“Wealth is the ability to fully experience life.” -Henry David Thoreau
BC FOREIGN INVESTOR DEBATE IS BIZARRE:
THEY ARE HERE AND ACTIVE. LIVE WITH IT
FLIPPING HOUSES IN EAST VANCOUVER
WHAT VANCOUVER AND HONG KONG HAVE IN COMMON
ALBERTA APARTMENTS CONTAINERED IN FROM CHINA
FIRST LNG PLANT A “GO” FOR NORTHWEST BC
GULF ISLANDS CHEAP BUT NOT THAT CHEAP
AVERAGE FIRST TIME BUYERS PUT DOWN $67K
BC Foreign Investor Debate Is Bizarre: They Are Here And Active. Live With It
A bizarre debate is roaring in Vancouver as the province and the provincial real estate association attempt to convince the city that there is very little
foreign investment in Vancouver’s housing market, despite overwhelming anecdotal evidence that there is.
Enough evidence, in fact, to convince us and likely every real estate agent and home buyer in the city.
The debate was sparked with a call from Vancouver’s mayor for some form of speculation super tax on those flipping homes. The mayor suggested that a lot of
the speculation was by offshore buyers, most from mainland China.
In a letter to the mayor, the B.C. Premier dismissed the idea of a speculation tax on foreign investors. The B.C. Ministry of Finance and
the BC Real Estate Association, in reports attached to the Premier’s letter, both admitted there was virtually no hard data on foreign
home buyers and then estimated that they made up less than 5% of buyers.
The Ministry and the BCREA both noted that, of the addresses where property assessments are sent, less than 1% were offshore.
But, as a report in the South China Morning Post explains, virtually all China-based investors buying in Vancouver use a contract address in the
city: a lawyer, property manager or, most often, a relative.
Vancouver is already the second largest Chinese city outside of China and, according to China surveys, Canada is the preferred destination for those
planning to immigrate.
They are investing in Vancouver real estate and will continue to do so, probably in even higher numbers, for years to come. That is the reality.
There is also a lot of action in West Vancouver, where this month a mainland China buyer paid $1 million over the $2.9 million list price for a Bayridge
house, according to Viv Harvey of Royal LePage Sussex. The buyer already owns a home in the Lower Mainland, and plans to
tear the existing home down and rebuild on the lot, said Harvey. Harvey estimates about 15 per cent of her business comes from overseas buyers.
of Angell Hasman, a West Vancouver real estate company that caters to the high end of the market, puts that figure higher. “I’m selling 80
per cent of my high-end houses to [offshore] Chinese,” he said.
Earlier studies by Landcor Data found that more than 60% of high-end houses sold on Vancouver’s Westside were to buyers with mainland
Major Point: The debate is over. Mainland China buyers, and those from Hong Kong, are very active in the Vancouver housing market. They are buying the best houses
they can afford and most of them plan to settle their families here. Good on them, they are welcome to invest in Vancouver and we hope they find the same financial success here as they did back home. But it
certainly is bizarre when the province and the largest real estate group in B.C. deny they are even here.
Flipping Houses In East Vancouver
A study by Landcor Data Corp. obtained by Jurock Insider, shows that nearly a fifth of all the City of Vancouver detached house
sales in the past year would qualify as “flips” in that the house was bought and sold in less than 12 months, many of them in less than seven months. Most
of the action is taking place on the pricey West Side of Vancouver. In the Dunbar neighbourhood, for example, where the average house price is above $2
million – which means investor downpayments of around $400,000 – 30 houses were flipped in the past year and the average investor made 23% after holding
the house for less than 220 days.
But we though we would focus on a part of East Vancouver – the Main/Fraser neighbourhood – where there is a chance to buy and flip with less equity needed
to get into the action. In a sampling of 18 detached houses that were bought and sold in less than five months, this is what we found.
The biggest gains include a 1913-era house on St. Catherine Street that sold for $950,000 after being held for 120 days. The investor grossed a $100,000
profit. A flipper made a gross of $337,000 in 136 days after selling a house on West 49 Avenue for 136 days. The other investors made from $32,000 to
$68,000 on their sales. The worst case was on West 29th Street, where the buyer bought a house, held it for just 57 days and sold it for
$905,000 – and took a $61,000 loss.
Major Point: Flipping in Vancouver is only for the nimble and well-financed. For instance, if you bought a house for $1 million with 20% down and sold it three months
later for $1.1 million through a realtor you would pay: about $30,000 in capital gains tax (assuming you are an investor in the higher tax bracket);
$18,000 in the BC property purchase tax; $36,000 in realtor commissions; and $12,000 in financing costs (based on an $800,000 mortgage). This leaves a
$4,000 net on your successful flip.
What Vancouver And Hong Kong Have In Common
A study of other major cities said to be “unaffordable” for home buyers shows that Vancouver is so different that it is a global “freak show” in the west,
according to a report in an Asian newspaper.
But one city – Hong Kong is eerily the same.
The South China Morning Post said Vancouver’s recent housing scale puts
New York, Sydney, London and San Francisco in the shade.
“Unaffordability is up 100% in Vancouver since 2005. In Sydney, it’s only up 11%. In San Francisco, it’s up 16%. New York’s unaffordability rate has
actually decreased 14%, and London is only up by 2% (compared to 2006). If we look at the top 10 most unaffordable major metropolitan cities in the world
(setting aside Hong Kong), nothing comes close to Vancouver. Auckland, New Zealand comes nearest, with a 39%.
“The situation ought to be clear to any reasonable person, boomer or millennial: Vancouver’s real estate market is now a world-class freak show.
“There is only one other major city that has experienced a concurrent unaffordability hike comparable to Vancouver’s. And it’s not just comparable – it’s
virtually identical. That city is Hong Kong.”
The paper suggests that, like Hong Kong, Vancouver’s spiraling house prices are largely due to an influx of wealthy buyers from mainland China.
“So what makes the last decade so unusual for both Vancouver and Hong Kong – and only Vancouver and Hong Kong? Is it mere coincidence? It’s an excellent
question for anyone who discounts the impact of Chinese wealth: from 2005 to 2012, Vancouver attracted about 45,000 rich migrants under wealth-determined
schemes, more than any other city in the world. A large majority were from China,” the article notes.
Alberta Apartments Containered In From China
A Calgary developer is shipping complete modular condo buildings, complete with luxury furnishing and finishes, to Alberta where he claims he can complete
the units in six to eight weeks (the shell would be up in a week) for $165 per square foot.
Stack Modular, headed by Alberta-born Jim Dunn who owns a factory near Shanghai, China, is already contracted to deliver a 700-unit complex of about 14
four-storey, 48-unit apartment buildings to Fox Creek, a resource town north of Edmonton, Alberta, for workers in the oil and gas industry. These would be
high-end two-bedroom rentals that would lease for around $3,500 per month, he explained.
But at least one Vancouver developer is also interested in the idea for an urban project. It makes some sense. Currently, it costs about $320 per square
foot to build a concrete condominium building in Vancouver and around $185 per square foot to build a four-storey, wood-frame condominium building, but
both of these would take about 11 months to complete.
According to Dunn, Vancouver is an ideal location for his modulars, because the units could be shipped in containers direct to the Port of Vancouver and
put together on a city site. Dunn thinks they could prove a hit with condominium investors because they would be less expensive and come fully furnished.
The major drawbacks could be a pushback from the domestic construction industry, which would fear job losses, and resistance from consumers who may prefer
to have a Canadian-made home. But if the price is low enough, investors would certainly buy into the concept.
First LNG Plant A ‘Go’ For Northwest BC
As we predicted in this space last week, Malaysia-based Petronas has approved the construction of the first major LNG (liquefied natural
gas) plant in B.C.: the $36 billion Pacific NorthWest LNG at Prince Rupert that includes gas pipelines running in from fields near Dawson
Creek and Fort St. John.
Ladies and gentlemen, start your investing in what will now become one of the hottest real estate markets in Canada.
The project is transformative for Northern B.C.’s economy. At $36 billion, it represents the largest-ever foreign investment in the province. Most of the
economic activity will take place in Northeast B.C. and on the coast but Prince George will also benefit from the influx of workers, contractors and
Also, the $500 million Douglas Channel LNG consortium, led by AltaGas Ltd. is expected to make a decision on its plant at
Kitimat by year-end.
Major Point: Rentals will be the first ramp up when the LNG plant begins: In Fort St. John this week we found 2-bedroom condos from $204,900 with tenants in place at
$1,250 per month, to give an idea.
Gulf Islands Cheap But Not That Cheap
There is an error in the recent Royal LePage Recreational Property Report, which claims that a waterfront cottage on the Gulf
Islands has an average price of $100,000. Waterfront lots are less expensive now than six or seven years ago, but not that cheap, says Janet Moore, a Royal LePage agent in Nanaimo. Moore handles a lot of recreational property in the Gulf and she quickly
put us in the picture with a couple of examples from pretty and ferry-accessible Thetis Island. Moore has a 2.7-acre, west facing waterfront parcel with a
nice 1,100-square foot house listed at $675,000; and a 1.6-acre flat waterfront property with a high-end, 1,800-square-foot house for $1.25 million. “The
market is picking up,” she said, crediting people who had bought in the U.S. now coming back into B.C.’s recreational market.
We note that Nanaimo detached house sales are up about 18% in Nanaimo – to 150 sales last month – and average prices are up 21%, compared to a year earlier
– to $399,000 – so it appears the Vancouver Island/Gulf Island market could finally be picking up.
Average First Time Buyer Put Down $67K
The average Canadian first-time buyer put down $67,000 for their purchase equal to about 21% of the purchase price, according to a national survey taken by
the Canadian Association of Accredited Mortgage Professionals (CAAMP).
For all homebuyers in the survey, the average downpayment was $119,000, equal to 33% of the home’s price.
In total, down payments from 620,000 buyers per year amount to $74 billion cash, out of a total purchase cost of $219 billion.
The buyers were asked if they would still have been able to purchase the homes they did if the minimum down payment had been 10% (rather than 5%). Six per
cent said “definitely not able” to make the purchase and a further 80,000 would have been “probably not able”.
“A 10% down payment requirement would have resulted in a reduction of sales large enough to have tipped many local housing markets into downturns, causing
price reductions,” CAAMP noted.
– Fixed rate mortgages are most common (72%). 21% are variable or adjustable rate mortgages and 7% combine fixed and variable rates. The shares are
similar across the buyer groups.
– Most mortgages have 5-year terms (67%).
– On average, the amortization period is 22.1 years. For first-time buyers the figure is 22.7 years.
– For these who purchased their homes from 2013-2015, the average mortgage interest rate is 3%.