RBC scraps limit on size of mortgages for newcomers, foreign owners

November 5, 2015

By Julie Gordon, Globe and Mail |

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 multimillion-dollar houses from newcomers to Vancouver.

Wealthy buyers, mostly from China, are fuelling a booming mortgage business in Vancouver, where the median price for a detached home in 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 three prime neighbourhoods near the University of British Columbia main campus, found that two-thirds of buyers had names typical of people from mainland China and 88 per cent 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 and Bank of Montreal. 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 August, 2014, to February, 2015, said the financing was the most surprising find.

“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.”

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.
Mr. 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 West Vancouver had a near-identical result.

To be sure, some of these individuals could be Canadian citizens or long-time residents, though Mr. Yan notes the majority have ambiguous job titles such as “homemaker” or “businessperson,” which may point to money being earned abroad. Indeed, the most common occupation for the new owners of these multimillion-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.

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.”

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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