November 29, 2015

The Apogee Of The Market

A weekend topic on a housing bubble phenomenon coming to an end. The South China Morning Post. “The case of Xun Wang, a Vancouver-area consultant jailed for masterminding the biggest immigration fraud in Canadian history, is startling in scope. Wang, 46, who was sentenced on October 23 to seven years in prison, conducted his fraud on an almost industrial scale, as he helped rich Chinese clients maintain Canadian permanent-resident status and later obtain citizenship. Chinese passports both real and fake were shipped in bulk to the mainland, where professional forgers would doctor them to make it look like their owners had been present in Canada when they had actually been in China.”

“Wang would set up his clients in fake jobs at his firms, printing business cards for them and issuing pay slips - adding insult to injury, their fake salaries were so low his wealthy clients were able to file tax returns that allowed them to claim from Canadian coffers tax benefits intended for the working poor.”

“Yet the most significant aspect of Wang’s case is neither the scale of his operation, nor its sophistication and audacity. It is the motivation of his clients. Immigration fraud as the public typically understands it involves various schemes to allow unqualified people to live and work in Canada. Yet, bizarrely, Wang’s case involved clients willing to pay tens of thousands of dollars to AVOID living in Canada when they were perfectly entitled to do so, having already obtained permanent resident status.”

“Wang’s clients wanted to be able to maintain their PR status without actually living in the Great White North, since their jobs and businesses were back in China. And by faking their presence in Canada they would eventually be able to claim Canadian citizenship, with all the privileges it confers, including the right to live in Canada – eventually.”

“The concept is so common among some Chinese immigrant circles that there is a word for it: yiminjian, or ‘immigration jail’. The term refers to the period of compulsory Canadian residency (now, four years out of the previous six) which one must suffer before applying for citizenship. Think of a Canadian passport as the get-out-of-jail card. It needs to be emphasised that this mindset does not apply to all Chinese immigrants - only that subset for whom greater opportunities exist back in China (and only a subset of those). The problem isn’t about nationality or ethnicity - it’s about wealth and the commodification of immigration status.”

“A long-time Canadian immigration industry source with decades of involvement in Chinese immigration said ‘the biggest single category would clearly be the investor-class [husbands]‘. He was referring to the now-defunct Immigrant Investor Programme and the still-operational Quebec Immigrant Investor Programme. These schemes effectively put Canadian PR status up for sale, to anyone worth C$1.6 million and willing to hand over an C$800,000 ‘investment’, for a period of five years.”

“‘It illustrates the fact that many of these economic immigrants got their status through immigration fraud ab initio, from beginning to end,’ he said. ‘But this bigger fraud is not so easy to prove…it comes down to the question of intent. There are no documents [that can prove it]. But after 20 years of China being the main source of business immigrants, you’d think that the politicians would have noticed that the vast majority of these astronaut dads do not in fact reside in Canada. Most never had any intention of doing so. The goal is to get the wife and kids here.’”

“‘We’ve been relying on the dubious notion that an applicant’s net worth is one of the most reliable indicators when it comes to predicting the likelihood of a happy and successful transition to Canadian life. What does this say about us to people who are considering moving here?’ says Canada’s former ambassador to China, David Mulroney. ‘It certainly fails to give pride of place to the qualities and values that have always attracted people to Canada.’”

“The fallout from Wang’s fraud continues. Seven of his former employees have been charged; two are fugitives while five were due in court this month. As for the fate of Wang’s 1,200 clients, Judge Reg Harris ominously warned in sentencing: ‘I expect the immigration authorities will have to review the circumstances of all those concerned and it is quite likely that some persons will be removed from Canada.’”

The Cambridge News in the UK. “Nearly one in four of Cambridge’s ‘prime’ newly-built houses are being sold overseas. The new figures from property agents Savills have been branded ’shocking’ by the city council’s housing chief. The data for the housing market in Cambridge last year says international buyers account for 22 per cent of sales in the ‘prime’ secondhand market, and 24 per cent of ‘prime’ new builds. Other figures show the number of sales of homes worth more than £1 million has more than tripled in Cambridge over the past five years; nearly 30 per cent of buyers with Savills last year were investors, compared to just 9 per cent in 2012, and in the new-build market around 70 per cent of buyers in prime areas were investors in 2014.”

“This detailed data shows the extent to which government policies to promote home ownership as the only tenure worth having, whilst stopping us building social housing for affordable rents, is creating a vicious circle in Cambridge,’ said Cllr Kevin Price, the city council’s executive councillor for housing. ‘It’s shocking that 70 per cent of the new-build homes in some areas of the city are going to buy-to-let investors, and that almost a quarter of sales are now to overseas investors. We need the government to help us tackle this. Since investors’ pockets are deep it is not likely that this housing bubble will burst and prices fall, but that they will continue to compete and price residents out of the market.’”

SBS News in Australia. “Stricter penalties for violations of laws governing ownership of residential real estate by non-resident foreign nationals will come into effect on December 1. A period of reduced penalties for overseas owners who suspect they are in breach of Australian laws, and report themselves to the government, expires on November 30. Melbourne-based property expert Michael Yardney said uptake of the offer has not been substantial. He doubts whether this or other measures being implemented by the government will effectively address the problem of overseas investors trying to bypass Australian property rules.”

“‘It hasn’t worked up until now. The whole system hasn’t worked. There hasn’t been enforcement,’ he told SBS World News. ‘Sure, the penalties are going to deter some people, but there are still ways around it. Foreign investors are now getting local family members to buy properties in their own names - people who are Australian residents - or they’re getting other locals to become directors of the companies owned by foreign nationals.’”

The Australian Financial Review. “Australia will have its biggest-ever day of auctions on Saturday - just as signs emerge that prices have started falling in the key markets of Sydney and Melbourne. ‘That will be a record day nationally – the biggest day of auctions ever in Australia,’ Domain senior economist Andrew Wilson said. ‘This is the apogee of the market.’”

“The dream housing run that has driven prices up 15.6 per cent per cent in Sydney and 12.8 per cent in Melbourne over the past 12 months is coming to an end. Joanne Sparke, who is auctioning a four-bedroom house in Lindfield on Sydney’s upper north shore, is one of the 1100-odd owners selling on Saturday. Ms Sparke had little say over timing of the sale - her mother’s September death prompted Ms Sparke, her brother and sister to sell the family home of 54 years. But she wants to do it quickly.”

“Ms Sparke said the weekend’s strong market could work for or against the sale of her Highfield Road house, being marketed by North Shore-based Savills Cordeau Marshall Gordon at a price of $1.5 million upwards. ‘They’re saying the market’s dropping, but there’s not a lot we can do about it,’ she said.”

“Gowan Stubbings, a director of Melbourne real estate agency Kay & Burton, faces the busiest day of his 15-year career. Mr Stubbings said all his properties were likely to sell. ‘The only reason they won’t sell is if vendors have got caught up in the excitement of the market and want too much,’ he said.”

The Wall Street Journal. “Capping a five-year real-estate binge, Chinese nationals surpassed Canadian snowbirds as the top foreign buyers of U.S. homes for the year that ended in March—the most recent annual data—scooping up everything from $500,000 condos in New Jersey to $3 million vacation homes in California to $13 million Manhattan condos. But in recent weeks, some Chinese buyers have started to pull back, scared off by China’s stock-market selloff, slowing economic growth, currency devaluation and tightened restrictions on capital outflows. On Friday, China’s benchmark stock index fell by 5.5%, its biggest daily slide since August, as Beijing authorities stepped up a crackdown on the securities industry.”

“Karen Xu, a Shanghai resident looking to invest in U.S. real estate, decided this spring to seek a Miami one-bedroom condominium in the $500,000-to-$750,000 price range. China’s economic slowdown has since changed her mind. ‘I don’t think I’ll be investing in the U.S. right now,’ said Ms. Xu, who works at an investment consulting firm. ‘Maybe I’ll wait another five years, or invest in China.’”

“‘We are ready to embrace a winter for Chinese buyers in the next one year, two years,’ said Daniel Chang, a New York City-based broker at Sotheby’s International Realty. Mr. Chang, who sells properties in the $2 million-to-$10 million range, said about half of the clients served by his team are Chinese. Christina Shaw, a Realtor with Re/Max Fine Homes in Newport Beach, Calif., said one client who gave her a budget of $10 million to buy two houses in the area was now looking to reduce his budget by about one-third.”

“Interest from Chinese buyers ‘went dark’ for several weeks after stocks becan their sharp fall, said Tom Mitchell, president and chief operating officer of Tri Pointe Group, a home builder in Irvine, Calif. China’s main stock index, the Shanghai Composite Index, is down 38% since its June peak. Foreign Chinese buyers make up about 30% of customers in a handful of the company’s developments in Orange County and the San Francisco area. Price increases there, he said, have prompted clients to ‘pause and think.’”

“Home builders also could feel the effects. The chief executive of Walnut, Calif.-based Shea Homes, Bert Selva, told investors this month that the company has seen a ’significant slowdown’ in Chinese buyers in Orange County. ‘That buyer is really drying up. To be honest, I don’t think that’s a bad thing, because I think there was a lot of frenzy driven by that, pushing up prices a bit,’ he said.”

“Chinese residents began buying American homes in large numbers about five years ago, driven largely by growing wealth and a desire to safeguard savings against political instability, brokers and economists said. American homes looked like a bargain after the real-estate crash, drawing busloads of Chinese buyers to see properties in California and Manhattan. To many, it seemed ‘a gold mine everywhere,’ said Calvin Lo, a real-estate agent at Berkshire Hathaway HomeServices in Southern California.”

“Chinese individuals are limited to annual overseas investments equal to about $50,000. For years, Chinese have surpassed that limit, in part, by funneling money through relatives and employees. In recent months, the government has made it tougher to transfer money abroad, said real-estate brokers in both countries. ‘It’s like barbarians at the gate,’ said John Chang, a real-estate broker with Re/Max in New York City. Chinese families want to buy, he said, ‘but they just can’t get the money out.’”

Bits Bucket for November 29, 2015

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