By Julie Gordon
VANCOUVER, Nov 2 (Reuters) - The Royal Bank of Canada scrapped an internal limit on mortgage loan size forimmigrants in the spring to tap into surging demand forfinancing on multi-million dollar houses by newcomers toVancouver.
Wealthy buyers, mostly from China, are fueling a boomingmortgage business in Vancouver, where the median price for adetached home on the desirable west side jumped 31 percent toC$2.87 million ($2.19 million) in the last two years.
RBC, Canada's largest bank, removed its C$1.25 million capon loans to borrowers with no local credit history in May, saidChristine Shisler, the bank's Director of Multicultural Markets,who works with an immigrant clientele.
"We're seeing a lot of affluent newcomers looking to buyhigh-purchase price homes," she said. "Now we can actuallyservice any mortgage amount."
A case study released on Monday, which looked at six monthsworth of detached home sales in prime neighborhoods near theUniversity of British Columbia (UBC) main campus, found thattwo-thirds of buyers had names typical of people from mainlandChina and 88 percent of those people also had a mortgage.
The mortgages, on homes ranging in value from C$1.25 millionto more than C$9 million, were mainly backed by three banks -HSBC Canada, Canadian Imperial Bank of Commerce (CIBC) and Bankof Montreal (BMO). RBC held just 8 percent of the loans.
The banks have not broken out the size or profitability ofthis business segment.
Andy Yan, an urban planner and adjunct professor at UBC whostudied land titles linked to 172 sales transactions from Aug.2014 to Feb. 2015, said the financing was the most surprisingpart of the study.
"It counters a lot of our mythologies, in terms of this ideaof people showing up with very large bags of money and payingcash," he said.
While there is no official data on foreign ownership inCanada, realtors who work in Vancouver's luxury market say morethan 80 percent of buyers have ties to mainland China, withdemand strong despite this summer's Chinese stock market plungeand President Xi Jinping's corruption crackdown.
Yan's case study, using a name analysis method pioneered inpublic health and academic studies, found that 66 percent ofbuyers in his sample had non-Anglicized Chinese names. Aseparate Reuters survey of land titles linked to sales in abroader swath of Vancouver west had a near identical result.
To be sure, some of these individuals could be Canadiancitizens or long-time residents, though Yan notes the majorityhave ambiguous job titles like "homemaker" or "businessperson,"which may point to money being earned abroad.
Indeed, the most common occupation for the new owners ofthese multi-million dollar properties was "homemaker."
That raises questions over how banks, in the rush to tapinto the market, are not only ensuring their clients have themeans to make hefty mortgage payments, but also whether theyhave enough information on the source of funds.
"I do worry that we're being friendly, polite Canadians andnot asking too many questions," said David Eby, the provinciallawmaker for the Vancouver neighborhood in Yan's study. "Thereare a lot of people making a lot of money right now."
COMPLIANCE
Both RBC and HSBC Canada said that anti-money launderingcompliance is a priority, though declined to provide specificdetails on how exactly they ensure legitimacy of funds. CIBC andBMO did not immediately provide comment on their newcomermortgage 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."
Yan's study, meanwhile, found that 94 percent of homemakershad mortgages on their properties, and that there were morestudents buying multi-million dollar homes than doctors.
That could pose risks, as highlighted in one divorce casewhere the China-residing husband, after separating from hiswife, defaulted on a C$1 million mortgage he took out on thepurchase of a C$2.3 million home for his wife and children.
Canada's bank regulator, the Office of the Superintendent ofFinancial Institutions, noted that there are no limits imposedon lending to newcomers or offshore buyers, but that banks mustdo their due diligence as per the department's guidelines.
The major banks all have Chinese-language websites topromote their newcomer products, and both RBC and HSBC said thattheir teams in Vancouver are diligent in making sure new clientspass all their checks.
"Obviously we're responsible lenders, we're not going togive a mortgage out for C$5 million if we haven't assessed thatthat's the need and there's a capacity for that particularclient," said RBC's Shisler.
($1 = 1.3070 Canadian dollars)
(Additional reporting by Elizabeth Dilts in New York. Editingby Jeffrey Hodgson and John Pickering)
HSBC Holdings (HSBA)