Facts By Email

IN THIS WEEK’S FACTS BY EMAIL:

  • NO SUBJECT OFFERS – A SCOURGE
  • IRISH WAKE: WEE COUNTRY HAS 198,000 VACANT HOUSES
  • DOWNSIZING TO A HOUSE – RISING STRATA PRICES MAY MAKE IT POSSIBLE
  • MARKETS ARE HEATING UP – MULTIPLE OFFERS APPEAR AGAIN IN THE VALLEY
  • LARK IS MAKING SURREY STRATA COMMERCIAL SING
  • BC NDP WANT TO MAKE FOREIGN TAX RETROACTIVE TO WAY BACK
  • NORTH VAN CITY TO OK 3 HOMES ON ONE LOT
  • SMALL STRIPS BEST BET FOR RETAIL INVESTORS
  • CONDO MARKETS ARE RISING INTO SPRING – PRICES ARE MOVING UP

 

 • International •

Irish Wake: Wee Country Has 198,000 Vacant Houses

This being written on St. Patrick’s Day, so we took a look at Ireland’s housing market. It was enough to make us turn to an Irish whiskey. Or two. For, in the Irish wake of its spectacular housing crash a decade ago nearly 200,000 vacant houses still litter the wee country.

Looking at it in another way, there are 27 empty houses for every poor Irish person living in emergency shelters, according to a recent survey, which also gives a clue about the Irish economy.

The survey found that Ireland now has 198,358 homes empty, representing 13% of the total housing stock.

The number of vacant houses is based on preliminary figures from the 2016 Census and excludes holiday homes and derelict buildings.

The empty houses are found across the Republic: there are 31,293 vacant homes in Dublin, including nearly 8,000 detached houses, and another 21,287 in Cork. In little Limerick, there are 8,463 vacant housing units, according to the Irish government. But the highest rates of vacancy are found in Donegal, Leitrim, Mayo, Galway and Kerry. The lowest rates are around Dublin and Cork.

Properties owners have said the almost 200,000 empty houses are vacant for numerous reasons, including probate, investments gone sour and property being inherited through the death of relatives.

This year, the Irish government rolled out a “buy and renew” program and earmarked approximately CAN$45 million to buy vacant houses, fix them up and turn them into social housing units. But it is estimated the funds will only salvage about 800 homes. (When we last studied prices in Dublin in 2015, however, they were up 25% from 2009.)

Major Point: The vacant home mess is not just seen in Ireland. A 2015 survey found 11 million empty homes across Europe, most of them in Spain, France and Greece. We don’t know how many are still empty today, but it is safe to say it is still in the millions. In Vancouver, there are an estimated 15,000 homes vacant, but that is another story.

 

 • Canada •

Subject-free Offers? Don’t!

By Dustan Woodhouse

(Editor’s note: I personally have railed against subject-free offers for years, only to be told that in “this new age” you must do it or lose out. I just fear a ‘day of reckoning’. The article by Dustan below is one of the best pieces on the subject. Read it!)

Regulators have made several changes to the mortgage market each year since the 2008 financial crisis. While many of Ottawa’s changes have strengthened the overall foundation of the financial system (should any shocks to the system arise), the litany of rules appears to have done little to rein in the price increases in Greater Toronto and Greater Vancouver.

This is by design, they say. The federal government is less concerned about controlling prices (a good thing) in a few specific markets as they are about ensuring the overall stability of the national economy.

Housing Warfare 

We are now entering the third consecutive spring market with subject-free offers and bidding wars. It’s already taking place in the two hottest markets, and even in previously docile markets like Ottawa. It’s also happening in smaller communities as far as 100km away from Toronto and 30km from Vancouver. Clearly something needs to change to address these valuation spikes. And so, the question of the day, or perhaps the question of the year, is: Why do we continue to allow subject-free offers?

Self-Fuelling Phenomenon

Allowing buyers to write condition-free offers on an aging housing stock is risky on its own. But when people start using this as a tool to compete for homes, it allows them to buy into a pressurized situation and overpay ‘in the heat of the moment.’ That inflated price is then used to justify similar overnight jumps (sometimes 10% or more) in the surrounding area.

Last spring I personally watched units in one particular building increase 20% in the span of 30 days. People felt their offers simply had to match the previous high-water mark set by people who often over-bid. And then came the multiple sales, all triggered by one pressured buyer that bid far too high. These become ‘comparables’ and, in the case of an appraisal, wind up supporting each other.

Legislating a mandatory cooling off period can be done.

In new construction sales, a mandatory rescission period of seven days exists in most provinces.

In other words, the one property—a new build—that is least likely to have significant issues is the one property you cannot write an offer on without having sufficient time for due diligence (arranging an appraisal, inspection and satisfactory financing).

Regulators have done a wonderful job protecting consumers from unwittingly walking into a new project sales centre and entering into a binding contract without an opportunity for outside consultation.

On the flip side, one could argue that regulators have done an abysmal job of protecting consumers from entering into a binding contract on a 100-year-old home laden with asbestos/vermiculite, plumbed with lead or poly B piping and wired with knob-and-tube or aluminum. These are all potentially show-stopping red flags for mortgage financing.

We often trust and counsel consumers to make smart choices without the pressure of circumstance or cajoling salespeople. Yet, seemingly just as often, we implement regulations to save people from themselves, suggesting they don’t know any better. So, which is it?

The Double Standard

Apparently new property buyers are emotional train-wrecks that need protection from themselves via a rescission period. But buyers of used properties are calm, cool and collected market experts with finance degrees and construction experience? I think most buyers know which category they fall into, especially the first time around. So, why is there not equal protection for both groups of buyers?

Regulators need greater policy alignment here. The implementation of a mandatory rescission period for all real estate transactions, new or used, should be welcomed by all parties in the process. Even sellers who benefit from high-pressure bidding wars and unconditional offers should be open to it. They themselves almost instantly step into the losing side of the equation after they sell, when they try to purchase a property themselves.

The implementation of a mandatory rescission period for all real estate transactions would help defuse a meaningful amount of the frenzy, frenzy that is creating markets which economists increasingly deem unsustainable.

A CMP Top 75 Broker for five years running, Dustan Woodhouse of Dominion Lending Centres is author of the book: Be The Better Broker – Volume One. Dustan can be reached at dustan@ourmortgageexpert.com

 

 • British Columbia •

Downsizing To A House – Risng Strata Prices May Make It Possible

Traditionally, Metro Vancouver home buyers downsize to a condo, but the reverse may begin happening if the price increase gap keeps expanding between stratas and detached properties in some areas.

In Central Coquitlam, as an example, the average price of a condominium apartment has increased 12% in the past three months while the price of a detached house has fallen 6% in the same period.

A North Vancouver townhouse gained $50,000 in average value since December, while the average detached house price has fallen by $110,000. As one Royal LePage agent noted this week, this is opening an opportunity for some strata owners to leverage themselves to a detached house, though he noted most “downsizers:” are looking for houses at the lower end of the market “$1.5 million or less.”

Major Point: But it could be a trend if the gap keeps growing. See below.

 

The Market Is Warming/heating Up – But Not All Of It Is Participating

Sales of condominium and townhouses are improving and prices rising in some markets, while detached sales continue to lag. Reports ace Realtor Brent Roberts that some of the better condos in Surrey are smoking higher – some are up as much as $100,000 from last year! Top Realtor team Marc and Fion Jurock report that Richmond is seeing multiple offers on the condo and townhouse market. Fion sold a $743,000 townhouse in 5 days over list price. Ace Kelly Fry reports multiple offers in Maple Ridge … Most of the heat emanates from the condominium sector with single family home sales still lagging … and a lot of it (price increases) in the Fraser Valley.

Major Point: It is spring, we have had a lull … and the Lower Mainland world is still awash in cash … and it is looking for real estate. As an aside China reports that 72 of its Tier 1 and Tier 2 cities have seen substantial price increases in February … as did the major European cities … and of course Toronto and Seattle (our top picks for 2017) are literally aflame!

 

Lark Is Making Surrey Strata Commercial Sing

As we noted last week, the Lark Group is launching the second phase of its City Centre office development, aiming to create a “medical-technology” hub for Metro Vancouver. We knew about the scope of the concept but going there is really an eye opener. Suffice to say that Lark has sold out 60% of its second office building at an average of $500 per square foot: that is more than 100,000 square feet. At $500 a square foot!

Colliers, which is handling the sales, noted that some innovative ideas went into the strata project that some residential stratas may want to consider.

Parking is one of them. Lark sells parking stalls connected to the strata offices for $30,000 per slot, but that is not the story. Noting that its development is directly adjacent to the Surrey Memorial Hospital and a block from SkyTrain, Lark way overbuilt the amount of parking required to service even the eight office buildings it has planned on the site. The excess parking is being rented out to hospital and SkyTrain visitors and the money is being used to pay the strata fees for the office owners.

Brilliant!

Major Point: The pre-sales that my real estate company undertook here last spring (construction finished in 2018) are already expected to be up 25% … so, also brilliant is the idea of buying an investment condo in the City Centre zone. Within a few years there will be literally hundreds of high-paid executives and scores of young start-ups working in the City Centre complex (in fact a lot are already there). We see Surrey City Centre as a top (low price) condo/rental investment, not only in Metro Vancouver but perhaps in Canada.

 

I Am Not A Political Animal … But Note: BC NDP Want To Make Foreign Tax Retroactive

According to the BC NDP official housing critic, if the NDP win the May 9 provincial election, the government will bring in a new retroactive tax on foreign-home buyers that would tax any real estate bought at any time in B.C. that is owned by a foreign national who does not pay income taxes in Canada.

David Eby said the 2% tax of assessed value would be used to fund social housing – part of the election platform. The tax is called the Housing Affordability Fund and Speculator Fee Act.

Eby said an NDP government would also restrict the sale of B.C. homes through trusts or offshore companies. Currently, the foreign-buyer tax does not apply to any foreign national who sets up a company in B.C. as long as no more than 25% of the shares are owned offshore. The tax also does not apply to a trust.

Eby said the NDP would require that the actual owners of the property be disclosed and “whenever the beneficial benefit is transferred, through selling shares in the company, or any manner, the property transfer tax would have to be paid.”

As you know, we at JREI find retroactive taxes creepy because there is no way to plan for them or protect yourself.  So, we asked an expert how such a retroactive tax plan could play out.

This is therefore the advice of Christine Duhaime a Vancouver lawyer considered among the tops in the field in money laundering and offshore real estate speculation:

“Generally speaking, legislation that has retroactive application is rarely enacted or upheld because it is perceived as being unjust in the eyes of the public, and particularly if there is any part of a law that involves criminal prosecution, it cannot be retroactive,” Duhaime explained.

“I am of the view that we don’t need any more laws on the issue of beneficial ownership. What we need is simply that companies understand federal law and comply with it. Existing law has all the teeth we need. For example, if realtors, banks, insurance companies, purchasers and sellers of real estate, commercial or residential, complied with anti-money laundering legislation, beneficial ownership would be disclosed and the issue would solve itself. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act already requires that when on-boarding clients (including trusts, companies and persons), realtors, banks and insurance companies must identify and verify the identity of their clients and that means verifying whether there are beneficial owners involved in a client or conducting a financial transaction (such as buying real estate). If everyone did their job properly and followed the requirements of the Proceeds of Crime legislation, every bank, every realtor and every insurance company would have a full picture of beneficial ownership involved in all real estate transactions.

In Vancouver today, however, we have a massive problem of a lack of comprehension on the requirements of the Proceeds of Crime legislation and that trickles down into all financial sectors and unfortunately earns Vancouver the reputation as being a safe haven for money laundering. With an investment in education, we could turn this around. It’s actually a simply, inexpensive fix.”

The NDP, which is leading in the polls (yes!) prior to the election writ being dropped April 11, also wants to add a foreign buyer tax and speculator tax to the sales of pre-sale contracts on new homes, such as condominiums. Eby said the government would require that all assignment sales be registered with the government and the tax would kick in if an assignment is sold, not when the building is finished and the title is transferred.

Major Point: The current B.C. government started this slippery slope of taxing investors so the NDP can’t be blamed for running with it. But it appears that, regardless of who wins the election, B.C. real estate investors will be paying more. Guard yourself.

 

North Van City To Ok Three Homes On One Lot

The City of North Vancouver is apparently poised to change its zoning to allow house owners to have both a secondary suite and a laneway house, in addition to their own home, on a single detached lot. City councilors voted unanimously last Monday to send the plan to public hearings.

Currently, NV City house owners can have a rental suite or a laneway house, but not both.

The city’s bylaws require one parking spot for each additional unit. But city staff is recommending two parking spots on lots with three dwellings. (Vancouver requires one stall per three secondary suites.)

Major Point: The new bylaw means the homeowners would not be permitted to stratify the buildings or to sell them separately.

The city’s current rules only allow a secondary suite if the homeowner resides in the principal dwelling. However, the new bylaw would allow the property owner to have their pick of the three homes.

 

Small Strips The Best Bet For Retail Investors

Some residential investors are wisely looking at the commercial sector, especially in B.C. where retail and industrial vacancies are low and the office sector, which now has increased strata opportunities.

But retail is perhaps the most flexible route for small investors, according to ace property manager Richard Crenian, founder and president of ReDev Properties, which manages commercial property across Western Canada.

Crenian says small to mid-size investors really have two options; community malls and strip malls, also known as neighbourhood malls. However, community malls are losing significant ground in the retail landscape and are struggling to keep up, he noted.

Analysts still believe there is a market for Tier 2 malls if there is a commitment to redesign or if the property is being sold for other purposes. But unless it has development opportunity, the lease income may not be enough to keep it above water.

Small retail areas anchored in well-established residential areas, however, with mature communities make up what is known as neighbourhood retail. Here, you often find local food stores, coffee shops and hair salons.

And that’s exactly why, this type of retail tends to perform better than others in the long term – it’s based on services and products consumers will still purchase even when there is economic downturn.

“For family trusts and other investors, neighbourhood retail is an effective way to diversify an investment portfolio. The returns are good and the risks are relatively low,” he said.

Last year, the national retail vacancy rate was about 4.8%. In comparison, neighbourhood strip malls were averaging about 2.6% vacancy rates. Similarly, overall sales tend to stay steady during economic bumps, catering to the local neighbourhood needs. The more mature the neighbourhood, the more likely there will be low vacancy rates and increasing growth, Crenian adds.

Major Point: And for foreigners? No tax.

 

HOT PROPERTY

Last week we reported on Pt. Roberts and posted the website of a local real estate firm. Here are a few more properties at http://www.discoverpointroberts.com/?p=4
1. 1/3-acre lot $49,000,
2. Cottage: $185,00;
3. Mansion 4,100 sq. Feet. Price: $1,460,000.

(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 max@jurock.com)

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