IN THIS WEEK’S FACTS BY EMAIL:
- GRANULAR LOOK AT CITY OF VANCOUVER HOUSING
- VANCOUVER “LOW-COST” MODULES COST $1,495 PER SQUARE FOOT
- 34% VANCOUVER HOMES WANT TO CASH IN AND GET OUT? BUT TO WHERE?
- FOREIGN BUYERS RETURN SLOWLY
- MULTIFAMILY LANDLORDS FACE PRESSURE IN 2017
- WHERE DOWN PAYMENTS REALLY COME FROM?
- HOUSING SLUMP SLIPS B.C. BENEATH MANITOBA IN GDP GROWTH
- NEW WORDS I HATE
- PRISON REITS
- HOW THE CHINESE TOOK OUT THEIR CASH – BITCOIN!
- 1,500 RENTAL UNITS IN CALGARY VACANT
- VICTORIA IS GOING BANANAS
- WATCH YOUR COMPUTER WATCHING YOU!
DEAR SUBSCRIBER, I VERY MUCH APPRECIATE THE MANY NOTES, E-MAILS AND PH0NE MESSAGES ABOUT OUR OUTLOOK ISSUE. IT IS YOUR FEEDBACK THAT I LIVE FOR.
Said ace Victoria realtor Rick Hoogendoorn this week: “If the Victoria real estate market were to be described as a fruit, the easy answer is: bananas.” He pointed to the sale of a 4 bdrm/3 bthrm home that went on the market last week in Gordon Head, with a suite, at $699,000. There were 28 offers and it sold for $950,000 to an American buyer!
Then he said, he had a listing in the Mt. Doug area (not far from Gordon Head and UVIC). At the open house on Saturday, there were more than 80 groups through the home! There is an extreme shortage of inventory, and very, very strong demand.
This has prompted two Victoria councilors to want the 15 per cent provincial property transfer tax on foreign buyers applied in the capital region. Further they want local municipalities be given the authority to impose a tax on vacant properties.
The ‘hot market’ then was echoed by a few (not all) realtors in Vancouver too. Said Tammy Sharp: “Asking price $360,000, 5 offers and sold for $413,000 subject free!” Where? A really nice studio near Arbutus and 12th, Kitsilano. She also reportedly lost out (never even got the chance) on another condo this week, Main and 6th area. She adds: “The Realtor sold it out from under a bunch of interested parties. Anything under $400k is hot hot hot. I have a list of interested buyers the length of my arm.”
Major Point: We predicted in August that Victoria, Whistler and Toronto would benefit from the Vancouver tax… They did.
China Changes Bitcoin Rules
Bobby Lee, CEO of BTCC, acknowledged that changes to the exchange’s service were being made in response to interactions with the People’s Bank of China, the country’s central bank. Apparently now, China’s major bitcoin exchanges halted or otherwise updated their bitcoin trading services. The PBoC, has been more actively engaged with domestic bitcoin exchanges amid the run-up in bitcoin prices seen at the start of the year. Thus: “BTCC will suspend loans and borrowing services from 12th January, 2017.” At press time, traders were reporting that loan-based trading services were no longer available.
Major Point: We are hearing that Bitcoin trading/lending was used to transfer funds out of China to the US and elsewhere (via Hong Kong). As we reported in our OUTLOOK issue last week, the Chinese government has brought in new requirements for citizens converting their yuan. Conversions of yuan are now subject to a quota or currency controls in an effort to curb capital outflows. China with its new focus on trying to stem the tide of currency leaving China is trying to close another loophole. Bitcoin was one of these holes.
Calgary Has 1,500 Vacant New Housing Units
CMHC says about 1,500 newly-built housing units sat vacant across the city last month and more than 800 were apartment-style condos. According to the “C”, Calgary hasn’t seen that kind of new-build vacancy rate in 15 years. Many of the empty condos were planned during an earlier boom, said Matthew Boukall, a senior director with Altus Group, a real estate advisory company: “We saw in 2014 a huge number of condos starting construction. It takes anywhere from 18 to 36 months to build a condo … So we’re actually seeing a natural progression of the market out of a hot market in 2014 into a slower market in 2015, 2016.”
Major Point: We said last year several times to make ‘stink-bids’ on your new house or condo in both Calgary and Edmonton. While it may a bit harder to find tenants (competition) it may be the ‘deal of a lifetime’ that a developer/builder may give you – including possible incentives like (a car, furniture, mortgage buy-down etc.).
Before Christmas in FBE No. 47 we hinted under a “Trump effect”, that his law and order approach may mean, more people will go and stay in prison. Ears up, investor. The overall private prison business model – not necessarily the best for returns in the past – could be resurrected and become a new investment opportunity. Trump tough-on-crime approach could benefit private prisons. Thus a prison REIT could be the ticket for you.
Major Point: For an outline on other REITS and how REITS get hurt by rising interest rates – review the piece in FBE No 46. Caveat Emptor. (Always use your search button to review your Insider Facts by Email.)
Granular Look At City Of Vancouver Housing
The slow motion train wreck that it is the City of Vancouver housing market – which was decimated by a series of government intervention measures starting last May – continues.
We are looking just at Vancouver because it has been the barometer for the Metro housing market over the past two years. What happens in Vancouver does not stay in Vancouver and a similar trend is now apparent across the Metro region, including the Fraser Valley.
So how bad is it? Only 127 detached houses were sold in the entire city of Vancouver in December, down 60% from six months earlier. Less than 50 townhouses sold through MLS during the month, and city condominium sales – which remain the brightest sales sector – totaled 333 in December, but condo sales are down more than 60% from the pace in the first six months of this year, when an average of 700 condo apartments were selling every month. Sales of new concrete condominiums are down about 26%.
Many real estate agents note that housing prices have not changed much despite the lower sales, but we believe this due to lack of listings. In December, for instance, there were only 122 new listings for detached houses in Vancouver, compared to 660 in June. New listings for townhouses have also plunged and Vancouver condo listings had fallen to 199 by December, compared to 860 per month in the first half of this year.
Due to uncertainty, Vancouver detached housing market is basically frozen: but when it thaws out it could stink.
UDI at its last week’s OUTLOOK conference (1,200 attendees) forecasts a reasonably strong market for Vancouver with concrete high rise prices rising 10% or so. Properties over 2 million were forecast to be down till the third quarter.
JREI is not that positive, the condo market will do better than the 4th quarter (immigration is one reason) but single family homes will continue to be under pressure. We expected downward price corrections in the 20% range last August (In FBE) and if we measure April 2016 prices against December 2016 prices are already down between 15% to 20%. We don’t expect detached house prices to rally in 2017.
The best opportunity for investors is higher-end detached houses, which form a glut on the market. In the fourth quarter, for example, 84 houses were newly listed for $5 million or more on the Westside of Vancouver but there were only 27 sales, or just nine per month. On the Eastside, of the 115 houses listed at more than $2.5 million, only four sold in the last three months of last year. Vendors who have to sell may blink and low-ball offers could suddenly look appealing.
Major Point: The Vancouver strata market will fare better: the townhouse sector is undersupplied and there are not a lot of new units coming to the market. The condominium market will remain fairly stable, but not in all areas (our Vancouver picks are Mount Pleasant, the downtown and the Grandview-Woodlands area close to transit).
Vancouver Low-cost Modules Cost $1,495 Per Square Foot
In an effort to address the need for affordable housing the City of Vancouver is now installing 40 modular housing units at 1500 Main Street, near the Main Street Sky Train station, The modulars are 250 square feet but a study of the costs of installing them, provided in an analysis by Mark and David Goodman of HQ Commercial, shows that the average cost per square foot is $1,495. Thus, it is even higher than per-unit cost of subsidized rental housing in Vancouver, which is currently in excess of $400,000 per unit. That is more than it cost to build a new condominium. In fact, luxury condominiums across the street from the modulars are selling for $1,000 per square foot!
Major Point: Hello!!??
34% Vancouver Homes Want To Cash In And Get Out? But To Where?
According to a new study by Insights West, 34% of Vancouver homeowners say they are planning to sell their homes and move to more affordable markets in the next five years—the highest percentage in the province.
The study, done for Resonance Consulting, found that 40% of Gen-Xers want to cash in and get out, as do 28% of Baby Boomers and 25% of Millennials (those under age 35).
You have to take these surveys with a grain of salt. We doubt that many are really planning to decamp, but we do believe that there are a number of homeowners considering the option, especially those nearing retirement age and who are likely looking to move to a quiet spot on Vancouver Island or the southern Okanagan.
For younger homeowners, though, the option to stay in B.C. is harder to make. If there is an exodus of these younger homebuyers it is more likely to be to Ontario, particularly Toronto. This is because, if you look outside of the Lower Mainland and the capital region of Vancouver Island, the B.C. economy does not offer a lot of job opportunities. According to Statistic Canada employment stats, 80% of the B.C.’s job growth in the past year was concentrated in Metro Vancouver.
All but two of B.C.’s seven economic regions recorded net job losses in the same period. In the Thompson Okanagan, all of the job growth is concentrated in Kelowna; the Kootenays will see sluggish economic growth this year, but has very, very, low prices, with unemployment rising to 8%; the Cariboo has lost jobs and people over the past year and that trend is expected to continue into 2018; and the North, including the North Coast and Northeast, will see weak employment growth at best in 2017 due to delays in LNG decisions. The northern unemployment rate is now the highest in B.C. at 10.6%.
Major Point: If there is an exodus from Metro Vancouver, it will likely be retirees and most will probably remain in balmy B.C., Many of these homeowners have experienced windfall equity on their homes, while prices remain low in prime retirement spots. The average detached house price in both Qualicum Beach and Osoyoos, for instance, are less than a third of that in Metro Vancouver yet both are less than a day trip to the big city.
Foreign Buyers Slowly Coming Back
Foreign buyers are inching their way back into the Metro Vancouver housing market after a wholesale retreat when a 15% foreign-buyer tax was introduced this summer. As of November, foreign buyers accounted for 7.7% of housing sales in Richmond (a total of 68 homes), compared to 24.7% before the tax started.
In post-tax August, sales had fallen to 1.9% and have been slowly coming back. Richmond is now seeing more foreign buyers than any other Metro municipality…but still nowhere near where they were last year at this time.
In Vancouver, 68 homes were sold to foreign nationals in November. The latest B.C. Finance Ministry stats show that in November foreign buyers were involved in 204 of Metro Vancouver’s 1,974 residential real estate deals. That works out to 4.1% of transactions, up slightly from 3 percent in October, 1.8% in September and 0.9% in August.
These are only the foreign nationals who got caught in the tax. There are likely more and their return is welcome news in Metro Vancouver’s troubled housing market.
Major Point: The foreign buyers never really left and may be stronger than most believe. What has changed is that there is a great use of proxies and trusts to disguise foreign ownership of homes in Metro Vancouver. As one top immigration lawyer told us: The 15% does not apply to permanent residents and any foreign national who sets up a company in B.C. as long as no more than 25% of the shares are owned / held offshore. It also does not apply to a trust “What is happening is an increase in the use of corporate vehicles (with beneficial ownership structures where shareholders are not publicly available) and trust arrangements (where the entire structure is obfuscated) for expensive home purchases,” she said.
Multifamily Landlords Face Pressure In 2017
We have been urging apartment building owners in Vancouver to bail out of the market because of record high prices for months now and we expect more will be looking to cash out now that the BC Assessment figures are in.
It shows that many apartment buildings have seen assessments soar by 60% even 70% from a year earlier. One West End apartment building saw a $10 million in value to more than $25 million and $4 million increases are not uncommon.
Each $1 million increase in assessed value equates to a $3,400 property tax increase, provided there is no change this year in the average mill rate across 13 Metro municipalities surveyed.
Rental apartment buildings are classified as Class 1 residential, the same as a detached house, but none qualify for the B.C. homeowner grant because they are not principal residences and all are priced over the maximum $1.6 million ceiling needed for grant, Multi-family apartment buildings have seen higher assessment increases than in the overall residential market, which also means most landlords will not see any relief in property taxes under a ratio being used in most municipalities to level out property taxes.
Which means that if your apartment building increased by $4 million in assessed value you could be facing a $12,000 property tax increase in 2017. But the residential tenancy act restricts rental increases to 2.9% this year, and there are fewer turnovers these days, which means you can’t depend on being able to raise rents when a suite vacates.
Major Point: Phil Gerstman, executive vice-president of Altus Group, which has provided appraisals on hundreds of Metro apartment buildings, said most of the 2017 assessment increase is due to rising land values, often based on an expectation of higher density development, not on rental income. “When assessments shoot up because of land values, you are basically forcing owners to redevelop the property,” Gerstram said. Or – of course – to sell and invest elsewhere, which we believe remains the smart option.
Where Down Payments Really Come From
The much reported – and hyped – down payment assistance from the B.C. government offers to match the down payment of first-time buyers to a maximum of $37,500 under an interest-free second mortgage for five years.
We believe the plan will be taken up by a lot of people, but it is not really needed and may put some buyers in a tough position. The overall home price in Metro Vancouver, for instance, has been tracking down by about 2% a month since September.
Major Point: How soon would a first-time buyer with only a 2.5% or 5% stake in their purchase hang on if the value of their home drops below the mortgage value? Also, under the government plan, some flexibility is taken away: the home cannot be rented for five years, or until the government is paid back, as one example.
In any case, the Mortgage Professionals of Canada recently looked at where first-time down payments come from. The study found that half of first-time buyers plan to put down 10% or less. Of all first-time buyers, 73% plan to save up their down payment themselves; 33% plan to borrow the down payment; the rest are relying on their parents or other family members to gift or loan them the money.
Housing Slump Slips B.C. Beneath Manitoba In GDP Growth
As we have noted in the past, the construction and sales of housing in B.C. is the biggest economic engine in the province. Metro Vancouver home sales alone were worth more in 2016 in real cash and tax income than the entire resource industry. So the government measures that have hammered the B.C. housing market this year are already biting into the provincial economy. NOTE: The latest RBC forecast puts B.C. GDP growth at 1.7% in 2017, the lowest level in six years and behind both Ontario and Manitoba.
NEW AGE WORDS I ‘HATE’
OK, ok, I said: “You are welcome to send me yours…” and you did. Several Subscribers took up the “oft repeated, but meaningless words we hate”:
“I thought I was the only one. I add these: ‘Back to the drawing board’, ‘thrown under the bus’, ‘par for the course’ – I could go on…”
“Ha-ha, while I do not disagree with your sentiment, but ‘slim-fit’ has to be a personal unique but likely apt dislike”. (Ozzie: Ok, ok, guilty – I admit it.)
“The words “incredible” and its synonym “unbelievable”. These words are routinely used to describe things that are ordinary and banal.” Thanks all for contributing…
So, we add these to our collection of ‘Slim–fit’, ‘literally’, ‘at the end of the day’ …
1. Kelowna, UBC student housing – presales from $179,900 for studios. Cash flow! As we have stated many times, you are welcome to send in your ‘best deal’. More info
There are no fees from us, nor any guarantees that your deal will be featured here or even is a good deal. It is up to you to study, evaluate and negotiate. Look up our disclaimer under the Hot Property section on your website. Interested parties – go to your website and get in contact directly with the owners/realtors or write to email@example.com
EYEBALL RAISERS – LITERALLY
Apparently, the new hackers can look at you through their own camera and film you!!! Mark Zuckerberg’s computers are covered half way from the top! So, covers your camera on your computer when not in use!!
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