The ratio of Canadian household debt to GDP has risen to almost 100 per cent, and has grown at the fastest rate in the world since 2006, according to the World Bank. In April 2017, the former governor of the Bank of Canada, Mark Carney – now the head of the Bank of England – warned of the risks of foreign capital inflating the housing market.
More buyers to look in Australia
Canada may seem like a long way away but any move by Canadian authorities to reduce the risk of a potential bubble and subsequent burst should be welcomed by Australian investors, says Tyndall Asset Management’s head of fixed income, Roger Bridges.
The country’s housing market is one on a list of “low probability, high impact” events the bond strategist is keeping an eye on.
That’s because while our local lenders have little direct exposure to Canadian banks, the similarity between our two economies could cause a fresh wave of risk aversion among global investors, many of whom already believe our property market is a bubble ready to pop.
Of course, rich foreigners can only push up prices at the margin, and usually only in specific areas; low interest rates have helped fuel Canadian demand for mortgages, against the background of an economy that avoided a GFC-inspired recession thanks to its heavy emphasis on commodity exports.
All this might be sounding familiar to Australians, particularly those who have been house hunting in Sydney, where anecdotal evidence suggests auctions in some areas have been heavily attended by wealthy Chinese buyers willing to pay lofty premiums.
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