COVER

GAMBLING WITH THE WALLS

JOHN DeMONT August 15 1988
COVER

GAMBLING WITH THE WALLS

JOHN DeMONT August 15 1988

GAMBLING WITH THE WALLS

COVER

Even Mendel Green, a Toronto lawyer who specializes in finding Canadian real estate for offshore investors, was impressed.

In May, Green’s firm sent a driver to Pearson International Airport in Toronto to pick up four representatives from four of Taiwan’s richest families, who were interested in doing a little shopping. But instead of the Eaton Centre, the visitors wanted to see houses, condominiums, office buildings and shopping malls. The group spent the day cruising through Toronto’s residential and business districts. When the shopping spree was over, they had spent $31 million to buy four large houses, four condominiums, a small shopping mall and an office building.

Red-hot: Wealthy Taiwanese speculators are earning huge profits by buying and selling properties in the red-hot Vancouver and Toronto real estate markets. And so are Hong Kong residents, who are preparing for 1997, when the British colony reverts to Chinese rule. They are pouring billions of dollars into Canada to buy real estate at what they consider to be bargain prices. But the ranks of real estate speculators also include Canadians who are buying strings of condominiums, apartments and houses, only to resell them for a quick profit.

Escalating: The rapidly escalating markets over the past five years, particularly in Toronto, have fuelled the boom in widespread real estate speculation. Wayne King, vice-president of Brethour Research Associates Ltd., an Ontario real estate research firm, says that the speculation increased especially following the stock market crash last October, which drove many investors looking for quick capital gains out of stocks and into real estate. And both developers and real estate agents say that gambling on rising property values is one of the reasons home

prices in Toronto and Vancouver are now out of the reach of most first-time buyers.

Nationally, the speculators have been most active in Toronto’s condo-

minium market. King estimates that 60 per cent of units in some downtown Toronto condominium buildings — and about 40 per cent of some suburban developments—have been sold to investors who have no intentions of living in them. But the so-called live-in speculators are also common in Toronto’s predominantly single-family subdivisions. They buy new homes and then immediately put the property up for sale while they look for their next house or condominium. And, in some cases, investors are reselling condos or detached homes before they are even completely built.

Chinese: Wealthy Hong Kong investors, who are encouraged by federal immigration laws to seek Canadian citizenship, are the major participants in real estate speculation. Frank Chau, president of the Toronto real estate company Goldyear Realty Inc., says that new Chinese investment in Toronto real estate this year has already outstripped the 1987 total of $2 billion. Hong Kong families, unsure of what will happen when the Chinese take over the colony in 1997, have been pouring their money into Canada. Said Harvey Kaufman, director of sales for Norman Hill & Associates Ltd., a Toronto real estate company: “In my mind, the influx of Chinese money is the biggest single factor driving the Toronto real estate market.” Eager to develop a business presence in Canada, Chinese investors, primarily from Hong Kong, are using the condominiums and houses for relatives who have immigrated to lay the groundwork for the family’s business in Canada. But often, the condominiums are simply investment properties that are rented out or that sit empty until prices have climbed enough to sell for a healthy profit.

Chinese investors in Canadian real estate exhibit an unusual style, because, although they are shrewd busi-

nessmen, they also are careful not to ignore Chinese customs. As a general rule, they will not buy properties with the number four in the address—in Cantonese the number four means death. Houses facing churches are unpopular because they supposedly bring bad luck. So are homes located at the end of dead-end streets. Said Bessie Tse, a Toronto Royal LePage Real Estate Services Ltd. agent with hundreds of Chinese clients: “People follow these customs even if they don’t believe in them. After all, why take a chance on hurting resale value?”

Pressure: The growing number of property speculators in Toronto has put pressure on the Ontario government to intervene to control wild price rises. Although the provincial cabinet has yet to act, some developers and real estate companies have instituted their own tough rules to curb speculators. Many developers are attempting to discourage flips, or quick resales, by stipulating in the sales contract that the buyer must take possession of the home before selling the property. Some builders also refuse to sell more than one unit to the same buyer. At the same time, the provincial New Democratic Party has asked the Ontario legislature to levy a tax on profits made from speculation, but no such law has been passed to date. Last year, Royal LePage, Canada’s largest real estate company, stopped accepting property listings in which the seller had not yet taken possession of a purchased home. And Tridel Corp. recently instituted regulations at a new development that require owners to move into their suites between the date of possession and the date of closing.

Slowing: Those steps may already be having a positive effect. Industry officials say that there has been a noticeable decline in speculative activity during the past six months, and price increases have slowed. King says that reduced speculation could be partly due to the strengthening in stock prices, which is luring some investors out of real estate and back into the stock markets. But other experts say that many speculators are simply becoming concerned that the property market is overheated and prices are set to tumble. If that is so, investors could leave the market by the hundreds. Analysts say that if that happens, speculators could quickly undermine the same property values that they helped drive to such heights. But that would have one positive impact: first-time home buyers could stage a return to the market that recent events have largely closed to them.

-JOHN DeMONT