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Local housing market could be impacted by changes in China: expert

Last Updated Apr 24, 2016 at 12:49 pm PDT

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Metro Vancouver’s hot housing market could take a hit as Beijing carries out wide ranging anti-corruption sweeps

VANCOUVER (NEWS 1130) – As the Chinese government tries harder to keep money from leaving its borders, could our housing market be affected?

There’s nothing certain about the way things are going, but with Beijing carrying out wide ranging anti-corruption sweeps as it promises not to devalue the currency, this is a situation worth watching, says Tom Davidoff with UBC’s Sauder School of Business.

“The Yuan got much stronger relative to the Canadian loonie between 2013-2015,” says Davidoff.

“You went from about seven Yuan to a loonie, down to about 4.6, which is a very large percentage change between 2013 and 2015, beginning of 2016. But we’re back to 5.14 now, from about 4.5 which means the Yuan has lost about 10-15 per cent in the last couple of months relative to where it was against the loonie, which means Chinese money buys less Canadian money than it used to, which means it buys less Canadian real estate.”

“So if that trend continues, and if the weakness in oil and the loonie was temporary, it will be interesting to see if that leads to a weakening of prices in Vancouver.”

If it turns out Chinese money is a big factor in our market as some believe and the Yuan drops, Davidoff says there very well could be consequences for our market.

“If we think an important source of demand is the money leaving China, [multiplied by] the exchange rate from Chinese to Canadian money, if we see a fall in the Yuan and nothing happens to capital outflows, it’s a fall relative to the loonie, then yeah, we would expect to see a drop in prices to the extent that people are right that China is a very important source of demand,” says Davidoff.

“Things can go awry with that calculation because more and more money could be flowing out of China, although they’ve tried to stem the flow of capital flows out. but if the flows stay the same, and those flows buy fewer loonies, then we ought to see a price drop.”