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"Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

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Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#321

Post by JumpCrisscross »

jabbany wrote: post #313
JumpCrisscross wrote: post #256

Earlier quoted context omitted.

> the fraudulent mortgages are not more risky, they are often times more stable than other local borrowers You don't know. The paperwork's fraudulent. > Many (new and aspiring immigrants) have capital from sales of their property in China, but due to capital controls, cannot get it out quickly The Chinese property market is in freefall. And capital controls can get tightened. Either condition will result in default.

> You don't know. The paperwork's fraudulent. They don't offer these services to anyone. Because the paperwork is fraudulent, a lot of people involved are/will be personally implicated (could easily lose their job and/or face legal challenges on top) in the scheme. It's not like banks are not monitoring delinquency/default rates already, and if the stats are start indicating problems they will certainly investigate..…

> while outside observers can't verify anything, those perpetrating the scheme do have to balance their own personal risk

Everyone in every corrupt scheme says this. The rule of law wins, in the long run, because these structures aren’t robust. They get perverted and subverted, and while it’s nice to imagine a bunch of competent crooks keeping up their shop, the reality is we have rules for a reason.

> it's a geopolitical risk rather than a market-based one

Capital controls aren’t geopolitical. Neither is an offshore property market bursting.

The borrowers are borrowing against an doubly-illiquid asset. Buy long, borrow short—this has been a widowmaker since antiquity.

> even if the bubble bursts, the broader economy is still not worse off

Canadian banking would collapse. You’d see the equivalent of America’s 2008 crisis, except while the rest of the world has high rates. If allowed to fester, or if it already has, that’s a generation’s quality-of-life gains going down the tube.

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#322

Post by billy99k »

cloudedcordial wrote: post #194

The issue is not new. I am of East Asian heritage and live in Canada. Several people asked me causally why I went to school and had a regular job. They explained that with the "Chinese money" I should not compete for jobs with folks who really needed the money. Smh...

I get that they shouldn't be stereotyping, but I frequently travel to Markham, and see lots of young Chinese kids with expensive cars. I think the last time I was there, I counted 40 Teslas.

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#323

Post by alephnerd »

JumpCrisscross wrote: post #257
cbsmith wrote: post #181

Earlier quoted context omitted.

> Out of curiosity, why? China's stock market is melting down in the midst of persistent deflation. A lot of people who thought they had liquidity may not anymore. Beijing could open the taps, but then that puts pressure on the currency. The whole point of the money laundering operation is to get the money out of the country. China going to pot only accelerates it.

> China going to pot only accelerates it You have to have money to launder it. Also, if the currency keeps getting hammered, Beijing will crack down on the exit channels.

Most Chinese don't invest in their stock market. The accredited investor qualification is much harder to get than in the US.

Most investment is in real estate, which has remained fairly stable in Tier 1 cities (which is where most of the post-2008 Chinese Canadians are from)

To get more than the $50k limit out, people would use a hawala type system where you'd use assets in China as collateral and get guaranteed cash from a broker abroad.

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#324

Post by JumpCrisscross »

alephnerd wrote: post #323
JumpCrisscross wrote: post #257

Earlier quoted context omitted.

> China going to pot only accelerates it You have to have money to launder it. Also, if the currency keeps getting hammered, Beijing will crack down on the exit channels.

Most Chinese don't invest in their stock market. The accredited investor qualification is much harder to get than in the US. Most investment is in real estate, which has remained fairly stable in Tier 1 cities (which is where most of the post-2008 Chinese Canadians are from) To get more than the $50k limit out, people would use a hawala type system where you'd use assets in China as collateral and get guaranteed cash…

> Most Chinese don't invest in their stock market

Most Chinese aren’t buying British Columbian property.

> accredited investor qualification is much harder to get than in the US

On a relative basis, right? In absolute terms, it’s still very low. Similar to the practical requirements for opening an American brokerage account.

> Most investment is in real estate, which has remained fairly stable in Tier 1 cities

Do you have data for this? My impression was sales are being discouraged.

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#325

Post by maxglute »

simmerup wrote: post #299
bonestamp2 wrote: post #221

Earlier quoted context omitted.

Don't get me wrong, it's definitely a problem, and something needs to be done, but lets also try to keep it in perspective... $500 million could well be 500 mortgages in Toronto. That would be about 0.02% of the private dwellings in Toronto.

Remember this is $500 million awarded to people out competing honest Canadians looking for housing who aren't lying about their incomes. If 10 people bid for a house, it's the guy in China lying about their income setting the house price when they win, by what HSBC is doing. This will have an outsized effect on the market.

Except HSBC knows 99/100 of the time, those bidders in PRC are actually wealthier bidders and that the irregular paperwork is perfunctory to the fact that the system has spend decades building loopholes for said wealthy PRC buyers with developed methods of capital flight, which has always made them better candidates than "honest" Canadians. Occasional fraud doesn't have outsized effect to the very real fact that there are simply more wealthy PRC buyers than Canadian ones, and sellers/bankers/ everyone who gains in the transactions wants it that way. Honest Canadians with 200k household income and 10% down can't compete against PRC buyer with millions of slightly illiquid assets. These PRC buyers are the same as rich Indian/Iranian/insert elite from other country buyers, there's just a shit load more of them and they have to jump through more hoops due to capital controls on PRC's end which Canada RE system is all too happy to ignore.

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#326

Post by jeffbee »

NBJack wrote: post #318
jeffbee wrote: post #295

Earlier quoted context omitted.

In what way?

It is a legal distinction that has a huge number of implications in most countries. As is the focus of discussion on other threads, it necessarily changes approaches to income validation, the laws that apply, the presence or absence of credit history, etc.

You're just arguing about whether the foreigner is qualified, bonafide enough to operate the grift.

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#327

Post by mistrial9 »

stormfather wrote: post #212
seanmcdirmid wrote: post #83

Earlier quoted context omitted.

Housing supply and demand isn’t uniformly distributed across the United States. When we say “housing shortage” we only mean in popular places to live.

So where have housing prices fallen?

in the asset bubble leading to the 2008 credit collapse, the only area in the continental USA that had decreasing housing prices in large areas was .. the Ohio Valley. (likely plenty of niche areas too but that is what stuck out)

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#328

Post by vineyardmike »

cyanydeez wrote: post #306
simmerup wrote: post #299

Earlier quoted context omitted.

Remember this is $500 million awarded to people out competing honest Canadians looking for housing who aren't lying about their incomes. If 10 people bid for a house, it's the guy in China lying about their income setting the house price when they win, by what HSBC is doing. This will have an outsized effect on the market.

yes, remember it's capitalism doing this, not Chinese, Indian, Canadian or American. hail free market.

Capitalism doesn’t have to mean an unregulated free market. That’s one flavor of capitalism.

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#329

Post by PeterisP »

simmerup wrote: post #299
bonestamp2 wrote: post #221

Earlier quoted context omitted.

Don't get me wrong, it's definitely a problem, and something needs to be done, but lets also try to keep it in perspective... $500 million could well be 500 mortgages in Toronto. That would be about 0.02% of the private dwellings in Toronto.

Remember this is $500 million awarded to people out competing honest Canadians looking for housing who aren't lying about their incomes. If 10 people bid for a house, it's the guy in China lying about their income setting the house price when they win, by what HSBC is doing. This will have an outsized effect on the market.

It's $500m that went to "honest Canadians" selling their real estate. The house isn't gone, it's still there, and will probably get sold to Canadians when the bubble pops, possibly much cheaper.

Re: "Fake Chinese income" mortgages fuel Toronto real estate bubble: HSBC bank leaks

#330

Post by jabbany »

JumpCrisscross wrote: post #321
jabbany wrote: post #313

Earlier quoted context omitted.

> You don't know. The paperwork's fraudulent. They don't offer these services to anyone. Because the paperwork is fraudulent, a lot of people involved are/will be personally implicated (could easily lose their job and/or face legal challenges on top) in the scheme. It's not like banks are not monitoring delinquency/default rates already, and if the stats are start indicating problems they will certainly investigate..…

> while outside observers can't verify anything, those perpetrating the scheme do have to balance their own personal risk Everyone in every corrupt scheme says this. The rule of law wins, in the long run, because these structures aren’t robust. They get perverted and subverted, and while it’s nice to imagine a bunch of competent crooks keeping up their shop, the reality is we have rules for a reason. > it's a geopoli…

I agree with all the points on top. The proper instrument to do this would be banks setting up a system that lets people borrow against an illiquid asset, in this case would be CNY, but it's not anything new... (and is one proposal for how to work with cryptocurrencies). That would price in the political and market risks.

---

The last one I don't agree with. This is different from the 2008 crisis in that the 2008 crisis was primarily "internal" and for the most part zero sum --- some people gained, some people lost (kind of loosely like a long-horizon pump-and-dump scheme), and at the end things revert to the original non-inflated value.

This situation is more of an encouragement of external injection _into_ the economy. Rising prices are due to external capital flowing in (and the anticipation of more to come). Even if it were to pop, things would be no worse than a hypothetical alternative timeline where there was no bubble. And that's assuming no external capital actually flowed in, that not a single person wired money into the country. Clearly this is not true, and the money coming in is still net positive. So _in aggregate_, the economy is still improved due to the injection. Again, these gains are not spread evenly, and it may be the case again that some individuals will be hurt while others reap large returns.

> a generation’s quality-of-life gains going down the tube

If anything, that just means the previous quality-of-life gains were achieved by overdrawing against the future... nothing new here.

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