Steve Randall
The Vancouver Sun

Despite concern that overbuilding of condos could pose a risk to the housing market, especially in Calgary; the Royal Bank of Canada says that the probability of a nationwide downturn in the housing market is low.

In its latest health check RBC says that in the near term there are downside risks for the housing market in Alberta and other oil-producing regions and rising unemployment is also a concern.

High prices in Vancouver and Toronto and government policy are also highlighted as posing risk but RBC does not expect interest rates to be increased.

Copyright © 2016 Key Media Pty Ltd

Ephraim Vecina
The Vancouver Sun

The severe lack of entry-level homes in Canada’s most overheated markets is harming the prospects of not just first-time buyers but also growing families who need to upgrade their dwellings, according to TD Economics.

In an article for the Financial Post, capital markets reporter John Shmuel quoted TD officials as saying that “buyer gridlock”—defined as “a constrained supply of affordable options”—has intensified in Vancouver and Toronto.

The condo sector, in particular, has been most affected by this situation, being the relatively affordable choice for a significant proportion of households who have to deal with the ever-rising costs of living.

“The widening price gap between an entry-level home and a trade-up home becomes a ‘barrier to entry’,” TD Bank Group chief economist Beata Caranci said. “In turn, this reduces churn in the market, elevating prices and scaling back the selection of choices.”

Caranci also pointed at the enormous gains that trade-up properties have experienced over the past few years due to the sheer number of would-be buyers.

“In fact, it could worsen within the core metro areas where existing condo supply and comparative opportunities for development are more readily available,” Caranci warned.

Most importantly, the purchasing arms race and the FOMO (“fear of missing out”) phenomenon stemming from the glut of buyers have dramatic implications on one’s funds later down the line.

“This too eats into future savings for retirement and carries risk for the broader economy that the next economic down cycle will be more extended than previous ones,” the analyst said.

Copyright © 2016 Key Media Pty Ltd

The Crown Corporation announced its quarterly results Monday.

Justin da Rosa
Other

“The first quarter of 2016 saw us provide mortgage loan insurance to 83,000 homebuyers across the country, deliver $589 million through our assisted housing programs and guarantee $21.8 billion in new securities,” Brian Naish, CMHC CFO, said. “Each of these outcomes contributes to our vision of being the heart of a world-leading housing system.” Total insurance in force fell from $526 billion at the end of 2015 to $520 billion as at March 31.

The average insured loan for the quarter was $242,367 and arrears were a mere 0.34% at March 31.

“Homebuyers with CMHC-insured mortgages have a strong ability to manage their debts as evidenced by an average credit score of 747 for transactional homeowner loans and an average gross debt service (GDS) ratio of 25.8% for the three-months ended March 31, 2016,” CMHC said in a release.

The Crown Corporation also addressed its exposure in Fort McMurray.

“Claim losses to CMHC are not expected to be significant as lenders work directly with borrowers to address any required repairs, recoup losses under existing property insurance policies and access any disaster relief, emergency funds and/or other assistance as available and appropriate,” CMHC said.

Copyright © 2016 Key Media Pty Ltd

Hot markets risk making gap between starter homes and trade-up places impossible to breach

Other

Home buyers trying to move up from their entry-level dwellings face a form of gridlock in the red hot markets of Toronto and Vancouver that risk confining them to condos, TD Bank says.

In a commentary released Friday, Beata Caranci said buyer’s gridlock refers to existing homeowners who are trying to move up from their entry-level home to the “trade up” segment but face a tight supply of options they can afford.

Even though buyers acquire entry-level homes with the intention of eventually “trading up,” strong price appreciation now means taking on a big mortgage or eating into savings, TD said, adding that people trying to sell their entry-level homes have not seen the price appreciation relative to what homeowners in the trade-up segment have enjoyed.

“Taking into account other costs associated with selling, financially it makes more sense to stay put and/or renovate,” said Caranci. “If this sounds familiar, you have a case of buyer’s gridlock.”

Meanwhile, Millennials, who have been the focus of much of the attention in the hot housing markets as they face being priced out, absorb the trickle-down effect of buyer gridlock. 

“It limits their options available for purchase,” said Caranci. That means anyone who was able to stretch themselves to get into that starter home and start climbing the ladder may be stuck there longer than they planned. “After making the plunge, it can prevent a move to the next step.”

The gridlock that existing homeowners face can be exacerbated when they elect to stay put and renovate their entry-level homes.

Renovation activity in detached home market has shot up because of their flexibility over condos when it comes to permits and expansion. 

“The end result is that a home conversion can take what was once considered an entry-level detached residence into the category of a trade-up, further tightening the available and affordable supply at the lower end of the market,” said Caranci.

TD said the supply of new homes in the Toronto and Vancouver areas remains greatest in the condo market, although its sees the square-footage for the average unit shrinking, making them not as family-friendly.

Demand for detached homes has sent would-be buyers out to the suburbs of the large metropolitan areas, inflating prices in those regions.

“Ultimately, Toronto and Vancouver are moving the way of many international cities, where land constraints and population growth forces residents out and up,” she said. “Out into suburbs and up into condominiums, be it ownership or rental.” 

©2016 CBC/Radio-Canada.

Steve Randall
Other

Buying a home in Vancouver has never been more expensive and a new report shows that to save for a downpayment now takes almost a quarter of a century!

The report, from Generation Squeeze, reveals that buying an average home will mean 12 years of saving for a downpayment nationally but in Toronto it takes 15 years, BC overall will take 16 years and in Vancouver it’s 23 years.

UBC professor Dr Paul Kershaw, who co-authored the report says: “Even at historically low interest rates it then takes the typical young Canadian an extra month of work per year to pay the mortgage. In Metro Toronto and all of BC it takes an extra 2.5 months.”

Generation Squeeze has been running its Code Red campaign over the past year and eventually aims to encourage all provincial and federal political parties to adopt bold policy adaptations that are capable of reining in housing markets. Over the next year, the campaign will focus primarily in BC in anticipation of the 2017 provincial election.

Copyright © 2016 Key Media Pty Ltd

Allen Garr
Van. Courier

If you consider the undeniable social and economic benefits of affordable housing and the resulting stability and health it provides a community such as ours, you must wonder why we allow this precious commodity to be sold to people who have no intention of living here.

The real estate gold rush we are witnessing, driven by overseas money flooding into this market, looking for nothing more than a safe haven to store capital and generate a return, has managed to help fill provincial and federal coffers through a variety of taxes.

That would explain why both Ottawa and Victoria are reluctant to do anything to slow the revenue flow. The most recent Federal Labour Market Bulletin points out that B.C. continues to lead the economy nationwide in no small part because of “rising housing valuations in the Lower Mainland (particularly in Metro Vancouver.)” The tear-downs and rebuilds are creating a high demand for construction workers, workers that most likely can’t afford to buy the houses and condos they are building.

If your Canadian Charter of Rights is supposed to guarantee “the security of the person,” imagine the insecurity tens of thousands in Canada are feeling when they are unable to find stable, affordable housing; when they are forced to leave the city where their grandparents and parents grew up so they can find an affordable place to live and work.

Imagine if we treated our health care system the way we treat housing. Imagine if it just became a case of the global market place setting the price for services. Anyone with enough money could come here and fill our hospital beds and operating rooms to the point where you and I no longer could afford access because we would be paying the same price as the medical tourists.

Imagine if we did the same with our education system so that B.C. residents no longer got a better deal on university tuition, that public school up to Grade 12 was no longer free but our children were charged the same fees as overseas students. Nuts, eh?

The issue of affordability is not one that just affects the marginal folks in our community. Monday’s Globe and Mail had a story of universities in Canada’s major cities unable to attract new faculty because of the high cost of housing.

We are then given an example of the University of British Columbia, ironically cutting its own throat on this question of affordability.

According to a survey of the university’s deans, last year UBC missed out on hiring 18 people who turned down the work because of housing costs. At the same time it is losing academic talent, UBC is making money hand over fist by selling condos that have been built on its endowment lands to customers overseas and here.

Christopher Rae, an associate professor of modern Chinese literature, says for years the university has been discussing the housing cost dilemma as it relates to attracting faculty. But he told me that when he last visited the cities of Hong Kong and Taipei to attend conferences, he saw Chinese language ads pop up when he searched UBC related websites; they offered UBC condos for sale, condos neither he nor his colleagues can afford. So, he wonders, “Should UBC be leasing its land for hundreds of years to the open market and mostly to the global rich?”

He also said UBC is not the only developer selling to foreign markets. In Taipei he saw a 20-storey-high billboard offering condos in the new and exclusive “Vancouver House” at Howe Street and Beach Avenue.

Universities are not alone in facing the issue of affordability in attracting talent. In an article in the Financial Post, Hootsuite CEO and global software superstar Ryan Holmes explained that he is running into the same problem.

Holmes predicts without affordable housing, Vancouver risks becoming an “economic ghost town” because “the creative capital Vancouver has accumulated for generations is being drained due to an unaffordable housing market.”

So you tell me: Why are we selling our housing to foreigners who treat our city as a safe investment that offers a great return but not a place to live? It can be stopped. It just takes political will. And we would be better for it.

© 2016 Vancouver Courier

BCREA
Other

The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank cited that inflation and economic growth were evolving roughly in-line with expectations, though household vulnerability to economic shocks has moved higher due to high debt burdens.
The Canadian economy got off to a very strong start and will likely end up recording real GDP growth above 3 per cent for the first quarter of the year. However, much of that growth was front loaded and more recent data has been weaker. Growth is expected to slow sharply in the second quarter as a result of the wildfires in Alberta and their impact on oil production before rebounding in the third quarter and ramping up to end the year. Slower growth through the summer months will keep the Bank on the sidelines though a probable tightening of monetary policy by the US Federal Reserve as early as June may add some upward pressure to Canadian long-term interest rates.

MATT ROBINSON
The Vancouver Sun

“There’s an old saying that what goes on in Vegas stays in Vegas.”

That was the assurance from a representative of developer Joo Kim Tiah to Vancouver city councillors that a proposed nightclub at the Trump hotel and tower would not resemble its raucous sin city counterpart.

Trump hotel representatives were at city hall Wednesday to defend their liquor licence application for a Drai’s pool bar and nightclub plus patio. But after hearing about the party zone reputation of the Drai’s nightclub in Vegas and concerns from nearby residents that loud bass and drunk patrons would spill out into the streets, councillors denied the hotel’s application.

Among those opposed to the club was Coun. Kerry Jang, who had this to say about the hotel’s approach: “I’m feeling I’m kind of getting the wool pulled over my eyes and I don’t appreciate it.”

Earlier in the hearing, Bert Hick, a representative of developer Joo Kim, described the planned Drai’s venue as a “very high end bar” that will also be used for dining, corporate events, banquets and weddings, and distanced it from something you’d find on Granville Street.

“Cheap drinks, cheap entertainment, cheap drunks,” is how Hick described that party district, which he claimed served 17 to 25 year olds.

In contrast, Trump hotel general manager Philipp Posch (pronounced posh, and fittingly so, noted Coun. Tim Stevenson), described the future Trump clientele as a fair bit older and far more refined. “We like to call them the new five-star generation,” he said.

While wealthy people and older folks can absolutely get drunk (and presumably rowdy), that’s probably less likely when they’re being charged $15 to $19 for a cocktail with hand-carved ice cubes and fresh herbs, he said.

“We’re not going to cater to a crowd where you come in and you get a $2 Jell-O shot and a $6 beer,” said Posch, who later said that he considers himself as a luxury hotelier.

“I don’t want to be dealing with a crowd of people that are running around with Canucks Jerseys — God bless the Canucks — and a cup of Molson Canadian — Go Canada — like we see on Granville Street. That’s not who we are,” Posch (who is from Austria) said carefully to laughter from councillors. 

In response to concerns about noise, Hick and Posch said tower residents who had paid $2 million to $4 million for a suite and guests at a hotel with rates of $400 to $600 a night would not tolerate late partying.

Many Las Vegas visitors will be familiar with the name Drai’s. For those who haven’t heard of the party space, Jang took a few minutes to describe what he discovered about the nightclub via a link on the Trump hotel site.

“The first thing I found was ‘Drai’s Animal House’,” Jang said, proceeding to list some of the musical acts booked at the club. “Ludacris, Party Favor, Bassjackers — I don’t even know what that means. … debuts of rappers Machine Gun Kelly and A$AP (here Jang read the name out phonetically, as in A-dollar sign-A-P) Ferg.

“I’m not seeing a mature clientele there,” Jang continued. “If Drai’s has a reputation, I’m sure he would want to keep that going.”

Before the vote, Jang said he’d never seen such a lopsided response from residents, who almost unanimously came out against the nightclub. Both Vision Vancouver and the Non-Partisan Association councillors were split on the vote, with councillors Geoff Meggs, George Affleck and Melissa De Genova in favour of the nightclub and the remainder opposed.

The developer will have an opportunity to resubmit an application for the space, said Andreea Toma, the city’s chief licensing inspector. Reducing the venue’s size from 380-plus seats or seeking a food primary licence were two options, she said. 

In a separate vote, councillors unanimously approved a 150-person lobby lounge for the hotel.

The denial of a licence for Drai’s will dash the hopes of many applicants who came out to a Trump hotel job fair. A claimed 10,000 Vancouver residents applied to work at the hotel, according to a spokeswoman. Given Vancouver has about 485,000 people aged 18 to 65, that’s about two per cent of the working aged population.

© 2016 Postmedia Network Inc.

Justin da Rosa
Other

Real estate veteran stirs controversy with foreign homebuyer tax argument.

“For quite some time also I have been saying that foreign Investors should be taxed at a much higher rate of land transfer tax, and if needed a higher capital gain taxes for non-residents; this does not mean absolutely to harm Canada, all the contrary this is to protect it against international speculators,” Oscar Vidal-Calvet, an agent with Royal LePage wrote in forum section of REP.

The comment was in response to Royal LePage President and CEO Phil Soper’s suggestion that a tax on foreign homebuyers would be un-Canadian.

“I was asked … if I supported new taxes on foreign investors. I think the answer is you need to be a lot more thoughtful than a yes or no,” Soper recently told REP. “Knee-jerk public policy like a change in taxes for political reasons would be a very sad more for a country known for its tolerance. Brand Canada would be harmed.”

Many have argued in favour of the federal government implementing measures to discourage foreign investment in the housing market. It is one factor some speculate is pushing prices to unreachable levels for Canadians in markets such as Toronto and Vancouver.

Soper suggested taxing foreigners in Canada would be akin to the United States placing one on Canadian homebuyers who helped prop up various housing markets in the wake of its recent housing collapse.

But not everyone agrees with that stance.

“Yes, Canadian investors did prop up sales in places such as Arizona a few years back. But did that drive Phoenix and Scottsdale prices into the stratosphere?” REP reader James Oberian wrote. “No, it simply helped to stabilize markets that were in otherwise downward freefall.”

Copyright © 2016 Key Media Pty Ltd

Flipping pre-sale agreements without compensation allowed under new B.C. regulations that came into effect May 16 2017

Frank O’Brien
Western Investor

Pre-sale condo assignments at the Vancouver House, which completes in 2019, are being advertised on Craigslist in Vancouver. New condos are exempt from “shadow-flipping” rules brought in May 16 by the B.C. government. – Westbank

A housing sector that appears prime for flipping – pre-sale condominiums – is exempt from recent B.C. legislation meant to restrict the sale of assignments and track foreign buyers in Metro Vancouver’s white-hot housing market.

Assigning one’s right to a contract is a legitimate practice. But, due to media reports that some realtors were flipping assignments secretly, the B.C. government now requires contracts prepared by real estate licensees to include clauses stating that the contract cannot be assigned without the written consent of the seller, and that any profit from an assignment goes to the initial seller. The new rule came into affect May 16.

But the legislationexempts new developments, including pre-sale condos, even if a licensed realtor sells the assignment, according to b the BC Real Estate Council and the Ministry of Finance.

Section 8.2(2) of the new regulations states: “This section does not apply in relation to a contract for the sale of a development unit by a developer, as those terms are defined in section 1 of the Real Estate Development Marketing Act.”
 “The regulations contain an exemption for developers because they generally do not need the same kinds of protections as consumers, especially since developments are often pre-sold and some form of assignment term is standard,” explained Finance Ministry spokesman James Edwardson.

Under the Real Estate Development Marketing Act, a 2008 document that was brought in during the last real estate boom, the onus is on developers to police assignments. Some have done this by charging a fee, usually 1% to 2% of the sale price, and outlawing the advertising and sale of assignments until the building is sold out.

“The processes already in place with respect to assignments in new development seems to have better protected the public than the processes that were in place for resale,” said Scott Brown, president and CEO of Fifth Ave Real Estate Marketing Ltd., one of the largest condo marketing firms in Metro Vancouver.
 But Metro Vancouver developers report vague enforcement and modest concern about assignment sales.

Cressey Developmentvice-president of development Jason Turcotte said Cressey allows pre-sale assignments because, due to the two to three-year delay between pre-sales and completion, some condo buyers could not close on their units and should therefore be allowed to assign the sale.

As for advertising restrictions, about three-dozen condo assignments are listed on Craigslist this week, including units in luxury Concord Pacific projects and Westbank Corp.’s landmark Vancouver House that completes in 2019. The ads are from both realtors and from owners holding pre-sale contracts.

Assignments can be a “win-win” for developers, because the developer gets the original price for the condo, a 1% to 2% commission on any assignments and “if the buyer doesn’t close, they get to keep the deposits and get the condo back,” noted Vancouver real estate agent Mike Stewart.

Condo assignments could also be a lucrative avenue for investors. There are 17,311 new condominiums under construction in Metro Vancouver and there are only 790 units completed and unoccupied, a six-year low, according to Canada Mortgage and Housing Corp.

As well, the benchmark price of a resale condo in Metro Vancouver increased 20.6% from April 2015 to $475,000. New condos are fetching even higher prices and seeing similar price appreciation.

The 6,227 new condo sales in the first quarter of this year in Metro Vancouver represented a 53% increase from the same quarter last year and a new six-year high, according to Brown. “Feverish sales activity has resulted in inventory levels reaching six-year lows, which will put further upwards pressure on prices as demand seems to continue to outweigh supply,” Brown said.

There is another aspect that some offshore investors may consider, according to real estate consultant Ozzie Jurock. He noted that, under separate legislation that also came into force this month, the B.C. government will require the buyer of a property to list their citizenship.

This requirement, however, is only on transfer of title. Therefore, under the new rules, a foreign buyer could buy a pre-sale condo assignment, flip it to a buyer and never appear either as a buyer of an assignment or as property owner on any government documentation, Jurock explained.

© Copyright 2016 Western Investor