Dateline: Sigulda, Latvia
If you’re a property owner or real estate agent in Vancouver or Toronto, you just got screwed.
We discussed earlier this week why I prefer investing in emerging market real estate. Even though emerging markets may seem to offer less security, the reality is that a country with Big Government is the truly unsafe place to have your money.
Canada seems to be heading down that same road. After twenty-eight years of welcoming immigrant investors, Canada has shut down its Immigrant Investor Program for good. That means foreign investors can no longer get permanent residence in exchange for loaning money to the Canadian government.
Motives for the shut-down
Quebec shut down their investor visa program several years ago, but that wasn’t a surprise since Quebec has always tended toward isolationism.
Canada’s government has been taking measures to cool down expensive housing markets in general for the past few years. One of the factors inflating the market was large-scale investments from wealthy Chinese.
Let’s understand what has been going on with Canada’s Immigrant Investor Program. Basically, a bunch of rich Chinese immigrants have been pouring millions of dollars into the Canadian economy, into companies that create Canadian jobs, and into Canadian real estate.
And now it’s all coming to an end.
The Immigrant Investor Program allowed foreigners with a C$1.6 million net worth to come and live in Canada. Once they got permanent residence and lived in Canada three out of four consecutive years, they could qualify for Canadian citizenship. All they had to do was lend Canada $800,000 on an interest-free basis for five years.
The Canadian government cancelled the program earlier this year, saying it has “limited economic benefit” to the country. Some 65,000 applicants — who had been waiting for years in some cases due to Canadian government inefficiency — are now fuming.
Who does the policy actually hurt?
They have been betrayed by Canada, but I believe they are the winners in this situation. After all, many Immigrant Investor Program cast-offs will now go and apply to take their wealth to Singapore or Hong Kong or somewhere else that respects the contributions they can make.
The losers in this case aren’t the wealthy Chinese, it isn’t even the Canadian government, who will continue to impose high taxes and regulations on its citizens to keep its dwindling economy afloat.
The real losers due to Canada shuttering its immigrant investor program are the local Canadians who will see the value of their real estate and businesses drop.
For one thing, wealthy Chinese have a huge penchant for real estate. Unlike Americans, the Chinese understand that their government — and all governments — are corrupt. They look for “safe havens” and stores of value to protect their wealth. In their culture, real estate is a tangible asset that is as good a store of value as any.
So when these immigrants come to places like Canada, they often spend lavishly on real estate, helping to drive prices up.
Now that 65,000 of them are being cut off, I believe local real estate markets will feel the impact. Considering that immigrants in Canada are concentrated in a few key cities, shutting off the tap will have a decent impact on property prices.
Unlike emerging markets, which only need to rely on a growing population of increasingly affluent people, countries like Canada actually have to innovate in order to grow their economies. That’s why western economies are in the toilet — governments don’t know how to innovate, and wouldn’t want to anyway. Politicians are too busy getting re-elected to consider if wealthy immigrants could actually help grow their economy.
After all, politicians aren’t the ones who pay the price of failed economic policies — their constituents do. What do the politicians care if people lose money because of their bad ideas?
And now, politicians in Canada aren’t even sure if they’ll be refunding the thousands of dollars in fees each applicant paid to get on the Immigrant Investor Program’s long waiting list.
The consequences of the policy change will especially affect you if you are wealthy. Chinese immigrants to Canada were some of the biggest buyers of luxury real estate in cities like Vancouver. Now that they’re being phased out, Canadian real estate experts are predicting some bad things for property owners there.
It’s bad enough that bankrupt governments will use any angle to take advantage of investors with higher property taxes and special assessments on “luxury” real estate, but now they are directly devaluing real estate by stopping immigration.
As I seem to recall, Canada has plenty of room for more people.
Look to emerging markets for financial freedom
As I travel the world, it’s interesting to see that the most fundamentally prosperous countries are the ones that welcome everyone. Singapore, for instance, welcomes people from all backgrounds and doesn’t chide them for “not speaking English”. It is now the richest country in the world and has long had the world’s most millionaires per capita.
(Malaysia, one of my favorite emerging markets to live in, takes the same approach as Singapore.)
Back in the dying West, a few people might be moving from the suburbs of Detroit to the suburbs of Houston, but there really is no great case for real estate appreciation in countries like Canada or the United States. At least not on the scale of emerging markets. The outlook in low birth rate Western countries — where people are actually getting poorer — is grim.
It’s funny how the financial media is bashing on emerging markets as being bad investments these days. The argument is emerging market governments will cause devaluations in their economies. Yet I see it the other way around: Western governments with an agenda will do the most damage to investors who trust in them.
That’s why I wouldn’t count on any Western government to make sure my investment in their country retains its value. Not in Canada, and especially not in The Land of the Free. Not in the slightest.