Foreign buyers continue to flood Canada's real estate hotbeds, fuelling demand for new projects and pushing up prices for just about everybody.

And while developers, realtors and investors are reaping the benefits, some fear Canada's biggest housing markets could collapse like a house of cards if foreigners were to head for the exits in search of the next best thing.

Average property prices in Canada continue to climb, posting another 5.5% in year-over-year gains in October and causing the Canadian Real Estate Association to up its annual sales forecast.

Prices in Canada today are "overshooting," said CIBC's Benjamin Tal in a new report. He's hoping price growth will come back down to earth, gradually.

In the meantime, Chinese investors are buying condominiums and houses worth more than $2 million at unprecedented rates in two pockets of Vancouver. This group accounts for roughly 20% of the overall sales in the city and is the main the reason prices are so high there.

"If you eliminate this segment, you get a semi-normally functioning market," Tal told QMI Agency.

The same phenomenon, though to a lesser degree and mostly from European buyers, can be seen in Toronto and even Montreal, he said.

"If for some reason we see foreign investors in Vancouver or in Toronto exiting, then that definitely will be an issue."

There are no official statistics on foreign buyers in Canada's property market, but anecdotal evidence of wealthy European, Middle Eastern and Asian investors snapping up property, especially condos, north of the 49th parallel is well documented.

Garnet Watchorn, president of Graywood Developments and the man behind Toronto's new Ritz-Carlton hotel and condo project, said many units were sold to investors in Hong Kong and Singapore because that's where the luxury buyers are.

Some developers go to great lengths marketing their projects overseas, Watchorn said.

But most of the time Canada's solid market and history of strong returns, especially compared to sagging markets south of the border, is enough to lure buyers.

Watchorn and other real estate experts gathered for a panel discussion at the University of Toronto's Rotman School of Business last week.

Any number of things could go wrong and cause the market to take a turn, they warned.

For one, rental rates aren't keeping up with property values. If prices continue to outpace rent, landlords will have a harder time paying the mortgage and many could be forced to sell.

A new tax on foreign buyers could also wreak havoc, said Stephen Moranis, founder of Prudential Sadie Moranis Realty.

He's concerned that the government may consider intervening on foreign deals as affordability continues to erode for average Canadian workers.

Any new tax on non-resident purchases could be disastrous, especially to high-rise builders who sell to investors, Moranis said. So far, no such tax proposals have been tabled.

Even the Wall Street Journal has drawn parallels between Toronto's glass-tower-and-crane-dotted waterfront and Miami, where an invasion of foreign buyers inflated a speculative bubble that burst with disastrous consequences.

Much like Miami in its building heyday, the Greater Toronto Area was home to nearly 1,200 condo projects with more than 200,000 units this past summer, according to research firm Urbanation. Another 16,000 units are expected to hit the market next year.

There's also the debate of what constitutes foreign money, Tal said. Many Chinese buyers in Vancouver are sending their families to live and work in the city.

stefania.moretti@canoe.ca

The Home Buyers’ Plan (HBP) is a federal government program created to help first-time home buyers.

The HBP lets qualifying home buyers withdraw up to $25,000 (couples can withdraw up to$50,000) from their RRSPs for a down payment to buy or build a home. Home buyers have up to 15 years to repay their RRSP and home buyers who have repaid their RRSP may be eligible to use the program a second time.

The program has a number of key rule administered by the Canadian Revenue Agency (CRA).

These rules include:

• Home buyers have to enter into a written agreement to buy or build a qualifying home.
• Home buyers have to intend to occupy the qualifying home as a principal residence no later than one year after buying or building it.
• Home buyers have to be considered a first-time buyer.
• The home buyers’ HBP balance on January 1 of the year of the withdrawal has to be zero.
• Neither spouse nor partner can own the qualifying home more than 30 days before the withdrawal is made.
• The home buyer must be a Canadian resident.
• The home buyer has to buy or build the qualifying home before October 1 of the year after the year of the withdrawal.
• RRSP contributions must remain in the RRSP for at least 90 days before you can make a withdrawal under the HBP.

If a home buyer can’t wait 90 days, they have the option of withdrawing $25,000 from their RRSP, paying the tax and then qualifying for a deduction and tax refund.

To read complete information about HBP conditions for participation, go to the Canada Revenue Agency website at www.cra.gc.ca. Enter ‘Home Buyers’ Plan’ in the search box and then select RC4135 - Home Buyers’ Plan (HBP).

To talk to an HBP expert, phone CRA at 1.800.959.8287.

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Many people think being a landlord and investing in real estate is a way to make easy money. It can be financially rewarding if you do your homework and reduce your risks. But easy, it isn’t and it can lead to financial ruin if not done properly.

Moneyville columnist Alison Griffiths wrote about her adventure as a landlord earlier this year. It’s a humorous look at what can go wrong and the lessons learned, but anybody thinking about an investment property might want to read: Why did I think being a landlord was easy money?

The trick is to end up with money in your pocket at the end of the month after paying your bills and collecting the rent as you slowly pay down the mortgage and end up with a nest egg.

Here are some tips:

• Research the area where you’d like to buy. Is it in decline or on the way up? A good indication is if chains like Wal-Mart, Tim Hortons and Home Depot are moving in. These companies do a lot of work on demographics and income before deciding where to locate. You can get a big picture look at vacancy rates at settlement.org, a federally funded site that helps immigrants with information and resources to settle in Canada.

• Use a real estate agent who also is an area investor. Ask them to show you their properties and the rents. Ask for the names of other investors they have helped. Call them. Make sure they have a team of professionals you can use, such as property managers, insurance advisers, mortgage brokers, home inspectors, accountants and lawyers.

• Once you own more than four rental units, find a reliable property manager. You don’t want to take a call in the middle of the night. A rule of thumb is that you should allocate up to 10 per cent of monthly rent to a property manager. They will make sure your building is properly maintained and can help find tenants.

• Do not be in a hurry to rent a vacant unit. Take your time to qualify any potential tenant, since it can take months to evict a problem tenant. Call all tenant references, ask for a current pay stub and speak to at least two prior landlords. Where possible, require the tenant to pay for utilities. The tenant will have to apply to the utility company for an account, which amounts to an extra credit check being done by the utility company.

• Be careful with basement apartments and homes rented to students. Although these units can provide additional income, you must make sure that they are legal, comply with the fire code and have any required licenses to operate.

• Buy and hold your property for the long term. This way, you have an income and slowly start to pay down your mortgage.

• If you are investing with others, have a partnership agreement. Problems may occur later if the friendship breaks down, especially if one partner loses their job and cannot pay their share of expenses, or if one partner wants to sell while the other does not. With a partnership agreement, you can provide what will happen in these situations in advance, without having to pay costly legal fees to figure it out later.

Investing in real estate is not easy. But by taking the proper precautions, it can be very rewarding.