Money Laundering Fuels Canadian Real Estate Bubble

Real estate prices in Canada have increased steeply, making it attractive to investors worldwide. Property prices in Vancouver shot up by 37% last year, and there is a similar pattern of growth observed in Toronto.

While these may look good on paper, there is something worrying underneath the surface – it is believed that foreign investors are behind the surge in property prices. The cost of a detached home in Vancouver is now C$1.5 million, while the average home in Toronto, Canada’s largest city, sells for $782,051. The average Toronto resident, in comparison, earns only C$76,219 a year – meaning it would take more than ten years to own a home. In Vancouver, the median annual income is C$71,660; widening the gap between salaries and home ownership further.

Despite lower salaries, why are property prices in Vancouver higher?

Is the money poured in by foreign investors much larger than what 2.4 million residents contribute to the economy? It is suspected that most of it are illegal, brought in by corrupt Chinese officials who brazenly flaunt their cash. More than the moral dilemma of whether money is being taken away from poorer nations – the average Chinese earns only C$10,000 per year – there is the likelihood of the property bubble bursting. Mortgages are already low, lending more credence to the money laundering haven theory.

Unlike other nations, Canada does not differentiate between money launderers and legal investors in the property sector. Real estate firms to admit to not having any checks in place to determine whether the investments are 100% legitimate – the industry thrives on commission.

Those made billions in the 2008 U.S. housing-market crash are now betting on Toronto and Vancouver, two of Canada’s high-profile cities.