CHIA #9 Real Estate Economy

Peixin Zhang, PhD in Economics and Asian Market Director, CIBC, demystifies the relationship between the global economy and the local real estate market in Montreal. Why are real estate prices rising? How to predict its fluctuations? Is public intervention effective in stabilizing property prices? We look forward to chatting with you in this 9th episode of Straight Talk with Chia!

This episode aired on March 16, 2022 and is rebroadcasted on Youtube, here is its transcription:

Chia: Hello, I'm Chia your host, The Straight Talk with Chia is a show whose mission is
to demystify the different professions in the real estate family and also to share the
knowledge of real estate experts to allow you to better invest so in previous episodes we
talked about several topics; real estate taxation, rental property management,
commercial financing in different types of properties, architecture, development etc. then
today we're going to go up a level, we're going to talk about the economy and how it
influences our real estate markets.
I have the pleasure to have with me Peixin.
Peixin : Hello Chia, hello everyone my name is Peixin Zhang and there are several
pronunciations for my first and last name but Peixin will do.
Chia: Thank you very much for being with us today.
Peixin: Thank you for your
invitation. Chia : I am very
happy. Peixin: Thank you.
Chia: So, can you start by sharing with the audience who you are, what your passions
are and especially your background, I think before arriving in Quebec you immigrated
elsewhere.
Peixin: Yeah, that's it.
Chia: Yeah okay.
Peixin: Actually I wanted to talk a little bit about my personal background, I was
born in China and finally I stay all the first part of my life in China in the same city,
my hometown in Tianjin.
Chia: Okay, I've already visited.
Peixin : Oh, ok great, it's close to Beijing with the Chinese TGV it's almost half an hour
to get there between the two cities. And then I studied in France, it was when I was not
so young, after my baccalaureate, in France it's called the licence, here it's called the
bac. So I did my master's degree in France, I lived there for about eight years, that's my
second native country I would say, and about eight years ago, eight years ago, I finally
immigrated here to Montreal.
Chia: Why Montreal?
Peixin: Montreal ah that's a good question, Montreal is still, I find it's a mixed city a little
European, a little North American.
Chia: That's right.
Peixin : Yeah it is too.
Chia: It's a charm, I'm also fully charmed.

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Peixin : Yeah, that's it, and even though I'm currently working for the bank, I've still kept
my artistic soul, I'd say, so cultural.
Montreal is the perfect city.
Chia: Yeah, that's right, and it mixes with your personality too, it's great. And then from
that, it's this at CIBC, you were formerly an economist and now you're in charge of a whole
Asian banking team, so why these changes and what is the role of your team?
Peixin: Yes, actually it's like I said before when I was in France, I'm doing my PhD and
I'm also teaching at the university, I'm also doing research for different subjects but the
biggest, the most main one is banking regulation so of course in the past it's for
European banks, for French banks and when I immigrated here so actually I started my
non-academic professional career in CIBC and as currently I'm dealing with Asian
markets and also I'm dealing with initiatives for newcomers, new
The newcomers are Chinese, Indians, Europeans, Arabs, and of course for Eastern
Canada, Quebec and also the Atlantic.
Chia: Yeah, very good.
Peixin : So why am I making this change? I find, actually there is one thing, there is a
very interesting story behind it.
Chia: Yes, go ahead.
Peixin: When I changed my career, when I work for CIBC, because on LinkedIn and
Facebook I still keep the relationship with my former students and they asked me in the
time "hey professor why now you work bank? Because before you always tried to sell the
ideas banks need to be regulated by governments, by researchers like you and now it is
like a betrayal. In fact it's because, I know, I do years, years of research on banking so
that's why after a while I said to myself ok why don't I go and live the real banking
instead of just looking at the banking industry from a third party or from an observer,
that's it.
Chia: Okay, the field study.
Peixin: Yes, that's right, we have to go right away.
Chia: There are a lot of insights that we can't share today. So we know that an
important event can really influence the economy, so for example the pandemic is
global and therefore it influences the global economy. Sometimes a local event is so
important as for example at the moment the war in Ukraine which influences not only
the local but also the world economy. So my question for you Peixin is that, since you
are originally from China and you keep a very deep link with China, does the economy
in China influence our real estate markets in Canada?

Peixin: Yes, in fact, just to answer your comments earlier, now the economy is
becoming more and more global, global instead of just local so if we go back 300 years
before, two years ahead not so globalized as that but now, I would say there is almost
no local economy anymore because with the division of labor between different
countries, different regions and that's also the most important, in the economy the most
important thing is the participants or the actors so it can be people, it can be capital, it
can be the natural resources
Chia: Yes quite, like here this week we went up to 2 dollars of gas and then, everyone
pulls their hair out.
Peixin: Yes, that's right. And it's because, in fact, with economic globalization, I mean
the technologies or the sources of production are becoming more and more similar
throughout the world, but on the other hand, the resources are not available in all the
world
Chia: No.
Peixin: So, that's why it creates like a difference or I would say like a cape between
different countries so that's why it created differences between the different countries or
the different local economies so that's why, now, for years we've been talking just like
economic globalization, we have to circulate the factors or the sources between the
countries so in fact that's the point
Chia: Yes, that's right. So right now, does China have a strong economy or a weaker
one?
Peixin : Yes, actually it's quite strong.
Chia: Pretty strong, does it bring more positive impact on our real estate markets in
Canada.
Peixin: Yes, that's for sure, as if we were talking about economics, well, we're talking
about economic theory, it takes maybe a day, two days, even a week, even a session to
explain all that, but if we can look at the most direct, the most direct impacts are the
buyers, like now in Quebec, in Montreal, there are more and more Chinese buyers and
investors, yes, who want to settle here, who want to buy, who want to invest, so that's an
impact.
Chia: That's true and speaking of that, I would like to have his opinion on the impact of
the public regulation, for example we see that when foreign investors arrive to invest in
Canada we first started to see this phenomenon in Vancouver then people found that the
prices are so strong, they moved to Toronto and now we see that these people are
starting to be interested in Montreal. So we have seen that in Vancouver, their
municipality has decided to control real estate prices by imposing taxes on foreign
investors, and there is also a collection of taxes for unrented buildings. What do you
think of these public regulations, these public interventions?
Peixin: Yes, actually, like, that's a very good and interesting question because before
when I was in France, I also taught a subject called industrial economics.

Chia: Okay.
Peixin: It's for industrial organizations, it can be for companies, for large organizations
we studied the interactions between different actors but there is a big part to rent on
regulation, for example for there is a regulation on banks, why there is a regulation on
telecommunication companies and there on the real estate market or on the real estate
sector if we talk about public intervention, most often it is as we have experienced at the
moment or recently, it is the taxation on real estate and also as the other types of public
interventions it is for example the prohibition of foreign investors to buy locally so that is the
two most common approaches.
Chia: Okay, but does it really help, those kinds of measures there, does it really help
with local strength and economic development?
Peixin: Yeah. In fact, as we were talking about the real estate economy earlier, we tried
to use this material to understand what happened in the market and what are the actions
of the actors, the governments are an actor, they are like investors. So what are the
actions of the actors and what is their impact? To better understand this, we must
understand what their objective is. So public interventions, their objective is sometimes
to reduce the price to calm the market and to make more inhabitants or more
Canadians, for example here in Canada, more Canadians who can buy housing or
properties to live. And so if we want to analyze, if we want to look at the impact, we have
to understand their objective is to increase social welfare, so that's their objective
because that's what the government is for, but if we talk about the economy, in fact
when we look at, we analyze social welfare, there are many determinants, there are
many factors to look at.
Chia: What are the most important ones?
Peixin: The most important thing is that when we make a public intervention, certainly
there are certain actors who will benefit and in return there are certain actors who will
lose, so often the governments will take the sum, I would say there as advantages and
disadvantages to have a total well-being but the problem is that well often we talk about
that from 13:14 well all the public interventions will take a long time to see the effect and
as in reality it is not simply when we calculate we will have a and b, we make the
addition a and b that gives c, but in fact it is not that, it is not 1+1=2.
Chia: No not at all, yeah that's true, because there's long term and short term goals and
then there's long term and short term investments, there's so many factors.
Peixin: That's right, for example we take the case of taxation, we increase
The 13:50 tax, so taxing the sale, the transactions, what does it mean? It means that the
initial objective of governments is to prevent aggressive investment but on the other
hand it means that how foreign investors will react, so when I pay more taxes, I sell
more expensive, it's very simple. And we're talking about this in a closed market
because real estate, you can't buy real estate in China or Europe and then transfer it
here in Canada, as the market is

closed, the market is closed so the price increases and it is certainly like the social
surcharges, will be assumed by the buyers.
Chia: That's right.
Peixin: So there
you go. Chia:
T h a t 's it.
Peixin: It's always the side effects for any type of public intervention so that's why it's
very interesting for actors, for investors or sellers in the real estate market to look at any
type of public intervention.
Why are there still debates in society or even in the national general assembly?
Because often people try to quantify the positive or negative effect but it is not easy to
do so.
Chia: No, it's not easy to do, especially when you have a small horizon, that's what I
understand, you really have to broaden your horizons to be able to give the desired
effect.
So maybe I'd like to invite you to help us talk about, how we can, as a gentleman, how
we can better understand the economy to better invest in real estate quickly?
Peixin: Okay, in order to understand this, we need to understand the real estate
economy, why are we talking about the real estate economy? It's like, so earlier I
mentioned the banking economy or the industrial economy, so we study a sector or
groups of actors for the real estate economy, it's not the economy, for the real estate
market or the real estate but in fact there are three dimensions for real estate, a real
estate can be a service for renting, because for people who want to rent or who have
properties that they want to rent to others, it's a service, it's not a good, it's just a service.
Chia: Yeah absolutely like in real estate brokerage there's really different niches, there's
real estate brokers that specialize in essential leasing, other commercial leasing, other in
buying and selling, then you're also talking about industrial so there's buying, acquiring
and selling and investing in all types of properties.
Peixin: Yeah, that's it. In fact that's the first dimension, the second dimension is the
most common one we've experienced is, real estate is a product, it's like the table, like
the chair, it's a product we buy, we sell and but rather for the utility itself, personal, to
live, it's simple so it's like a good so a product. The third dimension, the real estate not
like the chair and the table, there are tables in the auctions but most of the time it's just a
table but the real estate is also an asset, an asset to store the values, to value the
investment, it's like the shares, like the applications, it's like it's made an asset
for the investment. So that's why there are three dimensions for the real estate
economy, for the real estate market, to understand that we must distinguish on which
dimension we are.
Chia: This is very interesting, thank you very much for your time today.
Peixin : My pleasure.

Chia: I look forward to further discussion. Thank you very much.
Peixin : Thank you.