People in other parts of the world are looking at Canadian property and seeing that it is a good deal. Canadians are looking at properties in other countries and seeing good deals. A headline in Fortune stated “These Canadians Own Your Town”. Welcome to the new reality of real estate.
This idea is not new news to the leaders in the business. Every December, the Global Real Estate Forum is held in Toronto. In addition to the formal sessions and informal networking events, the Ontario government encouraged semi-formal discussions which would lead to cross-border deals.
To people living here who wish to learn about markets in the rest of the world, various sources of information are available, of which the most comprehensive might be the result of collaboration between PwC and ULI. Or, pick a region of the world and start reading the best local papers on-line.
The total value of world’s real estate market is debated energetically. Maybe, it is worth $30 trillion dollars. Most of it is owner-occupied but that is changing. The number is debated because, in much of the world, record-keeping is not good.
Doing deals internationally reveals a learning curve with several parts. To start simply, risk matters and, to quote Warren Buffett, “risk comes from not knowing what you’re doing”. So, maybe you should learn more about mold and humidity and less about snow load. It is also obvious that the idea of good personal relations differs from place to place (and, since mistakes happen without intention, you should learn how to apologize sincerely). Exchange rate risk is relevant, and reasonably well-understood for short term investments such as stocks and bonds. To reduce the risk in a long term decision, it is common to work with a local partner, but who can you trust? And, how much of the profit should you share in the “agency” relationship? In many countries, the enforcement of contracts is not up to Canadian expectations. In many countries, the quality and quantity of information differs from what Canadians would expect. So, extra care and deliberate thought is needed in order to “price” risks in a way which distinguishes good deals and bad deals.
History helps to explain a stereotype about the behaviour of immigrants to Canada. If you expect the rule of man (as opposed to the rule of law) then it makes sense to not trust contracts or paper. As Duddy Kravitz was taught, owning land means that you are a somebody. Land is tangible, permanent and has a special value, especially for individuals coming from countries or cultures where ownership was problematic.
Real estate markets are changing because people from other countries are coming here to learn. I recently returned from the annual meetings of the American Real Estate Society, at which people from about 25 countries shared ideas. I also remember a recent conversation with one of our international Chinese students who, like many of her classmates at this time of year, was worried about finding a job. Referring to an article in the Globe and Mail, I reminded her that “I bet that … the Caisse de depot (i.e. Quebec government) would really like to have people who understand China and Canada.”
The world of real estate is changing. It is no longer sufficient to think and act locally.