Condo builders push to meet a luxury shortage

Shane Dingman
The Globe and Mail

There are more millionaires than ever in Canada and while affordability isn’t an issue when the well-heeled shop in the luxury-condominium market, they may face a constraint that also plagues middle-income and lower-income house hunters: There’s simply not enough supply.

According to the 2018 Re/Max Spotlight on Luxury, only 37 condos worth more that $3-million have transacted in Toronto in both 2017 and ’18, and in Vancouver the number actually fell 13 per cent from 68 to 59 in 2018. In most other cities, the number condos selling in that range is in the low single digits.

Faced with reports that suggest that Canada’s hottest property markets will be drawing or minting even more ultrahigh-net-worth individuals, a handful of ultraluxury condo projects are under way or in development to deliver the kind of exclusive living that folks in that income bracket have gotten used to.

“We wanted to create a building that literally had all penthouses,” said Barry Fenton, president and chief executive of Lanterra Developments, speaking of the planned luxury development at 50 Scollard St. in Toronto’s tony Yorkville neighbourhood. The building proposes 64 high-end apartments in a 41-storey building. Lanterra, which has begun the presale process, said it is finding takers for units that range from about $4-million to $13-million. At $2,500 a square foot (the average in Toronto for preconstruction condos is $745 a square foot), Mr. Fenton said 50 Scollard’s market is the ultrahigh-net-worth individual worth $30-million or more. To those folks, he said, it’s a bargain, compared with global luxury towers such as One Hyde in London, which he said averages $11,000 a square foot. The issue with most buildings, he said, is that there are only a few floors of penthouses for luxury living atop a much less exclusive community.

“I live at 1 Bedford [a Lanterra development that’s also the downtown residence of Toronto Mayor John Tory]. I have about 4,500 square feet, but when you come up through the elevators there are people that have 600 square feet, 800 square feet. I’m happy with it but – the bottom line is people of that net worth want to have a certain … standard, want certain privacy, want to be with a certain group of people,” he said. “We’re not looking for 500 or 1,000 buyers; we’re looking for relatively well-off people that want to be in a community with other well-off people. And that’s what we’ve accomplished with 50 Scollard.”

Millionaire status isn’t what it used to be. In Canada’s top housing markets, being a net-worth millionaire is almost a commonplace. So, for those shopping for a “luxury” condo, $1-million just won’t cut it. But the ultrahigh-net-worth (UHNW) cohort is growing. Re/Max says 621 condos priced between $1-million and $2-million sold in 2018, up 2 per cent from 2017. In Vancouver, that number hit 811, up 6 per cent from 2017.

According to market research firm Urbanation Inc., there are five condo projects in Toronto, totalling 563 units currently in development, that sold for more than $1,500 a square foot – or double the average square foot price of a condo in the city. In the past quarter, there have only been 18 sales in seven buildings of resale condos where the price per square foot topped $1,500.

Developer Camrost Felcorp Inc. built one of the existing “superluxury” condo towers in Toronto on Urbanation’s list, 155 St. Clair W., and is nearing the completion of construction on their most recent project for these buyers: Yorkville Private Estates at Cumberland Street and Avenue Road.

Joseph Feldman, the 26-year-old director of development at Camrost Felcorp (son of David Feldman, Camrost’s CEO and president), said the uptake at their luxury developments suggest this is a market that’s been underserved.

“Over the past 20-30 years, it seems as though the focus [is] as much small product as possible because it’s the easiest, quickest to sell and there’s a shortage of it, so people have done well building that product,” he said.

© Copyright 2018 The Globe and Mail Inc.

New home sales in the province?s biggest market, Vancouver, have actually climbed

Josh Sherman
other

 

In BC, existing home sales continue their descent, but realtors suggest that by 2019, the resale market will begin to recover. Meantime, new home sales in the province’s biggest market, Vancouver, have actually climbed — although unsold inventory is also on the rise. To put these and other developments in perspective, check out these five charts.

New condo sales buck broader market cooldown

What’s going on here: In a recent report, Urban Analytics compares quarterly sales of new condos and unsold units, showing transactions are up despite a broader market cooldown.

The takeaway: “The primary reason for the quarterly increase in sales was strong demand in the suburban sub‐markets south of the Fraser River, where investor and entry-level demand for low rise condominium product remained strong,” reads the report, authored by Michael Ferreira, managing principal of Urban Analytics.

Real estate slowdown isn’t limited to existing homes

What’s going on here: Altus Group recently released 2017 annual totals for the sales of new homes, comparing last year’s results with each year dating back to 2007 as well as first-half totals for 2018.

The takeaway: New-home sales peaked in 2016 and continued to decline as of the first half of this year, with sales down about 15 percent from the same period in 2017.

Metro Vancouver homebuyers benefit from price reductions

What’s going on here: The Real Estate Board of Greater Vancouver charts historical average residential-property prices dating back to 1977.

The takeaway: Homebuyers in Metro Vancouver have been getting “a little relief” of late, according to the board. Home prices are down between 3 to 5 per cent since June, depending on the category of property.

Brighter days for BC real estate are ahead: forecast

What’s going on here: Projected 2019 home sales for the major markets in the province, according to the British Columbia Real Estate Association’s latest forecast.

The takeaway: It’s going to get worse before it (quickly) gets better. This year, the board anticipates 80,000 homes will have changed hands in the province by the year’s end, down from 2017’s tally of 103,768 transactions. However, in 2019, BCREA predicts sales will recover to 89,500 units, above the 10-year average.

2 years ago, Vancouver was the top luxury real estate market in the world. Today?

What’s going on here: Each quarter, Knight Frank rates 43 luxury real estate markets around the world, looking at the top 5 percent of properties.

The takeaway: “Vancouver… sits at the bottom of our rankings as upmarket areas such as West Vancouver have seen a marked slowdown in sales and prices as a result of the raft of measures introduced in February’s Budget,” Knight Frank says.

© 2018 BuzzBuzzHome Corp.

Distress Sale: Borrowers Sinking

Jen St. Denis
other

With its slightly kitschy but homey pine-panelled interior, stunning view of the ocean and backyard swimming pool, it’s easy to imagine a family living in the four-bedroom home on Russet Way in West Vancouver.

But today the house is empty, a court notice affixed to the door, the pool holding just a few inches of slimy green water.

Like many houses in West Vancouver, this house’s value has dropped dramatically since a series of government interventions, in response to a price spike in 2016, let air out of the market.

Real estate market watchers say this home is also an example of how borrowers and private lenders are scrambling to recoup their investments in several high-priced neighbourhoods where home prices are rapidly deflating.

A recent analysis shows private lending has been growing in Toronto, but a dearth of data in Vancouver makes this area, and its potential impact on the wider housing market, a mystery.

Two private lenders have registered a total of $4.47 million against two West Vancouver homes owned by Sherrin Lim, including the one on Russet Way. While the two properties together have an assessed value of $5.85 million, one of the homes sold for $2.4 million in a court-ordered sale in July, while the Russet Way home is currently listed at $2.1 million. The owner has seen $1.35 million in value disappear.

“It’s much more vulnerable right now, and we’re already starting to see some very distressed sales in the Vancouver market where the lenders were private lenders,” said Ben Rabidoux, the owner of North Cove Advisors, an investment research firm in Ontario.

For nearly a year, Canadian banks have been required to “stress test” borrowers to make sure they can withstand a mortgage rate increase. The new requirements were brought in by a federal government concerned that homeowners were taking on too much debt. The regulation means that many borrowers can no longer qualify for as big a mortgage as before, and borrowers looking for a second mortgage are more likely to be turned away.

B.C.’s government has put in place a suite of measures targeted at rampant speculation in the province’s real-estate market, including higher taxes and stricter data collection rules. In response for a request for comment for this story, B.C.’s Ministry of Finance sent a statement that said the province has “secured a permanent federal-provincial table on white-collar crime and information sharing, where we will be discussing how to improve data collection on the mortgage market.”

In the Greater Toronto Area, private lending provided funds for 20 per cent of second mortgages in the second quarter of 2018. This is a 67 per cent increase compared to two years ago, according to an analysis published in October by John Pasalis of Realosophy and Paul McGowan of Teranet. The same study found that private lending was most heavily concentrated in areas of the GTA where there had been a lot of real-estate investment activity.

There are no similar studies for Vancouver or British Columbia, and it’s simply not known how many properties have mortgages from private lenders, which are normally higher-interest, short-term loans of up to one year. Private lenders are usually less concerned with borrowers’ incomes than with property equity that can be used to cover the loan.

As governments try to solve Vancouver’s high-home-price crisis and rein in lending that could be fuelling price growth, not knowing the size of private lending is a blind spot, said Tom Davidoff, an economist at the University of British Columbia who studies real estate.

“When we think about solutions to high prices, there’s build more homes, make sure people who don’t live and work here aren’t buying houses cheaply, and then make sure there aren’t crazy loans driving people who normally wouldn’t be able to buy homes pay prices they normally wouldn’t be able to repay,” Davidoff said.

“If you don’t know the extent to which first-time home buyers, especially, are getting financing, or investors are getting financing to buy multiple properties, then you don’t know how important credit is.”

The Bank of Canada has said the “migration of lending” to nonbank sources “warrants monitoring,” and Canada Mortgage and Housing Corporation is currently collecting more data on the sector.

Private mortgage lenders and borrowers who rely on them say they’re meeting a need as banks turn away borrowers who can’t meet the stricter new rules.

When Sean Abadian wanted to tap the equity in the Yaletown condo he’s owned for 14 years to invest in his own real-estate investment fund, he didn’t want to wait months for his bank to evaluate his mortgage application, only to turn him down anyway.

Instead, the former realtor-turned-real-estate-investor went to Neighbourhood Holdings, a private lender, for a one-year loan. Under the terms of the loan, he’ll make payments on the interest only and will pay back the rest of the loan in full at the end of the term.

“I invest it in my own fund; I mainly do land development,” Abadian said. “I’m mainly involved in projects that are five-, six-, maybe seven-year cycle, usually, but of course I look for opportunities in the (building) I live in.”

Taylor Little, president of Neighbourhood Holdings, said he knows of private lenders who will lend to properties worth $10 million and up. But he said there are few buyers for those kinds of properties and the risk is greater.

“We’re looking for liquid properties in urban markets, properties like condos, townhouses, renovated houses with rental suites that are easy to sell,” Little said.

Mark Cashin, the Toronto-based co-founder of an online private lending platform called MyBrokerBee.com, said his company is currently assisting with a deal in which the owner of a Vancouver house is looking for a short-term loan of $3 million to help with the carrying costs while the owner tries to sell the property.

“They bought an older property, tore it down, built a massive place and are trying to sell it at $15 million,” Cashin said.

Cashin said that kind of deal is “not one I think I would personally play in.” Safer bets for private lenders are urban properties in the $400,000 to $1 million range that can be sold quickly, said Cashin, who also owns a mortgage brokerage and created his platform in an attempt to make private lending more transparent and legitimate.

Steve Saretsky is a Vancouver realtor who has been approached by companies like Neighbourhood Holdings to invest with them. The companies usually pitch investors a guaranteed investment return of eight or nine per cent, Saretsky said, although Neighbourhood Holdings said they have never claimed a guaranteed return.

But Saretsky is wary of that promise and so far hasn’t invested “because I know the risk and where the market’s going.”

“There are possibilities where if the market goes down, investors can get a little more nervous and they can ask to get their funds back out, but a lot of these (mortgage investment corporations) have clauses that say they can put a hold on the funds if they wish, if they run into liquidity issues,” Saretsky said.

“There’s definitely risk from an investor standpoint. There’s no such thing as a nine per cent guarantee.”

Little and Cashin both described the Greater Toronto market as a strong bet, with a large and growing population, high demand for housing and relatively high incomes to support real-estate purchases. But Vancouver is more of an open question right now, with the once red-hot market appearing to react to the government’s new taxes and data disclosure rules.

“It’s hard to come to a firm conclusion,” Little said. “Sales volumes are dropping, liquidity is dropping. There’s a lot less activity.”

Abadian said private lenders are needed especially now, as banks tighten their lending practices, to keep capital flowing in the real-estate market.

“I think there’s a need, but it’s concerning how much they’re growing,” Saretsky said. “We saw this in the U.S. in 2006 and 2007. A lot of the lending growth started to turn more into the shadow lending sector, and that’s kind of what’s happening here.”

© Copyright Toronto Star Newspapers Ltd. 1996 – 2018

Montreal?s renters might suffer from a foreign buyer?s tax

Neil Sharma
Canadian Real Estate Wealth

These days, Montreal is riding high—the city`s economy is surging and so is its real estate market—but that’s inevitably attracted interest from foreign buyers whom the mayor fears is driving unaffordability.

Valerie Plante, elected mayor last year, wants to follow Vancouver and Toronto’s lead in implementing a foreign buyer tax. However, according to Carrie Law, CEO and director of Juwai.com, the largest website in China for international real estate, the proposed tax would actually harm Montreal’s renters who comprise two-thirds of the city’s households.

“A foreign buyer tax would favour the one-third of Montreal households who are owners over the two-thirds who are renters,” she said. “That means two out of three care more about rents than prices. I do agree that buyers from China play an important, minority role in certain parts of the condo market. Most new condos bought as investments by foreign buyers will end up as rentals. The current condo boom could lead to foreign buyers financing lower rents for locals. It’s hard to understand why the government opposes the possibility of lower rents. Rents have a bigger impact on many more people than do prices.”

As mortgage broker George Macris of Dominion Lending Centres Centre-Ouest in Montreal notes, the municipal government doesn’t have the power to instate a housing tax. Plante’s party, Projet Montreal, first called for a tax in spring 2017, but unless the provincial government steps in, their calls will go unheeded. Macris added that, for a city its size, Montreal is a low-priced market that was bound to attract investor attention, both domestic and from abroad.

That doesn’t mean Plante may have a point about the influence of foreign money on escalating housing prices.

“As a veteran Montreal mortgage broker, it’s been a little over six months that every client I have who is prequalified, and who’s in the market to purchase in Montreal or the surrounding areas, is finding themselves in multiple offer situations and I’m seeing more and more offers accepted just over asking price,” he said.

“Foreign buyers are maybe playing a role in the pricing game, but Montreal has a growing economy with the lowest unemployment rate it’s seen in decades.”

Indeed, at 5.6%, Montreal’s unemployment rate hit its second-lowest level on record last month.

But Law thinks that a foreign buyer tax could have unforeseen ramifications that Plante’s administration will rue.

“Would the tax address the issues its supporters claim it does? No,” she said. “We believe those fears about affordability in Montreal are exaggerated. Affordability is actually what’s driving prices up, in the form of high employment and low interest rates. Foreign buyers are in no way driving market-wide price or sales trends. That’s preposterous on the face of it.”

Copyright © 2018 Key Media Pty Ltd

Balanced conditions remain for BC markets

BCREA

The British Columbia Real Estate Association (BCREA) reports that a total of 6,405 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in October, down 26.2 per cent from the same month last year. The average MLS® residential price in BC was $690,161, a decline of 4.1 per cent from October 2017. Total sales dollar volume was $4.2 billion, a 29.3 per cent decline from October 2017. 

“The BC housing market continued to grapple with tougher mortgage qualifications in October,” said Cameron Muir, BCREA Chief Economist. “However, more moderate consumer demand has led to a much-needed increase in the supply of homes for sale.” 

Total active residential listings were up nearly 30 per cent to 36,195 units in October, compared to the same month last year. While the BC housing market exhibited balanced conditions overall in October, market conditions do vary between regions and by product type. 

Year-to-date, BC residential sales dollar volume was down 22.1 per cent to $49.7 billion, compared with the same period in 2017. Residential unit sales decreased 22.8 per cent to 69,664 units, while the average MLS® residential price was up 1 per cent to $713,662.

4,900 new units to be built over three years for renters from a range of income

Amy Smart
The Province

The B.C. government is funding 4,900 new affordable rental units to be built in the next three years as part of its efforts to tackle a housing crisis across the province.

The units will include both non-profit and co-operative housing and are designed to address affordable-housing needs for a range of income levels in 42 communities, the government says in a statement.

The buildings will contain a mix of units for middle-income people and families, heavily subsidized rentals for seniors and others on fixed incomes, and homes for low-wage workers.

“We want a range of people to have access to this new affordable housing. The projects will include a mix of rent levels,” Housing Minister Selina Robinson said at a news conference in Vancouver.

Robinson said one building could be home to seniors, retail workers, nurses and first responders, “who are increasingly struggling in a rental market that is becoming so unaffordable for too many.”

Jill Atkey, chief executive for the B.C. Non-Profit Housing Association, said the investment is “vital.”

One-third of B.C. residents are renters and almost half of them are spending more than 30 per cent of their income on rent. Almost one in five are spending more than 50 per cent of their income on rent, she said.

“Data tell us that this crisis is real,” she said. “Spending more than you can afford on rent is becoming the new normal,” she said.

It’s significant that the projects are being delivered thorough the non-profit sector, Atkey said, because it means they will remain affordable in future.

This is the first set of housing projects selected through the B.C. government’s $1.9-billion Building B.C.: Community Housing Fund established to construct more than 14,000 affordable rental homes for independent families and seniors.

It’s part of a larger $7-billion commitment by the B.C. government to build 114,000 affordable homes over 10 years.

Increasing the housing supply was also part of the NDP government’s confidence and supply agreement with the B.C. Green party.

Robinson said the province received more than 100 responses to its request for proposals and the projects were selected based on criteria that includes the types of clients and the impact the project is expected to have in reducing the community’s affordable rental-housing need.

Seventy two projects have been approved. About 1,500 homes will be built in the Vancouver area, 1,400 in the Fraser Valley, 1,300 on Vancouver Island and the Gulf Islands, and a combined 750 in the Interior and north.

© 2018 Postmedia Network Inc.

There is a high demand for industrial units in Metro Vancouver

Steve Randall
Canadian Real Estate Wealth

High demand for industrial units in Metro Vancouver is outpacing new supply and driving rental rates higher.

With an ongoing record low vacancy rate of less than 2%, even a 5% growth in inventory (more than 9.2 million square feet net) over the past 36 months has not done enough to meet demand, especially from the fast-growing ecommerce sector.

Avison Young reports that the industrial vacancy rate in the fall of 2018 has hit 1.5% in Metro Vancouver with rental rates have continuing to climb rapidly. The average asking net rent in Metro Vancouver is now at $11.43 psf, up from $9.99 psf a year earlier.

New build may be best for large operators Tenants in virtually all markets are faced with either renewing their lease at notably higher rates or relocating further away from the region’s traditional core industrial markets to markets located further south of the Fraser River and further east in the Fraser Valley.

“Companies are increasingly looking for efficiencies, including consolidating multiple locations into a larger facility,” comments Avison Young Principal Russ Bougie. “Given enough lead time, larger companies currently have more options for a new build-to-suit than if they were to lease an existing building in almost all size ranges and markets.”

Market fundamentals remain strong, and demand from owner-occupiers and investors at near record levels is expected to continue for at least the next 18 months.

Copyright © 2018 Key Media Pty Ltd

BC Homebuilders slowdown consctruction

Josh Sherman
other

A slowdown in BC homebuilding could be a sign that several factors — including interest rates and multiple policy measures — are taking hold and pushing back groundbreakings, a new report suggests.

BC homebuilders are on pace to begin work on 29,860 units annually in urban areas throughout the province, according to the latest estimates from the Canada Mortgage and Housing Corporation.

Although it’s an increase from the seasonally adjusted annualized rate for September, when contractors were on pace to break ground for 25,500 such units, it’s down from the 40,000 homes BC builders were trending towards over the first eight months of the year, says Central 1 Credit Union.

In Central 1’s latest B.C. Economic Briefing, its deputy chief economist outlines a number of developments that may be discouraging homebuilding, at least for the time being.

“While this [decline in housing starts] could be a coincidence, the combination of decelerated resale market conditions, higher interest rates, sluggish pre-sale activity since the introduction of mortgage ‘stress tests’, and announcement of a speculation tax, may be delaying project construction,” writes Bryan Yu, who has also worked for CMHC and the British Columbia Real Estate Association.

“Builders across the metro areas have seemingly ‘hit pause’ on new construction in September and October,” Yu adds.

Some markets were hit harder than others. Metro Vancouver saw housing starts hit an annualized rate of 17,920 units in October, overshooting the 14,240 units from September but below the 25,000-unit average observed in earlier months. Meantime, Kelowna’s annualized starts were pegged at 700 units last month, a far cry from the March–August average of 3,500 homes. “Unsurprisingly, multi-family construction was behind the sharp retrenchment, reflecting size and infrequency of projects,” Yu explains.

Yu doesn’t rule out a short-term recovery in construction levels, but his longer-range view suggests activity will remain dampened in the coming years. “Volatility in construction timing and project start dates could lead to a sharp rebound in the upcoming months,” he says. “Nevertheless, the trend is forecast to ease over the next two years given rising resale inventory, and policy constraints impacting housing demand.”

Unsold condo inventory in Metro Vancouver is already growing, says separate analysis from real estate consultancy Urban Analytics. The firm says unsold available new condo units totalled 4,478 last quarter, up 44 percent from the previous quarter.

“The increased amount of competitive supply being released to the market over the coming months combined with the softer demand will likely put additional moderate downward pressure on achievable sales values,” the Urban Analytics report reads. New condo prices have already fallen 5 to 15 percent, depending on the submarket, from their peak around the end of last year.

Urban Analytics expects this trend to continue as competition among builders leads to more price cuts.

© 2018 BuzzBuzzHome Corp.

Pre-sale agreements must be registered

Duffie Osental
Mortgage Broker News

British Columbia is tackling tax evasion in condominium sales by setting up a registry that tracks a project’s pre-sales transactions and ownership history.

According to a Bloomberg report, the information collected by the new online database, which will include the terms of such transactions and the name and tax identification numbers of those involved, will be shared with the Canada Revenue Agency so that they can be matched with income tax returns.

Because there was no way to efficiently track transactions, it was possible to avoid paying taxes by buying and selling rights from pre-sale purchase agreements at inflated prices.

Starting January 1, however, developers will now be required to collect and report pre-sale agreements of condominium units, including when these contracts are flipped and re-assigned to a new owner.

“The days of avoiding taxes through condo flipping are over,” said Finance Minister Carole James.

“This register will help bring fairness and integrity back to B.C.’s real estate market, so that people can afford homes in the communities where they live and work.”

Copyright © 2018 Key Media

2019 forecast release in December

Neil Sharma
Canadian Real Estate Wealth

Canadian Real Estate Wealth’s Property Forecast issue will be out in December, and after this year’s real estate market turbulence, readers will breathe easier next year.

The theme that will likely carry through the year is cautious optimism, as market fundamentals throughout the country will remain robust. Some provinces, however, will still face significant fiscal headwinds, while several key industries are running at full capacity, and that will taper growth. Prices aren’t expected to surge as they have in recent years past, but that doesn’t mean markets like Toronto and Vancouver won’t remain out of reach for a great many.

his year could have been catastrophic for Canada’s real estate market, thanks to repeated government intervention dating back to 2017. Ontario had its Fair Housing Plan, B-20 made its impact immediately, and British Columbia’s NDP government seems determined lower the cost of housing by stymieing market activity as much as it possibly can. However, markets remained resilient, and in the case of Toronto, have trended upward since the beginning of summer.

Heavily-leveraged investors relying on appreciation had a rough year, as did buyers hoping to wait out the market only to be torpedoed by stringent mortgage stress testing. Nevertheless, as 2018 draws to a close, investors in Canadian real estate markets still stand tall. While sales and average prices suffered a great deal, it hasn’t been to the level most feared. Trade tensions with the United States also curbed interest rate hikes for a while, and the new trade deal has helps sidestep many of the uncertainties that have had economists worried, namely tariff threats—auto sector tariffs would have plunged Ontario into a recession.

There was little chance of 2018 being a great year, but given that it could have been outright catastrophic, greener pastures doubtless lie ahead. Canada’s GDP grew 3% in 2017, and was expected to contract this year largely because of the real estate market. Expect a considerable private capital injection into the economy in 2019.

Building activity is expected to slow down next year, and that’s good news for landlords. The combination of sub-1% vacancy rates in a growing number of cities and a declining number of new properties will only add pressure to local rental markets.

Copyright © 2018 Key Media Pty Ltd