There is a huge bubble in Canadian real estate, much larger than America’s was. In today’s global economy, the bursting of this bubble could have worldwide implications.
The problem is a deluge of money from abroad, mostly Asia. “This mania happened in several other countries—where it was shut down—and has spread to Canada,” according to the Financial Post. “Officials here have been urging restraint but that is not the solution. A ban on foreign buying of residences is the only solution.”
Bidding wars resulting in properties being sold for well over the asking price are common. Canadian bidders are furious and deserve to be.
Some ingenious buyers are flipping rights to properties; this type of speculation pushes up prices, as rights are bought and resold over and over again before a building is completed.
Some are ‘gaming the system’ and dodging federal and provincial tax, which, in Ontario or BC, is 46%. The loss could be substantial: In Toronto, 20,000 condo units have been sold each year for the past five years.
Ironically, in Canada foreign buyers are at an advantage, given the high tax structures in place for locals. Other countries have closed this kind of loophole, and funds are flowing into a market that is favourable to the foreign investor. Still, Canadians have to contend with these mania forces and are doing exactly what Americans did: loading up on debt, since incomes do not support current prices without leverage.
It’s only a matter of time until the bubble bursts. As the global economy contracts, hot money will slow down. If Canada puts restrictions on foreign money, it will certainly push prices down. This time is not different.
To read Dr. Housing Bubble article: This Time it is Not Different—Canadian Housing Prices Reach Apex and Set For a Deep Fall
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