The Real Story About Immigrant Investment on Vancouver Island

Mention foreigners who buy businesses or homes on Vancouver Island and you’ll often hear exaggerated claims about immigrant business deals and too much immigration. But the real narrative may be closer to a rescue story about entrepreneurs keeping local business alive and money flowing into the Island economy.

Photograph by Jeffrey Bosdet.

Lei Hou and his wife Joyce Shi took over Willie’s Cafe and Bakery in Victoria’s Old Town in October 2014, and already the couple have added eight employees to the previous 15. The former Beijing residents have also spent over $150,000 renovating what’s called B.C.’s oldest bakery. New high-tech ovens, upgraded utilities, reconfigured seating, a revamped website and menu have refreshed the 1887-founded eatery.

“We are paying attention to how we can run the business better,” says Shi. “We have ambitions to develop it well,” Hou adds. “We are contributing to the local economy.”

Hou, a technology expert who worked for online retailer Alibaba, and Shi, a Mandarin-to-English translator, used an immigration consultant to help them find and purchase Willie’s. The previous joint owners didn’t have the business listed for sale. But, with one owner near 70 and another at 80, and no children willing to step in, the owners realized their exit strategy and preservation of the historic business with Hou’s offer.

“The owners had faith in me that I would make the business more successful,” says Hou, who learned English in college.

As well, the couple, who have a 12-year-old son, have spent money buying a two-kitchen home in Gordon Head so Hou’s parents can live half the year in Victoria. Despite the seven-day-a-week work schedule, the family appreciates their peaceful, green home.

Unlike Australia, where Hou also explored business opportunities, Canada has proven welcoming. “People are nicer here,” he says.

Bigotry and Business
Dallas Gislason, economic development officer for the Greater Victoria Development Agency, recalls a conversation he had earlier this year with a Victorian involved in the Shop Local movement. The woman was complaining that immigrants were buying too many local businesses. To counteract an alien influx, she told him, people should “shop local.”

But, as Gislason notes, if an immigrant moves to Victoria and operates a business, it’s still locally-owned. The latent racism bubbled to the surface in Nanaimo this past June when racist flyers and graffiti appeared, targeting Chinese immigrants and real estate agents.

The owner of Pacific Business Intelligence, which assists industry and government with international expansion and marketing, says panic about a foreign takeover is unwarranted.

“The actual numbers are fairly small related to the population,” says Doug Taylor, also an adjunct business professor at the University of Victoria. “In the scheme of things, it’s small stuff. They’re not buying Pfizer. They’re buying small businesses no one wants to buy.”

In the past, immigrant entrepreneurs settled in the so-called MTV cities — Montreal, Toronto and Vancouver — but these cities have become saturated, and in some cases, too expensive, Gislason says. Tier 2 cities like Calgary and Edmonton have been drawing immigrant business people, but once-overlooked Tier 3 cities like Saskatoon, Medicine Hat and Victoria are increasingly attractive. Getting children into good schools, in a clean, safe place, away from corrupt or controlling environments are prime factors, Taylor says.

Unfortunately, getting a true picture of sales activity is all but impossible. The B.C. government only tracks certain types of foreign investments, such as when a parent company starts a new business in B.C. and then builds necessary facilities.

Tracking all foreign investment would require investors to self-report investments and countries of origins. The federal government does not require companies in Canada to do this, so there is no way to quantify that information, according to International Trade and Intergovernmental Relations spokesperson Kirsten Youngs.

It’s not any better when it comes to statistics from residential or commercial real estate sales, because again, be it Victoria or Vancouver Island real estate boards, information about buyers’ origins is self-reported. Instead of solid data, educated guesses and urban legends are shaping public perception and sometimes, stoking xenophobia.

In mid-August, on the campaign trail, Prime Minister Stephen Harper said he would inject $500,000 to track purchases of housing properties by foreign buyers. As well, the Conservative Party has indicated it’s mulling restrictions on foreign home ownership. In Australia, the ability of foreigners to buy existing homes is limited.

New Canucks Bring Benefits
Victoria and the Island need immigrant entrepreneurs, Gislason says. These immigrants create jobs, spend money that strengthens local economies and bring valuable new business practices and networks. And, often, they buy businesses that could otherwise disappear. As in Hou’s case, where the children of Willie’s Café and Bakery’s aging owners didn’t want to take over the firm.

By 2022, 25 per cent of the Capital Region’s population will be aged 65 or over, Gislason says. That could mean that 4,900 owners of 19,600 businesses in the Capital Regional District will be retirement-ready.

Compounding the situation is that younger people wanting to buy a business often don’t possess the money or skills to do it, says Brian Peterson, owner of Olympic Business Brokers in Nanaimo.

“I’m having a lot of difficulty finding buyers on the Island to take over businesses when people are retiring,” says Peterson whose company serves businesses across Vancouver Island.

It may seem counter-intuitive but another factor is the CRD’s slow population growth, which goes hand in hand with lack-lustre job creation. Between 2006 and 2011, Greater Victoria’s population grew by 4.4 per cent, below the Canadian average of 5.9 per cent, and well below that average Canadian city growth of 7.4 per cent, Gislason says. Sluggish growth also puts more pressure on taxpayers who have to pay more to run municipalities.

Realtor Tony Joe agrees more needs to be done to foster the entrepreneurial spirit in the CRD. “There’s not a lot of opportunities in Victoria,” says Joe, who in July was elected president of the Vancouver branch of the Asian Real Estate Association of America and is a member of the City of Victoria’s Mayor’s Task Force on Economic Development and Prosperity.

Taylor, who’s worked in 35 countries, is more blunt. “Canadians don’t take risks. We’re very insular. It’s frightening. Vancouver Island is remarkably unsophisticated when it comes to business,” he says.

Where the Buck Drops
Keith MacKenzie is owner of Victoria’s Chinook Business Brokers. About 25 per cent of his transactions (like Peterson, he assists clients with the private sale of businesses) in the last two years have involved buyers immigrating to Victoria or Duncan, often under the province’s Provincial Nominee Program (PNP), which selects foreign entrepreneurs who must invest in the B.C. economy and create jobs.

MacKenzie has brokered three sales for Chinese buyers, two for Iranians and one for a buyer from India. Most have been small “mom and pop” type businesses like coffee shops. The biggest deal was for $700,000.

Lately, MacKenzie has seen an uptick in Iranians looking to buy businesses as varied as chicken farms or butcher shops. More Vietnamese business people have also appeared. MacKenzie has also been approached by Iraqi physicians looking for a medical device business.

One aspect of his job is hunting for business owners who can be convinced to sell. Once a sale is made to immigrant buyers, vendors are happy with deals, which are usually quick and agreeable, MacKenzie says. When a deal is closed, these buyers usually pay outright, either in a lump sum or annual payments spread over several years for tax purposes.

In Nanaimo, Peterson arranged the sale of a skylight manufacturing company and an excavation business to two Iranian buyers and a hot tub business to a Chinese buyer. All buyers were aged 30 to 40. He’s found that purchases by immigrants begin to thin out at Campbell River. It would be rare for a newcomer to Canada to buy a restaurant in Port Hardy, he says.

The Real Estate Question
So what has given rise to fears that immigrants are buying Island real estate in droves? While there’s no doubt that real estate is being purchased by immigrants, the reported numbers don’t support fears of a wave of foreign buyers. Still, the Island real estate market is seeing benefits.

Peterson says that on his fairly short Nanaimo street, in the last few years, 11 homes, priced from $800,000 to $1.5 million, have been bought by Chinese or South Korean immigrants. According to Taylor, Chinese don’t trust banks, so they like to park their money in real estate or small businesses. Often, they will buy a small business, operate it for a few years and then sell it. “If they have $5 million, you’d like them to spend it here,” Peterson says.

Joe, who hires Mandarin-speaking assistants to assist with real estate sales, has seen a trend emerge. Chinese who gained entry into Vancouver via the PNP program about three to four years ago now have citizenship status. Unable to get their children into desirable schools, they relocate to Victoria, where private school entry is easier — and where real estate prices are considerably lower. Joe estimates that about 12 per cent of the sales he handles involve Chinese-Canadians.

Another Victoria sector enjoying the benefits of new residents is car dealers, Joe says. Luxury vehicles cost about one-third of what they do in China.

Necessary Changes
In July, the B.C. government revamped its Provincial Nominee Program by melding two categories — Business Skills and Regional Business — into Entrepreneur Immigration.

Foreign entrepreneurs are now rated based on a point system. As well, nominees have to be active, day-to-day managers of business operations, demonstrate residence in B.C., have a personal net worth of at least $600,000, invest at least $200,000 in their business and create at least one new full-time job for a Canadian.

The changes were in response to a refusal rate of up to 60 per cent under the previous system, says Rob Mingay, assistant deputy minister for the Ministry of Jobs, Tourism and Skills Training. The quality of applicants wasn’t very good, he adds. Many of the several thousand applicants merely wanted to immigrate and reside in B.C.

“Under the new regime, we have a screening process to ensure they want to be true economic immigrants, not just immigrants,” Mingay says. The goal is to bring high-quality entrepreneurs to B.C. Target countries include India, China and the Philippines, he adds.

MacKenzie agrees a revamp of the PNP was necessary because the program was being abused. Foreigners who wanted guaranteed citizenship were parking their money in businesses, owning them just long enough to qualify, he says. So keen were they to buy businesses, eager buyers would pay inflated prices.

“Two years ago, brokers were looking for small businesses to buy. They were all over-valued. Something worth $60,000 to $70,000 sold for $250,000,” MacKenzie says. The new PNP is much better because it’s targeting new Canadians who want to create jobs. “And now, I can legitimately say, ‘It’s worth what it’s worth.’”

Now, areas of focus for the Island include the tech sector, succession buyers and businesses poised for rapid growth, such as the energy sector, Mingay says.

Would-be Canadians who meet the minimum registration requirements are entered into a selection pool. Periodically, the BC PNP invites the highest-scoring registrants to submit applications. If approved, applicants have up to 20 months to implement a business proposal under a performance agreement. If requirements are met, the BC PNP will nominate the applicant, allowing the applicant and dependent family members to apply for permanent residence. In 2015, 5,500 nominations will be accepted. By this past July, 2,600 had been nominated, Mingay notes.

Gislason has firsthand experience with potential foreign entrepreneurs. In 2013, 96 foreign groups visited Victoria. Of those, 23 were approved by the province to proceed with business deals. In 2014, 153 potential investor groups arrived in Victoria. [Approval figures not available at press time.] The visitors represented three types of investors: one-person (less than 10 per cent); family units (the majority); and multi-person groups, Gislason says.

In 2014, roughly 70 per cent were from China with a majority of the remainder from India, Korea and Japan, along with a handful of Europeans and Americans.

A Place of Strength
As Taylor says, “There’s a big, wide world about to come wandering in through our door.” Hou and Shi of Willie’s Cafe and Bakery have happily gone through a door that for some has been slammed shut. “It’s a new challenge for me, but a very good experience here,” Hou says.

Gislason remains optimistic. “Greater Victoria will gain immensely from increasing the diversity of its populace, from a global perspective. Taking more immigrant investors sends a strong message about the strength of our community.”