Back in 2013, the Chinese government decided to crack down on their very own housing bubble. This included implementing stricter regulations on the 20% capital gains tax for property sales as well as increasing down-payment requirements for mortgages on second homes. Chinese investors, both commercial tycoons and yearning homeowners, needed a new place to go and spend their money.

Meanwhile, housing sales in Canada were on the decline. The country’s largest condo markets, Toronto and Vancouver saw a 7.8% and 25.5% drop respectively in existing high-rise and apartment sales. It was around this time where the Chinese saw the potential to capitalize in Canada and began investing in the Canadian real estate market. In recent months, this effect has been accentuated since China’s turbulent stock market has become virtually unprofitable for investors. Therefore, their citizens have even more incentive to buy into Canada’s real assets.

Foreign funding, from any nation, has started to fuel Canada’s housing market with the average investment from a Canadian citizen or permanent resident at $735,000 versus the staggering $1,157,000 from buyers abroad. However, a more shocking statistic from a recent study in British Columbia showed that 76.6% of foreign buyers for residential properties were from China. Furthermore, Chinese buyers are the largest foreign investors in Canada, holding 65% of the market within the first six months of 2016. This works out to be $1.3 billion, compared to the $309 million at this time last year.

What Is So Appealing From A Social Perspective?

There are of course more reasons for Chinese investors to purchase real assets abroad. Many of the Asian middle and upper class have enough money to establish a decent lifestyle in Canada where the way of life is slightly more refined.  Many Chinese immigrants actually perceive Canadian tendencies to be generally more ethical and respectful than in their homeland.

Pollution plays another strong role. In China, AQI indices are checked regularly to predict the intensity of grey skies and smog. In stark contrast, Canada is known for its fresh air and a plethora of outdoor activities. Living in a society where surgical-style face masks are uncommon is truly enticing, not only for enjoyment but also for one’s overall health.

Statistically speaking, Chinese citizens have the second highest population out of the total number of Canadian immigrants, next to the United Kingdom. Furthermore, upwards of 1.5 million Canadians are of full or partial Chinese descent. With such a large Chinese community across the nation, it has proven to be quite easy for Chinese immigrants to assimilate into society. Some actually say they hardly feel like foreigners at all thanks to the strong sense of openness and pride amongst local Asian communities.

Canadian Developers Working In China’s Favour

When developing a condominium in Canada, lenders want a sense of security, generally asking for builders to sell around 70% of the building’s units before initiating construction finances. With so many condo projects nationwide, including over 115,000 individual units scheduled for completion in Toronto, developers have been heading directly to China to pursue foreign buyers.

Canadian real estate agents, who usually have ties to China, regularly travel to Beijing and Shanghai to showcase new developments to upper-class families and other potential buyers. Macdonald Realty Inc., a Vancouver based broker, actually has a sales office set up in Shanghai to sell Chinese investors a variety of condos units in Toronto, Montreal and the west coast.

Developers see this tactic as a great business strategy given the increased competition in the Canadian condo market and the never-ending announcements of new developments. Nevertheless, heading directly to Chinese investors is making it easier than ever for them to purchase properties without thinking twice. Not only does this add to the housing bubble but there is no sign of foreign buyers slowing down as long as developments continue to be built.

The Current Situation: Canada’s Market Vulnerability

What does all this Chinese investment mean for Canada’s housing market? With foreigner buyers, including Chinese investors, snapping up condos, supply decreases and prices are boosted. This leaves little leeway for Canada’s domestic population who are now struggling to afford a home for themselves. Prices for both single-family houses and condo units have risen dramatically over the past few years and local Canadians are suffering.

The best example of this is in Vancouver, where only a decade ago people of all ages could live a nice and comfortable lifestyle downtown. Now, home ownership is basically beyond the reach of the younger population. Nevertheless, over 10% of condos in the west-coast city remain vacant. This is partially because over the years foreigners have invested in properties with no intention of inhabiting them. Sadly, locals want to live in these empty units, but foreigners beat them to the punch with their higher bids.

Although a vacant home tax has been proposed for this specific issue, economists worry about how the Canadian housing market will react. It has reached a point of sensitivity that even the smallest change could send the industry over the edge. Imposing a special tax could decrease foreign investment, the main driver of the current market. Without foreigners to purchase condos, construction would surely slow and that would deprive the Canadian economy of countless jobs.

At a time where Canada’s dollar is weak and the market is delicate, it is hard to predict what is best for the national economy. Foreign investment is proven to be important, but so is the Canadian population’s right to live in housing where inflation is at a fair rate. It is a vicious cycle and only time will tell how it will all play out.