!!!WORLD OUTLOOK CONFERENCE IS THIS FRIDAY AND SATURDAY!!!
2017 WORLD OUTLOOK FINANCIAL CONFERENCE
FRIDAY & SATURDAY, February 3 & 4, 2017
THE WESTIN BAYSHORE, VANCOUVER, BC.
Totally concerned with how to make and not lose money in your investments.
IN THIS WEEK’S FACTS BY EMAIL:
- GONG XI FA CAI (“WISHING YOU ENLARGE YOUR WEALTH.”)
- RENTING AN INVESTMENT CONDO: CRUNCHING THE VANCOUVER NUMBERS
- ASSIGNMENT CONDOS BACK ON BURNER IN VANCOUVER
- EDMONTON SURPRISES TO THE UPSIDE
- CALGARY: WIDE, WIDE OPEN SPACES – Ranch-size space of empty offices, rental apartments
- WINNIPEG: $90,000 A DOOR AND 3.7% VACANCY RATE
- SOME SENIORS ARE SIMPLY BETTER OFF RENTING
- SMALL MALL OWNERS – SELL
- FOREIGN TAX CHANGE
‘Breaking News’ (Another 2 Words I Dislike):
CHRISTY CLARK CHANGES FOREIGN BUYER TAX! The Liberals are lifting the foreign buyers’ tax on people with work permits (more when available on the Hotline).
CMHC Gives ‘Red Warning’ For Canada Housing And Specifically Victoria
CMHC said Thursday that it is maintaining its “red warning” for the country’s real estate market as a whole, with high prices in and around Vancouver and Toronto among its top concerns. The worst now? Victoria! The overall assessment for the Victoria region is that “Evidence of problematic conditions has increased in Victoria since the previous assessment.” CMHC issued its first national warning in October, cautioning that with many suburbs near Vancouver and Toronto already seeing prices spike, pressure is spreading even farther out as some buyers search for homes in bedroom communities such as Abbotsford (70 km east of Vancouver) and Barrie (90 km north of Toronto).
Major Point: According to the “C”: “Home prices in the metropolitan areas of Vancouver, Victoria, Toronto and Hamilton are beyond what migration, employment and income can support. There seems to be a fanning out of those price pressures…” Indeed. We reported on the hot Victoria market a week ago and forecast the Victoria as a buy last year and this.
Q.: Hard to imagine being watched through the camera on my computer! You sure?
A: It isn’t just the webcams that can be hacked to watch you. So can your SMART TV. I am no expert but read this on NORTON is worth reading: https://ca.norton.com/yoursecurityresource/detail.jsp?aid=webcam_hacking
Q: I have a small mall in a BC town. Business is relatively steady, but I’m worried that with one day shopping at Amazon, my tenants will go out of business…and then, so will I. I will not hold you to it, but your thoughts?
A: This is not advice, but I would be a seller. You are reading the future right. You have a better chance of survival in a small town, as often the smaller places ‘preserve traditions longer’. But they will change. The new world will not pass them by. Cash out while you can. According to the Wall Street Journal (I did not find the article), “…mall landlords are increasingly walking away from struggling properties, leaving creditors in the lurch and posing a threat to the value of surrounding real estate.”
GONG XI FA CAI (“Wishing You Enlarge Your Wealth”)
This weekend marked the Chinese New Year in the Year of the Rooster and, according to the largest China real estate portal listing foreign property, it could be a year to crow about.
Juwai.com CEO Charles Petter told us this week: “Ctrip, which is China’s largest online travel agency, reports there are more outbound travelers than ever this Chinese New Year. The total will surpass last year’s six million outbound trips during the holiday.”
Noting that Chinese are the third-biggest tourists in Canada and the largest tourist spenders in the world, Petter said, “We also see Vancouver getting a steady stream of Chinese visitors seeking a “lung cleansing’ holiday”. Canada is a top-five country for these trips. One-half billion Chinese were affected by hazardous smog this winter. They come to Vancouver for clean air, among other things.”
One of those things would likely be real estate.
An exclusive Juwai.com survey of Chinese consumers using their site found that:
- 26% of Chinese consumers plan to travel internationally during Chinese New Year 2017, and almost half (42%) say they will engage in property hunting during their trip.
- 57% plan to purchase property in the countries to which they are traveling. Another 26% say they may consider doing so.
- 58% are considering immigrating to the country to which they‘re traveling, and another 16% say they may consider doing so.
- More than 41% of Chinese who intend to purchase property in the countries to which they‘re traveling plan to meet with real estate agents over their Chinese New Year travel.
- When it comes to real estate agents, 43% say they will meet with real estate agents with whom they spoke before their trip, while 32% say they will meet with real estate agents with whom they haven’t yet spoken.
Major Point: According to Juwai.com, 16% of the Canadian real estate agents surveyed said Chinese buyers who plan to visit Canada during the Chinese New Year have contacted them. We don’t think they are all coming for the clean air. Where and what they will buy, will become apparent later.
Renting An Investment Condo: Crunching The Vancouver Numbers
As rents rise in Metro Vancouver, the possibility of buying and renting out an investment condo is starting to make a weird kind of sense, despite the high condominium prices.
Pick the right area and the right project and you could be looking forward to a steady, passive income stream for years. And, judging by demand, you could pocket a healthy equity lift when you finally sell it.
The current vacancy rates in Metro Vancouver show that investing in bachelor units can pay off as well as larger condos, while the entry price is much lower. We suggest that you only buy concrete condominiums: they are more likely to be built by a reputable builder, they are more likely to be close to transit and or in other high-demand neighbourhoods; and they should have a longer life and lower maintenance than wood-frame low-rise buildings. They are also slightly easier to finance and today’s super-low mortgage rates are a further bonus. (Best 5 year rate is still only 2.6%.)
According to a study of concrete condo rentals released last week by MLA Advisory (part of the Mac Marketing system merger), the average rent for a new bachelor suite in a concrete condo tower is $1,013 per month, while a one-bedroom is $1,153. The current condo rental vacancy rate for each is the same 0.7%. Two-bedrooms also have a 0.7% vacancy, and generate an average of $1,450 per month but they are priced at a premium. As well, Metro Vancouver demographics show that bachelor and one-bedroom units have a much wider rental pool than two-bedroom units.
The average per-square-foot rent varies by area, of course. According to MLA, it ranges from $2.18 in Coquitlam; $2.23 in New Westminster, $2.60-$2.71 in Burnaby (Brentwood and Metrotown, respectively); to a high of $3.40 per square foot in Yaletown and $3.35 psf in the Cambie Corridor.
You will have to put 20% down on any purchase, and 25% down is recommended.
While the MCA survey looked only at newly built concrete condos, we suggest that even older concrete condos in the same neighbourhoods would attract similar rents and vacancy rates.
Here is an example: (MLS: Number: R2125332) $265,000. 1-bedroom, 778 square feet, New Westminster high-rise close to Sky Train. Put down 25% and the mortgage payment ($904 based on 2.64% five-year rate from Meridian Alliance) and strata fees ($253) combined total $1,157 per month. Rent would be in the $1,450 per month range.
The average condominium apartment price in New Westminster has increased 39% in the past five years.
Another example: MLS R2133477: $299,000. Junior one-bedroom, 425 sf, in Vancouver near the Joyce Street Sky Train station. Bosa built in 2006. At 25% down and 2.64% five-year financing, the monthly payments, with strata fees, are $1,220. Rents are $1500-$1600 (based on actual rents in the building).
The average condominium price East Vancouver has increased 46.4% in the past five years.
Major Point: We use these condos as examples only; we have no interest in them and are not recommending them. That said, there are many examples of quality Metro Vancouver concrete condos that investors can find positive cash flow and an excellent potential for appreciation on a five-year hold.
Assignment Condos Back On The Burner In Vancouver
Two years ago when many of the current crop of concrete condos were being planned in Vancouver, the average hard construction costs penciled out to $170 to $180 per square foot. The average land cost for a Vancouver development site was in the $200-$300 per square foot range. Today, as these units near completion – some in 2018 – the current construction costs, according to Altus Group are $290 per square foot, and the price of development land has increased more than 200% since 2015. It is not rare for prime land with high-density potential to top $700 per buildable square foot.
All this has put assignment sales of under-construction condos back on the front burner for the first time in seven years.
Nearly 90% of the 8,955 new concrete condos started in Greater Vancouver in 2016 pre-sold, according to a study by MLA Canada released at a Vancouver real estate conference last week. The current inventory of newly completed and unsold units is likely less than 75 units, the lowest level in five years.
Some investors see an opportunity to cash in on the uplift, since the pre-sold condos under construction are already priced above replacement value.
At Strathcona Village, now under construction on East Hastings Street, one-bedroom condos originally sold two years ago for $450-$495 per square foot. Now the condos are being advertised as assignments on Craigslist for $770-$787 per square foot. Strathcona Village will open in 2018.
The Independent project at Kingsway and East Broadway Avenue that sold out in 2015 at an average price of $672 per square foot has assignments being offered at $900 per square foot. The Independent completes this fall.
A number of the Craigslist listings are from Rennie Associates. These include one that may be a deal: a 479-square-foot 1 bedroom in the sold-out uber-trendy 59-storey Vancouver House at the downtown end of the Granville Street bridge. This assignment is listed at $689,900, just $5,000 more than the same-size unit pre-sold for in May 2015. (Note: an estimated one-third of Vancouver House pre-sale purchasers were foreign buyers.)
Assignment sales of new pre-sale condos are exempt from B.C. anti-flipping legislation, enacted in May 16, 2016. (Other residential sales contracts can’t be assigned without the written consent of the seller and any profit from an assignment must go to the initial seller.) Also, under B.C.’s foreign-buyer tax rules, the buyer of a property must list his or her citizenship.
In going through the Craigslist assignment sales this week, we found that some of the best known pre-sold-out towers in Vancouver have assignments for sale and there are units being offered from downtown Vancouver to Central Surrey. (Some are for sale to make money, others are for sale by buyers that worry about the market and want to get out.)
Edmonton Real Estate Surprises To The Upside
Those expecting the Edmonton commercial real estate market to crater from the quake of lower oil prices are in for a surprise, according to realtors in the Alberta capital.
In 2016, for instance, 302 commercial properties sold, up from 294 in 2015, and the total dollar volume increased from $1.35 billion to $1.84 billion last year, reports Barclay Street Real Estate, based on property sales of at least $1 million. “We have seen strong overall demand and spending, particularly in retail properties,” said Barclay president David Wallach.
One surprise is the multi-family rental sector. The total dollar volume in 2016 for sales was $483.7 million: this is not only up from $289.1 million in 2015 but it is far above peak-oil 2013, when sales totaled $297 million.
The average price per door of rental apartments in 2016 was $134,309, down from 5% from 2015, but higher than three years earlier, when it was $118,200. Interesting to note is that eight big-ticket buildings priced at $25 million more sold last year, showing some institutional buyers may be at work. However, 57% of the sales were for buildings priced at from $1 million to $3 million. The apartment rental vacancy rate in Edmonton is now 7%, according to Canada Mortgage and Housing Corp.
Major Point: There is one sign of caution, though. Sales of land for development dropped to 87 transactions last year, down from 104 in 2015 and the lowest level in at least four years. The average land sale in 2016 was just 5 acres, about a quarter the size of previous years. This is a signal that investors are looking for current income-producing properties, not counting on a quick uptick in the Edmonton real estate market.
Calgary: Wide Open Spaces
Ranch-size space of empty offices, rental apartments
The Calgary carnage continues, the result of overbuilding during the boom years and resultant glut today. It is mostly apparent in the office sector, where a ranch-size 225 acres of mostly new office space is empty – about 27% of all the space – in the downtown alone.
The residential rental market is not much better, according to a study that looked at smaller rental properties with three or less units.
“We are able to conclude that 2998 (or 37%) of Calgary’s available rental listings are empty, and these homes show an average rental rate of $1477, therefore private Calgary landlords are losing $4,431,044 per month or $147,700 per day – based on the current economic climate and rental market,” states the remarkable study released last week by Shamon Kureshi, president & CEO of Hope Street Real Estate Corporation, a major Alberta landlord. Kureshi said they used Hope’s own inventory and other sources tracked over a 90-day period.
“Times are hard for every single landlord with whom I’ve spoken in the past 8-12 months. Empty rental properties abound and no obvious solution to the province’s empty rental property phenomenon exists.” However, Kureshi went on to say, “Alberta has a decidedly ebb and flow type of economy which has faced several shocks in the past decade and this current climate is no different. These shocks rarely last for more than a year or two.”
The story is similar for larger projects: Calgary now has 1,500 newly built and empty condos and townhouses, the biggest glut since June 2001, according to Canada Mortgage and Housing Corp.
Many of the new condo projects are reverting to rentals, CMHC said. The theory is that developers would have to sell condos at a loss now, or they could build rental apartments and take a loss on rents, but only until the economy recovers. “If you build a [condo] tower and you have to rent it out for two years at 15%-20% below market value, you eat it for those two years, and in the next 20 years, you make it all up again,” Calgary condo marketer Calvin Buss of Buss Marketing explained.
CMHC notes that permits for new condo projects are tailing off and expects inventory levels will move lower in 2017.
Major Point: Right now, there are deals to be had in Calgary’s new condo market. Make your lowball offers.
Winnipeg: $90,000 A Door And 2.9% Vacancy Rate
A B.C. apartment investor has to drive a long way east to find a more welcoming market, all the way to Winnipeg in fact. The current rental vacancy rate in Manitoba’s capital and only big city is 2.9% down from 3.4% a year ago and the average apartment building is selling for $90,000 per door, according to recent surveys. (Local landlords, however, say the vacancy rate outside of the downtown is in the 3.7% range.)
The reason for the lowest vacancy rate on the Prairies: high in-migration, with a 27% spike in international migration in the second quarter of last year, Manitoba had a net population gain of 8,455 people during the first half of 2016, with most newcomers settling in Winnipeg.
The average monthly rental rate for a two-bedroom apartment in Winnipeg was $1,068 in October 2016. That compared to $1,045 a year earlier.
Major Point: At the low-per-door cost, Winnipeg apartments could be cash generators.
Some Seniors Are Simply Better Off Renting – And Purpose-built Rentals Are Where They Should Move Into
There are now 9,400 purpose-built rental units proposed, approved or under construction in Metro Vancouver and we have some advice for all those seniors downsizing: rent one of these units, rather than buying another home.
I know, this goes against the grain of most thinking that it is always better to buy than rent, but for older people renting can be smarter option.
We also believe that the increase in older renters will mean more purpose-built rentals will adopt the U.S.-style of development, with amenity-rich and condo-style buildings to capture older tenants who tend to stay put and can afford higher rents.
There are a number of reasons for those over say age 68 to be renters than buyers. First, they don’t have the time to come back if home prices fall. After the crash of 1981, the average house price in Vancouver dropped 39% in two years and it took seven years for prices to come back to their 1981 level.
Renting also gives more flexibility if a senior has to move for health reasons. Unless the housing market is white-hot, it can take months for a home to sell. Further, instead of tying up $200,000-$300,000 or more for a down payment on a typical Vancouver home, that money could be used to enjoy the golden years.
Major Point: We hesitate to ever suggest that buying real estate is not a good thing (for the majority it has been the best investment ever) but for downsizing seniors, high-quality rentals can provide a richer, more carefree life.
1. Surrey, 2 bedroom condo – older building, price $147,000;
2. Surrey, Guildford strata duplex with 2 suites (4 plex). Price: $1.1 million.
As we have stated many times, you are welcome to send in your ‘best deal’. 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
“The best opportunities are often ones where you’re being contrarian. That doesn’t mean being contrarian for contrarian’s sake, but it means you’re thoughtful about the risks of following the crowd.” — David Sze
THE NEW JANUARY NUMBERS will be out this coming Wednesday/Thursday. We will have a separate Insider Newsletter out when boards publish.
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