China's anti-money-laundering rules could burst Canada's real-estate bubble

China has adopted stringent new anti-money-laundering rules that will make it nearly impossible for small investors — for example, middle-class families who pool their savings — to get their money out of the country in order to buy condos in Canada's superheated property market (not just Canada, of course!).

This represents another threat to the property bubbles in Vancouver and Toronto, which have already shown signs of bursting after Vancouver imposed a 15% tax on foreign speculators (which had the side effect of forcing buyers to reveal their identities, exposing them to crackdowns in their home countries). New national rules are less stringent, but are still scaring off offshore speculators.

Experts say that this will have little effect on the Chinese super-rich, who have the sophistication and resources to launder their money with impunity; some also predict that the new rules could prompt a buying frenzy as smaller investors seek to get their cash out of China before the noose gets any tighter.

People in China, who can normally only convert $50,000 (U.S.) a year in foreign currency, have long been technically barred from buying property overseas, but those rules have not been rigorously enforced.

At the outset of 2017, however, China imposed a series of new documentation requirements on currency transactions and punishments for using money in ways the rules don't allow.

Before, changing yuan into loonies could be done with the tap of a smartphone screen. Now, banks have begun requiring paperwork that entails submitting for approval the reason a person wants to obtain foreign currency and when it will be used. A new rule then holds people liable for what they do with that money – and could bar them from exchanging money for up to three years if they are found to have used it improperly, such as for the purchase of a home.

The rich, with corporate assets and access to sophisticated market tools for stealthily routing money around the world, are unlikely to feel much difference from the change.

But for the middle class, which has become an important force in property markets in places such as Canada, the United States and Australia, "it will have a big impact," Mr. Xie said.

New Chinese money rules threaten tide of foreign buyers in Canada
[Nathan Vanderklippe/Globe and Mail]

(via Super Punch)

(Image: Downtown Vancouver July 2011 , Guilhem Vellut, CC-BY)