Thread by @StephenPunwasi

The most remarkable thing about Canadian real estate prices?

Developers sold significant lots of property overseas for deep discounts to ensure less local supply and keep domestic prices inflated.

That shakey foundation was ignored, and domestic buyers bid on top of that.

Now that the rest of Canada is paying attention, this is what was happening 5 years ago.

Homes were sold at a significant discount overseas.

Why not sell for the same price everywhere? One word — massification.

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2/ What makes something expensive?

People justify this with scarcity. But how does a business scale selling a rare product? People have an upper limit to what they can pay, right?

That's where massification comes in, a tactic commonly used in the fashion industry.

3/ The play works like this. You keep selling your product that never goes at a discount at your tier 1 sellers.

In fashion, this would be your Saks, Neiman Marcus, etc. Places where people shop *because* of the premium price.

4/ To grow sales you need to find more customers though. Only so many people have the income to shop at a Tier 1 place.

So what do you do? You make extra and sell it somewhere else. A Tier 2 place, where your Tier 1 shoppers are unlikely to see.

5/ Tier 2 luxury would be your outlet stores like Saks Off Fifth, and Winners.

Now, the people in the Tier 2 location aren't used to spending a premium for your product, so you have to discount it. Those consumers may not have enough money, or they don't want to squander it.

6/ So you discount it. You promise the same appreciation (social or financial), but they have more incentive than the Tier 1 buyer.

In the case of housing, developers were selling the discount units overseas, knowing they could sell them back in a few years. Kind of like a bond.

7/ Now a foreign investor can buy 2 or 3 condos, and get a 20% or so discount. But, it functions like a bond. Sell it early, you don't get the full value (and drive everyone else's value down).

Redeem it just in time, you get to redeem the full value of the unit plus interest.

8/ Now as a brand, your Tier 1 customer is happy because they own a scarce gem.

Your Tier 2 customer is happy because they got better value, and also have that gem.

They are both happy to see other people socially reinforce that their decision was popular. Just wonderful.

9/ We can just ban foreign buyers and stop this, right? You're going to find this one really funny tbh.

When you buy pre-construction, you're buying an assignment, not a home. It's not a home until the property is complete and registers.

Until then, it's just a piece of paper.

10/ Consequently, the buyer of pre-construction overseas isn't a foreign buyer until that unit is registered as a completed home.

You can buy the pre-construction, hold it until the month before, and then sell it.

The foreign buyer never owned a home. They never paid a tax. lol