By Julie Gordon
VANCOUVER, Nov 2 (Reuters) - The Royal Bank of Canada
RY.TO 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 percent to
C$2.87 million ($2.19 million) in the last two years.
RBC , Canada's largest bank, removed its C$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 neighborhoods 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 C$1.25 million
to more than C$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 percent 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 percent 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 percent 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 neighborhood in Yan's study. "There
are a lot of people making a lot of money right now."
COMPLIANCE
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 percent 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 C$1 million mortgage he took out on the
purchase of a C$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.
($1 = 1.3070 Canadian dollars)