Rate increases hinted at as economy rebounds

Ray Turc Hansky
Province

Without announcing last call, Canadian banks have taken the punch bowl away from the mortgage party that millions have enjoyed, and hangovers are looming.

Last summer, the Bank of Canada and Federal Reserve in the U.S. said their overnight-lending interest rates would remain near zero until at least the middle of this year. The reaction by Canadians was to buy houses with rates at historic lows, and party on.

But as economies in North America began rebounding, central banks hinted rate increases could occur fairly soon, especially in Canada.

Bond rates rose in anticipation and that was the catalyst for banks to lift five-year mortgage-interest rates, generally by 0.6 per cent — the greatest single-day hike since 1994 — to 5.85 per cent. That’s an increase of $88 in monthly payments on a $250,000 mortgage for 25 years.

And they’ve only just begun. The C.D. Howe Institute suggests the Bank of Canada should raise its overnight rate by 1.75 per cent in the next year, likely lifting five-year mortgage rates to seven per cent, while other economists envision a five-year rate as high as 8.25 per cent in two years.

That presents a dilemma for prospective homebuyers. Should they join an anticipated rush to purchase homes now and lock in at low rates, although housing prices could climb immediately with a blip in buyers during this period? Or should they wait for the frenzy to die down, expecting house prices to be lower in 12 months than they will be in three, even though mortgage rates will be higher a year down the line?

A major consideration should be whether you can handle lower mortgage rates now in this recovering economy better or worse than you would be able to handle higher payments a year from now when the economy, we hope, has improved and the employment situation has stabilized somewhat.

The Conference Board of Canada released a report saying one-fifth of Canadians already cannot afford both good-quality housing and either nutritious food or healthy recreational activity.

And the Bank of Canada reported that if mortgage and consumer-credit interest rates went up one per cent, a record-high 9.6 per cent of households would be deemed financially vulnerable.

The question is whether we will pass the tipping point from people being unable to get into the housing market to the state where existing homeowners are unable to keep the roofs over their heads.

You don’t need long memories to recall how prolonged low-interest rates after 9/11 eventually led to massive foreclosures in the U.S. when homeowners couldn’t afford payments once rates rose.

York University finance professor Moshe Milevsky says that instead of just considering financial savings in whether to have a short-term variable or long-term fixed mortgage, a person also should consider debating whether going with a short-term mortgage will leave a person unable to qualify for renewal, say if they lose their job, at variable and short-term rates.

Adrian Mastracci, with Vancouver’s KCM Wealth Management , says: “If you can stand the inevitability of higher payments, a variable rate can still make sense.

“But those that have no wiggle room on increased payments should look at a five-year rate.”

He also suggests paying down lines of credit aggressively before rates climb, investigating the penalty to refinance your mortgage at a lower rate if possible, considering a mortgage that is partly fixed and partly variable, and shopping around and negotiating for the best rates.

With rates so low, financial institutions had little wiggle room to offer valued clients lower-than-posted mortgage rates, but that expands as posted rates go up.

And that segues into one of the three mortgage changes the federal government brings into force later this month. In the past, borrowers had to make enough family income to pay the three-year fixed-mortgage rate to qualify for a mortgage, and the new rules mean you will have to earn enough family income to handle the five-year fixed rate.

On the positive side of rising interest charges, a widening spread between borrowing and lending rates means bank shares should do well and they may be able to increase dividends.

And for investors who turned to safety amid the volatility of equity markets in recent years, rising rates should start to improve returns on vehicles like guaranteed-investment certificates and money-market funds and high-interest bank accounts.

© Copyright (c) The Province

Think long-term instead of speculating; look for a future, not a past

Paul Luke
Province

The biggest mistake a real-estate investor can make is to buy on a tip, property expert Don Campbell says.

Investors must back up their decisions with hard facts, treating exuberant gab from a friend with healthy skepticism, says Campbell, president of the Abbotsford-based Real Estate Investment Network.

Potential investors should seriously question advice flowing from conversations in a pub.

“They go out and buy a rental property because their uncle’s son did really well in real estate,” Campbell said in an interview. “Or they hear about a new golf course or airport expansion and they run out and buy.

“That’s just not sensible.”

Campbell explores these and other pitfalls of investing in his new book, 81 Financial and Tax Tips for the Canadian Real Estate Investor (Wiley, $36.95).

Campbell and his co-authors, Navaz Murji and George Dube, begin their book with a little avuncular advice: Don’t make the mistake of linking tax-avoidance tactics with business success.

“Since wealthy people pay large sums of money in taxes and poor people pay very little, you will want to focus on running a business that makes money,” the book suggests.

Never try to cheat the taxman, they warn. Never assume you can get away with something that breaks Canada’s tax laws.

Just because Canada’s income-tax act has grey areas subject to a great deal of interpretation does not make it easy to circumvent.

“It does mean a different pair of Canada Revenue Agency eyes may alter decisions and outcomes — even after you and your accountant have assumed a particular outcome has been dealt with,” the three authors advise in the book.

“What is ‘allowed’ this year may simply have been missed.“

When it comes to tax, the goal is to pay the tax you owe, and not any extra. It’s not about how much money you make, it’s about how much you keep, Campbell says.

Campbell, whose previous books include Real Estate Investing in Canada and 51 Success Stories from Canadian Real Estate Investors, makes a clear distinction between speculation and investment.

Speculators may buy a pre-built condo from a conviction that a market will continue to rise and that they can quickly flip their purchase.

“It’s like playing the futures game,” he says. “If you buy futures in oil or pork bellies, the only way to make money is to bet correctly.”

Investors, on the other hand, will buy a cash-flow rental property based on a 10-to-20-year time frame. The aim is to get a monthly cash flow that will gradually enrich them, he says.

“As long as you buy for cash flow, you don’t care about the gyrations of the marketplace,” Campbell says.

Savvy investment, Campbell says, is based on the outlook for a specific neighbourhood. He suggests it’s a good time to consider investing in Maple Ridge and Surrey because of infrastructure improvements there.

“You want an area where there’s a future, not a past,” Campbell says.

As a rule, real-estate prices in areas receiving federal or provincial infrastructure spending will rise 12 to 15 per cent faster than similar areas that have not been so blessed, Campbell says.

“If the market goes down again, prices there will go down 12 to 15 per cent slower,” he says.

Investors who have done their homework have factored in the coming end to the era of what Campbell calls “emergency interest rates.”

Variable-rate mortgages could climb by 1½ to 1¾ per cent over the next 18 months, he says.

“You’ve got to be realistic,” he says. “You’ve got to pressure-test your potential investment in advance.”

As far as the impact of the par-hungry loonie, Campbell says it may drive people to make ill-advised real-estate forays south of the border.

U.S. property may appear cheap to Canadians enjoying their vigorous buck but a currency risk still remains, he says.

The troubled state of the U.S. housing market is an issue. Current U.S. house prices may fall 10 to 12 per cent as another impending wave of foreclosures puts more inventory on the market, Campbell says.

And don’t forget the tax challenges of buying foreign property.

“Never buy a piece of real estate without knowing the tax implications, especially if you’re buying it outside of Canada,” he says.

Too often, small details of investing turn into large, money-sucking mistakes. Like not saving receipts.

To prove a relevant expense, an investor needs a receipt, an explanation for the cost and evidence of payment, Campbell says.

All of Campbell’s royalties for the book go to Habitat for Humanity, a non-profit group that builds affordable housing for people in need.

The Real Estate Investment Network provides its 3,200 members across Canada with research and investment strategies.

© Copyright (c) The Province

Bosa project has a simple slogan: ‘love where you live’

Province

THE FACTS

WHAT: Two towers of 24 and 29 storeys with 291 units

WHERE: 2200 Douglas Road, Burnaby

DEVELOPER: Bosa Development Corp.

SIZES: Studio, 457 sq. ft.; 1-bed, 538 sq. ft.; 1-bed and den, 614 to 621 sq. ft.; 2-bed, 753 to 1,034 sq. ft.; 2-bed + den, 910 to 1,071 sq. ft.,; townhouses, 1,138 to 1,157 sq. ft.

PRICES: Studio from $235,900; 1-bed from $263,900; 1-bed + den from $315,900; 2-bed from $370,900; 2-bed + den from $459,900; townhouses from $499,900

OPEN: Sales centre 5695 Lougheed Highway (at Holdom), hours noon to 5 p.m., Sat — Thur

When Stan Lee and his wife Audrey dropped by the Burnaby sales centre for the Affinity project, they intended only to look. Turns out, they did a little more than that: they bought a new home, one with two bedrooms and a den.

“We found something we can live with,” Lee said. “The pricing’s okay, the decoration and stuff in there is a bit better than downtown.

“We’ve never lived in a condo before, and this could be a big change. We’re moving from 2,000 square feet to 1,100; that’s a lot less storage space.”

Affinity, by developer Bosa, has a simple marketing slogan, one that references the Brentwood neighbourhood where it will be located: “Love where you live.”

For the Lees, who often babysit their eight-month-old granddaughter in Vancouver, that location will be key. They wanted something closer to Vancouver than Coquitlam, where they now live; a trip on the SkyTrain trip from Affinity will take just 15 to 20 minutes.

Cameron McNeill of MAC Marketing Solutions says Brentwood “is one of the key urban areas outside of downtown Vancouver,” noting the nearby amenities, which include parks and three SkyTrain stations. A site within walking distance has been set aside for a future school.

McNeill also points out the benefits of residing in a dense mixed-use area. Casual, fine-dining restaurants are a short distance away, as is a large grocery store. Brentwood Town Centre is also close by.

The Phase 1 studios and one-bedroom units have now been sold, as well as the town houses. Still on offer are units with one bedroom and a den, two bedrooms, and two bedrooms and a den.

A diverse collection of buyers have snapped up many of the units in Phase 1. There are recent immigrants from Korea, mainland China and Taiwan looking for homes, as well as Burnaby downsizers wanting to stay in the Brentwood area. As well, there are investors who are counting on the reliability of the Bosa name — they know the project will be completed — and looking at the favourable market conditions in Brentwood. The ‘wedge’ colour scheme for the Affinity condos includes a palette of rich, chocolate laminate flooring, caramel and toast tile, and double-thick finely grained granite countertops. ‘Graphite’ is more muted and

subtle, incorporating honey-toned wood flooring and grey cabinets.

The graphite colour scheme has been incorporated into the show suite, where the soft grey walls in the den contrast well with the glossy white accents.

To show off the space’s potential, a glass tabletop has been fitted between two slim storage cabinets on one side, with the other wall covered in an open bookcase displaying knick-knacks. A sliding-glass door projects a semblance of privacy and noise-proofing.

The master bedroom has a walkthrough closet to the ensuite. The wall-hung sink and cabinet unit “float” in the space immediately before the deep soaker tub, which is surrounded by a backsplash of large-format tiles. The same rectangular porcelain tiles appear in the shower, broken up at one point by a vertical streak of skinny tile mosaic.

The kitchen has a sizable granite-topped island that is accessible from all sides, and includes a breakfast bar overhang that can accommodate at least three.

The suite’s open area includes a lounging spot and two dining areas, although one of those dining areas could be changed to a children’s homework space or reading nook. The second bedroom also has a walk-through closet leading to an ensuite, shared with visitors to the home.

The Affinity building also includes a guest suite.

Sales for the Phase-2 tower are scheduled to begin within the next month, but could start sooner because of the strong demand. Construction is expected to start in late summer or early fall of 2010, with completion in late 2012.

© Copyright (c) The Province

Abbotsford apartments an opportunity for the stylish, adventuresome;

Claudia Kwan
Sun

Gallantree

Project location: 33898 Pine Street, Abbotsford

Project size: Four-storey building with 56 units

Residence size: 1 bed, 735 sq. ft.; 2 bed 895-990 sq. ft.

Prices: 1 bed from $159,900; 2 bed from $209,900

Sales centre: 33898 Pine Street, Abbotsford

Hours: Noon to 5 p.m. daily, except Friday

Telephone: 604-556-8989; 1-800-479-1045
Web: www.gallantree.ca
Developer: Redekop Kroeker
Occupancy: Immediate

For many purchasers, real estate is about that old saw of “Location, location, location.” So real estate marketer Magnum Projects is being open and honest about the Gallantree project in Abbotsford, and where it is.

“The neighbourhood is going through some transformation,” says Magnum director of sales Robert Marchand. “It’s an older area and went through a stage where people were leaving things out in the yard; there were some rundown homes and rentals — and some grow-ops.”

Some of the prospective buyers now taking a closer look even say things like, “Oh yeah, I know this neighbourhood,” and referencing past notoriety.

But Marchand insists that snapshot of the neighbourhood is outdated by three to five years. The sales team at Gallantree makes it standard practice to show potential customers the current view from the top floor of the four-storey wood framed building.

It shows tidily painted houses and neatly kept lawns, some with swing sets in the back for the young families in the area. From another vantage point, you can see the large elementary school field immediately next door to the project, which essentially does away with the need for individual yards. There are still nicely sized balconies for each individual condo.

Fears assuaged, the pitch can now focus specifically on the 56 suites at Gallantree.

Developer Redekop Kroeker began the construction process in fall 2008, at the height of the recession. Various options were considered as the market plummeted, but they decided to carry the construction costs and proceed, without any presales.

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“Now we can point people toward the high quality of the finishing details and construction,” says Marchand. “They aren’t buying pre-sale, we’re showing them fact.”

Particular care is being taken to illustrate how the well-planned suites feel spacious both horizontally and vertically, with nine-foot ceilings. Central hallways and the lobby areas on each floor are enormous. The kitchen layout has been specifically designed so that you can use more than one appliance at a time without having to squeeze by another person.

Those browsing will notice there are no appliances in the laundry rooms/ pantry areas just off the kitchens. That’s because clients can choose their own washers and dryers, and in return, be given a credit.

“There are so many models of washers and dryers these days, and it seems like such a personal choice,” explains Marchand. “We figured this way it’s easier for people to get exactly what they want.”

That was part of the thinking, too, with the interior design, says Mae Suffron. She is the principal of Creative Design.

“We went with two colour schemes for the cabinets [white birch and maple walnut], in the hope of being accessible to everyone. For instance, with the darker cabinetry, it’s a solid wood Shaker door. It’s still a Shaker door — which is traditional– but the colour is contemporary, so it appeals to a wide mix of people.”

Suffron says there’s no reason to believe there’s a lack of style in the suburbs.

“People tend to think that it’s not the same look as downtown Vancouver, which tends to be more contemporary,” she says. “With the cost of buying a first home or downsizing, with all of the TV shows and magazines out there, people are quite sophisticated these days with their tastes. If we find a nice material, we use it, we’re not just thinking about whether it’s downtown or not.”

The goal was to lead people down the path to affordable style with the show suite as well.

Suffron had a large sheet of mirrored glass cut to order at Home Depot, as well as white-painted wooden moulding. She tucked the mirror into a recessed niche in the dining room, where it’s a focal point that expands the room. Total cost? Approximately $350.

She says the point is to demonstrate what people can do on their own, often quite simply and inexpensively. She also suggests adding in some wallpaper or revamping the closet in the second bedroom into a built-in desk, to transform the room into a home office.

“Have the stuff cut to size by a hardware store, or pick up some ready-made shelves at Pottery Barn or Ikea. You don’t need a designer or a lot of tradespeople,” Suffron says matter-offactly. “A lot of people buying the first time out of the gate don’t have a lot of money.”

Affordability has already been built into the pricing, says Magnum’s Marchand. On average, suites at Gallantree are selling for around $238 per square foot; at the height of the market two years ago, Abbotsford properties were going for approximately $300 a square foot.

For that, he says, you get a location that is less than a kilometre away from a section of historical downtown Abbotsford that is experiencing a transformation, with new merchants and new facades.

Expand that radius a little more, and you get larger retailers, the Abbotsford airport, a short drive to the University of the Fraser Valley and quick connection to the Clearbrook highway interchange, which is expected to be finished next spring.

Despite the proximity, there’s very little observable noise at Gallantree. Thick carpeting in most areas muffles footsteps, and the project is sandwiched between two schools, which provide a buffer zone from traffic. The feeder road also narrows to a single lane each way a couple of blocks before Pine Street.

Marchand believes Abbotsford represents the best of a city lifestyle while continuing to provide ready access to the country. He believes it’s time for others to take a fresh approach to how they think of living there.

© Copyright (c) The Vancouver Sun

Royal LePage’s survey tracks increases of up to 29% in first quarter

Derrick Penner
Sun

Metro Vancouver saw the steepest increase in home prices of Canada’s major markets in the first quarter of this year in a sales rebound characterized as an “irrational” response to market conditions that won’t be sustainable, according to national realtor Royal LePage.

The average price of a detached bungalow on Vancouver’s east side hit $674,180 in the first quarter of 2010, a 25-per-cent jump from the first quarter of 2009, realtor Royal LePage reported Thursday in its quarterly survey of major-market housing prices.

A standard Vancouver east-side condominium saw an even steeper gain of 29 per cent to hit an average $402,000.

An average Vancouver west-side bungalow, which dipped as low as $950,000 in the first quarter of 2009, had roared back to an average $1.15 million, a 21-per-cent gain, in the first quarter of this year.

“Both the precipitous decline [in house prices] that occurred during the recession and the very sharp recovery have been steeper and happened quicker than expected,” Royal LePage CEO Phil Soper said in an interview.

The concern now, Soper added, is whether or not the housing rebound, which was heavily influenced by the stimulus of low mortgage rates, will be matched by real economic growth and significant employment gains.

For Metro Vancouver, Soper added that “we know 20-per-cent year-over-year price increases aren’t sustainable, particularly when we’re not seeing significant increases in salaries and wages, nor an increasing number of jobs being created.”

Broader economic growth will be important, Soper added, when higher mortgage interest rates and tighter qualifying rules for mortgages kick in later this year, which will act to cool the market.

If there is economic growth, Metro Vancouver’s “exuberance” in the housing market will ease off gradually, Soper said. If not, activity will fall off more dramatically.

Regardless, Soper expects the region’s rising home prices to slow to low single-digit numbers by the end of the year.

Nationally, Soper said that while growth in the housing markets has been unequal, “the first quarter of 2010 continued where 2009 left off, with more Canadians enthusiastically participating in a rejuvenated residential real estate market.”

House prices were up across all key housing types surveyed by Royal LePage, with the average price of a detached bungalow in Canada rising 11 per cent to $329,209 in the first quarter compared to the first quarter a year earlier. Standard two-storey homes rose 10.3 per cent to $365,141 and standard condominiums increased 10.9 per cent to $228,963.

The survey, which looks at seven types of housing in more than 250 neighbourhoods, found there were three trends across the country.

In urban centres like Toronto, Vancouver and Victoria, there was a roller-coaster effect in which prices dropped then rose to levels that exceed pre-recessionary prices. The second trend saw non-stop growth in markets such as Halifax, Ottawa, Regina, Saint John, St. John’s and Winnipeg. The third saw level markets, where prices are relatively unchanged in centres like Calgary, Moncton and Montreal.

However, the report notes that price increases in all markets are expected to ease in mid-to late-2010.

© Copyright (c) The Vancouver Sun

The lack of a cohesive plan is a missed opportunity for Vancouver’s long-term development

Miro Cernetig
Sun

Don’t be fooled by the seeming lull in the city after the Olympics. Inside the offices of Vancouver’s developers, things are humming.

They’re working on multi-billion-dollar plans to fundamentally remake the city, a development boom that will unfold over the next few years and rival what happened after Expo 86. The skyline will never be the same.

Here are just a few of the projects on the drawing board: the re-roofing of BC Place ($458 million); an adjacent casino and hotel complex ($450 million); at least half-a-dozen residential towers ($1 billion); the possibility of a new art gallery ($200 million to $350 million); two major condo towers on the south end of the Burrard Street Bridge ($500 million); and, the latest I have heard about, the creation of a multi-billion-dollar transportation and commercial complex on the Burrard Inlet waterfront ($2 billion plus). Oh, and don’t forget a third phase of the Vancouver Convention Centre.

This doesn’t include, incidentally, the office towers proposed by the Aquilini Investment Group around GM Place or the major developments that are also going up in Surrey, Richmond and other municipalities. These all add up to another $1 billion or more.

It’s a breathtaking investment in real estate, one of the largest in Vancouver’s history. However, it raises a question that needs to be answered — now.

With between $5 billion and $10 billion in development being planned, most of it in the City of Vancouver, what exactly is the overall master plan? Is there a coherent architectural and economic development vision to ensure this building boom serves the public interest as well as the long-term economic health of the city and its developers?

Unfortunately, so far the answer is no.

All those projects — a mix of private and public investment, spread between private land holders, developers and a multiplicity of municipal, provincial and federal governments and agencies — have no overarching strategic vision to speak of. It’s an ad hoc building spree — and that’s a missed opportunity for this city’s long-term urban development.

Massive real estate developments undoubtedly create wealth. Government leaders, in partnership with the development industry, need to be sure they get a fair piece of those profits and amenities for tomorrow.

Consider the Vancouver Art Gallery. With a debate raging over whether it should be relocated or renovated, there is now an opportunity to raise funds for its development by trading building heights and density with developers.

It cries out for a public debate about where the VAG goes, given the city’s skyline is about to drastically change.

Could a new art gallery be built on Burrard Inlet, along with a new phase of the convention centre? If there’s going to be a multi-billion-dollar transportation hub built around Vancouver’s Marine Building, linking SkyTrain, the Canada Line and commuter rail, all just a few blocks from where the art gallery now sits, perhaps the VAG ought to just stay put.

This development mega-boom that’s in the works is ultimately a necessity for our growing city. The fundamental reality of this decade is that taxpayers are pretty much tapped out. The cash windfalls governments do get will increasingly come through partnerships with the private sector, including developers.

So if we’re going to get a new skyline, it may be time to think bigger. Why not start building higher? Adding extra floors and density means a greater opportunity for the city and province to rake in cash for amenities or even demand a larger share of the profits.

Consider the proposed casino. At the moment, the architectural drawings suggest two squat buildings, well below the height of the new stadium. Add extra floors and you won’t just have a more dramatic piece of architecture, supplying money for all the desired green attributes, but there will also be a larger hotel that will provide more revenue streams in the years ahead.

Like most politicians, Premier Gordon Campbell and Mayor Gregor Robertson want a legacy. It now appears it’s about to go up around them. Getting this mega-development right, taking the 10,000-foot view to extract full public value, is a job both of them need to sign up for.

© Copyright (c) The Vancouver Sun