IN THIS WEEK’S FACTS BY EMAIL:
- VANCOUVER NEW HOUSING START COLLAPSE – HARBINGER OF THE FUTURE?
- BIGGEST FOREIGN BUYERS? CHINESE – NEXT BIGGEST? CANADIAN!
- NEW HOUSING MINISTER – BATTEN DOWN THE HATCHES
- CALGARY EMPTY HOUSING SPELLS OPPORTUNITY?
- TORONTO RENTAL MARKET
- RESERVE YOUR EARLY BIRD SPONSORSHIP FOR OUTLOOK 2018 ON SEPTEMBER 30
• International •
Ok, What About A Foreign Buyers Tax On … Wait For It … Canadians?!
The National Association of Realtors in the US (NAR) in its 2017 Profile of International Activity in U.S. Residential Real Estate, found that between April 2016 and March 2017, foreign buyers and recent immigrants purchased $153.0 billion of residential property, which is a 49 percent jump from 2016 ($102.6 billion) and surpasses 2015 ($103.9 billion) as the new high. Overall, 284,455 U.S. properties were bought by foreign buyers (up 32 percent from 2016), and purchases accounted for 10 percent of the dollar volume of existing-home sales (7 percent in 2016).
Lawrence Yun, NAR chief economist said: “While the strengthening of the U.S. dollar in relation to other currencies and steadfast home-price growth made buying a home more expensive in many areas, foreigners increasingly acted on their beliefs that the U.S. is a safe and secure place to live, work and invest.”
Indeed, JREI’s point precisely. We made that point from 2011 forward. Excess printing of money creating a huge bulk of cash and that cash is looking for safety first, return on capital not important. Return of capital crucial.
Surprisingly, says NAR, although China maintained its top position in sales dollar volume for the fourth straight year, the significant rise in foreign investment in the survey came from a massive hike in activity from Canadian buyers. After dipping in the 2016 survey to $8.9 billion in sales ($11.2 billion in 2015), transactions from Canadians this year totaled $19.0 billion – a new high for Canada.
Yun attributes this notable rise in activity to Canadians opting to buy property in U.S. markets that are expensive but still more affordable than in their native land. (Look below.) Rounding out the top five, the sales dollar volume from buyers in Canada ($19.0 billion), the United Kingdom ($9.5 billion), Mexico ($9.3 billion) and India ($7.8 billion) all increased from their levels one year ago!
Canadians set record with U.S. real estate shopping spree – It’s all about the price!
Comparing Average Home Prices (all types)*
Scottsdale, Ariz. $418,700
Palm Springs, Calif. $307,500
Orlando, Fla. $165,200
Major Point: Imagine the US declared a foreign buyer tax on us! Canadians in Phoenix, Palm Springs, etc. Imagine that! Maybe … Canadian investors and regular buyers are voting on the Canadian housing market? Maybe they feel that its peaking? No, it is likely they are just getting more bang for our depreciated buck!
• Canada •
Toronto Rental Markets
The Toronto apartment rental market in the second quarter of 2017 is still very tight. With rising rents the result: Average annual rates of rent growth for one- and two-bedroom condominium apartments were over eight per cent. The TREB says: “It is clear that we continue to suffer from a lack of available rental units. The Fair Housing Plan announced by the Government of Ontario committed to measures designed to increase housing supply. Conversely, the Fair Housing Plan also expanded rent controls, which could preclude investment in rental properties, thereby further constricting supply. With different policy components potentially at odds, it will be interesting to see the eventual impact of the Fair Housing Plan on the rental market in the GTA”.
Major Point: The average one-bedroom condominium apartment rent was up by 8.8 per cent year-over-year in the second quarter to $1,861 per month. The average two-bedroom rent was up by 8.7 per cent to $2,533. That should keep the pressure on prices to ‘stay up there’ logically. But what we may get in Toronto is perhaps a psychological semi-panic effect. Perhaps! August/September will tell. Investors, stay out of Toronto for now.
Ontario Hydro Debacle
JREI received a few questions this year on the Ontario Hydro debacle … and whether we could expect the same in BC. On the good side: No way will it happen in precisely the same way here. Ontario liberals learned a lesson at tax payer expense, that should help us. However, we likely will do other stupid things in the name of environmental holiness.
Something needed to be done, but it was done in a haphazard way. Amongst others: Offering huge subsidies to attract wind and solar developers, installing smart meters without a plan, and signing a 20 year deal(!!) at above market rates, all that and more has almost doubled the cost of hydro for the average Ontarian. Imagine this: Ontario is paying $9.2 billion more than necessary for wind power at twice the average U.S. market rate and solar power at 3.5 times the rate plus … plus forcing Ontario Hydro to constantly buy the wind power first and then sell hydro, at a loss to Quebec and the United States, and/or pay wind and solar developers not to produce electricity.
Major Point: A major boondoggle. Now to hide the true cost and stifle the outcry of the average housewife faced with a double bill in an environment that lies about the inflation rate … they borrowed a lot of the cost from the future (today’s cost!) and has our children pay for it. But just watch … they’ll get re-elected … just like the Vancouver city council.
Calgary City reported that nearly 23,600 housing units are vacant, up by 2,700 over last year’s levels, pushing the vacancy rate to 4.76 per cent. Census figures dating back to 1989 show the number and rate of vacancies have never been so high in the nearly 20-year period. However, the latest civic census shows more people moved to Calgary in the last year than left in the past year. Also JREI tracking of the U-Haul traffic showed a lot more people moving to Calgary right behind Toronto and ahead of elsewhere.
For the last two years JREI has been recommending that you make stink bids in new Calgary condos. That is now more true than ever. Housing vacancies in Calgary continue to be concentrated in apartments. We talked at length about – once in the ground you have to finish the building. No matter the market conditions. How bad is it?
Well, according to the census, there were 10,600 vacant apartments in April, accounting for 45 per cent of all empty dwellings, followed by 5,000 vacant single-family homes.
Renters are dancing in the street – they can write their own ticket! Time to be very nice to your tenants in Calgary. Remember in a previous condo and office glut in LA one enterprising large landlord gave rent holidays, free TVs and washed his tenants (both office and residential) cars. In a tough rental market you must 1. Keep who you have happy, and 2. Attract new tenants from … wait for it … other landlords!
Major Point: Our investment group is actively engaged in searching out Calgary and Edmonton opportunities for cashflow and appreciation. You make the best buys on the bottom of a market. I think we are close.
New Minister Of Housing – MLA Selina Robinson
JREI featured the NDP platform a few weeks ago. No need to rehash. There is however some continued uncertainty regarding the new 2% speculation tax. UBC Professors Somerville and Davidoff said they believe Robinson and the NDP will implement a plan for a two-per-cent speculation tax on foreign people who buy property in B.C. but don’t pay tax here. (Vancouver Sun). The tax would be based on assessed value, and estimated revenue of $200 million per year would go into a B.C. Housing Affordability Fund. We think that the tax is on the table (as is a flipping presale tax), but may well be levied on ANY so called speculator – even a Canadian if for some reason he/she doesn’t pay BC tax – as in being retired … or?
Major Point: Likely the NDP will go slowly, trying not to tread on too many toes … but be warned.
Warning: Ok Sales Are Strong – But Housing Starts Are Weak! Why!?
In our JREI November 2014 Facts by Email and 2015 Outlook Issue we reported on Alberta’s declining housing starts as a possible harbinger of things to come…
We said “ … Nobel prize winning economist Vernon Smith, who was born 83 years ago and has studied every housing crash since 1929, said the key early indicator of every recession has been a drop in housing starts! He noted that in January of 2006, U.S. home building suddenly stopped though every other economic indicator was still charging ahead. You know what happened a year later. ‘Home builders are the first to react,’ Smith said.” We then quoted Alberta CMHC numbers showing the third consecutive monthly drop and the second lowest monthly level in well over a year! We all know what followed.
NOW TO VANCOUVER 2017!
We said a few weeks ago that we ‘admitted to a surprise’ new housing start plunge. Well, the latest numbers show that housing starts plunged through the first half of 2017. Total housing starts in the city of Vancouver have dropped 80% in the first six months compared with the same period in 2016, according to CMHC. From 5,784 to 1,860 units. Single-family detached starts in the city declined from 708 to 462 houses, while starts of condominium apartments fell from 3,290 in the first half of 2016 to just 880 this year, a 73% decline.
MAJOR POINT: Time to re-read Mr. Vernon Smith’ work!
In 1992 when I was president of Block Bros. we occupied a whole floor for our offices and a half a floor just for our computer rooms. The latter sat on a false elevated floor with thousands of cables underneath. A 100 MB storage unit was a 3x5x4 foot tall affair. Had anyone said we now would have that much storage on half a fingernail, we would have had them committed.
In 1994 and after, JREI did however predict that lawyers and other office occupants would use a much smaller footprint. That downsizing is going on everywhere in all office buildings. Further retail centers throughout the US and soon Canada will be a thing of the past as AMAZON takes aim and shoots them dead.
The future? There will be no small offices anymore and larger ones will have a small office front. All the rest will take place from home or from much cheaper spaces. While we are in no way a forerunner of large office downsizing, JREI is keeping a much smaller office as of September 1 … same building.
Both our new ones were sold before posting. The Sidney one was sent to you via dispatch last Friday.
Get ready for the annual Real Estate Outlook 2018 Conference on September 30 in Vancouver.
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