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RBC Scraps Mortgage Cap on Foreign Home Buyers to Keep up With Chinese Demand


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http://www.cbc.ca/news/business/rbc-mortgage-limit-size-1.3299631

 

https://ca.finance.yahoo.com/news/royal-bank-canada-scraps-limit-size-newcomer-mortgages-122843135--sector.html

 

The Royal Bank of Canada scrapped an internal limit on mortgage loan size for immigrants in the spring to tap into surging demand for financing on multi-million dollar houses by newcomers to Vancouver.

Wealthy buyers, mostly from China, are fueling a booming mortgage business in Vancouver, where the median price for a detached home on the desirable west side jumped 31 per cent to $2.87 million  in the last two years.

RBC, Canada's largest bank, removed its $1.25 million cap on loans to borrowers with no local credit history in May, said Christine Shisler, the bank's Director of Multicultural Markets, who works with an immigrant clientele.

"We're seeing a lot of affluent newcomers looking to buy high-purchase price homes," she said. "Now we can actually service any mortgage amount."

A case study released on Monday, which looked at six months worth of detached home sales in prime neighbourhoods near the University of British Columbia (UBC) main campus, found that two-thirds of buyers had names typical of people from mainland China and 88 percent of those people also had a mortgage. The mortgages, on homes ranging in value from $1.25 million to more than $9 million, were mainly backed by three banks — HSBC Canada, Canadian Imperial Bank of Commerce (CIBC) and Bank of Montreal (BMO).

RBC held just 8 per cent of the loans. The banks have not broken out the size or profitability of this business segment.

Andy Yan, an urban planner and adjunct professor at UBC who studied land titles linked to 172 sales transactions from Aug. 2014 to Feb. 2015, said the financing was the most surprising part of the study. "It counters a lot of our mythologies, in terms of this idea of people showing up with very large bags of money and paying cash," he said.

While there is no official data on foreign ownership in Canada, realtors who work in Vancouver's luxury market say more than 80 per cent of buyers have ties to mainland China, with demand strong despite this summer's Chinese stock market plunge and President Xi Jinping's corruption crackdown.

Yan's case study, using a name analysis method pioneered in public health and academic studies, found that 66 per cent of buyers in his sample had non-Anglicized Chinese names.

A separate Reuters survey of land titles linked to sales in a broader swath of Vancouver west had a near identical result. To be sure, some of these individuals could be Canadian citizens or long-time residents, though Yan notes the majority have ambiguous job titles like "homemaker" or "businessperson," which may point to money being earned abroad.

Indeed, the most common occupation for the new owners of these multi-million dollar properties was "homemaker."

That raises questions over how banks, in the rush to tap into the market, are not only ensuring their clients have the means to make hefty mortgage payments, but also whether they have enough information on the source of funds. "I do worry that we're being friendly, polite Canadians and not asking too many questions," said David Eby, the provincial lawmaker for the Vancouver neighbourhood in Yan's study. "There are a lot of people making a lot of money right now."

 

Compliance concerns

Both RBC and HSBC Canada said that anti-money laundering compliance is a priority, though declined to provide specific details on how exactly they ensure legitimacy of funds.

CIBC and BMO did not immediately provide comment on their newcomer mortgage policies. "We have a very low tolerance for risk," said Aurora Bonin, a spokeswoman for HSBC in Vancouver. "You would have to prove, through documentation, where your income is coming from."

Yan's study, meanwhile, found that 94 per cent of homemakers had mortgages on their properties, and that there were more students buying multi-million dollar homes than doctors.

That could pose risks, as highlighted in one divorce case where the China-residing husband, after separating from his wife, defaulted on a $1 million mortgage he took out on the purchase of a $2.3 million home for his wife and children.

Canada's bank regulator, the Office of the Superintendent of Financial Institutions, noted that there are no limits imposed on lending to newcomers or offshore buyers, but that banks must do their due diligence as per the department's guidelines.

The major banks all have Chinese-language websites to promote their newcomer products, and both RBC and HSBC said that their teams in Vancouver are diligent in making sure new clients pass all their checks. "Obviously we're responsible lenders, we're not going to give a mortgage out for C$5 million if we haven't assessed that that's the need and there's a capacity for that particular client," said RBC's Shisler.

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Before anyone shrugs their shoulders stop and think for a moment what this means.  Money laundering is a huge issue right now in regards to foreign home purchasing coming from Asia.  Levels of government from Australia, to the UK the US and even here in Canada are all over this issue but there's little they can do about it.

 

Multi million dollar homes being purchased by "students" and "homemakers" are making up huge numbers of sales backed by banks in Canada.  Mortgages now given with 0 local credit history where you would need to provide

  • Proof of residence
  • Proof of employment
  • Length of Employment
  • Down payment totalling X
  • Education
  • Credit History
  • Blood of a virgin
  • Firstborn child
  • Mortal soul

With the knowledge of rampant money laundering being done in Canadian real estate purchases in Vancouver and Toronto and less oversight than ever on larger home mortgages given to Asian buyers; how is this NOT a bad thing?

 

Already there are appeals before the courts from Canada in which chinese home buyers took the money given them via backed mortgage and left the country leaving CMHC and our banks on the hook for millions.  Already the banks are crying that these people cannot be reached and that the Chinese government is doing nothing to help locate them.

 

One such case is the one where a woman divorced her husband in China, he left Canadian banks/CMHC/tax payers on the hook for over $1.2 million on a purchase.

 

How the hell is this allowed???

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Nothing could go wrong here surely.

 

last year when i bought my house the mortgage company wanted to know where every penny was coming from and what i had.  I just sold a car for $15k a month before and they even wanted proof of the sale to see where the money came from. I even said to them do you need to know how much i have in my piggy bank at home too? And I might have a couple dollars that slipped into the couch too!

 

 

 

 

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Nothing could go wrong here surely.

 

last year when i bought my house the mortgage company wanted to know where every penny was coming from and what i had.  I just sold a car for $15k a month before and they even wanted proof of the sale to see where the money came from. I even said to them do you need to know how much i have in my piggy bank at home too? And I might have a couple dollars that slipped into the couch too!

 

 

 

 

I know right!

 

Ridiculous isn't it?

 

Note where it says, more multi million dollar homes sold to "students" "homemakers" than to doctors/surgeons.

 

Surely...nothing could go wrong right?  I mean Lehman Bros, Fannie Mae, Freddie Mac, ING, Behr Stearns all agree this is a good thing no doubt

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Even more worrisome is how every major economist knows this is bad.

 

http://www.theglobeandmail.com/report-on-business/industry-news/the-law-page/canadian-banks-helping-clients-bend-rules-to-move-money-out-of-china/article26246404/

 

ome Canadian banks allow wealthy Asian investors to skirt Chinese law by helping them bring in large amounts of money that is often used to buy real estate in Vancouver.

Financial institutions in the area have flagged more than 8,200 suspicious transactions since January, 2012, the year China began cracking down on citizens they suspect of corruption.

Ninety-six per cent of those transactions were also facilitated by the banks, however, even though the vast majority of that business involved suspected money laundering, according to FinTRAC, the federal agency responsible for tracking money laundering.

These findings, obtained by The Globe and Mail through an Access To Information Request, come as a debate rages over the source of foreign investment and Vancouver’s soaring luxury housing markets. A recent study by Macdonald Realty said 70 per cent of clients who paid more than $3-million for Vancouver houses last year were from China.

It is illegal for Chinese citizens to remove more than $50,000 (U.S.) a year from China without government permission, partly to stop corrupt millionaires from fleeing with their money. But a review of B.C. court cases by The Globe found they have worked around this restriction by sending millions of dollars into Vancouver-area banks through multiple wire transactions of smaller amounts by family and friends.

Banks are legally obligated to report transactions they deem suspicious to FinTRAC, the Financial Transactions and Reports Analysis Centre of Canada, but do not have to stop them or shut down accounts. The agency’s mandate is to gather and analyze those reports. It will not say what percentage involve this type of foreign investment, but said almost none that do are passed on to police.

The data are raising serious questions among legal experts about the effectiveness of federal laws meant to curb money laundering and transnational crime, and shines a light on a system that is time-consuming and expensive for taxpayers.

“The whole regime is a waste of money,” said lawyer Christine Duhaime, an internationally accredited expert on money laundering who has testified before parliamentary committees. “It seems to be completely ineffective.”

In her experience, Ms. Duhaime said, Canadian police do not have the resources to take on these cases.

“I think they also might face obstacles in China because of political differences between the two countries.”

FinTRAC’s guidelines on what banks should consider suspicious include multiple deposits to a client’s account by third parties, a high volume of wire transfers and frequent wire transfers to a client from individuals who do not have an account with the bank.

A recent B.C. court case heard that CIBC regularly helped wealthy clients move large amounts of money out of China – using several transactions and multiple third parties – even though the bank is familiar with Chinese law.

“This process is often conducted using different remitters in the same Chinese city sending funds to one or more accounts in CIBC, then through a common financial adviser get the funds collected back in one account – to be paid out to a law firm,” testified Kim Clark, a CIBC corporate-security investigator.

That testimony came in an ongoing wrongful dismissal suit by Guiyun Ogden, who was a top-tier financial adviser with CIBC’s Imperial Service unit. Ms. Ogden managed a $233-million (Canadian) portfolio for wealthy Chinese clients in Vancouver.

She helped a client move $500,000 (U.S.) out of China by using friends and relatives to send 10 wire transfers into 10 different CIBC accounts overnight. Ms. Ogden then transferred the money into another account for her client to use as a down payment on a $5.7-million (Canadian) Vancouver mansion.

Ms. Ogden was fired for moving some of that money through her own CIBC accounts. But the bank supported the practice of multiple transactions, according to a 2014 written ruling by Supreme Court of British Columbia Justice Randall Wong.

The testimony from CIBC’s Mr. Clark suggested the practice “enabled the client to say, ‘I am not bringing in $500,000 (U.S.) from China; me and these nine other third parties are each bringing in $50,000.’”

Ms. Duhaime said she has seen other examples of this practice.

“I have seen the bank transaction forms, where $50,000 has been wired out multiple times by several people at one bank in China,” she said. “There is so much money that is being made out of immigrants coming from China to Canada, I suspect no one wants to rattle that cage too much.”

The Globe and Mail asked HSBC, RBC and TD Canada Trust if they also facilitate multiple wire transfers like this from China. None of those banks answered that question specifically except RBC, which indicated it might shut down the account instead.

“Multiple wire transfers may be indicative of suspicious transactions,” spokesman Don Blair said. “Where RBC is of the view that a suspicious transaction report needs to be filed with FinTRAC, we will do so. In addition … RBC may close accounts and terminate relationships.”

In their responses to multiple inquiries by The Globe, all of the banks stressed that they are compliant with the law by reporting suspicious activity to FinTRAC.

In a 2011 e-mail highlighted in the court case, Steven Harvey, national director of CIBC’s anti-money laundering group, advised Mr. Clark the bank “generally [has] no obligation under any foreign law.”

When asked about this practice in general, Ms. Duhaime said, “They are facilitating breaking banking laws in China and they think that’s okay. It’s not. Our anti-money laundering laws say we need to be concerned if someone is breaking the law in another country.”

Canada’s proceeds of crime legislation exists partly “to assist in fulfilling Canada’s international commitments to participate in the fight against transnational crime, particularly money laundering.”

CIBC defended its practices. “It is the responsibility of the remitting institution in China to scrutinize whether the remittance transaction or transactions are in compliance with Chinese laws,” CIBC spokesperson Kevin Dove said.

“We fully appreciate the sensitivity of this issue, but we maintain that the structure of these transactions undertaken by our clients complies with Canadian banking laws and that we have no means or reason to deny them.”

Realtors who specialize in luxury housing say many of their wealthy clients get the money they use to buy homes to Canada though these transactions.

In the Ogden case, CIBC did not report the transactions as suspicious.

Notaries are also legally obliged to report suspicious activity to FinTRAC. However, Ron Usher, a lawyer for an organization that advises B.C. notaries on real estate deals, said the banks are the ones that see how the money got to Canada.

“Our members then get that money from the bank – in a Canadian bank draft – and they have no idea that this involves a suspicious transaction,” Mr. Usher said. “… So we really don’t have a system that actually seems to stop anything.”

Other B.C. cases in family court show how millionaires moved their money out of China through multiple transfers into Canadian bank accounts held by spouses and relatives here.

Fang Long came to Canada with her husband, Lin Li, in 2007, but was left alone for long stretches while he did business in China. The couple bought three Vancouver properties, two of them worth more than $1-million (Canadian).

Mr. Li admitted in a B.C. court he transferred more than $3-million out of China into accounts at Vancouver financial institutions, all in Ms. Long’s name. Some of that money was wired by his family members in China in $50,000 (U.S.) increments.

He then fled to Canada. The Chinese government froze his remaining business assets and issued a warrant for his arrest for misappropriating funds.

A recent Department of Finance report, along with the data from FinTRAC, suggests Ottawa is aware money is being laundered through Canadian bank accounts on a large scale.

“There are many sectors and products that are highly vulnerable to money laundering … domestic banks … were rated the most vulnerable, or very high,” the July, 2015, report says.

It said Canada spends $70-million (Canadian) a year on 11 agencies – including FinTRAC – tasked with fixing that.

“We are not seeing many prosecutions or crimes detected. So either it is spectacularly successful or it’s spectacularly useless,” Mr. Usher said.

We are all enrolled as bit players in this great theatrical production of security theatre … pretending [by reporting to FinTRAC] that we are doing something important.”

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  RBC doesnt give one god damn about where the money comes from. They just want to make a buck off of it. They say "anti-money laundering is a priority" but we all know that is a straight up lie. As long as they stay within the letter of the law they will make whatever money they can off of whoever will give it to them.

   My Brother had a hard time with the bank over the down payment on his townhouse because it was a gift to him from us and my parents. If it had been bribe/mob money from China it would have been no problem.

 Remember that story from the papers a couple years ago about the college student son of a high ranking Chinese politician who crashed a Ferrari he owned? The student had never held a job and his father made The equivalent of $35K US a year yet the kid owned a $250,000 Ferrari outright. Thats the kind of people this Chinese money is coming from and we are welcoming them with open arms.

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Here is the scary thing though

 

With Chinese leader Xi Yinping cracking down on "corruption" the fleeing of Chinese Billionaires and millionaires is accelerating.  With Australia already limiting and now taking back property owned by offshore holdings the nearest safe haven has already been all but taken away.

 

We now see Chinese "investors" buying up large swaths of property in places like the UK, the UAE, Vancouver/Toronto and large areas of California.

 

I am reading in to this and it's absolutely astonishing how clear the truth of it is.  There is an absurd amount of money laundering being done via home purchases.  Wealthy individuals out of country, purchasing homes with questionable money that is now insured and backed by secured mortgages.  

 

It's insanity, and while some may say CMHC only insures 20% of all Canadian mortgages, that is not true.  After Harper and Flaherty's attempt to introduce the 40 year amortization period for purchasing, Harper tied CMHC in large part to almost all mortgages bought and traded in Canada which is why CMHC received part of that $100+ billion bailout that was not really a bailout.

 

It's actually really scary to see.  With China's economy tanking and now seeing the crackdown on corruption, we are watching a micro economy of home purchasing hyper inflate the value of their own investments.

 

And what happened with this in 2006 through 2008?  Those in the know sold fast and hard at a minor loss to ensure they kept their profits to the detriment of literally hundreds of millions causing the largest financial crash in recent history.  And while canada does not have the hold over the financial world that the US does, Canada DOES have an FIPA which ensures that those that will inevitably cause this crash cannot be pursued, prosecuted or touched.

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Still can't believe our government isn't doing anything about this. As much as I hate the idea of cooperating with the present Chinese government, surely their must be an opportunity here to identify the culprits and tax the $@# out of them or possibly even compensate property.

As it stands now, our entire real estate market is the hands of external factors.

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Still can't believe our government isn't doing anything about this. As much as I hate the idea of cooperating with the present Chinese government, surely their must be an opportunity here to identify the culprits and tax the $@# out of them or possibly even compensate property.

As it stands now, our entire real estate market is the hands of external factors.

You hit the bullseye there man

 

This is the truth of it, we've basically every possible economist and monetary organization telling us that there is a HUGE issue, various security firms telling us that money laundering is openly happening and even the government and various government agencies telling us that we're reaching a hyper inflated housing bubble yet nothing is being done to stop it.

 

Now we've the BCREA and Toronto/Ontario real estate boards telling everyone it's ok, it's cool and banks relaxing or eliminating caps on mortgage amounts.

 

All of this insured with OUR money yet completely out of OUR hands to police.  This is beyond problematic, it is dangerous and it will end badly

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I wonder how much money has moved under the table in some of these transactions?

A lot, one common situaton is where a corrupt businessman or organized crime figure will approach a seemingly upstanding person or family and offer to buy property in their name.

They can then live in or rent out the property and save up a down payment much more easily than they could otherwise. If they play their cards right they can eventually end up flipping properties themselves.

What's more is that a lot of the folks receiving buy money will set up some kind of business front to justify that income, so on top of an inflated demand for housing you have a lot of shady businesses taking up space or worse, cutting into the profits of legitimate business.

 

Thus you have Vancouver; a city with a pitifully sized economy for its population, being as expensive as a booming megacity.

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A lot, one common situaton is where a corrupt businessman or organized crime figure will approach a seemingly upstanding person or family and offer to buy property in their name.

They can then live in or rent out the property and save up a down payment much more easily than they could otherwise. If they play their cards right they can eventually end up flipping properties themselves.

What's more is that a lot of the folks receiving buy money will set up some kind of business front to justify that income, so on top of an inflated demand for housing you have a lot of shady businesses taking up space or worse, cutting into the profits of legitimate business.

 

Thus you have Vancouver; a city with a pitifully sized economy for its population, being as expensive as a booming megacity.

And thus the circle continues.

 

BCREA in this province is as shady in their own way as Lehman bros was pre 2008

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The province needs to step in. This is not just Vancouver. 

 

agreed, the Sunshine Coast is being bought up at an alarming rate by asians.....so disappointing to me to see people live here their whole lives and be forced to move because foreign dollars dictate the values here and they can no longer afford the inflated rents and costs to own a home. I don't pretend to know any answers but am very concerned and something has got to be done and fast. This is a huge negative to Canadians.

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The province needs to step in. This is not just Vancouver. 

 

It's not just BC. The same thing is happening in all the major cities in Canada. All 3 levels (municipal, provincial, and federal) of government should be doing something about this.

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There is no real estate bubble.  Foreign buyers only make up a slight fraction of overall housing sales.

You're disagreeing, that's because you're racist!

 

/sarcasm

Hey now, Mayor Moonbeam wouldn't have ANY sort of reasont o say that would he?

 

Numerous developer and BCREA buddies involved in asian markets or marketing to asian markets?  Asian partner?

 

Dammit..look at me, racisming all over the place now.  how dare we read factual reports and quote them from numerous credible institutions!

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I guess nobody should be surprised that governments and banks could be so short sighted.

They're gonna try and make as much money as possible until it all blows up in their face. By that point it won't be their problem anyways. Let the next mayor/premier/CEO deal with it while you're living it up on a yacht somewhere.

And the sad thing is, we keep buying the same lies over and over again. Politicians pretending to be for the middle class, when really they're only for themselves and the people who funded their campaign.

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