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Some real estate experts are worried that our current housing market is facing a bubble because low interest rates are encouraging some borrowers who are not financially secure to enter it. Now there is a new concern emerging: sales activity in real estate is being driven by foreign investors, particularly Chinese investors.

Image: Bob Canada / Flickr

At issue is a clampdown at home in China. To help cool the burning hot real estate market in China, the government has slapped a tax on the resale of any property in the first five years of their new owner buying them. The result has been that investors have been looking for new places to park their investment money.

Also driving the real estate market is a concern that growth in the manufacturing industries is starting to slow. Zhou Dewen, the leader of a Wenzhou business association, said in an interview in the Associated Press, “Most of us have realized that traditional manufacturing industries no longer bring us more profits, so many who used to run factories are switching to stock markets or real estate.”

To help facilitate this, some business men have begun offering tours of real estate in America, to showcase the potential buying opportunities. And Chinese investors are already familiar with the Vancouver property market, but they are also looking for opportunities in other markets such as Edmonton, Calgary, Montreal and Toronto. Some real estate companies are even directing their marketing materials to the Chinese market.

So far this activity is limited: it’s hard for Chinese nationals to move money offshore. But with pressure in the Chinese market to move out of the bubbly domestic real estate market, some of these barriers might come down.

What does this mean for Canadian real estate investors? Although the evidence for the existence of a housing bubble is mixed, there is definitely a distinct possibility that there will be one in the near future if low interest rates continue. If this is the case, prices will definitely keep rising. Foreign investors will only drive the prices up further.

If you are considering buying, the downsides to purchasing right now seem to be limited (as long as your financially secure). But the downsides to delaying your purchase until six months from now will likely keep accumulating.

Heleen Jacobsen
Broker of Record with InfoMarket Group GMAC Real Estate
www.infomarketgroup.com