The Hongcouver | How do you lose money on Vancouver real estate? Think of prices in Chinese yuan

While the loonie was trading at parity or better to the US dollar, an international grocery run made good sense. But the recent slide in the Canadian dollar, which now sees it bouncing around the US$0.85 mark, has made such forays much less worthwhile.

The implications are far greater when the cross-border purchase is a house, and not just a week’s shopping. And that effect is magnified when the exchange is conducted between the Canadian dollar and the Chinese yuan, not the US dollar.

Since early 2010, when Beijing lifted the yuan’s de facto peg to the US dollar, the Chinese currency has been steadily appreciating, from around 6.80 yuan/US$ to the present rate of about 6.20 yuan. Couple that with the Canadian dollar’s current slump to new five-year lows against the US dollar, and the effects are pretty marked.

There are some unusual implications. Let’s consider the common scenario of a wealthy Chinese purchaser of real estate in Vancouver. A detached house bought in late 2007 should have represented a spectacularly successful investment, with average prices rising from about C$850,000 to a whopping C$1.34 million today.

Yet for some buyers, that 50 per cent gain will have been virtually wiped out in Chinese yuan terms. A buyer who switched out of yuan to buy a house in Vancouver for the then-average price would have outlaid 6.89 million yuan, if they were unfortunate enough to have done so when the Canadian dollar hit its peak of 8.11 yuan/C$  in November 2007. 

In spite of that subsequent 57 per cent spike in Vancouver average house prices, our unfortunate buyer has barely broken even in yuan terms. The average price of C$1.34 million is now equivalent to 7.03 million yuan, at a rate of just 5.25 yuan to the loonie. 

(Of course, had our Chinese buyer bought in the very depths of the global financial crisis, just 12 months later in November 2008, they  might have got a real bargain, with Vancouver prices slumping in concert with the loonie. The average price of about C$750,000 was then equivalent to a mere 3.96 million yuan)   

In yuan terms, Vancouver real estate probably peaked sometime in the second quarter of 2011. The average detached house price was then about C$1.25 million, and the Canadian dollar was buying a very healthy 6.87 yuan, resulting in an average price of 8.59 million yuan.

When looked at this way, the average price of a detached home in Vancouver has actually fallen by 18 per cent since late April 2011. Even the Canadian dollar peak average price of C$1.36 million, achieved to much fanfare in February 2014, represented part of a downward slide in yuan terms, coming in at the equivalent of 7.41 million yuan at the then-rate of 5.45 yuan/C$. 

Whether or not many Chinese buyers view their Vancouver real estate holdings in such a clinical fashion is a matter for debate. For many such buyers, a home in Canada offers a kind of value that can’t be measured in cash terms, whatever the currency. But it must be disconcerting to watch the Canadian dollar plummet, as it drags down the notional yuan value of what should be a blue-ribbon asset with it.