Chinese investors believe that Canadian housing markets are safe investment havens, but their government says not, giving out warnings that those who invest in Canadian real estate face tremendous risks of market crash.
Canadian housing market has been flooded with a large amount of Chinese investments in recent years. According to economist estimates, in 2015, Chinese buyers shelled out nearly $12 billion on real estate in Vancouver, accounting for 33 per cent of the city’s sales. For Toronto, the number was at $8.4 billion, representing 14 per cent of sales.
The massive outflow of money from China – which hit tsunami proportions, has been driven by fears of its slowing economy, the distrust of the Chinese government and a declining currency. The capital outflow has caused great concerns to the government and prompted its aggressive efforts to stanch the outpouring of the money into the Canadian housing markets.
As such, the Chinese government taps into its most notorious propaganda operations in the world by publicly attacking Canada’s reputation as being a haven for global investments. China’s state controlled media published articles dissecting the Canadian economy and the Canadian government, and warning Chinese buyers of danger of owning Canadian properties.
An article published on HeXun, China’s largest financial portal, targeted at Canada’s debt fueled economy, saying Canadians have the largest debt-to-income ratio of any G7 country, with the average spending 165% of their salary. But during the US housing crisis in 2008, American’s debt-to-income ratio reached only 147% -- 17% lower than where Canada sits. Moreover, it warns buyers that Canada could be headed for a housing market crash worse than the one the U.S. experienced in 2008.
While risks factors exist in the Canadian housing markets, the prediction of US 2008 subprime crisis is greatly over exaggerated. The US housing crisis was caused by widespread mortgage fraud, but Canada’s high debt -to-income ratio would not pose significant risks unless interest rate sharply rises. The fact is that the lending rate around the world remains incredibly low, and there is no indication that it will rise significantly anytime soon.
The consensus of global economists is that there won’t be a US style crash in the Canadian housing market, but might be a correction or slowdown, which may not bring severe impact to the Canadian economy. This week, Ottawa announced sweeping changes in mortgage lending and tax rules to reduce lending risks and to cool down the overheated housing markets. These measures are expected to prevent painful corrections ahead and may bring Canada’s housing fantasy to an end.
China’s propaganda operations have been notoriously infamous in the world but it has never succeeded in achieving its agenda. In its recent damage-control operation after the stock market crash, it exhausted every propaganda means by censoring press, denouncing criticisms and attacking western reports. But these efforts totally fell apart as investors flee the stock market in droves, bringing large amount of capitals to the foreign markets.
Needless to say, fooling its citizens with deceptive information that Canada is facing substantial risks of housing crisis and significant economic instability will ruin Beijing’s propaganda operations and further erode its citizens’ confidence on the government.
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