Facts By Email

IN THIS WEEK’S FACTS BY EMAIL:

  • QUESTIONS, QUESTIONS
  • THE NUMBERS, THE NUMBERS – VANCOUVER
  • FREAKONOMICS: “VANCOUVER HAS A PRETTY GOOD PROBLEM”
  • RED Talk speakers puts housing “crisis” in proportion
  • VANCOUVER RENTS “REASONABLE” ON GLOBAL SCALE
  • METRO LAND SALES POINT TO HIGHER CONDO, RENTAL PRICES
  • FOREIGN-BUYER TAX IMPACT EXPECTED TO WANE
  • FIRST-TIME AID MAY JUST PULL BUYERS FORWARD
  • SURREY CENTRE STRATA OFFICES QUIETLY AVAILABLE TO INVESTORS
  • BC LANDLORDS WARNED ABOUT GROW-OP SURGE
  • SASKATCHEWAN LANDLORDS FEAR TENANT DEFAULTS

Questions, Questions

Q: I do not understand why REITS should rise in value if interest rates fall and lose value when they rise?

A: A rise in interest rates has a twofold impact on REITs. First, it leads to a rise in borrowing costs, which impacts their profitability and ability to make acquisitions. Second, a rise in interest rates makes REITs less attractive investments because REITs have been viewed as dividend-yielding investments. Also, REITs stagger their amortization periods at 20% of their debt per annum. Thus, when they renew the 20% and rates are up, costs rise … when rates are down, costs fall.

Freakonomics: “Vancouver Has A Pretty Good Problem”

RED Talk speakers puts housing “crisis” in proportion.

Steven Levitt, author and partner in Freakonomics told a RED (Real Estate Development) Talk in Vancouver March 30 that the city should chill out on its housing “crisis” and that the simple solution likely lies in cutting regulations and increasing supply.

“A beautiful city that lots of people want to move to and high housing prices is a pretty good problem to have,” said Levitt, who hails from Chicago, where, he said, the current crisis was the highest murder rate in the United States.

Levitt said Vancouver’s housing problem could be solved by adding more supply, which he said would be helped by lowering the regulatory costs of building new homes.

This is the kind of common sense that Freakonomics is known for, and which remains in short supply in Vancouver and B.C., where housing starts are actually falling despite high levels of immigration and white-hot demand from both buyers and renters. (Across B.C. housing starts through the first two months of this year are down 51% from the same period in 2016, to 1,585.)

On May 1, for instance, the City of Vancouver rolls out a new “zero-emission” green rezoning bylaw that the Urban Development Institute estimated will add at least $10,000 to the cost of a new high rise condominium, and increase the already lengthy delays in achieving zoning and development approvals. According to the UDI Pacific Region, it now takes from four to seven years for a Vancouver residential rezoning application to move from application to construction.

The lack of supply was also the refrain of RED talks speaker Sonja Trauss, who founded the 25,000-member San Francisco Bay Area Renters Federation. Like in high-priced San Francisco, Trausss said Vancouver’s mandatory public hearing process on new higher-density residential “is broken.”

The people who live near a proposed new development are the last people who should be asked if they want higher density,” Trauss said, “you are guaranteed to get a ‘no’.”

Instead, Trauss tries to pack such meetings with those who will benefit from more housing: young people from other neighbourhoods who will actually buy or rent the new homes.

 

Numbers, Numbers – Vancouver

(Early numbers- subject to change. Fraser Valley did not yet report.) 

VANCOUVER Mar. 2017 Mar. 2016 %
Total Sales 3,597 5,194 -31%
Avg Price 994,800 1,104,500 -10%
Active Listings 7,882 8,483 -07%
Sales
SF – new 71 110 -31%
SF – used 1,090 2,043 -47%
Condo new 215 288 -26%
Condo used 1,650 1,967 -17%

Major Point: Note, that the pattern continues: SF sales down a lot, condo sales down … but listings are also down. Remember though that last March/ April sales were at all-time highs. Likely, we are getting back to more normal conditions. Interestingly, we are getting reports from Realtors in the Fraser Valley (hot condo market), but also slowing sales and rising listing inventories (Ladner). The fog will lift this month. Get a good Realtor and make sure you understand YOUR local market. You are not buying the Vancouver market, but a specific property in a specific sub-market. Study the numbers there, before you decide. Look below, some markets have sharply rising listing inventories in single family homes, others a very steep decline in condo inventories.

TSAWWASSEN Mar. 2017 Mar. 2016 %
Total Sales 56 69 -19%
Avg Price 1,141,600 1,115,000 +02%
Active Listings 162 142 +14%
SF
Sales 40 49 -19%
Avg. Price 1,341,500 1,399,900 -04%
Active Listings 128 127 +01%
NORTH DELTA
Total Sales 59 97 -39%
Prices 871,600 88,700 -02%
Active Listings 128 113 +13%
LADNER
Total Sales 39 54 -39%
Prices 1,080,700 1,069,400 +01%
Active Listings 134 93 +44%
LADNER – SF
Total Sales 26 42 -38%
Prices 1,323,900 1,256,900 +05%
Active Listings 112 72 +56%

Vancouver Rents “Reasonable” On Global Scale

Rents in Vancouver, which are considered high, are really quite “reasonable” compared to 30 other global cities claiming to be business and financial centres, according to an international survey.

The RENTCafé survey found that Vancouver’s average rent for a one-bedroom apartment at US$1,400 (about $1,900 Canadian) placed it near the bottom of the list: No. 24. San Francisco, with an average rent of US$3,360 was No. 2 and New York led the list, ranked No. 1 with an average rent of US$3,680. Toronto was behind Vancouver, ranked No. 26 with average rents of US$1,200 per month.

NOTE: The source for rent data on the Canadian markets was Point2Point Homes, a RENTCafé sister company.

Metro Land Sales Point To Higher Condo, Rental Prices

If you think future condominium prices or rents may come down in Vancouver, better think again. If current prices being paid for residential development land – and rental apartment buildings with any kind of development opportunity – are any indication, new condos will become much more expensive just to cover developer costs. Ditto for rentals, which some developers are aiming to build.

Avison Young broke down the prices paid for residential land as of the end of 2016 (for projects that will be starting over the next 2-3 years). The five biggest deals are:

$440 million for 13.6 acres on West 41st Avenue, Vancouver; $84.5 million for 0.48 of an acre in the West End; $56.2 million for 0.86 of an acre on West Broadway; $55 million for 0.4-acre site in the West End; and $50 million for a 14.5-acre land assembly along 167 Street and 162A Street in Surrey.

As for multi-family sites over $5 million, investors paid from $407,000 to $678,000 per door for old Vancouver rental building last year, Avison Young reports. Incidentally, all of the biggest multi-family buyers were “private investors”, not REITs or institutional investors.

Major Point: Markets top when developers pay too much for the land!

First-time Aid May Just Pull Buyers Forward

As we reported last week, the B.C.’s government incentive for first-time buyers (five-year, no-interest loans to match the buyer’s downpayment) is popular, with nearly 1,000 buyers applying for it in the first two months. Most of the buyers are putting down 5% when matched with the government funds.

But the incentive is likely simply pulling buyers forward, according to studies of what happened in other regions where such plans have rolled out recently.

In Australia, the Australia’s First Home Owner Grant offered a cash payment subsidy that was given to first-time buyers as a direct incentive. Subsequent studies found there was a “vacuum effect” that pulled demand forward and resulted in many buyers purchasing earlier than they would have. Demand dropped from the longer-run average in subsequent periods, “reaffirming first time homebuyers entering the market that would have likely entered at a later stage anyway,” a University of Western Sydney study of the program concluded. Research shows no conclusive evidence that the Australian program significantly inflated home prices, but resulted in higher sales in lower-value suburbs.

Major Point: Similar findings were seen in a study of a 2009 U.S. subsidy for first-time buyers and a more cent U.K. incentive that provided a low-cost equity loan of up to 20%, interest-free.

Foreign-Buyer Tax Impact Expected To Wane

The 15% foreign buyers tax implemented in B.C. in August clearly impacted the Metro Vancouver market, with sales plunging and average prices dipping. However, part of the decline in average prices and the number of homes traded is the result of domestic buyers’ and sellers’ expectations of a huge drop in values as a result of the tax.

Don’t misconstrue the impact of the tax with buyers’ and sellers’ opinions of the future impact of the tax. The biggest impact has been on single-detached housing in Vancouver, with 18 of the 22 sub-areas within the Real Estate Board of Greater Vancouver (REBGV) declining over the last three months of 2016. However, just eight of the 22 sub-areas have experienced a decline since October for apartments. So, the tax made houses slightly less expensive for rich people and did very little for affordability in the marketplace.

Major Points: CIBC economist Ben Tal says that when the fog clears, the foreign buyers tax will have less impact than people think it will. “It will be worthwhile revisiting prices in Vancouver in six months—that will be a much better test of its impact once the “shock and awe” of the surprise tax wears off,” he said.

Scotiabank’s Adrienne Warren writes, Evidence from other jurisdictions that have imposed new taxes or other measures to stem foreign purchases, including Australia, New Zealand, and the U.K., have not experienced a notable sustained falloff in demand or prices.”

Surrey Centre Strata Offices Quietly Available To Investors

It is supposed to be hush-hush, but investors are allowed to buy strata office space in the Health and Technology Hub mega-development in Surrey’s City Centre. Larry Fisher, president of Lark Group, confirmed this week that investors can pre-buy units in the new project, where office strata space is selling for north of $500 per square foot.  “We don’t advertise it, but investors can buy,” Fisher said.

The project sold out the first of eight towers and nearly 70% of the second tower is sold, though it only just started construction. When complete, the entire project will span more than one million square feet right next to the Surrey Memorial Hospital.

Major Point: An option for North Surrey investors is pre-sale condominiums, which can be rented out in a SkyTrain-served area that is seeing explosive job growth. Some pre-sale condos in the City Centre area are selling for less than $300,000, which can be less expensive than buying strata office space. If you like to get on a pre-sale condo list from my own real estate company (Worldwide Referrals Realty Inc), send me an email. We will notify you as soon as we have a new deal.

BC Landlords Warned About Grow-op Surge

Canada is to legalize marijuana use as early as next summer and B.C. landlords are being warned about the potential consequences.

Some are considering rental agreements with restrictions on growing and smoking pot to weed out potential fire hazards, odours and liability issues. David Hutniak, CEO of Landlord BC, said “if it’s legalized for everybody — and the federal government appears to be suggesting is that everybody can have their own little grow-op — that’s a different game. And that’s the one we’re more concerned about.”

The association’s tenancy agreements will eventually have specific language regarding marijuana use, Hutniak said, which could have restrictions similar to those for smoking tobacco or having pets.

Someone with a license to grow medical cannabis could still face eviction if their activity affects the landlord’s ability to insure the property, if they undertake major modifications to the rental unit or their conduct infringes on other tenants, he said.

Major Point: STRATAS NOTE: Any grow-operation larger than a few plants could affect insurance coverage, according to the Insurance Bureau of Canada. Growing marijuana can involve moisture and high humidity that causes structural damage and modifications to electrical wiring can pose a fire hazard, the Insurance Bureau warns.

The Canadian Federation of Apartment Associations has written to Health Canada, the Department of Public Safety and the Attorney General of Canada to express its opposition to marijuana growing in rental units.

Hong Kong Shows Smaller Doesn’t Mean Cheaper

Developers in Hong Kong have built more micro-apartments – 215 square feet or smaller – in the past four years than any other sized homes, according to official figures, and the trend is likely to continue.

The number of condo apartments under 215 sq. ft. catapulted from 81 in 2013 to 206 last year, per the HK Rating and Valuation Department – an increase of 154%. No units of that size were built in 2012.

But small space does not necessarily mean small prices.

A 430-sq. ft. apartment in Kowloon that sold for HK$2.9 million in 2012, now costs HK$4.8 million (CAN$822,100), according to the Rating and Valuation Department.

A 215-sq. ft. Kowloon apartment can sell for upwards of CAN $412,000.

Major point: Rental apartments of this size have been built for student housing at the University of B.C. As a comparison, the minimum size of a standard parking stall in Vancouver is 148 sq. ft.

Saskatchewan Commercial Landlords Fear Tenant Defaults

Saskatchewan is feeling the effects of the downturn in oil prices and, despite a recent rally in oil prices, many commercial landlords fear tenant defaults, according to a Colliers survey released this week.

The survey found only 10% of Saskatchewan investors are optimistic for a recovery this year and 57% were “somewhat confident.”

The survey also found that 67% of commercial landlords expect tenant defaults this year.

The amount of empty space in Saskatoon’s once-mighty industrial market has risen above 10%, and a growing number of users are trying to sell, local agents say.

Major Point: “We’re starting to see some industrial buildings suited to owner users. It’s a great opportunity to get into the market,” said Alvaro Campos, of ICR Commercial in Saskatoon. Agreed.

Rental Stock Construction Surprises

David Goodman (david@goodmanreport.com), Ace multifamily broker, says that “… something has been stirring out there of late. All those construction cranes littering the horizon are not just for condo projects. They’re also for new purpose-built rental buildings: great news for renters and employers. In fact, some 11,784 market rental units, making up 105 buildings (no, not a misprint) are under construction, approved or proposed throughout Metro Vancouver. In Vancouver itself, it’s anticipated that 6663 rental units will be added over the next 3 years to the current inventory of 57,018 suites, an 11.7% increase. In the suburbs of Metro Vancouver, 5121 rental suites will be added to the current rental pool of 50,849 suites, a 10.1% increase.”

Adds Goodman: “While the additional suites will take years to have a measurable impact on vacancy rates, they’ll certainly contribute to the social and economic fabric of our communities.” Indeed!

RECOMMENDED READING

I read it 2 years ago. It has become almost a cult.

Freakonomics is a ground-breaking collaboration between Levitt and Stephen J. Dubner, an award-winning author and journalist. They usually begin with a mountain of data and a simple, unasked question. Some of these questions concern life-and-death issues; others have an admittedly freakish quality. Thus, the new field of study contained in this book: Freakonomics.

Through forceful storytelling and wry insight, Levitt and Dubner show that economics is, at root, the study of incentives—how people get what they want, or need, especially when other people want or need the same thing. In Freakonomics, they explore the hidden side of … well, everything. The inner workings of a crack gang. The truth about real-estate agents. The myths of campaign finance. The telltale marks of a cheating schoolteacher.

HOT PROPERTY

Mission: 2 suites, 5 bedrooms, 3 baths, current rent $2,295 plus utilities (1 tenant at $1,295 could be increased to $1,600 and lower suite at $1,000). Well maintained, fully contained separate suites. Walking distance to downtown Mission. Close to West Coast Express commuter train.

(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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