IN THIS WEEK’S FACTS BY EMAIL:
- FOUR REASONS WHY BC IS NOT IN A BUBBLE
- (OUT-OF-THE-ROUGH) GOLF COURSES TO BUY INTO NOW
Three of four look like winners
- WHERE PRICES FELL ON WEST SIDE VANCOUVER
- LUXURY PRE-SALE CONDOS DEFY TAX FEARS
- ZONING CHANGES THAT WILL DRIVE LOT PRICES HIGHER
- WHAT HAPPENS IF RATES GO NEGATIVE? NOT MUCH FOR BORROWERS
- PROVINCE RAKES IN TAXES FROM FOREIGN BUYERS
- THE PPT WAS SUPPOSED TO APPLY ONLY TO THE TOP 5% OF TRANSACTIONS – NOW? 95%
- DO NOT MISS JUROCK’S OUTLOOK 2017 CONFERENCE
We were peppered this week with comments on the comparison between benchmark and average prices. Wow!
Thanks for all the comments and questions. I have been tied up with our monthly investor and club meetings this weekend, so I will get to all questions during the week personally.
Q: I know we don’t like taxes, but could this foreigner tax not be a temporary measure? We need the money to run our health care system, pensions etc.
A: Taxes – temporary? No way! The then Vancouver Board president resident J. Darcy McLeod said it best in June 2015: (excerpt) “Taxes bring unintended consequences. There’s little to no evidence that a luxury or foreign buyer tax would make homes more affordable. History tells us that taxes like this fail to have the desired impact and succeed in permanently adding to government coffers:
“In 1987, the provincial government implemented what was advertised as a ‘wealth tax’. It was supposed to apply to the sale of the most expensive five per cent of homes sold in BC. It’s been 28 years since that tax was introduced and the thresholds have never been adjusted for inflation. Today, that tax is known as the Property Transfer Tax (PTT). It’s applied to 95 per cent of all residential property sales in the province. This tax makes housing less affordable.”
We think it possible, even likely, that the foreign tax will also be applied to all owners rather than revoked.
Four Reasons Why BC Is Not In A Bubble
(THOUGH IT LOOKS THAT WAY)
Repeat after me. B.C.’s housing market is not in a bubble. It just looks that way because of the shocking plunge in Metro Vancouver housing sales since the province slapped a 15% tax on foreign home buyers in the region on August 2. (Read and believe most of the media on this and you would already be stocking your root cellar with dry food and ammunition.)
A bubble is when a buyers’ market appears and this is when the sales-to-listing ratio for MLS action falls below 12%. In that scenario only two areas of the province now favour buyers: The Kootenays, with a sale to listing ratio of 8.7%, and northeast B.C., where the ratio is 9.8%.
In Greater Vancouver and the Fraser Valley, the ratio is holding at around 30%, but it has dropped to below 12% for some higher price ranges in the city of Vancouver (see our report on the West Side below). In Victoria, the ratio is over 25% and starting to trend even higher due to a lack of inventory.
In fact, despite the angst over the foreign buyer fallout, housing sales in B.C. have not even reached the peak levels of 2005-2006, so there is reason to believe that excessive worrying is unfounded. Remember, the foreign tax came in during the summer, when housing sales traditionally slow down. Also note that foreign buyers are coming to B.C. for a reason and the tax is not likely to stop them (though we are seeing some serious price negotiations … as in serous price reductions in West and North Van and the Westside). Not affected is Maple Ridge and Surrey – where the condo market is surging and the SF is seeing minute declines.
But back to the ‘bubble’. A bubble also emerges when the basic economic and demographic fundamentals cannot support the current housing market. That does not look like it is the case in B.C.:
- First of all, mortgage money is nearly free. The typical mortgage rate (after lender discounts) is now at a new all-time low of 2.5% for a five-year term – we have seen as low as 1.99% for 3-year money). When one considers that the average combined price in the Lower Mainland has increased 52% in the past 5 years, such low rates look like a great deal.)
- Second, B.C. job creation through the first half of this year is leading all of Canada, at 3.6%, according to Statistics Canada. (This is the same growth level as in mid-2005). B.C. now has the lowest unemployment rate in Canada.
- Third, B.C. has strong population growth, with an increase in inter-provincial migration and immigration this year. In the 12-months ending April 1, B.C. welcomed 19,118 people from other provinces and 40,693 immigrants from other countries.
- Fourth, there is a shortage of homes for sale. Across the province, the total inventory of homes for sale was down 25.8% as of July and new housing starts in Metro Vancouver are trending slightly downward, especially for houses and townhomes.
Major Point: B.C. is and will remain a key global destination for investors and the most popular province for Canadians to retire in. We may see a (welcome?) breather in Metro Vancouver house sales and prices this year, but sales and prices will be higher again, both in Metro and in most of the province. Remember it took less than a year to reverse the sharp downturn following the financial crisis in 2008. COME TO THE OUTLOOK CONFERENCE FOR THE DETAILED FORECASTS.
(Out-of-the-Rough) Golf Courses To Buy Into Now
Three of four look like winners after taking a Mulligan
Four large B.C. golf courses that fell into receivership or outright bankruptcy over the past seven years have all been bought and refinanced and are back with real estate for sale.
Three of them look they might be worth checking out, partly because asking prices for lots are lower than they were back in 2009.
The top three are: Vernon’s The Rise, Tobiano at Kamloops and Bear Mountain. Sagebrush near Merritt has finally opened (it failed to open for most of the summer, despite plans) but we can’t recommend it.
The Rise: Set above Okanagan Lake in Vernon, the rise was bought out of a court-ordered sale early in 2014 for $1.75 million (it had been listed at $2.2M) by an Okanagan family. A new restaurant and clubhouse has been added, the course changed a bit to make it easier for duffers, and it appears to be going well. The real estate offerings include duplexes from $559,000 and detached villas, most with lake views, from $599,000.
Tobiano: The Tobiano golf course near Kamloops was seized by the Business Development Bank of Canada in 2008 and put up for sale for $5.5 million. It was bought last year by Florida-based John Preston (founder of North American Development Group) and partner Henry Bereznicki of Alberta.
The land development sector and marina was purchased by a separate group of owners, who have slashed real estate prices. Tobiano now has building lots available from $120,000 to $400,000, about one-third less than in 2007.
Tobiano is also pitching about 90 townhomes. Worrisome is that the resort is also planning a 17-suite condo-hotel (uh-oh) with two-bedroom suites that can be placed in a rental pool. (That depends on presales, so it is likely it will never be built since no one has ever made money buying a condo-hotel suite.)
Bear Mountain: Ecoasis Group of Companies bought Bear Mountain Resort near Victoria in 2013, buying it out of credit protection. No sale price was released, but HSBC Bank was owed $250 million.
Ecoasis is developing about 100 residential lots and a number of luxury townhomes and condos. The first phase has lots ranging from 7,500 square feet to 12,000 square feet and with prices from $260,000 to $380,000.
Rated a top course, the Pacific Links Championship is set for September 19-25 on Bear’s Mountain Course (and John Daly will there, fans.)
Sagebrush: We can’t recommend Sagebrush near Merritt, which struggled to open this summer. It went broke and had been closed since 2014 (the same year it was named among the top golf courses in Canada) and the new owners, Newmark Group from Langley, have had trouble getting it back in shape. (Rumours are there are still trade liens flying around.) The course is now open and there are plans to offer real estate, but it still seems early days.
Major Point: Of course the Sechelt course has new ownership and a new name (Blue Ocean) and there are others that changed hands. We advised 2 years ago to be very cautious when buying on a golf course. We play less golf in North America, our recreational habits are changing and just because your new home borders the 9th hole, does not mean you will make money. Make sure you understand your obligation versus your golf course as well as have your membership docs read thoroughly.
Luxury Pre-sale Condos Defy Tax Fears
Bosa Properties’ Cardero at Coal Harbour is among the most expensive and exclusive new condo projects in the city. And, according to Bosa, all but 12 of the 119 condominiums in the near-waterfront tower have pre-sold at prices starting at $1200 per square foot and averaging close to $1,800. Pre-sales started August 20 after the foreign buyer tax kicked in. (Reports are that 9 of the Cardero buyers are foreign nationals.)
When the 15% foreign tax came in, some developers and pundits predicted “chaos” in the pre-sale condo market, speculating that foreign buyers would walk away from deposits. That does not seem likely. At Cardero, for example, the deposit is 25% but the units do not complete until 2019.
Major Point: Pre-sales condo assignment are not subject to the “anti-flipping” rules the province brought in earlier this year, so if there was chaos building in the pre-sale market we would be seeing a rush of assignment listings. We’re not. But there are some: on Craigslist today there are 21 pre-sale condo assignments listed and Kijiji had half a dozen specific assignment listings.
Zoning Changes That Will Drive Lot Prices Higher
We have all seen what happened along Vancouver’s Cambie Corridor and the West End after zoning changes encouraged higher density developments. Land prices went through the roof.
Upzoning drives detached lots value higher through lot assemblies and the price of older condos and townhouse increase because the strata can be “wound up” and the site sold for development.
- Joyce Collingwood: City of Vancouver has approved rezoning a two-block radius around the SkyTrain station, allowing for four-storey apartment condo buildings and townhomes.
- Granview-Woodlands: Bit more complicated here, with sub-zones around the Broadway/Commercial SkyTrain, some of which will be automatically rezoned for higher-density; two others will be considered for rezone applications but must go through the onerous and mostly anti-development Commercial Drive community public hearing process.
- Metrotown, Burnaby. Already fueled by upzoning, the next stage will allow high-density (up to 12 storeys) residential on the east side of Central Boulevard, with slightly lower density on the west side of Central. This on a fast track and expected to be on place before year-end.
- Burquitlam/Lougheed, Coquitlam: More public consultations will be held this fall, but Coquitlam staff is recommending higher-density zoning in the area, which has already seen rapid development around the Evergreen
SkyTrain station. Evergreen will begin running this year.
- Fleetwood Town Centre, Surrey. A new plan has been approved that will boost density (up to six storeys) for current single-detached and lower-rise sites in an area around Fraser Highway and 160th Street, in addition to increasing Town Centre densities to 2.5 FSR.
Major Point: Go were upzoning goes…
What Happens If Rates Go Negative? Not Much For Borrowers
The Bank of Canada kept its overnight rate at 0.5% in the July setting, though there was some speculation the rate would be lowered. An apparent uptick in forecasts for Q3 may have kept the BOC from easing rates, but if the economy worsens, the possibility of a cut, even into negative territory remains possible. On August 4, the Bank of England cut its lending rate to 0.25%. The European Central Bank rate is at 0%, the Swiss National Bank rate is at -0.75% and Denmark, Sweden and Japan are also offering negative central bank rates. Bank of Canada Governor Stephen Poloz did not rule out the possibility of implementing a negative interest rate if the economy doesn’t show increased strength in the coming months.
Here’s how it would work, in theory:
If the Bank of Canada were to impose a 0.5 percent negative interest rate, it would charge the retail banks $5,000 annually for every $1 million held on deposit.
The idea is that this would encourage the banks to lend more of that money, thereby boosting the economy. In order to attract more of the public’s business, the banks would in turn lower the rate at which they lend.
In reality, though, Canadian banks are already charging much higher lending rates than the 0.5% they are paying the BOC and, even at a negative rate they would not likely lower lending rates much.
Lending rates are already so low, negative rates would not make much difference to current mortgage borrowers.
Where it would have an impact on those poor souls, such as retirees, who are rely on GICs, bonds and savings accounts and would be seeing even smaller returns. Many of these, we suggest, would turn to real estate, which is providing the best investment returns in the country.
Major Point: If Canadian interest rates go negative, the effect could well be positive on real estate due to a surge of investors. A big early winner could be real estate investment trusts, especially those weighted towards the residential rental sector.
Province Rakes In Taxes From Foreign Buyers
We had question this week from a reader about how much money the B.C. government is making on foreign buyer sales. Answer: a lot.
The Finance Minister reported that 10% of all residences bought in Metro Vancouver were by non-Canadians in the five-week period between June 10 and July 14. That meant foreign buyers bought $885 million out of a total of $8.8 billion in housing in those five weeks.
For the fiscal year ending March 31, the province took in $463 million in property transfer taxes. The finance ministry estimates the total value of B.C. residential real estate sold in 2015-16 was $80 billion.
So, if 10% of these are foreign buyers, the province made $46.3 million from foreign buyers before the 15% sales tax kicked in on August 2. HOWEVER, foreign buyers are also now pay the existing property purchase tax which is 3% on homes priced at $2 million or more and 1% on the first $200,000 and 2% on the portion of the value greater than $200,000 and up to and including $2,000,000. This means foreign buyers are paying from 17% to 19% in taxes per purchase.
Major Point: If the current pace of foreign buying at $175 million (as much as $200 million) per week continued foreign buyers would purchase about $9 billion in Metro Vancouver houses in a year. Therefore, the province could pocket at least $1.3 billion from foreign buyers over the next year, which is three times more than it collected from all property transfer taxes in the last fiscal year.
Mortgage Insurers Grow Concerned Over Property Values In Vancouver
The BC government isn’t the only entity worried about the price of real estate in greater Vancouver. The 3 mortgage insurers have flagged greater Vancouver condos and detached as medium to high risk and will be keeping a close eye on them. “The mortgage insurers don’t just look at the borrower when determining if they will insure a mortgage, the property is also a big part of the equation,” says Kyle Green of Mortgage Alliance (604-229-5515, Kyle@GreenMortgageTeam.ca). “Right now we’re finding that the insurers have been finding reasons not to do deals, particularly on strata and 5% down deals. We’re also noticing that a large number of deals are requiring appraisals right now, too.
In 90-95% of cases, typically an appraisal is not needed and right now that number is at least double for deals with less than 20% down. We’re also finding that even with 20% down, lenders “electronic appraisals” are not passing and some lenders are just requesting appraisals every time. A year or two ago, nearly every deal would pass the electronic appraisal.” It also looks like the insurers and lenders are gathering the appraisals to have more data for the comparable sales to ensure they are able to measure their risk appropriately. There’s word that some US investors are shorting Canadian banks, particularly those that have a lot of exposure in the subprime market, and so the more information to back up why they feel the housing market is not overvalued is welcome for these lenders.
Sept. 13, 2016
Plots Of The Week
Our upcoming US speaker at OUTLOOK – Todd Cunningham – sends some sleeve listings in Phoenix (not yet available on MLS).
- Goodyear, AZ 85338, Price: $175,000.00, SF: 1,347, Lot: 6,600 SF,3 beds / 2 baths, built in 1996, nice open floor plan with travertine flooring. Desert landscape backyard with private in ground pool.
- Surprise, AZ 85374, $190,000.00, SF: 1,543, Lot: 5,750 SF, 3 Beds / 2 1/2 Baths + Den, built in 1999, open floor plan, granite countertops, tile throughout w/ private in ground pool in the back. Currently tenant occupied at $1,245.00/mo.
WE RESERVE THE RIGHT to accept or not to accept a specific deal. What makes it a deal? We look for: Low down payments, special discount, and owner carries mortgage, etc. Also note…we do not vet any 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!
“Trump: The best real estate advice I ever received” … is still a rollicking good read (well, as you know I have a chapter in it). It is not new, but the author is a real estate player extraordinaire and so are the co-authors. In light of the election, it may be particularly relevant … oh and yes, you can buy it on our website at Jurock.com
DO NOT MISS JUROCK’S OUTLOOK 2017 CONFERENCE
YOU, dear reader, may have free tickets to the 24th annual Jurock Real Estate Insider REAL ESTATE OUTLOOK conference held in downtown Vancouver, all day, on September 24 (depending on your package). You also can have discounted ticket prices for your best friends, clients or guests. But do it now! This year the interest is particularly strong.
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 recover from the tax intro?
- 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 foreign money stop coming to Vancouver?
And of course deals, deals, deals – including homes for $100,000 or less in British Columbia and the USA.
For more information or to sponsor, call 604-683-1111 or E-mail Max at email@example.com for details
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