Facts By Email

IN THIS WEEK’S FACTS BY EMAIL:

  • PACKED ASIAN REAL ESTATE CONFERENCE REVEALS REAL DEPTH OF FOREIGN BUYERS IN B.C. HOUSING MARKET
  • THE NUMBERS, THE NUMBERS
  • GET USED TO HEARING ABOUT GDII
  • CHINA’S BIGGEST FOREIGN PROPERTY SEARCH ENGINE AVERAGES 5,000-6,000 LISTINGS FROM B.C.
  • B.C. COMMERCIAL SECTOR NEXT FOREIGN TARGET
  • VACANT HOUSING TAX PLAN A WARNING OF HOW BIZARRE GOVERNMENT INTERVENTION COULD BECOME
  • DEREGULATING MLS: RESISTANCE FUTILE IN AGE OF OPEN INFORMATION
  • NEXT OKANAGAN? LOOK AT LILLOOET
  • POWELL RIVER: GIANT BIDS FOR MILL; LOWEST REAL ESTATE PRICES ON THE B.C. COAST
  • MEANWHILE, BACK IN CALGARY

 

Questions, Questions

Comment: To all who filled out our survey a BIG THANK YOU! Winner of books will be announced shortly.

Q: Oz, you mentioned in your last Facts that there are govt grants for rental developments. I am doing a xxx unit project on Vancouver Island & would like to do rental. Can you send me info on the government help?

A: Depends on where you are building on the Island, here is a breakdown of rental incentives:

The City of Victoria Housing Strategy, June 7, 2016, focuses on creating affordable housing for residents. The priorities include initiatives to permit smaller units within multi-unit developments, more secondary and garden suites, reducing parking requirements for affordable housing projects, revisiting the secondary suite grant program for accessible suites that serve an aging population, and creating an inventory of existing affordable rental stock.

Also, the City of Victoria offers a property tax incentive program to stimulate the upgrading of heritage buildings in which rental accommodation is created. Landowners may be eligible for a ten-year tax abatement on the improvements to the building. The City of Nanaimo and the City of Parksville and City of Qualicum Beach will waive development cost charges and in some cases sewer hookup fees, for the construction of what is termed “affordable rental housing.” The City of Campbell River will waive 100% of property taxes for multi-family projects built in the downtown area under its Downtown Revitalization Program.

 

The Numbers, The Numbers

We broke down the (still stounding) numbers for May (look at 2 charts attached). So all is good, right? Sales are up, prices are up, active listings are down. Good, right? Well, yes and no. Dan Morrison, president of the Real Estate Board of Metro Vancouver, says inventory has crept up slowly over the past four months. In fact, since March, more homes have been listed for sale in the Vancouver area than in any other four-month period this decade. So, active listings still down, but new listings rising fast. The breakdown of detached homes sales (sharply down) and condo sales (sharply higher) … in some areas. So buyers are moving out of Vancouver and even in Vancouver they no longer can afford the detached homes. So, they are piling into condos (as we predicted: condos would become a good place to be).

So, is it summer doldrums or has our real estate market peaked!!??

We hear anecdotal: There are very few multiple offers. Price reductions of $100,000 and more are appearing. Single family homes sales are down (look at other areas below).

  • East Side – 25%
  • Langley – 28%

Condo sales way up – PRE-SALES ALSO VERY STRONG

  • Richmond +77%
  • Langley +128
  • Mission +133%

New listings rising. Reason? Buyer price fatigue – that slows sales in detached homes. Could be just going into the summer or buyer fatigue. But, be careful out there.

Major Point: Study the eye-popping numbers below. More on Hotline


 

Packed Asian Real Estate Conference Reveals Real Depth Of Foreign Buyers In BC Housing Market

Last Thursday, while the provincial government was spinning a yarn that only a tiny fraction of Metro Vancouver home buyers were foreign nationals, the packed Asian Real Estate Association of America conference at the Sutton Place hotel in Vancouver provided a more accurate picture of what is really going on.

If the government numbers are true, the conference would have been quiet, not bustling with deal making and speakers from Shanghai to Hawaii and Chicago telling the audience of a growing tsunami of Asian money heading to B.C.’s west coast.

You have all heard what the B.C. finance ministry found when it finally began asking homebuyers for their place of residence in early June. In the 19 days following, its reporting data showed that foreign nationals accounted for 3% of the 10,148 B.C. housing sales, and that buyers from China accounted for 2.5% of the total. Half of all the sales during the near three-week period were in the Lower Mainland and, the government said, only 337 of these were to foreign buyers. (Still, the dollar amount is mind-boggling. According to the government, the average price of a foreign home purchase was $1.27 million and foreign buyer sales averaged more than $100 million a week.)

Real estate agents at the conference said the true numbers are even higher. Two Westside Vancouver agents, both Chinese-born, estimated that at least 50% of the detached sales through their offices were to buyers backed by Chinese funding. And this is the crux of the impact on B.C.’s housing market. It doesn’t matter what the buyer address is. It is where the money comes from. Tina Mak, chairman of the Vancouver chapter of the 22,000-member Asian Real Estate Association of America (AREAA) explained that many wealthy Asian buyers wish to conceal their wealth and assets, likely a result of living under a Communist regime for most of their lives.

In Vancouver, with its extensive Asian population, conference delegates explained, it is quite easy for a foreign national to use a proxy – perhaps a relative, or a B.C. business or joint venture partner – to act as the buyer, with the funds transferred from offshore. As the AREAA conference was told, large investment funds can be legally transferred from free-trade zones in Shanghai or Hong Kong directly into Canadian banks. In any event, conference speakers were unanimous in their belief that Asian investment in B.C. housing was not only at least 10 times higher the government data suggests, but also that it is accelerating.

MORE: GET USED TO HEARING ABOUT GDII

A year ago, the Chinese government expanded its Qualified Domestic Institutional Investor Program (QDII), a strategy to allow Chinese citizens to invest directly overseas, including in real estate. QDII is an offshoot of a program that started in 2002 and was restricted to large institutions with minimum assets of from US$5 billion to US$10 billion. QDII is limited to individuals with a minimum $1 million Yuan (or about $200,000 Canadian) of financial assets. After rolling out in Beijing, QDII rules were eased and the program expanded to six Chinese cities: Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou in May 2015. QDII did not really get rolling until this year, according to Michael North of Hawaii-based Pacific Royalties which specializes in linking Chinese investors with North American real estate vendors and developers.

The first stage of the Chinese strategy, QFII (Qualified Foreign Institutional Investors) was so successful. Members include HSBC, Morgan Stanley, Merrill Lynch and CitiGroup, among 200 other blue-chip global financial institutions, each with a quota of from US$523 million to $1 billion for investment in China. As of mid-2014, $52.3 billion had flowed through QFII, with another $11 billion from a similar program in Hong Kong.

“They know it works,” said North, who said the overarching strategy is a long-range extension of Chinese economic muscle into foreign markets. “The Chinese government is thinking out over generations and they have the political and economic strength to achieve its goals,” North said.

QDII will result in in “the next wave” of Chinese investments in foreign stock markets, bonds and real estate, he said. A non-Chinese investment adviser can raise funds by entering into a joint venture with, or having a minority stake in, a QDII. This reflects a dramatic easing of Chinese government control over individuals who want to invest in foreign markets, North noted. “The roll out is accelerating,” North told the Asian Real Estate Association of American conference in Vancouver last week. He expects billions of dollars to flow into U.S. and Canadian real estate as QDII membership becomes larger and more sophisticated.

MORE: CHINA’S BIGGEST FOREIGN PROPERTY SEARCH ENGINE AVERAGES 5,000-6,000 LISTINGS FROM B.C.

If you want a glimpse of what B.C. real estate is being pitched to Chinese investors, check out juwai.com. This is the largest official search engine in China for foreign residential real estate, according to Byron Burley, the firm’s Shanghai-based vice-president. The site, launched in 2012 and not restricted by China’s firewall, has 2 million properties listed for sale in 89 countries. We checked this week and found about 1,600 separate listings from B.C, but Burley said if you count multiple listings from B.C. real estate companies and developers, there are consistently from 5,000 to 6,000 B.C. residential properties for sale on the site at any time. With the help of a translator – the entire site is in Chinese – we found listings of everything from downtown Vancouver condos to Cariboo farmland, multimillion-dollar houses in Vancouver and West Vancouver and a Kelowna land development site offered at $25 million.

Burley said his company is swamped with Canadian agents and developers pitching property and joint venture deals. He said 40% of Vancouver developers he talks to are interested in acquiring a Chinese joint-venture partner. Burley said Vancouver-based Westbank Corp. (projects include the luxury Vancouver House tower) has a “huge Beijing office” targeting Chinese buyers to its B.C. properties.

Juwai.com will launch a commercial real estate site within six months, Burley said.

MORE: B.C. COMMERCIAL SECTOR NEXT FOREIGN TARGET OF ASIAN INVESTORS

As the recent $1 billion sale of a downtown Vancouver office portfolio to a Beijing-based insurance company suggests, Asian investors is moving quickly from residential to commercial real estate, according to Eric Horie, vice-president of Bank of Montreal (BMO). He said many Chinese people have been living in Vancouver for decades, have successfully invested in homes and are now helping direct China-based funds into the city’s commercial real estate market. Horie said much of the focus is on multi-family apartments and land development. These two sectors, incidentally, have lead all commercial real estate spending in the Lower Mainland for the past two years, according to a search of land title transactions.

Horie said HMO is often quick to greenlight commercial loans for multi-family, industrial and land development, but is leery of retail real estate in Metro Vancouver, which he described as “glutted” with new malls and pockmarked by shaky high-profile American retailers. A common strategy for China’s commercial investors is to buy land in Metro Vancouver and then joint venture with a local real estate developer.

 

Vacant Housing Tax Plan A Warning Of How Bizarre Government Intervention Could Become

There is a political undercurrent that may disrupt the B.C, entire Canadian residential real estate business, so keep an eye out. Because of pressure from voters and special interest groups about the so-called housing crisis, governments can lash out in bizarre ways. A good example is the insane and unworkable idea to place a tax on vacant homes. The theory is that the owners of the 10,000 vacant homes (mostly condos) in the city of Vancouver could be taxed into putting the units on the rental housing market. It won’t work, of course. Many absentee owners would likely prefer to pay a tax rather than deal with short-term rentals. As well, the vacancy numbers are based on measuring hydro use. We suggest a couple of timers to turn lights on or off would become very popular if this dumb idea gains traction.

Major Point: That it is even being considered is a warning. The B.C. government appears to be stepping more and more into real estate intervention and the federal government says it is preparing a “deep dive” into housing regulation.

 

Deregulating MLS: Resistance Futile In Age Of Open Information

Canada’s Competition Bureau ruled on June 6 that the Canadian Real Estate Association and the Toronto Real Estate Board must open up MLS listings access. The deregulation, which will spread right across Canada, is still being appealed by CREA, but resistance likely is futile. The changes will allow consumers to get MLS information on sites other than realtor.ca, including selling prices and will likely encourage expansion of such sites as Trulio and Zillow and allow brokers to provide clients access to the Multiple Listing Service.

Major Point: In these days of open communication, social media and search engines, the best bet for CREA, TREB and other real estate board maybe is to make realtor.ca as transparent and accessible to the public as it is to realtors.

 

Best Mortgage Rates And New Rules Update

OSFI wants banks to tighten further

On July 7 OSFI sent out a letter to all federally regulated financial institutions to express concern with rising debt levels in Canada. OSFI has been heavily involved in regulating financial institutions, particularly mortgage lending, since 2012. Kyle Green, one of the top mortgage brokers in Canada, gives us a summary of notes of what these changes mean:

“OSFI is at it again, and the theme is more prudent lending,” says Kyle Green (604-229-5515, Kyle@GreenMortgageTeam.ca). “Here’s a quick SUMMARY on the topics they covered in their letter, with my comments in brackets:

  • Better income verification, especially out of Canada sources (Could this mean that New to Canada programs which require little to no income verification and are generally more flexible than programs for Canadians, due primarily to government insistence many years ago to make sure banks had good programs for immigrants, may finally get tightened?)
  • Collateral (equity) should not be considered a replacement for income validation (so next time you think you should get a mortgage because you are putting 50% down, think again!)
  • 65% financing threshold should not be considered a benchmark where below this, due diligence does not apply (A lot of bank programs “open up” at 65%, this may not continue)
  • Rental income should be “critically examined” (Oh god not again!)
  • 5 year posted rates (currently 4.74%) is not an adequate stress test for a rising interest rate environment (When you get a variable or term less than 5 years, your mortgage qualifies at 4.74% instead of the actual rate which is normally about HALF of the posted rate…could they be looking at implementing this qualification rate across the board, or possibly increasing it further? The prospects for rates rising short term are, to put it bluntly, REALLY bleak)
  • Concern over financing up to 80% financing in rising markets (Will we see a reduction in the maximum refinance loan-to-value to be cut to 75%?)
  • Further warning to rely on policy, no more exceptions (about 60% of my files need at least one exception)

In my opinion, new rule changes are a way of slowing an overheating housing market without having to raise interest rates which they can’t do right now,” adds Green. “That said, there becomes a point where the government needs to just let lenders “do their thing”. There has been intense scrutiny in the industry and particularly for real estate investors, it is SIGNIFICANTLY more difficult to get financing than it was in the past.”

In our January real estate outlook issue 2015 and 2016 as well as our Outlook conference last year I advised you that – in my opinion – the soaring prices are entirely due to Poloz strategy of talking down the dollar and lowering interest rates to nothing. I mused that he could only slow down the market by bringing in tighter and tighter investment rules. We have had a string of those (to no effect so far). This is another set of new rules. It is going to get worse.

INVESTORS NOTE: I HAVE SAID IT AD INFINITUM THAT “DON’T WORRY ABOUT LOWER RATES, WORRY ABOUT YOU GETTING THE FUNDS AT ALL COME RENEWAL TIME! Investor financing is grinding to a halt. You can have a million in the bank but if you have don’t have a substantial income you can’t get a $200,000 mortgage! These changes are aimed at you, dear investor. In the meantime, the idea of the lower dollar was to stimulate exports. Is that policy working? NO, as we suggested, most of the lower more competitive dollar benefit is kept by the EXPORTING corporations and not used to sell more product.

Either way, Kyle suggests (and I most emphatically agree) that if you are looking to refinance any of your real estate to access equity or looking at making a purchase, you may want to start looking sooner rather than later. Generally, it takes about 3-6 months for any new policies to kick in, but as soon as this letter went out, there was an immediate pull-back from the lenders that could be felt on active files. Act quickly!

 

Next Okanagan? Look At Lillooet

Lillooet’s only real estate agent is handling a sudden real estate boom fueled, he said, by Lower Mainlanders seeking affordable recreational land and a mortgage-free lifestyle.

Last Thursday, Re/Max Real Estate Lillooet broker Mark Rawson sold two homes. He sold another Friday morning.

This constitutes a boom in the town of 2,400 about 3.5 hours’ drive time north of Vancouver that has seen near-dead housing sales since 2008.

“After quite a few lean, dry years, we’re seeing some happy faces around town,” said Rawson. “This is a Mini-Okanagan, but without Okanagan prices.

Lillooet last real estate boom was in 2006-08, when sales peaked at 120 homes a year before plunging below 40 by 2014. This year, Rawson expects 80 to 100 residential sales.

Major Point: It is a haul, it is a small town, it has a large native population, but you can still buy homes in Lillooet for $200,000, A search on realtor.ca found Lillooet area houses on riverfront from $219,00 and lakefront homes for less than $300,000. This compares with the central Okanagan, where waterfront cottages can top $1.6 million, according to a recent Royal LePage survey.

 

Powell River: Giant Bids For Mill; Lowest Real Estate Prices On The B.C. Coast

A giant India- based papermaker, Kejriwal Group International has put in a $6 per share bid to buy Catalyst Paper (which had been trading at .58 cents a share), which owns the pulp mill in Powell River, as well as two others in B.C. The deal is expected to close this November.

Major Point: This bodes well for Powell River, which has about the cheapest real estate on the B.C coast and which is currently seeing the highest monthly detached house sales in 20 years. In June, 32 houses sold and another 53 sold in May. Buyers can still find detached houses with ocean views for under $200,000 (MLS 12348, 3-bedroom view detached house on 8,800-square-foot lot at $169,000: MLS 12298, two-bedroom view house in the Townsite for $185,000.) …aaand…it…is…on…oceanfront! My favourite!

 

Meanwhile, Back In Calgary

Those expecting a price meltdown in troubled Calgary may have to wait. Based on June sales, detached houses in Alberta’s biggest city were up a skinny 0.4% from a month earlier, to $502,400, but were down 3.4% from June 2015. However, June was the first time in eight months that detached prices recorded a monthly gain, helping ease the quarterly decline from 2.2 per cent in the first quarter to 0.7% in the second quarter, according to the Calgary and District Real Estate Board. Detached sales are down 3.4% from June 2015.But condo sales are off between 25% and 35%. See price charts above.)

Condo prices continue to fall. The benchmark condo apartment price fell about 1% from May and is 5.8% lower than last year, at $278,000. Condo sales have dropped 22% from a year ago.

 

Hot Property

Look up MLS NUMBERS INSIDE THE FBE … in Powell River and Lillooet.

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