|China housing bubble in Canada could create the next financial crash|
Sep 20, 2011 Deepak Rangan commodityonline.com
China is loading on real estate. Except that the purchase is not in China but in Vancouver, Canada. And the Chinese demand for a piece of land is so huge that customers are willing to pay more than the market rate for a property.
-The prices have gone so high that Canadian nationals seeking job in Vancouver are finding it hard to find an affordable home. The median real-estate prices in Vancouver are 9.5 times median household income as per Demographia, a property survey.
Royal Bank of Canada reported that the monthly carrying cost of a property for a detached bungalow will cost 72% of the average Vancouver household income. The carrying costs of a property are the total cost of the property including mortgage payments, property taxes and utilities.
-The Chinese government has been discouraging its citizens from investing in local real estate fearing that it might create a housing bubble in the country. There are also restrictions in investing abroad. Thus one of the few options available for a Chinese national is buying up real estate in other countries.
Where the problem lies
-In a situation where the US economy lags and Europe defaults, a global economic slowdown is inevitable. Especially in China who rely on its exports to Europe and US.
-Slowing exports will decrease Chinese investor income and as such investing ability. And in turn will force them to liquidate their real estate positions causing a large sell-off and drop in property prices.
-This will cause loses for investors in real estate and all the banks which have lend for such properties.
All though clear statistics are not available at the moment with regard to the amount of money flowing from China to Canada and the exposure of banks to loans financing properties in the place, it is quite clear that if the figures are big enough, it might depress an already lagging economy.
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