Facts By Email

IN THIS WEEK’S FACTS BY EMAIL:

  • FLIPPING COMMERCIAL REAL ESTATE: IT COULD WORK IN TORONTO, VANCOUVER, AND EVEN ALBERTA
  • BITCOIN HOME LISTING CAUSES FLUTTER IN VANCOUVER – But some private deals may be done under the radar
  • 450-ACRE FALSE CREEK FLATS PLAN DOES INCLUDE (a little bit) OF HOUSING
  • SUPPLY AS CURE FOR HIGH HOUSING PRICES “A MYTH”
  • METRO VANCOUVER DETACHED HOUSES DISAPPEARING
  • PORT MOODY NEXT UP ON DEVELOPMENT CYCLE
  • TECH-SAVVY LANDLORDS CAN SAVE TIME AND MONEY
  • QUESTIONS, QUESTIONS

 

QUESTIONS, QUESTIONS AND READERS RESPONSE

COMMENT: The ‘free speech’ and Mr. Trump piece generated quite a bit of response. Thank you. This one I liked best:

“You will probably get beat up more on your “RESPECTING DEMOCRACY? ATTACKING TRUMP…” than on the “HOUSING STARTS MYSTERY” and the responses to both should prove interesting.

On your “respecting democracy” you are right. Hopefully people don’t confuse your defense of democracy for a defense (like or dislike) of Trump.

The position of President (or any political office) comes with the added job description of extreme scrutiny by the public. If you choose to be employed in that position you are open to (and should have to answer to) all questions about your decisions and work. BUT … to criticize family and friends of a politician because you dislike a politician does cross that line.

Freedom of speech is a great freedom. But using it in a way that will hurt other people while attempting to express your feelings toward a particular politician cheapens the original effort. Discrediting a politician for bad job performance is expected, but slandering the politician’s family, neighbors or pets tend to take the wind out of the initial effort to discredit.”

COMMENT: On hotel conversions: “Did you know that the Coast Plaza at Stanley Park Hotel on Comox Street has an application to convert part of the hotel to rental apartments? With the vacancy rate so low and the rental rates so high now, the numbers must look more attractive. There is/was a sign in front of the building I noticed in February. Not sure if the sign is still there.”

Answer: I knew it sold (for big bucks last year). I’ll check the app. Thanks.

Q: Will I be quoted if I make a comments or ask a question?

A: Only if you specifically want to be.

Q: Will there be a crash this year? Please note this: http://www.cbc.ca/news/business/peter-armstrong-housing-bubble-crash-1.4115628

A: This questions comes up over and over, particularly when I pointed out in the FBE that ALL booms are followed by busts eventually. This article follows the same line: No one really knows. In my view a peak will be reached, markets – even in Vancouver – will slow into the summer (as they did last year), but the eventual correction will be a ‘Black Swan’ trigger. Sudden interest rate hike, Trump impeachment…

 

• International •

Germany: Rising House Prices And Confiscation Of Residential Property Make For Strange Bedfellows

We talked about Germany and Spain in 2014 (as in buy it) and I felt that Berlin in particular would be a good buy. It was. Now, everyone talks real estate! Yes, prices are higher and accelerating, but Hamburg’s confiscation of private residential properties and refugee housing worries a lot of Germans.

So first, with rent control there is no new building. Unemployment is at a record low 4.2% (the rest of EU zone is 10.1%!). Looks like the quantitative easing programme pursued by the European Central Bank, worth about US$65 billion per month, is fueling fears of housing price bubbles in several eurozone countries – with Germany, Norway and Sweden most at risk, according to a report by Moody’s Analytics. All over Europe – concern about house prices is mounting. The authorities have also considered capping the amount homebuyers can borrow. In March 2016, like in Canada, the German government implemented the Mortgage Credit Directive (MCD), which requires banks to apply stringent rules to borrowers intending to acquire residential properties in Germany (sound familiar?). Aside from the property’s value, this new legislation requires banks to examine borrowers’ creditworthiness, making it more difficult for borrowers to obtain mortgage loans.

The big Elephant in the German room remains Merkel’s immigration policy: Germany took in around 1.1 million asylum seekers in 2015. In contrast, in 2016 Germany projects accepting a total of 300,000 refugees, less than a third of last year´s influx, according to the federal office for migrants and refugees (BAMF) … but in five years over two million people! Where to put them?

With limited supply of suitable empty flats, the German authorities have turned to public buildings, including former schools and sports centres, as well as a concert hall in Thuringia and a former barracks in Brandenburg, according to Financial Times (FT). More and more stories of small towns giving up their gymnasiums (no more basketball for German kids), swimming pools, etc. But even these frantic measures are not enough.

NOW, UNBELIEVABLE BUT TRUE:

Authorities in Hamburg – City officials have been seizing commercial properties and converting them into migrant shelters since late 2015, when Merkel opened German borders to hundreds of thousands of migrants from Africa, Asia and the Middle East. Now, however, the city is expropriating residential property units owned by private citizens.

Hamburg authorities recently confiscated six residential units in the Hamm district near the city center. A trustee appointed by the city is now renovating the properties and will rent them — against the will of the owner — to tenants chosen by the city. Plus, all renovation costs will be billed to the owner of the properties.

City officials said the measure was necessary because, at one time, more than 400 new migrants were arriving in Hamburg each day and all the existing refugee shelters were full. Actions were taken, based on a 1982 law that was updated by the city’s Socialist government in May 2013 to enable the city to seize any residential property unit that has been vacant for more than four months (sound familiar?). The forced lease, the first of its kind in Germany, is said to be aimed at pressuring the owners of other vacant residences in the city to make them available for rent.

Socialists and Greens in Hamburg recently established a “hotline” where local residents can report vacant properties. Activists have also created a website, Leerstandsmelder (Vacancy Reporter), to identify unoccupied real estate in Hamburg and other German cities.

In 2012, Hamburg’s Socialist government presented a plan to build 6,000 new residential units per year. The plan never materialized, however, because prospective builders were constricted by government-imposed rental caps which would have made it impossible for them to even recover their construction costs. Since then, the city has turned to seizing private property to resolve its self-inflicted housing crisis.

NOTE: Similar expropriation measures have been proposed in Berlin, the German capital, but abandoned because they were deemed unconstitutional. In November 2015, lawmakers in Berlin considered emergency legislation that would have allowed local authorities to seize private residences to accommodate asylum seekers. The proposal would have authorized police forcibly to enter private homes and apartments without a warrant to determine their suitability as housing for refugees and migrants.

Major Point: Meanwhile, some Germans are asking what is next: Will authorities now limit the maximum amount of living space per person, and force those with large apartments to share them with strangers?

 

• Canada •

Toronto Takes It On The Chin

According to Al Dharsee with Right At Home Realty Inc.: “There is a surge in new listings in the GTA since the Wynne Government introduced the ‘Non-Resident Buyers Tax’ of 15% on April 20 of this year. Buyers are holding back resulting in fewer sales and very few above list price. Different market for sure.” It will be interesting to see whether it follows the “Vancouver pattern”: first way down then recovery?

 

Flipping Commercial Real Estate: It Could Work In Toronto, Vancouver, And Even Alberta

Flipping real estate has long been a residential characteristic: mostly buying, fixing and flipping detached houses.

Now flippers should consider the opportunities in buying and flipping commercial properties. This apparently works very well in Vancouver and Toronto but it is possible and profitable in smaller cities, even in Alberta.

Commercial flips take longer – figure on two years compared to six months to a year for residential. The going-in costs are also higher, but the exit income can be impressive.

Last week, for example, Vancouver security firm Avigilon sold the old TELUS headquarter tower in downtown Vancouver for $102.7 million. They had bought it in November of 2015 for $42 million and sold it as a sale-lease-back agreement. That is a $60 million gross profit.

In Lethbridge, Alberta, Melcor REIT sold an aging warehouse in March for $1.9 million more than they paid for it in January 2014 – and it had been producing positive cash flow all that time.

In Vancouver, the cost for an industrial site, per acre, has increased from $1 million to $1.4 million in the past 18 months. Well-located industrial strata prices have shot up 30% in the past year.

Metro Vancouver has land development as a backdrop: old strip malls and hotels and motels bought two years ago can be worth much more today if there is any potential for higher-density zoning. “Highly constrained land supply will continue to support escalating property values … and is unlikely to abate in the coming years,” is how commercial broker Avison Young described it in a report this spring.

In Toronto, a report from Jones Lang LaSalle is forecasting commercial rents could increase 50% over the next three years, with a near-parallel spike in commercial real estate values.

Flipping commercial real estate is different than residential. The buyer pool is shallower, for one thing, but financing can be easier than for residential.

Here are some tips for flipping commercial property:

  • Buy in areas that have good transit and highway links, and the closer to a major urban centre the better.
  • Search for property on LoopNet (www.loopnet.com) and in Western Investor (www.westerninvestor.com) digital edition.
  • Watch for retail “going out of business” promotions: the retail landlord may also be looking for a quick exit.
  • Establish a clear exit and know who the likely buyer will be.
  • Buy with tenants in place, with at least 50% of the space occupied. This offers opportunity to add value.
  • Read through the OCP (official community plans) of the local municipality to understand the density and development potential.
  • Have your potential buyer sign a non-circumvent and confidentiality agreement before showing them the deal. Many investors play a win-lose game of negotiations and will try to cut you out of your deal unless you protect yourself.

Major Point: A good target is older strip malls with large parking lots in up-trending urban areas. In Vancouver, Hastings Street east of Clarke Drive may be a good bet. Also, check out older strip malls in Kelowna, Nanaimo and suburban Victoria that have upzoning potential. This is a flip, so you are more concerned with the land base and the location than the tenants.

 

• British Columbia •

Bitcoin Home Listing Causes Flutter In Vancouver

But some private deals may be done under the radar

A Coquitlam house advertised for sale in bitcoin drew a media flutter in Vancouver this week, with Huffington Post warning of suspicious activity and the CBC pondering whether it represented a wedge for offshore money into the restricted Metro housing market.

It turns out the $2099 Bitcoin ($5 million in real Canadian money) listing for a 5,000-square-foot house was a mistake, according to the Sutton City Centre real estate agent who had the original listing at $2.6 million. A friend, he said, had posted the ad on Craigslist in Vancouver and Hong Kong after he complained how difficult it was to sell high-end houses since the foreign buyer tax came in last August.

The Craigslist ad has since been taken down.

In Canada, real estate agents are not allowed to accept bitcoins because the digital currency hides the identity of the purchaser. Under Canada’s Proceeds of Crime and Terrorist Financing Act, a realtor must be able to positively identity the people involved before a transaction can complete.

But private sellers can accept bitcoins as easily as any other funds.

China residents are not allowed to take more than $50,000 out of the country for investments. They are also required to sign a letter stating they will not use their money to buy real estate abroad. Bitcoins offer a route for some to move money out of the country. Bitcoin, first introduced in 2008, is a peer-to-peer digital currency that functions without any central authority, and can be transferred anonymously. According to the Financial Times, 98% of Bitcoin transfers in the past year came out of China.

In Australia, Sydney-based Forsyth Real Estate is the first Australian real estate company that is accepting bitcoins from foreign buyers, primarily, the company said, from China.

Major Point: We reported to you last year and this year (follow up) that Chinese authorities finally figured out how their citizens get their money out. Bitcoin! Now they are trying to shut down the operators in China. Bitcoin transfers are virtually untraceable so it is understandable that it raised flags when a MLS-listed house was offered in Bitcoins. But more private real estate deals are likely being done in bitcoin transfers as China raises barriers to traditional capital flows.

 

450-Acre False Creek Flats Plan Does Include (A Little Bit) Of Housing

On May 17 the City of Vancouver approved its False Creek Flat Plan for a 450-acre swath of East Vancouver that runs east from Main Street east to Clarke Drive and is bordered on the north by Strathcona and south by Grandview Woodlands.

The Flats is the largest mostly undeveloped parcel near downtown Vancouver, an industrial enclave bisected by rail tracks and service roads.

The plan calls for an near exclusive zone for industrial, office and other commercial space: housing is limited to 1,400 units of student housing, related to the eventual campus of Emily Carr University and two to three future campuses of a college and Simon Fraser University and the University of BC. (SFU and UBC so far have no plans in place.)

The City estimates that 30,000 people will be working on the site when it finally builds out, but residential developers are screaming because it is not zoned for market housing. The residential density works out to three homes per acre, the lowest in all of Metro Vancouver. The City was apparently concerned that allowing high-density residential would make the land too expensive for industrial and commercial development.

Major Point: As per the Landrush conference, buy any kind of residential-zoned land nearby, as in Strathcona, the downtown East Side or Grandview Woodlands or north Main Street and Fraser Streets. The False Creek Flats will house a new Emily Carr University and the new mega-million-dollar St. Paul’s Hospital. With virtually no housing allowed on site, demand and prices may rocket in nearby neighbourhoods.

 

Supply As Cure For High Prices “A Myth” (According To Simon Fraser Prof)

What do New York City, Hong Kong and Vancouver have in common? They are the most dense cities for housing in their respective countries and they also have the highest residential prices.

This forms part of the argument arising that supplying more homes to combat high housing prices is a myth. (As we reported here last month, a “yes in my backyard” movement that started in San Francisco is lobbying for more housing supplying Vancouver to combat high house prices.)

Josh Gordon, professor of public policy at Simon Fraser University, skewered the supply argument in a report in the Inroads Journal. Gordon writes:

“In Vancouver, the industry line is that only ‘supply, supply, supply’ can solve the problem. It is a classic zombie idea. That’s because there is simply too much money at stake for powerful people to ever allow the idea to die.

“Their line is that all we need is supply, supply, supply, as if you can build enough homes for a population caught up in a real estate frenzy who want to buy second, third or fourth properties. Trying to satisfy speculative demand is lunacy.”

Other critics of the supply side strategy note that allowing higher density increases the value of residential development land, which leads to higher housing costs in the future.

Professor Gordon argues that high home prices in Vancouver are tied nearly exclusively to foreign buyers. And he says we can never build enough houses to meet intense international demand. He also claims a lot more money from China is flowing in illegally than we think. As an example, he references the record of seizures of smuggled cash at the Vancouver International Airport. In 2013, $2.8 million was seized from Chinese citizens. In 2014, the figure was $4.3 million, and in 2015 it was $6.4 million. This pattern of 50% year-over-year increases in cash seizures from 2013 to 2015 fits rising house prices in Metro Vancouver almost exactly, according to Gordon.

Major Point: So, if more housing supply isn’t the answer, is reducing demand the solution? We don’t think so. Short of raising interest rates, governments at all levels have been trying to calm housing demand for several years, but Canada’s housing sales continue to rise and prices continue to increase. The bottom line: in a yield-starved, low-income, high-inflation, over-taxed Canadian environment, residential real estate provides the average person with the best route to financial security.

 

Metro Vancouver Detached Houses Disappearing

Get ‘em while they last: Detached houses in Metro Vancouver are disappearing according to the latest Canadian Census that shows 17,700 houses were demolished across the Lower Mainland between 2011 and 2016. The trend is seen in nearly every municipality, even Surrey which lost 4,350 houses. The city of Vancouver has 6,000 less houses and Burnaby lost 2,045, or nearly 10% of its detached housing inventory in the five-year period. The only communities to record a net increase in detached houses were Squamish, Chilliwack and Maple Ridge, along with tiny Anmore.

The houses, of course, were replaced by multi-family homes, mostly strata condos and townhouses. While the detached housing inventory fell by nearly 5%, the Census found, the number of multi-family units increased by 15% across the Lower Mainland, to 95,295 new homes from 2011 to 2016. Another 7,800 have started construction so far this year (down from 9,800 a year earlier).

Major Point: The single-family detached house is not becoming a threatened species, but it represents the single best residential investment in the Lower Mainland. The house will always be the top choice for buyers and the most popular target for developers.

 

Port Moody Next Up On Development Cycle

It has been less than six months since SkyTrain arrived in Port Moody, the terminus for the Evergreen extension, but the transformation of the waterfront, former industrial-centric community has already started.

If you are looking for a detached-house investment opportunity in the Lower Mainland, this may be a ground floor entry point. Prices have already started to rise but the looming development boom is only starting to stir. In Port Moody Centre – above and around the St. John Street strip and the Evergreen station – the average house price is north of $1 million and rising at the pace of about $15,000 per month (1.5%) so far this year. (We found only one house in Port Moody Centre for under $1 million this week: $949,900  MLS® R2153022: a three-bedroom renovated old timer with a basement rental suite, on Barnet Highway.)

Times are changing and Port Moody is about to change big time. It has SkyTrain. It has waterfront and it has the north shore greenbelt (in an area where China-backed Brilliant Circle Group is developing 150 acres of Anmore into an ultra-green, upscale residential enclave) and a progressive city that is rezoning for higher density on detached lots. This month, Port Moody Council announced proposals to rezone part of Moody Centre to allow detached owners to subdivide their lots into two narrower lots, or build laneway houses. The idea will be tested in selected area of older houses on large lots, but we bet it will be extended to the entire Port Moody Centre, though the impetus is said to be preserving of heritage homes.

The city is proposing a floor area ratio (FAR) of .7 and maximum lot coverage of 45% for laneway houses, but said a higher FAR of .8 or .9 might be needed. The zoning could roll out this year.

Note that residential development sites in Port Moody are about equal to Coquitlam, an indication of the demand. Based on per-buildable-square foot (pbsf) prices, a Port Moody low-rise wood frame apartment building site sells for $80 to $100; a high-rise site for $70 to $90; and a townhouse site for $225 to $275 pbsf.

Meanwhile, major multi-family developments are gaining traction:

  • A Port Moody advisory council has approved plans for Westport Village, a high-rise development on the former Andres Wine site. The Village plan includes 418 condos and townhouses anchored by a 32-storey and a 21-storey condo towers, a hotel and retail space. It still requires rezoning.
  • Coronation Park, planned next to the Port Moody SkyTrain station, is a concept for about 2,000 multifamily homes in an area that now has 180 detached houses and townhouses (land banking has been going on for about two years but not all detached owners have sold). In April, the plan was endorsed by Port Moody city council, subject to some conditions on amenities and development cost charges.
  • Flavelle Oceanfront development. The waterfront plan would replace a former sawmill on 7.5 acres in Moody Centre. The concept is for 11 condo towers from 19 to 38 storeys high, and some low-rise residential, plus yuppy industrial and retail. The site is a 10-minute walk to the SkyTrain station, but it has a long road ahead, since environmental agencies, federal fisheries and Metro Vancouver will all need to sign off on it, as well as Port Moody, which has given tentative approval. The developer bought site in 2000 and has pulled together an experienced team and the oceanfront development will likely go ahead, eventually.

Major Point: If all of the new developments, including the Anmore lands which is fully approved, proceed, Port Moody’s population will increase about 8-fold over the next 10-15 years. A $1 million investment in a Port Moody detached house today may look like a very good investment tomorrow.

 

Tech-Savvy Landlords Can Save Time And Money

I am always amazed how many landlords, who are continually renting to gen-Xers and millennials, are not up to speed on the social media technology that can save them time and money. Get with it: your tenants are totally online and they would welcome the upgrades, as will your accountant.

Here are some tips to get tech savvy on your rentals

  • Advertise your listings online. This means Craigslist,  Kiijji and PadMapper, all of which allow potential tenants to be notified when the right listing becomes available. Make up one ad and send it out to as many channels as possible. Include photos and even video if it is high-end listing.
  • In interior BC rental building use Kijiji exclusively when looking for tenants.
  • Use text messaging to cut down on no-shows. A quick text an hour before the expected showing can save a lot of time. (The phone also works.)
  • Collect rent online. Allowing tenants to pay rent through bank transfers or email transfers is quick and easy.
  • Sign on to web services like Tenant Verification Services, which provide information on credit scores and flag bad tenants who have been reported by other landlords. 

 

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