A study of Vancouver’s real estate market suggests that while foreign money affects home prices, it might not be as significant as many think.

 

“The primary effects (of foreign money) are very focused in certain neighbourhoods,” said a co-author of the study, Tsur Somerville, a professor at UBC’s Sauder School of Business.

 

The study by Somerville and Andrey Pavlov of Simon Fraser University looked at the change in prices in neighbourhoods favoured by Chinese immigrants in the period following the closure of the federal immigrant investors program to new applicants in July 2012.

 

The investors program, which started in 1986 and was finally eliminated in February 2014, gave wealthy immigrants a fast track into Canada if they could provide the federal government with investments that reached $1.6 million in 2010. An estimated 120,000 people took advantage of the program to move to B.C., with many settling in Vancouver and Richmond.

 

The report showed that when the program was closed in 2012, property prices declined by an average of 2.5 per cent in neighbourhoods preferred by Chinese immigrants compared to other neighbourhoods.

Somerville also noted that the study did not address “the totality of foreign capital” entering the local real estate market, just the effect of the immigrant investors program.

 

“Our findings show that immigrants who come with wealth, drive up housing prices in their destination areas more than they affect the overall market,” the report concluded. “Using transaction data from the Greater Vancouver area, we find that the closure of the program had a negative impact on the neighbourhoods and market segments most likely to be favoured by these investor immigrants.

 

“The negative impact we document was quick, happening within the first three months following the policy change, likely reflecting declines in seller expectations and demand by developers for sites to redevelop for wealthy immigrants. The price declines are larger for more expensive houses in the target neighbourhoods and for neighbourhoods where the share of recent Chinese immigrants among the population are highest.”

“Following the suspension of the immigrant investor program, house appreciation in neighbourhoods with high concentration of recent Chinese immigrants underperformed the rest of the metropolitan area,” the report said. “The underperformance starts in the month following the announcement, and extends over the following 24 months.”

 

Somerville said “the price change was three per cent lower in the immigrant investor neighbourhoods. But after 24 months, that difference disappears. We can’t say why that (difference) disappears.”

The report concluded that wealthy immigrants prefer to live in areas with high numbers of immigrants of similar ethnicity.

 

“This makes prices in immigrant-dominated neighbourhoods sensitive to immigration policy. Local residents, whether of foreign descent or not, have little or no desire to segregate and purchase homes wherever they can find good value. This suggests a moderate spillover effect from immigrant to non-immigrant neighbourhoods both in terms of price and number of transactions.”

 

Somerville noted that according to the Real Estate Board of Greater Vancouver, the benchmark price of all residential properties rose by 48.3 per cent over the past three years.