Governments from Vancouver to Sydney to Toronto are using taxes and other restrictions to tackle real-estate bubbles.
Crowds swept into the Beijing Exhibition Center on a recent morning for a real-estate expo that drew thousands of people interested in foreign property.
That kind of surging interest has created a flood of capital that is washing over cities throughout the globe, distorting home prices, irritating local residents—and defying almost every attempt to restrain it.
In Vancouver, Chinese home-buyers snapped up homes so fast in 2016 that prices escalated at a rate of 30% a month compared with a year earlier. Officials imposed a 15% foreign-buyers tax, and Chinese buyers turned to Toronto, where they soon bid up home prices.
Seeking to curb the market surge in the Toronto area, officials in the province of Ontario introduced their own 15% foreign-buyers tax in April last year.
Chinese buyers had by then begun returning to Vancouver, driving prices to fresh highs in mid-2017 and provoking a new round of measures in February. By May, sales numbers had fallen 35% from a year earlier, but prices, on an adjusted basis, still climbed 11.5%, according to the Real Estate Board of Greater Vancouver.
The hot pursuit of places to park money abroad by Chinese investors drove an estimated $100 billion in property purchases outside China in 2016, according to Juwai.com, a Chinese real-estate website. The buying frenzy, which grew from $5 billion in 2010, helped swell prices for housing and commercial real estate in cities on the Pacific Rim and beyond.
Chinese buyers have scooped up condos, apartments and houses from Vancouver to Auckland to Sydney. While foreign capital was welcome in the years following the financial crisis, officials have found that trying to control the flood of foreign money into housing is like squeezing a balloon: Taxes on foreign buyers in one city only divert them to another spot—and sometimes buyers return, taxes or no taxes.
Governments world-wide “are still at the trial-and-error stage,” said Aaron Terrazas, senior economist at Seattle-based Zillow Group, an online real-estate listing service. “They are trying to figure what works and what doesn’t.”
Officials in Canada and Australia, where relatively affordable homes and large Mandarin-speaking populations attract Chinese buyers, worry the price bubbles threaten their regional economies.
Montreal’s housing market has shown no signs of overheating, but after Valerie Plante was sworn in last year as mayor, she asked provincial officials for authority to tax foreigners buying property in Canada’s second-largest city.
After seeing what happened in Vancouver and Toronto, Ms. Plante worried her city was next. “We need to be very cautious,” a spokeswoman for the mayor’s office said.
Related video: This is the new American dream
This is the new American Dream
At the Beijing real-estate expo in April, Bao Yingqi of B.Y. Realty, was, in fact, making a pitch for Montreal, saying the city has yet to impose high taxes on foreign buyers. “This makes Montreal stand out for investors,” she said.
Montreal has new housing and an interesting French-speaking culture, Ms. Bao said, who was wearing a black beret. She sat in a booth decorated with a Canadian flag and described Montreal as the “Paris of the West.”
Zhang Yuxing, a 43-year-old Beijing resident, listened. He had planned on Vancouver, but taxes have gone too high.
Now, he said, his top choice is Montreal.
The impact of foreign buyers on home prices isn’t entirely clear, according to analysts and the International Monetary Fund. Low interest rates, liberal immigration policies in Canada and Australia as well as a tight housing supply in some areas also contributed to rising home prices.
Accurately tracking foreign home-buyers isn’t easy, although some local governments can now tally the number of people paying foreign-buyer taxes.
Some purchases aren’t counted, for instance, when foreign buyers hold dual citizenship, or if the transactions are made through companies or local proxies that obscure a buyer’s identity.
In Australia, Jonathan Kearns, the Reserve Bank of Australia’s head of financial stability, said in November that he estimated foreign buyers accounted for 10% to 15% of homes under construction, equal to about 5% of total residential sales in the country.
The share was highest in Melbourne and Sydney, Mr. Kearns said, where foreign buyers accounted for around a quarter of newly built apartments. Around three-quarters of the foreign buyers were from China, he said.
Sydney’s home state of New South Wales doubled its foreign-buyers tax to 8% in July 2017, but that didn’t arrest demand.
The rise in home prices has recently slowed in Sydney and Melbourne, but Chinese developers still dominate foreign investment in residential development across Australia, according to real estate company Knight Frank. Chinese nationals bought $1.5 billion in residential sites last year, about a third of Australia’s total.
Chinese property buying is an “unstoppable juggernaut,” said Jon Ellis, chief executive of Investorist, an online portal for cross-border property transactions.
Outgoing Vancouver Mayor Gregor Robertson described it as the “water bed effect of capital flooding wherever taxes are lowest and regulation is weak.”
For-sale signs in Vancouver feature Mandarin characters. Older abodes are leveled to make way for the construction of new homes, which real-estate agents say Chinese buyers prefer. Bus shelters and benches in Richmond, a suburb south of Vancouver’s airport, carry real-estate ads, also in Mandarin.
Mr. Robertson said rising home prices dominated much of his decadelong tenure. One reason was a lack of coordination among the three main levels of Canadian government—federal, provincial and municipal, he said.
“It’s a complex challenge between regulating offshore investment, local real-estate practices and addressing housing supply within cities, all in sync,” Mr. Robertson said in an interview. “The reality is that interventions take time and aren’t wholly predictable.”
After the first Vancouver 15% tax failed to put a lid on foreign buyers, Mr. Robertson worked with the province of British Columbia on more aggressive steps. In February, province officials raised the foreign-buyers tax to 20% and expanded coverage well beyond Vancouver. Officials also imposed a new levy—0.5% of the property value and climbing to 2% next year—on homeowners who don’t pay income tax in Canada.
In April, British Columbia also announced measures to deter the resale of condo units before construction was completed, to discourage investors from flipping units before they are occupied.
At the Beijing expo, Florence Chan said she originally wanted to buy a home in Vancouver but changed her mind. “The taxes are too high,” she said, adding that Melbourne is looking better.
Chinese buyers like the swanky 661 Chapel Street, a luxury condominium complex in Melbourne.
In December, Aw Sei Cheh, general manager of the project for Malaysian developer Gamuda Land, said Chinese buyers accounted for roughly 10% of sales at the complex, which has private dining rooms, a wine cellar, a theater and a library. Prices start around $410,000 for a one-bedroom, to more than $2 million for three-bedroom units.
One appeal is location. The complex is close to several top universities where some Chinese buyers intend to send their children, Mr. Aw said.
Beijing has tried to limit capital flight, fearing it shakes confidence in the national economy and could potentially weaken the yuan.
A recent crackdown prompted several Chinese tycoons to unwind foreign purchases by their companies acquired in debt-fueled global shopping sprees, including trophy office towers and luxury hotels.
Officially, Chinese citizens are only allowed to exchange no more than $50,000 worth of yuan a year. Yet people in the industry point to loopholes.
Chinese mom-and-pop investors sidestep limits, for instance, by linking real-estate purchases to the college education of children living abroad; buying such luxury goods as Rolex watches in yuan and exchanging them for dollars to use toward property; or friends and family paying to an overseas account.
One desirable target has been the harbor city of Auckland, New Zealand, home to just over a million people.
Auckland was named the world’s hottest city for luxury real estate based on sales in 2015 by a Christie’s International Real Estate survey. Its open-door immigration policy and light regulation of foreign property deals helped drive 63% annual growth in $1 million-plus home sales in 2015.
Last year, a political backlash erupted over complaints that the city had grown too expensive. New Zealand homeownership rates are at their lowest since 1951, national data show; a quarter of residents under 40 own their home compared with half that age group in 1991.
The center-left Labour Party campaigned on housing measures, and once elected in October pledged a ban on foreign speculators buying existing residential property. The new government also wants to reduce immigration.
“We are determined to make it easier for Kiwis to buy their first home so we are stopping foreign speculators buying houses and driving up prices,” Prime Minister Jacinda Ardern said at news conference last fall.
House prices initially rose as lawmakers considered restrictions in foreign investment. Benjamin Liu, an agent with Ray White Real Estate in Auckland, said one Chinese buyer booked a flight after hearing about the proposed ban.
Foreign capital is now returning to Canada, driving the latest surge in home prices. Buyers from China and the U.S. have found Victoria, the small capital of British Columbia that sits on an island west of Vancouver.
Victoria was declared the world’s hottest new housing market last year in Christie’s International Real Estate survey, based on a 29% increase in annual sales of million-dollar-plus homes. Single-family homes in the Victoria area hit a record high of about $570,000 in May, up 9% from a year earlier, according to the Victoria Real Estate Board.
“Victoria is experiencing the same rapid growth in housing prices and sales volumes that have strengthened Toronto and Vancouver in recent years,” Christie’s International said in its survey last month. “If Toronto and Vancouver can be a measure, it is likely Victoria will continue to perform well despite [new] regulations” targeting foreign buyers.
Attention has already turned to Malaysia and Thailand, which now tops the list for Chinese buyer inquiries, ahead of the U.S. and Australia, according to Juwai.com. Two years ago, Thailand ranked sixth.
Over the next decade, Juwai.com predicts that Chinese investors will spend $1.5 trillion abroad, as much as half of that in foreign property.
The real-estate portal recently teamed up with JD.com Inc.—one of China’s internet retail giants—to market property in the U.S., U.K., Australia and Canada. At the click of a button, online shoppers can connect with a sales agent who will assist in the purchase of an overseas home.
Write to Paul Vieira at firstname.lastname@example.org and Dominique Fong at Dominique.Fong@wsj.com