IN THIS WEEK’S FACTS BY EMAIL:
- SLEEPER MARKETS FOR METRO VANCOUVER INVESTORS
- CMHC LOOKS AT VANCOUVER: KEEPS BLINDERS ON
- WHERE CONDO PRICES ARE RISING FASTEST
- LANDLORDS: MAKE MONEY IN A FLAT MARKET
- FLYING TO AFFORDABILITY
- HOMELY HAMILTON AMONG HOT ONTARIO MARKETS
- RISING FORECLOSURES HAUNT HONG KONG HOUSING
- ANOTHER REASON NOT TO BUY WITH A NATIVE LEASE
Sleeper Markets In Metro Vancouver
Remember Yaletown pre-1986? It was known for old warehouses, ladies of the night and the infamous “boy town”. Today it is a hip zone, packed with upscale shops, high-tech offices, some of the best restaurants in the city and glittering towers where condominiums can sell for two million dollars.
So where are the next Vancouver or Metro Vancouver neighbourhoods that will make you look like a genius investor a decade from now?
In a city where home prices are rising at 20% or more annually, it is bit harder to call, but there are some pockets where we believe today’s investment will payoff big and likely a lot quicker than Yaletown.
Whalley, Central Surrey. Smart real estate investment is never about the past, but about the future. And, in many ways, the future is being forged in the historic community of Whalley, the original downtown of Surrey, the fastest growing municipality in B.C. Last weekend it was projected that 100 condominiums would sell in a single day at a single project, the Venue, a low-rise development close to Skytrain by experienced developer Tien Sher. All 141 homes are priced under $300,000 and scores of buyers had already pre-registered. The Venue looks like a choice rental investment. But it is not only inexpensive new stratas that shape Whalley’s real estate potential.
Within Whalley’s core, the Surrey Memorial Hospital is undergoing a $512 million expansion, a new public library and the 54-storey 3 Civic Plaza mixed-use tower are already built. A Simon Fraser University Campus shares the central plaza, the new headquarters for Coast Capital Credit Union is here, and more 61,000 new homes are planned. This all means jobs, population growth – Surrey is attracting 1,000 new residents a month – and rising real estate values. You can find detached houses in Whalley, close to Skytrain, for half the lot value north of the Fraser River. Two examples: a 5-bedroom revenue house on large lot in an area deemed for higher density zoning. Price $824,900. MLS R2061042; Or an old rancher on a 7,900 square foot Whalley lot, a multifamily site under Surrey’s OCP. Price; $649,900. R20160456. The Venue pricing for a pre-sale condo? From $169,000 – to the most expensive unit in the building – $299,900! Get a nice front door for that price in Vancouver.
(In the interest of full disclosure, Ozzie and his – managing broker – partner Ralph Case own WorldWide Referrals Realty Inc. which helped market the Venue together with 5th Ave. Marketing. Worldwide Referrals Realty prides itself on marketing unique special opportunity projects only.)
East Village. This is the area formerly known as Hastings-Sunrise but the branding is not all that is changed in a ‘hood roughly east and south of Knight Street and Hastings to the PNE grounds.
The best buy in the area is older duplexes and triplexes on larger lots, though older condominiums north of Hastings Street and west of Nanaimo Street also hold redevelopment potential under new Strata Act regulations that make it easier to disband a strata and sell a condo building to a developer. Example: 610-square-foot 1-bedroom condo on Cambridge Street. Renovated, wood frame, southern exposure. Price: $239,000. MLS R2054328. Note: the benchmark price for Hasting Street condominiums has increased 43% in the past year, the highest appreciation in Vancouver.
But we believe the first push will be on land assemblies, targeting detached houses with potential views. As an investor, older duplexes and triplexes will provide rental income as you wait for the bulldozer. Here is an example: A three-storey four-plex on Triumph Street with mountain views. Priced at $829,000 MLS R2059107.
Marpole: Prices have accelerated in this southwest Vancouver enclave since we recommended it five years ago and have shot up 21% in the past year. But Marpole is on the west side; it has a Canada Line station with another in the works (at Cambie and W. 57th) and has big time redevelopment potential. Older condos sell for an average of $379,000 (compared to neighbouring Kerrisdale at $733,000) and townhouses, at a benchmark of $731,000 are the lowest on the West Side. Example: one-bedroom condo, updated, and close to Marine Drive Canada Line station. Price $290,000. MLS R2059829.
Port Moody Central: Once an industrial backwater, central Port Moody will welcome Skytrain next summer and is already served by West Coast commuter rail. It also has oceanfront and views. Think of Moody Centre, the current historic downtown. Under the city’s OCP, designated areas on the south side of St. Johns Street between Elgin and Grant Streets will be considered up to a maximum height of 4 storey residential. The arrival of Skytrain could move this planning up a notch. Example: 50-year-old duplex/detached house with suite, Burrard Inlet views, 8,700 sq. ft. lot. Walk to Skytrain station. Price: $998,000. MLS R2062434. You can find rental condos along St. John Street for $275,000 and less. Example a 2 bedroom in central Port Moody for $269,000. MLS R2049093; or a one-bedroom for $185,000, MLS: R2043366
South Arm, Richmond. This area, near No. 3 and No. 4 Road and Williams is being upzoned for higher density by the City of Richmond.
Zoning is to go higher on the ‘arterial roads’ which could mean land assemblies when approved, likely soon. Look for small houses on big lots. Example is 4-bedroom detached rancher on 8,250 sq. ft. lot on Steveston Highway, priced at $1.19 million. MLS R2042935
South Arm has some of the lowest strata prices in Richmond right now, with condo prices fairly flat for the past year at a benchmark of $116,300 in March. Townhouses, at an average of $503,800, are $130,000 less than the Richmond benchmark. Caution: there are some leasehold condos in the area that skew the average price lower, but you can find freehold strata condos for under $170,000. Example: 44-year old strata-title freehold, one-bedroom, condo on Williams Rd. Price: $162,000 MLS R2023443.
Major Point: We are not recommending any specific properties, just using them as examples. (Pretend it is 1985 and someone is telling you about an old house in Yaletown that is on the market for $200,000.) Other areas with potential legs as land assembly lots: Ladner (the new bridge is coming); and Horseshoe Bay, West Vancouver and Coquitlam’s Mallairdville area.
CMHC Looks At Vancouver: Keeps Blinders On
Vancouver does not have worrisome levels of housing price appreciation, according to the think tank at Canada Mortgage and Housing Corp. In fact, says the agency’s recent Housing Market Assessment “we detect weak evidence of overheating for the Vancouver housing market” and “weak evidence of a problematic rate of price acceleration.”
These observations come as the Trump Tower in Vancouver reported a complete sellout of 214 condos this week at an average of $1,610 per square foot, including a “sub-penthouse” for $6.4 million; and the average Vancouver house price soars more than $25% in a year to the $2 million range.
Of course, CMHC is also telling us that foreign investors represent about 2% or 3% of Vancouver home buyers.
But CMHC’s fantasy scenario is not restricted to keeping the blinders firmly on when looking at Vancouver housing.
Here is the federal housing agency’s take on Calgary, which has seen a housing sales crash and is experiencing a mountainous level of unsold condos.
“House prices in Calgary have not been completely supported by economic and demographic fundamentals, leading to a moderate evidence of overvaluation. In addition, we detect moderate evidence of overbuilding in Calgary as the vacancy rate rose to an elevated level.
And in Toronto, which is second only to Vancouver in runaway home prices and where there is a record glut of 17,700 new and unsold condos in projects underway. CMHC’s take on Toronto:
“Fewer launches of new single detached projects in recent years meant demand is increasingly absorbed by the high-end resale market. As a result, inventories of both new and resale single-detached homes have declined contributing to rapid price growth.” It adds, “while we do not detect overbuilding, we have some concerns about the high inventory of completed and unsold condominium apartments.”
Major Point: Trust your eyes and your instincts to what is really happening in your local housing market, they are likely as accurate as the highly-paid, brain trust at the federal government level.
Where Condo Prices Are Rising Fastest
Here is simple guide for flippers: where have condominium prices risen the fastest in three of the most expensive markets in Metro Vancouver? (This is based on March benchmark prices and information provided by the Real Estate Board of Greater Vancouver.)
In Vancouver, that would be the Hastings area of East Vancouver, up 43% in March from a year earlier, to $344,700; the downtown east side of Vancouver, up 46.3% from last year to $533,900; and South West Marine Drive, up 44.64% from March of 2015, to $375,200.
In Richmond, it is Brighouse (the downtown area), up 21.9% to $458,900; and Steveston South (a popular beach community), up 15.7% on the year to $423,100.
In North Vancouver, the highest condo appreciation is seen in the Hamilton neighbourhood, up 29.1% to $475,700; and Pemberton, up 25.8% on the year to $342,200.
Major Point: This means that, taking the median price and the typical price increase, a flipper in any of these neighbourhoods could have grossed $100,000, or more, on a flip in the past year.
Landlords: Make Money In A Flat Market
Ralph Case, president of Worldwide Referrals Realty and president of the Real Estate Action Group has deep experience in the property investment market over the past quarter-century. And, as Case reminded the recent Jurock Land Rush conference, markets can flatten out, even in such giddy markets as Vancouver, where apartment building prices have skyrocketed.
But Case said buy-and-hold landlords can make money even when the market flattens and property prices crater. The answer, he said, is the “multiplier affect” which means increase net operating income from a rental building, which in turn increases its value.
For instance, a $25 monthly rent increase in a building with a 6% cap rate equates to a $250,000 increase in value. Increase income by $500 per month (by filling a vacant suite for example) and you can add $1 million in value.
Sometimes, he said, success can be found by simply adding a washer and dryer unit to a rental, and increasing the rent by $50 a month.
Case, who with partners has bought 2,000 rental units in the past three years, the majority in Phoenix, Arizona, also explained how “supplemental financing” can speed the payout to investors without selling the cash-flowing property. Using an example from Phoenix, he explained how increasing the net operating income raised the value of a $6 million rental building by $1.2 million in a single year. Case then arranged financing based on the new evaluation and paid the investors half of their investment funds, while they continued to profit from the rentals. Returns of 35% in a single year are not unheard of, he said. For more information on making and retaining income in a flat market, see worldwidereferrals.com or attend one of the Real Estate Action Group meetings (call Max at 604-683-1111 for information).
Flying To Affordability
There has been some buzz about Vancouver residents leaving the city to buy in areas where they can commute by air, thus saving a lot of money on real estate. We took a look at this, taking a distance that you can fly into for $120 or less, because any more than that would make a regular commute too expensive.
There are really only two choices: Nanaimo and Sechelt, which combine low enough air fares and low enough house prices to pencil out right for daily or three-times-a-week commuter. We looked at Comox, which is about 60 miles from Vancouver, but one-way flights cost $263. Ditto for Powell River, which is 73 miles north of the city, but the cheapest flights are more than $210 one-way.
Nanaimo looks promising. The average house price is about a third of that in Vancouver, and there are both frequent fixed-wing and floatplane flights. Flights are around $100 each way.
Sechelt’s average house price is around $500,000 and it is only 32 miles from Vancouver. Flights are $112 each way.
Homely Hamilton Among Hot Ontario Markets
Hamilton has been rated one of the best places in Canada to buy real estate. In its annual survey, MoneySense Magazine rated the former Steeltown city second among 35 hot real estate markets in the country.
At $443,000, MoneySense noted Hamilton’s average home price is relatively high in the Golden Horseshoe area south of Toronto, but the city also boasts the highest compound annual rate of return on a house.
The magazine’s ranking for Hamilton was based on several statistics: a five-year price rise of 7.3%, rental vacancy rate of 3.4%, average disposable income of $43,258 and projected gross domestic product growth this year of 2.5%.
The demand for local properties has grown so hot, one home on the popular West Mountain area of Hamilton sold in March for $101,000 more than the owner’s list price, according to the Hamilton and District Real Estate Board.
Homes are affordable in Hamilton. The RBC’s recent Housing Trends and Affordability Report concluded it takes about 35% of a local family’s pre-tax income to service the cost of owning a home. That includes mortgage payments, utilities and property taxes. Nationally, the figure was 46.7%. That’s the highest the measure has been in the past five years.
Rising Foreclosures Haunt Hong Kong Housing
Property foreclosures in Hong Kong continue to mount as home prices deflate, and analysts warn there could be more borrowers failing to pay mortgages on time if the downtrend continues.
Last Thursday, one high-end luxury apartment sold in a foreclosure auction well below the price paid for it less than two years ago. The 2,476 square foot foreclosed unit at 39 Conduit Road sold for HK$108.3 million ($17.4 million Canadian), 19.7% below its purchase paid in June 2014.
Foreclosed properties have doubled in Hong Kong from a year ago, according to Henry Choi, a director at Century 21 Surveyor. Choi said there are about 130 foreclosed properties available for auction now, compared to 60 in the same period last year.
The declining property market in Hong Kong since last September has weighed heavily on leveraged buyers. Some investors have remortgaged their properties several times but find themselves hard pressed to make payments as home prices deflate.
Eva Lee, a property analyst at UBS, Hong Kong, said the slowing economy in Hong Kong and China was a factor in the property market cooling, bringing on a wave of foreclosures. “The retailing industry is very weak and the Hong Kong dollar has been devalued against the euro and other Asian currencies [so] the competitiveness of Hong Kong is declining,” Lee said.
Hong Kong’s housing prices have slumped about 11% since peaking in September 2015, and are expected to fall a further 19% through to the second quarter of 2017, according to industry estimates.
“The market is still much better than 1997 during the financial crisis, when there were thousands of foreclosed properties,” Choi said.
Another Reason Not To Buy With A Native Lease
We have never recommended buying real estate linked to First Nation land leases. There are a number of concerns here, including the fact the native bands can often ignore provincial and federal building codes and regulations and can raise the lease rates dramatically. There are also access concerns and the lack of resale potential.
An example of the latter is in south Vancouver, where 75 leaseholders are taking the Musqueam Indian Band to Federal Court after the band announced last year it was hiking leases to $80,000 from $10,000 a year. A previous proposed increase, to $36,000 from $400 a year, was capped by the Supreme Court of Canada at $10,000 in 1995.
(The Musqueam is among three bands that recently bought the 90-acre Jericho Lands in Vancouver in a no-money-down deal with the federal and provincial governments. The bands plan to develop the land, likely with high-density housing on leased land.)
In the south Okanagan, buyers at the Osoyoos Indian Band’s Spirit Ridge resort, where even quarter-share villas can cost $600,000, are also facing woes. Owners are members of a homeowner’s association. The 226-condo resort development was completed in 2009 and generated $80 million in sales. After each phase, the head leases for common areas – which include a convention centre, restaurant and accommodation check-in – were supposed to be transferred to the Sprit Ridge homeowners association. But so far that has not happened. The glitch is that title to reserve land under the Indian Act is held by the federal or provincial Crown, not the First Nation.
Indigenous and Northern Affairs spokeswoman Madi Carlea said that the department can review concerns, but it encourages parties to negotiate solutions. “First Nations structure their own business relationships with developers to sell or lease residential or resort real estate on reserve lands,” Carlea said. “The structure and nature of these business relationships depend on the proposed business opportunity.”
Major Point: In other words, owners of expensive real estate can remain in limbo while bureaucrats and natives pass the buck. It is always better off to buy freehold property than leasehold, even though the initial price is often higher.
Have money owing on a Home Equity Line of Credit? Lock it in! “Although a Line of Credit gives borrowers a lot of flexibility, we see far too many borrowers who have hundreds of thousands owing on a line of credit that they should have converted to a mortgage to save money in interest,” says Kyle Green of Mortgage Alliance (604-229-5515, Kyle@GreenMortgageTeam.ca). “Everyone should be well educated in the pros and cons of keeping money borrowed on a line of credit and whether it makes sense to convert the borrowed money to a closed variable or a fixed rate.”
- Payments are interest only (lower payments)
- The entire balance can be paid with no penalty
- The funds are “re-advance-able” (principal paid down can be re-borrowed in the future)
- The interest rate is much higher than a mortgage. Currently most HELOC’s are Prime +.5% (3.2%) where a closed variable is around 2.4% and a 2yr fixed is around 2.2%.
- Interest only means you are on the “never-never” plan for paying it off
“Unless you really need interest only payments or expect to pay off the entire LOC in 1 year or less, you should probably consider converting the LOC to a mortgage. We have clients who have $300,000 owing on their LOC and by converting that to a low rate mortgage they could be saving $3,000 PER YEAR in interest!” says Green. “Also, most lenders will allow you to lock in the mortgage but you still get to keep the ‘re-advance-able’ feature so you could re-borrow the principal amount you are paying down on the mortgage. In most cases, it makes sense to convert to a mortgage”
May 3, 2016
Some of the MLS listings above in our ‘sleeper areas’ look good on paper too…Here are some subscriber deals that stick out:
1. Harrison Hot Springs – Lakefront Townhouse, 2 bedroom & den, 2 bathrooms right on the beach; two-story, 1,180 square feet. Asking $379,000
2. Harrison Hot Springs, 2 Bedroom & 2 Bathroom Condo, right at the lake; 1,044 Square feet. Asking $249,900.
3. North Surrey, Fixer-upper basement home; asking $638,000.
4. North Delta, Basement home; fixer-upper. Asking $738,000.
5. Surrey, a good 2-bedroom condo, asking $175,000.
6. Surrey, nice 1-bedroom condo, asking $150,000.
Anyone that has a good deal, can be featured he can be here. There is no fee. However, WE RESERVE THE RIGHT to accept or not to accept a specific deal. We look for: Low down payments, special discount, owner carries mortgage etc. What makes it a deal? Also note… We do not vet the deal, we just think it may be of interest. You MUST do your own due diligence. Please get contact info from your password protected website or e-mail Max at firstname.lastname@example.org … and read the disclaimer!
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To subscribe to Jurock’s Facts by Email call 1-800-691-1183 or 604-683-1111 or fax 604-683-1707. While the above information is compiled from sources believed to be reliable, its accuracy cannot be guaranteed. Any type of investing carries inherent risks; as such, JREI cannot assume responsibility for any subscriber’s actions.