Could Chinese Reforms Lift Canadian Housing Prices

China has had a rough year, with slower-than-expected economic growth, its worst export numbers since the global financial crisis and volatility in its stock markets. But the lagging Chinese economy has convinced Beijing to enact sweeping reforms that could cause ripples beyond the country’s borders.

Beijing has issued guidelines that call for liberalization in its capital markets and foreign exchange policies. Another policy will allow qualified investors with at least 1 million yuan in net assets to make investments in foreign markets.

That should have a massive effect on housing markets in Canada, the U.S., the United Kindgom and Australia, BMO Capital Markets senior economist Sal Guatieri told the Financial Post.

“According to the IMF’s estimates, a full-scale liberalization of cross-border capital flows could see outflows from China over several years of roughly US$1.35 trillion – with US$2.25 trillion flowing out and a lesser US$900 billion flowing in,” Guatieri said. “This would swamp the estimated US$15 billion or so that the Chinese spent on overseas properties last year.”

Many are already concerned about Canada’s inflated housing market – particularly the booms in Toronto and Vancouver – but Guatieri said the infusion of Chinese money will probably drive prices even higher.

“A cheaper Canadian (and Australian) dollar suggests that a larger share of China’s capital outflows could be headed to Canadian real estate markets instead of the States,” he told the Post. “Worth noting is that the loonie’s 12% depreciation against the renminbi in the past year has offset the roughly similar increases in Vancouver and Toronto home prices.”