OTTAWA (Reuters) - Foreigners living in Canada have boosted their share of the country’s mortgages in the last two years, particularly in Vancouver and Toronto, as young home buyers are bankrolled by their parents overseas, the federal housing agency said on Tuesday.
Nearly 10 percent of mortgages issued to people under the age of 25 in Canada’s two hottest housing markets in 2016 went to non-permanent residents, the Canada Mortgage and Housing Agency (CMHC) said in a statement. This signifies “some younger NPR (non-permanent residents) may be receiving parental support to purchase homes,” it noted.
A backlash against foreign investors, particularly those from mainland China, has spurred provincial governments to impose a foreign buyers tax in Vancouver in 2016 and in Toronto in 2017, despite data showing offshore buyers are a small part of the market.
The market for detached homes in both cities has cooled since double-digit price increases in early 2016 sparked fears of a bubble, though condo sales are more robust. Analysts are divided over whether the Canadian housing market will crash or re-inflate in the coming months.
The CMHC report, based on data from Canada’s five largest banks, showed 3.9 percent of mortgages issued in Vancouver were held by non-permanent residents in 2016, up from 3.3 percent in 2014. In Toronto, 2.7 percent of mortgages issued in 2016 were held by non-permanent residents, up from 2.1 percent in 2015 and 2.0 percent in 2014.
For the report, non-permanent residents included foreign workers, students, refugee claimants and other non-Canadians legally living in Canada.
In Vancouver, academics and politicians have identified a trend of luxury homes whose buyers describe their occupation as “student,” prompting concerns that they are proxies for wealthy foreign parents who are not paying local taxes.
“It seems that Canada has some of the most expensive dormitory rooms in the world and it’s financed by mortgages,” said Andy Yan, director of The City Program at Simon Fraser University.
In a 2015 case study, Yan found that 5 percent of homes that traded hands over a six-month period in a prime swath of Vancouver were purchased by students, with the average sales value of those homes at C$3.2 million.
While non-permanent residents hold a small fraction of mortgages overall, the rapid growth of foreign buyers aged 18 to 44 is shifting the market demographic in Canada, the CMHC said in the report.
Non-permanent residents preferred more expensive properties, according to the report, buying single detached homes worth an average of C$1.09 million in Toronto and C$1.65 million in Vancouver. That was above the average C$902,000 and C$1.42 million bought by permanent residents in those cities, respectively.
The proportion of mortgages held by non-residents, including Canadians and foreigners not living in Canada, also rose from 2014 to 2016, particularly in Vancouver and Toronto, the report showed.
Additional reporting by Julie Gordon in Vancouver; Editing by Andrew Hay and Richard Chang