IN THIS WEEK’S FACTS BY EMAIL:
- VANCOUVER INDUSTRIAL NUDGES $600 PSF AVERAGE
Investor alert: strata demand intense, multiple bids being seen
- CHINA’S LUXURY BUYERS NOW LOOK TO SEATTLE
B.C. home inquiries plunged with new tax
- MIAMI REALTOR ASSOC. LINKS WITH JUWAI.COM
- CONDO INVESTORS: CALGARY VS. EDMONTON
- ALBERTA REALTORS STIFFED ON COMMISSIONS
- MORTGAGE DEFAULTS REMAIN LOW (BUT UP 52% IN ALBERTA)
- POWELL RIVER SUDDENLY A HOT MARKET
- PRINCE GEORGE BUCKS NORTHERN NOSEDIVE
- VALEMOUNT SKI RESORT GETS GREENLIGHT
- GET READY FOR THE JUROCK OUTLOOK CONFERENCE
West Vancouver Ace Realtor Clara Hartree (Facebook post): “The unintended consequences of a law that was implemented just to gather votes for the liberals are endless. I hope they do get those votes but what a mess. Collapsed sales of houses of middle class Canadians are selling again sometimes for $500,000 less. Buyers are waiting…Local buyers who are not affected by the 15% tax still try at the last minute to get reductions of $400,000 or $500,000 on firm contracts, arguing that the houses are worth less than when they signed the contracts. Some sellers who are caught having to pay for other purchases are being bullied into reductions from their buyers. And affordability? There is and always was affordability outside the areas that were never affordable anyway. The media is to blame for distorted images of the high end market and for calling it ‘the market’. Sensationalist reporting is destructive – no difference between what the media has done to real estate and the tabloids inventing stories about ‘celebrities’. Sad times.”
Q: You mentioned that you felt the Canadian dollar was to fall back. It is rising.
A: I quoted Josef Schachter Ace Oil analyst, who believes that oil is headed back down to the low thirty-dollar range in the next few months. The Canadian dollar would likely follow. He was right in 2014 and 2015. For 2016 he recommends getting into cash and when oil gets to that lower level…Buy. Victor Adair, whose track record on the American dollar has been spectacular, is short the Canadian. I only talk about it, since we have investors that buy in the US dollar. Thus I really only care about the currency as its value may relate to real estate prices both here and across the border.
Vancouver Industrial Nudges $600 PSF Average
Investor alert: strata demand intense, multiple bids being seen
Pre-sales sell outs, prices up 50% to nearly $600 per square foot with multiple bids, and the rise of foreign buyers: no it is not Vancouver’s residential condo market but the industrial sector that is apparently the hottest ticket to riches in town.
The average price of industrial buildings sold this year in East Vancouver has hit $596.50 per square foot, but some new industrial strata space is selling for up to $750 per square foot in the face of strong demand.
How much demand? The industrial vacancy in Metro Vancouver is 1.5%. This is by far the lowest in Canada and compares with Calgary at 6.6%, Edmonton at 6.3% and Toronto at 3.3%.
Savvy InterUrban – which is developing “yuppy industrial” buildings in Vancouver, mostly for the high-tech industry – presold 167,000 square feet of new industrial space before they even started construction on the Marine Drive site.
(The same team is now building their second project in Mount Pleasant.)
For investors, industrial strata, or even older buildings in key areas like Mount Pleasant, East Hastings and South West and SE Marine Drive could be a good bet. One of the reasons is the spiralling demand from the film and TV industry, which has leased up 28% of all the industrial leases in the past year in Metro Vancouver – more than 1.5 million square feet in total – and are bidding up prices.
Agents from Colliers International say film companies are offering up to $1 more per square foot (or from $10 to $11) than conventional tenants as they try to find scarce short-lease space. And they are looking for big spaces: at least 40,000 square feet, with room to move big trucks, an office component, and high ceilings (up to 30 feet preferred). The producers are paying a premium because they often need the space for a six-month shoot, but some are for two-years just to lock down the space.
While East Vancouver leads the price parade – mostly due to rezoning in Mount Pleasant and East Hastings that allows higher density and the inclusion of office space – industrial prices are rising right across Vancouver.
Avison Young reports that Vancouver industrial building prices now range from $280 to $414 per square foot, with industrial land in the city selling for up to $386 per square foot. Yes, that is more than $15 million per acre, even more for prime sites. (Last month Conwest Developments paid $4.74 million for a quarter-acre of industrial land on West 6th Avenue.)
Even the rationale for buying industrial land echoes the residential market. As Avison Young notes: “Many investors no longer rely on historical metrics such as capitalization rates [it is] the potential of significant rent increases and development potential” that spurs speculative buys.
What to watch for:
- A rise of foreign investors who want into the Vancouver real estate market but don’t want to pay the 15% foreign buyer tax on residential property. (Multi-family properties are exposed to the tax, but all other income-producing commercial property is exempt.)
- Rising rents: Metro Vancouver industrial rents are the lowest in Western Canada. The average for existing inventory is $8.01 per square foot, compared to $10.25 in Calgary and more than $10 per square foot in Edmonton and Regina. We fully expect Vancouver industrial lease rates to be topping $10-$11 per square foot by year-end. (Remember these are annual rates, not monthly as in residential.)
- Mixing industrial strata with residential condos. Don’t laugh: Wall Financial is already building the first one on East Hastings. It won’t be the last.
Major Point: Metro Vancouver has a severe shortage of industrial land, demand is intense and Vancouver zoning is much more flexible than in the past. But best of all, when you can sell four concrete walls and a totally empty space for $600 per square foot, it makes residential condos appear much too complicated.
China’s Luxury Buyers Now Look To Seattle
B.C. home inquiries plunged with new tax
That sucking sound you hear is billions of dollars from China moving away from Vancouver and into Seattle’s high-end housing market.
Matthew Moore, an executive with Beijing-based juwai.com – the largest foreign property search engine in China – said inquiries about luxury Vancouver area homes have dropped 55.6% since the B.C. foreign tax kicked in on August 2.
Yesterday, juwai.com had 30 pages of Metro Vancouver homes for sale – at least 300 properties – ranging from $600,000-$700,000 condominiums to a house on Vancouver west side listed for $10.8 million. In April, B.C. listings were averaging more than 3,000 per day, according to juwai.com stats.
“If you want to sell in Vancouver, it may not be enough to just list your property anymore. You may have to make a proactive effort to market it to international buyers,” Moore said. He noted that online inquiries about Vancouver homes had already been trending lower for a few months before the tax bombshell hit.
So where are China’s luxury buyers looking now? Moore said Seattle, which has surpassed Los Angeles for China buyers – and to a lesser extent, Toronto, Calgary and Ottawa.
Seattle real estate agents say they have already seen a blip up in Chinese inquiries, and little wonder. The profit potential rivals Vancouver. Here is one example: An investor bought an old house on 17th Avenue Northeast (the Ravenna neighbourhood) last April for US$450,000, demolished it, built a new house and sold it this June for US$1.43 million.
Most of the teardown-and-flips are in higher-priced Seattle markets like Mercer Island, Kirkland, Bellevue and central Seattle. (Much like in Vancouver west side and West Vancouver.)
While Metro Vancouver detached house sales plunged 71% in the first two weeks of August, compared to a year earlier, they increased 4% in King County (the Seattle area).
Moore noted that, if the drop in China-based buyers in Vancouver continues “it will be interesting to see if Vancouver schools and universities see a drop in the lucrative enrollment of offshore students, any other economic impacts.” Interesting indeed.
Major Point: Regarding foreign buyers, Vancouver is in a period of uncertainty that could go either towards a demand slump or a renewal of demand as the tax uncertainty subsides. The September sales stats will give a better indication.
Miami Realtor Assoc Links With Juwai.com
If there are fears that Seattle may be stealing Vancouver’s lunch when it comes to Chinese investors, take a look at Miami where the real estate association has forged a partnership with Juwai.com, China’s largest foreign property portal.
Juwai, which means “home overseas,” boasts more than 2.4 million property listings spanning 58 countries. The Chinese-language site is visited by thousands of buyers each day from over 315 cities throughout China, as well as major Chinese communities in Taiwan, Hong Kong, Malaysia and Singapore.
In Vancouver, Realtors and developers are often reluctant to admit they even list on juwai.com. It is different in Miami, where the Miami Association of Realtors (MAR) is going flat out to encourage participation with Chinese investors. It is paying off, too, though Miami trails far behind Vancouver in attracting Chinese homebuyers.
China City Construction Co., a subsidiary of the Ministry of Housing and Urban-Rural Development of the People’s Republic of China, is building an 18-story tower on Miami Beach. Hong Kong-based Swire Pacific is completing a US$1.05 billion Brickell City Centre, a 9- acre mixed-used mega development in downtown Miami. (Anbang Insurance of China recently paid about $1 billion for four office towers in downtown Vancouver.)
Chinese homebuyers have increased their South Florida residential purchases from 1% of all international sales in 2012 to 2% in 2015, or the equivalent of about $160 million Canadian. To put this in perspective, Chinese buyers purchased an average of $250 million worth of Metro Vancouver homes every week this summer, according to figures released by the B.C. government, The MAR goal is to make Miami the next major destination for Chinese investment – which would be, of course, at the expense of Vancouver.
Condo Investors: Calgary Vs. Edmonton
For many years, big-city Alberta was ripe for condominium investors, with relatively low prices and a steady influx of young workers (read tenants) drawing to the oil-fired economies.
Things have changed, of course, but a close look at the two cities shows both condo markets are holding up, perhaps surprisingly, well, but there are marked differences.
Here is a look at the Calgary and Edmonton condo markets as of July 30. 2016.
Resale condo sales: Edmonton is the clear leader, with 2,625 sales from 6,295 listings, reports the Edmonton Real Estate Board. Calgary saw 1,669 sales from 4,489 listings, reports the Calgary Real Estate Board. (The Board says condo sales in Calgary are at the lowest level since 2003.)
Average resale condo prices: The average sale price on MLS in Edmonton is $252,032. Calgary’s average MLS condo apartment price is $370,644. (Prices in Calgary are down 7% from 2015, but off only 1.2% in Edmonton.)
New Condo apartment starts: Calgary leads with 2,087 starts this year, including 466 in the downtown. Edmonton was 23% lower, with 1,699 starts.
Newly completed but unsold inventory: Calgary has 526 while Edmonton has 476, according to Canada Mortgage and Housing Corp.
Major Point 1: There is at least six-month supply of condo apartments on market in Edmonton or Calgary and developers are scrambling to move pre-sales.
Major Point 2: Residential sales have now been falling for 21 straight months in Calgary, as of August. Vendors are open to offers. The vacancy rate for older apartments is around 3.2%, based on figures from Boardwalk REIT, the largest Alberta landlord. There is a glut of new and resale inventory and many people can’t afford to buy so condo rentals demand should remain strong. For those who believe in Alberta’s recovery, the time to be buying with low-ball stink bids is ever nearer!
Alberta Realtors Stiffed On Commissions
If one drive east of Calgary a strange site emerges in the foothills: large half-finished houses in subdivisions like the 160-acre Windhorse Manor Country Estates near Springbrook where 55 lots were sold and many houses started but never finished.
Such collapsed deals have led to Alberta realtors being stiffed on commissions because of their employers shutting down.
When Royal Lepage Foothills closed six offices in December, realtor commissions went unpaid, according to Kirby Cox, an agent claiming $275,000 and Cam Stearns, who said he is out $50,000.
Only months after Royal LePage Foothills closed its offices, an even larger brokerage, Discover Real Estate, which had offices in Calgary, Edmonton, Red Deer and Strathmore, shut down. Several agents who are owed commissions have reportedly started legal proceedings in an attempt to recover their money.
Alberta’s industry leaders have taken note and came together to form the At-Risk Commissions Working Group to address how to better protect Realtors’ commissions. The group, which has been releasing monthly updates since May, is made up of the Alberta Real Estate Association, the Real Estate Insurance Exchange (REIX), the Calgary Real Estate Board (CREB) and the Realtors Association of Edmonton.
“We’ve had a significant portion of our membership that has been affected by a broker not paying out the commissions owed to their agents,” said CREB president Cliff Stevenson in an email statement to REM magazine.
Major Point: Real estate companies collapse means life is tougher. Therefore, the working group is currently researching various options to help protect agents’ commissions, including insurance and bond products, commission trust accounts as a regulatory requirement and employment contract terms between brokers and associates. It has also engaged a third-party survey provider to solicit input from Alberta Realtors on the issue of at-risk commissions.
Mortgage Defaults Remain Very Low (But Up 52% Alberta)
Canada Mortgage and Housing has just released its second quarter report and it shows that, despite soaring prices and sales, the default rate on insured mortgage remains very low.
The overall arrears rate at June 30, 2016, was 0.32%, down from 0.34% at March 31, 2016. Total number of loans in arrears was 8,386 as at June 30, 2016. The arrears would likely be lower but for a 52% rise in Alberta, where 1,487 mortgages in were three months or more overdue as of June 30 – up from 978 at the same time in 2015. The Alberta default rate is now 0.41%. Saskatchewan saw arrears rise to 592, reflecting a default rate of 0.69%.
Other highlights from CMHC’s 2nd Quarter:
- CMHC provided mortgage loan insurance for 134,891 units across the country, up 11% from the same period last year.
- The average CMHC insured loan for homeowner mortgages was $237,628, up 0.5% from the same period in 2015.
- Homebuyers with CMHC-insured mortgages have an average credit score of 750 for transactional homeowner loans and an average gross debt service (GDS) ratio of 25.4% for the three-months ended June.
Powell River Suddenly A Hot Market – But For Retirees
Powell River’s real estate market is red hot. Houses are listed and often sold in a day or two and the average price for single-family homes continues to rise. About half of the homes being sold now are to people from the Lower Mainland according to Powell River Sunshine Coast Real Estate Board president Neil Frost.
Major Point: It is still possible to buy Powell River detached houses, even with ocean views, for less than $300,000. We turned up about 20 this week during a quick search that excluded mobile homes.
But if you are looking at Powell River, it is likely for retirement or a second home in the ocean side community. The local economy is still suffering. The Catalyst pulp mill, the town’s largest employer, shut down a third of its operations this summer. Catalyst shareholders have accepted an acquisition bid from India-based Kejriwal Group International, but few details are available on if or when a sale will take place or what affect it would have on the Powell River mill. Maybe the planned “Pot Plant” will help employment (we talked about it a month ago).
Prince George Surprises
Prince George, the biggest city in northern B.C. is weathering a storm brought on by falling petro prices and the stalling of any decisions on new liquefied natural gas plants and pipelines. We recommended PG as a buy in our January Outlook issue. Prince George, with its diversified economy, has seen building permits hit $88.4 million as of July, more than in all of 2015. Lowe’s has opened a large store, Canfor is developing a new bio-crude plant and housing starts are up 27% from last year, to 116 units. A $382 million industrial park is underway and Inland Kenworth has broken ground there on an 88,000-square-foot building.
Prince George housing sales are up modestly from a year ago and the average detached price is just over $300,000, up about 10% from a year ago,
But look east from Prince George, and the scene changes:
Civic officials in Fort Nelson mutter quiet fears it could become a ghost town. “We’ve lost over 1,000 people. We have apartment blocks closed down. We have one hotel here that has cut their rooms in half and just shut the floors down, drained the water and cut the heat off. We have buildings that are boarded up all over the community,” said the normally upbeat Fort Nelson mayor Bill Streeper, adding that industrial vacancies have hit 60% because of LNG pullbacks. Only four houses sold in Fort Nelson in the first half of this year and the average price fell 40% to $226,000.
Dawson Creek and Fort St. John are also feeling the effects of a downturn in the natural gas industries, but Dawson Creek still has drilling going on and Fort St. John is cushioned by construction of the $8.3 billion BC Hydro’s Site C dam and the $715 million Tower Gas Plant, which both started in earnest this year.
Valemount Ski Resort Gets Greenlight
Some good new for northern B.C.: the B.C. government has approved Valemount Glacier Destinations Ltd.‘s (VGDL) master plan to build what could be a $500 million ski resort near Valemount in central B.C. near the Alberta border. It also has the support of local First Nations, which is crucial in B.C.
Initial financing for an approximately $85 million first phase is coming from Toronto real estate tycoon Greg Marchant, with other investors including Toronto real estate marketer Hunter Milborne and North American Tungsten Corp. founder Stephen Leahy.
Major Point: While the selling point for the resort is that it will have year-round glacier skiing, access up to an elevation of 8,530 feet and a vertical drop of about 5,775 feet during the first phase of the project—it is a looong way from completion. Too early to invest.
Valemount would likely rely on Edmonton, northern BC and international visitors, since it is about a seven-hour drive from Vancouver.
The plan is to build lifts and groom trails so the first paying customers can ski down Mount Pierre Elliott Trudeau and stay in local hotels by December 2017.
Vail Buys Whistler
The just announced purchase means that the Vail skier gets a free ticket to Whistler as part of a multi mountain package. That bodes well for Whistler (which was our No. 1 small town buy this January), as more people come and ski and while they ogle the mountains in awe, realize that their US real estate buck goes a long way. More next week!
GET READY FOR JUROCK’S OUTLOOK 2017 CONFERENCE
The 24th annual Jurock Real Estate Insider REAL ESTATE OUTLOOK conference is held in downtown Vancouver, all day, on September 24.
- This will be the most important Outlook Conference in years, harkening back to days after the 9/11 terror attacks when delegates were told to prepare for a bull residential market when most analysts were advising duck and cover.
- This year there is a swing presidential election in the U.S; new taxes on foreign buyers in Metro Vancouver; Britain’s exit from the European Union, the collapse of oil prices and worldwide fears of both inflation and deflation.
- REAL ESTATE OUTLOOK, with the top speakers and analysts in the business, will tell real estate investors of the opportunities and the dangers in 2017.
Get answers to these questions from a Conference that has had an amazing batting average.
- Will Vancouver sales continue to crash?
- What sleeper areas should investors buy in British Columbia?
- What does Brexit mean for us?
- Where to invest in the U.S.?
- How will oil prices change?
- Will the Canadian Dollar rebound?
- Will the Chinese and other foreigner’s money stop coming to Vancouver?
And of course deals, deals, deals – including homes for $100,000 or less in British Columbia.
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REAL ESTATE OUTLOOK 2017
MARK YOUR CALENDAR – JUROCK REAL ESTATE OUTLOOK 2017 ON SEPTEMBER 24, 2016 IN VANCOUVER.
Our 24th annual Outlook could be the most important ever. Twelve expert speakers will tell where the opportunities – and the dangers – lie in Canada and the United States in the year ahead.
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