IN THIS WEEK’S FACTS BY EMAIL:
- EUROPE – BIG CITIES ON FIRE
- TORONTO AND VANCOUVER NUMBERS – VERRRY INTERESTING
- TORONTO SALES CRASH, LISTINGS SOAR!
- ONTARIO HOTTER THAN YOU THINK – OPPORTUNITIES
- FOREIGNERS DISCOVER MONREAL CONDOS
- B.C. ELECTION: WHAT’S PROMISED – WHAT MAY HAPPEN
- FALSE CEEEK LEASES COMING DUE
- SENIORS HOUSING: BETTER GET RICH OR DIE TRYING
- EYE RAISER: CORONERS SEEKING STORAGE SPACE FOR FENATYL VICTIMS
• International •
With so much going on in BC, I will just touch on the bases as to what may be of interest by drawing comparisons:
- All major cities we went to (Copenhagen, Tallinn, Stockholm, St. Petersburg, Berlin, London, Dresden, Prague) and others are in a major construction boom. The skylines are littered with cranes for new buildings and restorations. Berlin has 27% of all of Germany’s construction underway(!). Cash is plentiful.
- All major cities have seen real estate price increases for 3 – 4 years … accelerating sharply in 2016. Even cities that have had rent controls for 30 years like Berlin.
- All major city headlines feature stories of ‘real estate crash’ pending. Most Governments have introduced or are about to introduce Foreign taxes, stamp duties, rent controls, vacant house taxes – even confiscation!
- In most European cities there is a clear difference between new condos and used condos. ‘Used’ in Europe can mean literally 80 years or more. So, generally new condos are priced about 50% higher than old condos – unless – of course they are in the top areas of a city.
- In London, new condos at Lombard Wharf at the Thames units are 555 sq. foot to 1,040 sq. The latter are offered at $1,958,000 BPD or $2,780,000 Canadian!
- There is a clear divide between ‘big city’ and ‘rest of country’. London prices are astounding and rising, but the rest of Britain is projected to be rising or falling between – 5 and + 3% this year. (Surveyor Assoc.)
- ‘Rest of country’ real estate value depend ENTIRELY on jobs. (We have preached for 40 years: Values grow where people go and people go where the jobs are). While we travelled to Wittenberg, (where Luther nailed his Thesis to the church and started the reformation), Meissen (porcelain) and saw the fab Schloss Woerlitz … real estate in the smaller towns in the countryside is available real cheap (run down house on ¼ acre – for $20,000 Euro – no takers).
- There are also clear signs of a changing world driven by Millennials, a return to the cities, more bicycles everywhere.
Major Point 1: Everyone (EVERYONE!) sees higher prices in everything. Food, rent, gas, government services and no one (NO ONE)! believes the official 2% inflation rate. This is of course anecdotal, but in general, people feel they are not getting ahead, earnings do not rise, but prices do. In general, people do not like their governments – or rather don’t trust them. Some feel betrayed. The polarization that we see – even in BC – is very pronounced in Germany and England. Europe is changing through immigration, perceived policies of waste and a sense that the EU just adds costs (there is a new building in Brussels – cost? 1 Billion).
We remain firm in our conviction that there is a separation of hard asset inflation and economic commodity price deflation – happening at the same time (if you are a new subscriber – use your search button). The printed money is looking for safety and prefers big cities and real estate in it is preferred. Immigration is changing everything! Everything! I leave you with these words from a long term German friend: “My girlfriend and I no longer walk arm in arm along the Rhein river in the evening. Now, we girls go only in large groups – mostly not at all. You do not know how lucky you are in Canada.” AGREED! Happy to be back!
Major Point 2: For what it’s worth … try to stop watching CNN (Continuous Negative News) for a while and listen to Deutsche Welle or BBC. It is amazing how the same news can be reported differently, based on the slant of the news organization. As individuals we have little hope to understand what is really true … if we only watch our ‘favourite’ news channel.
• Canada •
Ontario Housing Was Even Hotter Than You Think
In London, Ontario, new housing starts soared 234% through the first three months of this year – to 974 homes – and hit double-digit growth in at least five other centres as housing starts across the province nearly doubled, to 15,910 units, compared to Q1 of 2016, which had been a record-breaking pace. Home renovations are forecast to reach a 10-year high of $30 billion, housing prices are rising and the rental vacancy rate is falling.
And all this while the Ontario government tries to cool the housing market with a 16-step program that includes a foreign-buyer tax, an empty home tax, tougher rent controls and encouraging faster civic approval of higher-density construction.
Ironically, it was housing that allowed the Ontario government to claim a balanced budget in 2017 after it collected $637 million in a residential land tax and shared in $714 billion in residential HST.
Unlike in B.C. the Ontario government measures had an immediate impact!! Not just slower sales (-20%) but WHOPPING INCREASE IN LISTINGS. Toronto vendors want out!!
The Numbers, The Numbers – Toronto
Major Point 1: Sales are – like in Vancouver – sharply lower, but UNLIKE VANCOUVER active listings are almost 50% higher! New listings are flooding in at 43% higher. Prices are still up but our bet is that if this continues into June, prices will come off 10% to 20% by end of the summer.
Ontario overall has tepid 2% GDP growth but a sharp spike in immigration. In fact, 86,000 people are moving, net, into Ontario annually most into the Greater Toronto area. Which bodes well for a soft landing. Also, residential real estate is seen as a safe investment. But of course, Ontario is not Toronto. There are many areas that could have an upside that are not part of the new taxes. With these new Toronto numbers, I would stay on the sidelines however, but start to – carefully – look south of Toronto at detached houses in places like Barrie, Brantford, London, Kingston, Hamilton, Windsor – perhaps even Sarnia. The province has changed policy under a new Growth Plan that allows municipalities much wider powers to zone for higher-density residential. Look for detached house lots close to transit or on major traffic routes and in job-producing (public-sector) cities. A flow of buyers out of high-priced Toronto is seen across the southern loop of the Golden Horseshoe and this impetus is really just getting started.
London is a good example: a university town and with one of the largest medical communities in the country, it has 383,000 people, a 4% increase in the past five years. The rental vacancy rate is 2.1%, lowest in 14 years.
We found nearly 300 detached houses in London this week for less than $350,000 and more than three dozen priced between $150,000 and $200,000. Here is one example: MLS 597174: This is an older cash-flowing duplex in London with two rental suites (possibility for three) in a high-traffic area zoned for higher-density mixed-commercial on nearly an acre of land. The asking price is $164,900.
The other play may still be a selected Toronto condo market. It is pretty hairy for anyone who has not been investing in Vancouver – multiple offers, sales within 5-6 days of list – but despite the reports of a slowdown, we think there is still room for investors in resale condos if you pick your neighbourhoods carefully (See the Jurock 2017 Outlook report for specific recommendations.)
A good bet could be up trending Corktown, where you can still find 1 and 2 bedroom condos under $480,000; and the tenant-rich ChurchYonge Corridor, where there are 1-bedroom condos priced under $400,000 (though in April the typical condo sold here for 9% over list price).
Major Point: Greater Toronto has 6.4 million people, more than the population of all of B.C. and Alberta, and it accounts for nearly 40% of all Canadian immigration. If you make it there, you can make it anywhere. But owners look very spooked… Be careful … You may wish to see June and July numbers. With such an increase in listings lower prices usually follow – as in down!
May was the hottest real estate market driven by condos. We recommended Montreal as an investor (if you speak French) – a year ago.
• British Columbia •
The Numbers, The Number – Vancouver
Major Point: Please note that some news organizations reported “huge sales increases” … but did not tell you that it was May over April! In fact, in the last 25 years there has NEVER been a May with lower sales than April. What is important is to compare this May to last year’s. You find that sales are still down overall, well down in SF sales (-17%) as well as in condo sales (-5). However, prices are up on the overall average and in the SF home sector but well up in the condo sector. Finally, active listings overall are still down, WAY down in condos but UP in SF areas. Vancouver owners are not throwing their properties on the market – still have confidence. At least – not till now.
This is in direct opposition to what is happening in Toronto where sales are down and listings are up sharply. Toronto is likely headed for an across the board price decline of 20% by end of summer
BC Election: Home Investing More Important Than Ever
The smoke hasn’t quite settled yet but it appears that B.C. will soon be governed by an NDP-Green Party coalition that has basically committed to attacking the two biggest income and job generators in the province: the resource sector and the housing industry.
NOTE: They can slow the process so much that the Kinder Morgan pipeline could die before it starts – that is 34,000 jobs – and, if they are successful, will stop the Site C dam, that is another 8,000 jobs. Of course such actions could have a freezing effect on other resource investments, including the nascent LNG industry that is just starting to get underway.
Still, for anyone seeking ROI in the BC economy, the residential sector remains perhaps the best option.
Despite an avalanche of anti-investor legislation under the former provincial government, Metro Vancouver sales have come back and while SF sales still lag 17% behind May 2016 and overall sales still are 8% lower, the market has shifted into the condo sector – where sales are up by 36%.
Here is what the NDP-Greens may (!) institute (from their platforms) in the housing sector:
- A 2% speculation tax on homes in Metro Vancouver if their owners pay little or no taxes in B.C.
- It is also will review the 15% tax on Metro purchases by foreign buyers. The Greens want to double the foreign-buyer tax to 30% and expand it across the entire province. We think the new government will keep the tax at 15% and may expand it across the province – but at a lower rate. Also planned:
—Institute an annual $400 renter’s rebate
—Establish a multi-agency task force to fight tax fraud and money laundering in the BC real estate market
—Pass legislation requiring ‘fair tenant treatment’ during renovations and demolitions of rental property
—Change regulations to allow colleges and universities to build affordable on- and near-campus rental housing, and ensure student renters receive the renter’s rebate of $400 per year.
—Build near transit hubs in urban and suburban centers. Use public land to build housing that British Columbians can afford
- Watch for a new tax on assignment transactions of pre-sale condo contracts that will take some froth out of the white-hot condo sector.
- Also it is planned to build 11,400 new units of affordable rental housing each year for 10 years, while the Green Party had promised $750-million a year for government-subsidized housing.
We think this is a fantasy: it takes months, even years, to get multi-family permits in place, especially in Metro Vancouver. As well, based on the soaring costs of social housing – it costs an average of $275,000 to deliver a basic subsidized bachelor unit in Vancouver and that is if the land is donated – it would take $2 billion in just the first year, double that if the land has to be purchased, especially under the new zero-emission regulations now in the Vancouver building code. This is five times higher than the NDP forecast it will cost. (We have reported on social housing built in East Vancouver in 2015 for “at risk tenants” for $430,000 per unit: it would be cheaper to buy each homeless person a condo.)
So, if you are a landlord, don’t worry about social housing competition. However, the landlord and tenant leases (term certain) will be reviewed plus landlords will likely see tougher new rules on displacing tenants during renovations. There could also be an extended moratorium on demolitions of older rental buildings, as is seen in much of Vancouver.
Major Point: Don’t get your knickers in a twist with the NDP-Green. We have been through worse (remember 9/11?; the financial crisis?). With little chance of an interest-rate hike and BC’s strong immigration numbers, housing will remain a good investment in B.C. over the next four years. Look for smaller BC markets for cashflow (study our JREI January Outlook issue for bets areas). But, if an investment buyer … WAIT for the final new legislation that will be brought in after the non-confidence vote sees the liberals retire. The devil may be in the NDP/Green details, it also may not be nearly as bad as you fear!
False Ceeek Leases Coming Due
The City of Vancouver is looking at what to do with False Creek South, where 60% of the homes are on leased land owned by the City. Many of these leases expire in 20 years, which makes it difficult for buyers and co-ops to get financing. The City is starting the process of addressing end-of-lease issues on City-owned land with the current 3,200 residents.
Major Point: A launch event for the planning program is scheduled for June 22, 2017, 3-7 pm on the west side of Charleson Park, near the seawall. All members of the public are invited to attend. Learn more about the process at vancouver.ca/false-creek-south.
Seniors Housing: Better Get Rich Or Die Trying
If you plan on living in a fancy private-sector residential retirement community in B.C. you apparently have three options: get rich, die early or start to invest in seniors housing developments right now.
A stark shortage in new private-sector seniors housing is emerging. Only 500 such units were built in the past year and the vacancy rate for existing projects has plunged to 4.5% across the province and is near zero in some parts of Metro Vancouver, down from double-digit just two years ago. This is despite very high rental rates. The only big project underway in Vancouver, the Opal on Cambie Street by Element Lifestyle Retirement Inc. (that began taking rental registrations May 20 for just 56 rental units) is charging $10 to $11 per square foot, or about three times higher than the typical rent for a Vancouver condo apartment, according to the latest data from Canada Mortgage and Housing Corp. A one-bedroom at Opal starts at around $5,500 per month.
The average one-bedroom rent for a seniors housing unit in B.C. is $3,009 a month and it is north of $3,600 in Metro Vancouver. Seniors housing is not covered by the Residential Tenancy Act, so rents are always at market level and can be increased at any time.
Condo developers should look at retirement homes, even though civic permits are hard to get approved and the expenses, such as round-the-clock staffing and meals, are prohibitive. Long run, they should prove a sold investment in a province with one of the fastest-growing senior sectors in the country.
Major Point: If you are not a developer, you might wish to look at investing in companies that are. These include Chartwell Retirement REIT (trading at a 10-year-high in the $16.30 range); Sienna Senior Living (trading at $17.10, down 2% from a year ago) or Element Lifestyle Retirement Inc. that recently listed on the TSX and trading at .20 cents a share.
Eyebrow Raiser: BC Coroner Seeks Storage Space For Overdose Victims
Word on the streets of Vancouver is that the Coroner’s office is scouting to lease refrigerated storage space to handle the huge increase in drug overdose deaths in the city. Across B.C. there were 136 drug overdose deaths in April, up 97.1% from April of last year, and the current overdose death rate is 4.5 people a day across the province, most in the Metro Vancouver area. We checked with the Coroner’s office which told us “we don’t have space issue right now” but that it could become an issue if the overdose rate keeps rising.
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