HSBC Leak: "Fake Chinese income" mortgages fuel Toronto Real Estate Bubble

“I found out a huge mortgage fraud showing borrowers with exaggerated income from one specific country, China"

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The whistleblower, a Canadian business school graduate, was staggered by the suspicious home loans he discovered in 2022 when he joined a mortgage approval team in a small HSBC branch on the outskirts of Toronto.

He knew of suspicions surrounding Chinese capital in British Columbia real estate, but had never witnessed shady lending while working at an HSBC branch in Campbell River, a bucolic town on the coast of Vancouver Island.

When he arrived at HSBC’s bank in Aurora, an affluent suburb north of Toronto, he discovered explosive growth in home loans to Chinese diaspora buyers during the Covid-19 pandemic.

Chinese migrants living across Toronto were obtaining mortgages from HSBC while supposedly earning extravagant salaries from remote-work jobs in China. In one example, an Ontario casino worker that owned three homes also claimed to earn $345,000 in 2020 analyzing data remotely for a Beijing company.

Before joining HSBC Canada, the whistleblower had studied fake-income mortgage frauds for his Business Masters degree at Vancouver Island University. After arriving at Aurora in February 2022, while digging into the branch’s loan books and interrogating his colleagues, he made mind-blowing assessments.

Since 2015, the whistleblower concluded, more than 10 Toronto-area HSBC branches had issued at least $500-million in home loans to diaspora buyers claiming exaggerated incomes or non-existent jobs in China.

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Half a billion in fake loans while Toronto prices continued to skyrocket

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“The bank found out that one lady works in a casino part-time but got a $1.4 million mortgage showing over $300,000 annual income,” he said. “Plus she takes money as benefits from the government, for her two kids.”

In other examples, an HSBC mortgage client claimed to earn $700,000 annually for remote work in China, while simultaneously living in Canada and paying off a $10,000 student loan.

Another woman who owned homes in Aurora, Markham and Scarborough, worked part-time as a hairdresser while also claiming to earn $536,280 at a “Business Manager” job in Guangzhou.

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The most shocking case reviewed by The Bureau, shows that one woman that owns at least four Toronto properties opened her HSBC Aurora bank account in 2012, claiming to be a “Homemaker with no annual income.”

But her Toronto account soon received incredible amounts of wire transfers from HSBC China accounts, and paid out “high value cheques” to third parties for real estate purchases.

This case suggests “Toronto Method” shadow banking described in FINTRAC’s 2023 study has been seeping into Toronto real estate for about a decade.

And yet in 2020, this same woman applied for another HSBC Canada mortgage, claiming to earn $763,000 remotely from her job in China.

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But in an interview, Yan said what he found most interesting back in 2015, was suspicions that Chinese migrants were often buying homes with bulk cash, weren’t accurate. The truth was more complex and seems to be clarified by D.M.’s mortgage findings in Toronto.

“It's about that global flow of capital, and how it's multiplied by Canada’s mortgage and lending system,” Yan said. “Because you have to remember, one of the biggest conclusions about my study was that it wasn't bags of cash that were being used to purchase Vancouver homes outright. They were loans being used. So now, I’m thinking, this is where my study connects up to what you have discovered in Toronto.”

“The interesting story here,” Yan added, “is what happens in Toronto real estate may not repeat Vancouver, but it perhaps rhymes.”

Probably the most famous Chinese property owner from Yan’s 2015 study areas is Huawei executive Meng Wanzhou. In 2009 her family bought a home in Vancouver’s Dunbar neighborhood for $2.73 million, land titles show. In 1998, ten years before Vancouver Model transactions started to surge in Vancouver real estate, the home was sold for $370,000. The home is now valued at almost $6-million.

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Long read but interesting. The "bags of cash" Chinese buyers we heard about in Canada were all fake and so are their loans on the many vacant houses that were bought and never lived in fueling the bubble in Toronto. Wonder how this gets corrected. Also wonder who these buyers were fronts for. China is already dealing with the Evergrande fall out. Wonder if any of this is connected.