without leaving a trace in the Chinese banking system.
Chinese Bitcoin Market Already Large
The Chinese bitcoin market is has been the largest group of bitcoin investors on Earth ever since 2013, and their currency, the Yuan, often has over 90 percent of the bitcoin trading volume against all other currencies.
Compared to the Yuan trading volume, which indicates bitcoins being bought at one of a dozen different Chinese exchanges with Yuan in either direction, the rest of the world’s currencies barely even make a difference.
Tax Hike Could Drive More Chinese Investors to Bitcoin
Despite more investment money flowing from China to Vancouver than it does to Bitcoin, the Chinese are already well aware of Bitcoin as an alternative. Chinese volume drives five of the world’s top ten bitcoin exchanges, making it by far the largest market for bitcoin trading on Earth.
With the August 2 hike looming, the price of bitcoin could be immediately affected if Chinese investors choose to respond by putting their investments into the cryptocurrency that they otherwise would have sent to Vancouver. $28.6 million Canadian dollars per day should make a visible impact on Chinese bitcoin markets, if not cause a whole new price rally to start.
Do you think more Chinese investors will invest in bitcoin after the tax hike? Let us know in the comment section below!
Images courtesy of Bitcoinity, tourismvancouver.com, financialpost.com, betterdwelling.com