Real-estate prices in Canadian cities have benefitted from a steady flow of foreign investments, particularly from China. Now, new house prices slipped for the first time since 2009.
Steve Eisman, a portfolio manager at U.S. asset manager Neuberger Berman and who played a starring role in the 2010 book «The Big Short» by Michael Lewis, is predicting a rough ride ahead for the likes of Royal Bank of Canada, Bank of Montreal and Toronto-based CIBC.
Eisman is something of a Wall Street legend for being one of few managers to have anticipated the demise of the U.S. subprime mortgage market and profited from it.
Expect Increasing Defaults
Real-estate prices in Canadian cities like Toronto and Vancouver have benefitted from a favorable credit policy and a steady flow of foreign investments, particularly from China. With a tightening of both at the start of 2019, new house prices slipped year-on-year in January for the first time since 2009. Not surprisingly, Canada's biggest lenders have boosted their provisions for bad loans this year.
Like The Trade War With The U.S.
A Hong Kong-based Chinese investor has likened the sudden turn of sentiment against Canada to the trade war that waged between China and the U.S. for the better part of last year.
«We were trading partners and economic allies until we weren't,» he said of the relationship between the two superpowers, and the cooling towards Canada may well be collateral damage from the fallout. Data from the University of Alberta's China Institute, which catalogs a dramatic 50 percent drop in Chinese investments into Canada in 2018, supports his hypothesis.
New Taxes
Stricter Chinese oversight of foreign investments, particularly into countries that it believes are hostile to its agenda, is largely at play but new taxes on foreign buyers in Canada have not helped either.
