China has been able to break barriers and experience exponential growth over the past few decades, maintaining its spot as one of the manufacturing and exporting giants in the world. As a result of this boom, many Chinese nationals have become rich and desire to diversify their investment portfolio to keep their money safe. There has been an influx of Chinese investors into the Toronto real estate market in the last decade. What is responsible for this piqued interest?
Only 40 years ago in 1980, China was the 7th largest economy with a GDP of $305.35 billion. However, with economic growth averaging 10 percent per year, China’s economic growth has skyrocketed and now, it is the world’s 2nd largest economy, with predictions that it might soon become the world’s largest economy.
Why are Chinese investors interested in the Toronto real estate market?
Safety/low volatility of the Toronto real estate market
Safety is a key consideration when deciding what to invest in, and this is what makes Chinese investors so interested in the Toronto real estate market. Another possible investment option would be to go all out in international or domestic stock markets.
However, there is overall poor knowledge about stock investments or even Exchange Traded Funds (ETFs), which might have been a better way to invest.
Also, the stock market’s volatility has considerably increased in 2020, with S & P 500 stock indices falling by over 26 percent from February’s highs and closing by 9.51 percent on March 12, 2020.
This fall in stock market indices is likely to lead to an increased attractiveness for real estate as a sheltered investment, with people moving their investments from stock to real estate since the stock market is very volatile right now. In comparison to other asset classes, real estate is relatively safe.
Basically, the stock market is very volatile, meaning you could either gain a lot or lose a lot within a very short period of time — a few days or even some hours. Although real estate is considered a leveraged investment and it has some level of volatility, its volatility is relatively low. This makes it a lot safer and better.
Land as a limited resource (low supply-high demand dynamics)
When you invest in real estate, you typically invest in land, which is a limited resource. What does this mean? More land is hardly ever created (and only through costly processes such as deforestation). So the amount of land present at the moment is unlikely to increase by significant margins in the future.
As such, the value of your real estate investment keeps increasing in the long term as long as there is positive population growth, especially for the Greater Toronto Area, which attracts hundreds of thousands of immigrants every year. Working with an experienced real estate agent is very critical in deciding where to invest in the Toronto real estate market.
To find the best local real estate agent in Canada a good place to look for an agent is Wowa. The site helps real estate customers to find a real estate agent who is suited to their needs.
The bathroom of a Toronto Lakeshore condo. (Image: Pkamiini via Pixabay)
The hot Toronto real estate market
Just like Canada, countries like New Zealand and Australia have welcomed Chinese nationals as tourists, immigrants, and students. As a result, these countries have seemingly experienced a rise in real estate investment by the same groups.
The growing real estate market in Toronto has gotten so much attention from Chinese who have connections with the city, such as parents of Chinese Nationals studying in the city. The benefits of living in a vibrant city like Toronto include access to basic amenities alongside several job opportunities, making it an amazing real estate marketing hub.
Furthermore, there is limited availability of real estate investment options, and unless there is a spike in the number of available houses on the market, the Toronto Regional Real Estate Board (TRREB) expects home prices to rise throughout 2020.
In addition to the land transfer tax, there is a Non-Resident Speculation Tax (NRST) of 15 percent, which non-citizens or non-permanent residents have to pay. A land transfer tax calculator can help you estimate how much you’d be paying as tax.
Conclusion
With the promising returns afforded by the Toronto real estate hotbed, the relatively low volatility associated with real estate, and the limited supply of land in Toronto because of the green belt (which in turn guarantees an increase in real estate value over time), there is enough stimulus for Chinese investors to channel their increased liquidity to make targeted purchases in the Toronto real estate market.
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