Juggling Dynamite

B.C.’s government surprised many observers on Monday by announcing an additional 15 per cent property transfer tax on foreign homebuyers. BMO Capital Markets Chief Economist Doug Porter called the move “entirely justified” amid persistent double-digit home-price gains in the province.

“Business as usual is not going to cut it,” Porter wrote in a report to clients. “Given that single-detached prices in the Greater Toronto area have jumped almost 20 per cent y/y, the Ontario government should take a long look at a similar move.”Here is a direct video link.

HAVE YOUR SAY: Should Ontario follow B.C.’s lead on taxing foreign homebuyers? https://t.co/Cby9cAVhkH

— BusinessNewsNetwork (@BNN) July 26, 2016

Vancouver and Toronto have been first in line in Canada for international flows hiding from their home governments. But over-valuations, reckless leverage and financial risk have now spread well beyond these two centers, weakening Canadian households, the economy and our financial system.  As liquidity and cash flow evaporates in the many highly indebted countries that are facing falling exports worldwide, we should expect intensifying government crackdowns and capital flows to stem the flow into places like Canada.  Flows never go one way forever.  When they subside, Canadians will be left with the revelation that current realty market valuations make no sense relative to domestic incomes, and price mean reversion is necessary to restore affordability.

Christine Duhaime with Duhaime Law has made her career out of tracking money illegally entering the country, and says there’s no doubt the inflow to Canada is substantial.

She says China and its banks currently have a big problem with its citizens borrowing money, then fleeing the country and defaulting on the loans. Here is a direct audio link.

“So it’s not really just China, it’s just that the most amount of money – in terms of money moving into mansions – is from China. And then it appears to be Iran the second amount, so it’s not just one country, it’s just the largest. And I don’t think that’s racist, it’s just factual.”

How Big of A Problem is Money Laundering in the BC Real Estate Market? https://t.co/loUtqK4jND

— Danielle Park (@kdaniellepark) July 26, 2016

Danielle was a guest today with Jim Goddard on Talk Digital Radio, talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.