Vancouver?s added market tax bad news

Neil Sharma
REP

Depending on which part of Canada you live in, 2019 is either a year to look forward to or one to dread.

Beginning with Toronto, Sotheby’s International Realty Canada’s President and CEO Brad Henderson expects more of the same next year, but with a caveat.

“There will be slower growth, but growth just the same, particularly since there’s a lack of product in the marketplace,” he told REP. “There’s going to continue being upward pressure on prices, but increased interest rates and mortgage stress testing has added headwinds to the lofty growth we saw in 2016 to 2017.”

Montreal will continue its ascendancy as the hottest market in the country—with perhaps the exception of Ottawa—but, like Toronto, there won’t be massive price growth.

“Montreal has continued being a healthy market with a good balance between supply and demand, and we’ll see growth with a number of transactions and modest upward pressure on price,” said Henderson.

The forecast for Vancouver, however, is not as auspicious as Canada’s two largest cities. Vancouver has suffered gales of difficulty lately, beginning with the B-20 mortgage stress test that’s similarly affecting Toronto. But with Vancouver, the NDP government increased the foreign buyer tax from 15% to 20% and it’s also introduced, even expanded, a speculation and vacancy tax.

“It’s expanded from the Greater Vancouver Area to include much of the Fraser Valley and Vancouver Island,” continued Henderson. “That market will continue to show very little activity when compared to the first part of ’16 and parts of ’17. We’ve seen considerable slowdown there and it will continue being sluggish with most players sitting on the sidelines.”

No matter which way you slice it, Alberta will be in tough through 2019. Calgary missing out on the Olympics, after a referendum revealed widespread opposition, might end up squeezing the city’s economy. However, Calgary’s economy is deeply tied to the oil and gas sector, and it has the city firmly planted in the doldrums. The federal government’s inability to get pipelines built has left the province with a glut of oil.

“What that does is deprive them of a less expensive way to get oil to the market,” said Henderson. “It’s another non-trivial headwind when compared with the price of oil and the fact that they didn’t get the Olympics. All of them together have delivered a number of blows to the marketplace.”

Indeed, the oil excess has become a major issue not just for Alberta but Canada. The province is producing more than it can get to market.

“The federal government hasn’t been able to get pipelines done and it’s really hurt the prospects of the Canadian economy,” said Shawn Stillman, principal broker of Mortgage Outlet. “That, along with the closing of GM in Oshawa—eventually there will not be a GM plant in Canada—and I can see the Canadian and U.S. economies taking downturns.”

Copyright © 2018 Key Media Pty Ltd

B-20 now doing more harm than good ? builders

Ephraim Vecina
REP

Canada’s federal government should consider easing on the B-20 regulations, which mandated considerably stricter mortgage borrowing stress tests, introduced earlier this year.

The Canadian Home Builders’ Association argued that the rules are now doing more harm than good to the market, especially to millennials and struggling markets like Calgary.

“Ideally at this point the best thing would be for the new stress test to be repealed, just removed,” CHBA director of communications David Foster told Bloomberg. “Markets like Calgary, they’re already quite soft, are just hammered by this.”

Mattamy Homes Canada CEO Brad Carr agreed that the tighter rules have already done their part in moderating housing markets, especially in (arguably) Canada’s hottest market: In April, the average home sales price in Toronto fell by 12% year-over-year, and has stabilized around that lower level since then.

“We’re going to continue to lobby for a pullback now on B-20,” he said. “That had a very targeted outcome. It’s been achieved so it’s kind of overkill now.”

As rates rise, “they’re doing their natural job and that 2% spread, we certainly hope the government will either remove it or at least cap it,” Carr noted, referring to the spread above the contracted rate which all borrowers are required to prove that they can repay.

Mattamy Homes founder and CEO Peter Gilgan noted that bringing this spread down to 1.5% or 1% would make the most sense in current market conditions.

“We’re right in the midst of a soft landing, certainly something that we predicted and actually helped influence,” Carr added. “It was necessary. The market here was running a little hotter than we thought it should for the long-term health of the market place.”

Copyright © 2018 Key Media Pty Ltd

A study has found that the real estate market has robustness

Ephraim Vecina
Canadian Real Estate Wealth

Would-be investors who remain wary of the Canadian real estate market’s price growth should take a measure of comfort in the results of a new study conducted by Chartered Professional Accountants of Canada (CPA Canada).

The research found that the market’s fundamentals have robustness as their main feature, precluding any U.S.-style meltdown in the near future.

 “Beyond prices and debt levels, Canada shares far fewer similarities with the U.S. than you might think. This becomes very apparent when you look at just one measure: credit quality,” CPA Canada chief economist Francis Fong stated.

Fong emphasized that seeing the U.S. crisis as a reference point for the possibility of a Canadian collapse would be futile due to the pre-eminence of different factors in the two markets.

The sheer volume of subprime mortgages issued to borrowers with low credit quality, who cannot afford to repay debt, is frequently cited as one of the leading causes of the U.S. breakdown.

In comparison, Canada’s share of high-credit-quality clients increased from 66% in 2002 to 88% in 2017, according to the CMHC. During the same time frame, the proportion of low-credit-quality borrowers fell from 17% to just 3%.

“The situation in Canada is likely not a bubble in imminent danger of deflation; in fact, housing prices may reflect the true value of living space in Canada and in some markets increased household debt may be the new price for real estate,” Fong explained.

“Our cities frequently are listed among the best places to live and work in the world and, compared to their peer cities abroad, they are not among the most expensive. We may simply be dealing with the law of supply and demand, so affordability could continue to be a challenge for the foreseeable future,” he added.

Copyright © 2018 Key Media Pty Ltd

Key interest rate unchanged, BoC

Canadian Real Estate Wealth

The Bank of Canada is leaving its key interest rate unchanged, as expected, at 1.75 per cent.

This morning’s announcement comes in the wake of a move by the Alberta government to curtail oil production in the province after Jan. 1 to try to clear a crude storage glut that has driven western Canadian oil prices to multi-year lows.

Meanwhile, the recently announced plan to close the General Motors of Canada car plant in Oshawa similarly offers a downside risk to future growth.

Bank economists say an unexpected dip in monthly gross domestic product figures in September and lower-than-expected oil prices so far in the fourth quarter have dampened growth expectations and placed in doubt forecasts for a January bank rate increase.

Lower growth prospects are expected to reinforce Bank of Canada Governor Stephen Poloz’s strategy of moving very gradually on increases to its overnight rate.

Economists say they will be closely watching Poloz’s speech on Thursday for signs of how events are affecting his view of the path forward. 

The Canadian Press

Copyright © 2018 Key Media Pty Ltd

Metro Vancouver home sales and prices down to more ‘historical’ levels, says real estate board

The Province

Both sales and prices for Metro Vancouver homes have dropped in what the head of the Real Estate Board of Greater Vancouver says is a return to historical demand levels.

Board president Phil Moore says home buyers have been taking a wait-and-see approach for most of 2018 and the slower activity has prompted home prices to edge downward across all property types.

The board reports says just over 1,600 residential home were sold in the region in November, a 42.5 per cent drop from the same month last year and a 34.7 per cent decrease in the 10-year average.

Moore says home prices have dipped four to seven per cent over the last six months depending on the property type and the board will watch conditions in the first quarter of 2019 to see if buyer demand picks up ahead of the usually active spring market.

The benchmark price for detached homes is just over $1.5 million, while the average price of an apartment is $667,800, a 2.3 per cent price decrease from November 2017.

The Greater Vancouver Real Estate board includes properties from Whistler and the Sunshine Coast in the north to Richmond, South Delta and Maple Ridge in the south.

© 2018 Postmedia Network Inc.

Landlords fear arrival of new policy that could make it harder to raise rents

Frank O’Brien
Western Investor

HQ Commercial has eight rental apartment buildings for sale in Metro Vancouver, and the prices for three of them have been slashed by more than $750,000 in the past four weeks.

The price drops reflect a cooling in what has been a white-hot multi-family market as investors fear tougher rent control regulations from the province and higher lending rates from the Bank of Canada, according to Cynthia Jagger, a multi-family specialist at HQ Commercial, one of the largest apartment building brokers in the province.

“A rental housing task force has made recommendations, but no one knows what the new rules will be,” Jagger said.

Landlords are understandably nervous. The province has already reversed a decision and reduced the maximum allowable rent increase for 2019 from 4.5 per cent to 2.5 per cent. The sudden policy change was the first of an estimated 30 recommendations from the government’s Rental Housing Task Force.

“We recognize supply is key to bringing down rental costs in the long term, but renters have told us they are hurting and need help today,” said Municipal Affairs and Housing Minister Selina Robinson.

A new B.C. rental policy, based on the task force recommendations, could be unveiled within weeks and instituted early next year.

The Urban Development Institute (UDI) has warned that up to 12,000 planned new rental apartments could be delayed or cancelled if the B.C. government imposes further restrictive rental policies.

In a survey of 30 B.C. rental builders, the UDI found that 12,631 rental homes, which are planned for communities across B.C., would be “at significant risk if restrictive policies are imposed.” This represents nearly two-thirds of the 19,972 rental homes now in development, according to the UDI. While some builders said they would still deliver rental homes because they were under construction, they were unequivocal in their opposition to potential vacancy control policies, the UDI found.

A key issue is a task force recommendation that would tie rent controls to a unit, rather than the tenant. Currently, if a tenant leaves, the apartment’s rent can be raised to the current market value, which can represent an increase far above the allowable annual rental increase.

“This would be the single most significant impediment to the construction of rental apartments,” said UDI president and CEO Anne McMullin. “With record-low vacancy rates, British Columbians need new rental homes, but this proposal puts those in jeopardy.”

She said that if rent is tied to the unit, the incentive for owners of older apartment buildings – which make up the bulk of the Metro Vancouver rental inventory – to improve their buildings would be severely compromised.

Copyright © 2018 Western Investor

Following October?s slight uptick, November?s transactions are hit with double-whammy of cooling market and slower season

Joannah Connolly
Western Investor

 

October may have shown a slight uptick in Metro Vancouver home sales since September’s dismal activity, but the latest statistics from the Real Estate Board of Greater Vancouver show that transactions dropped again November.

There were 1,608 residential sales on the MLS in the region in November, which is a 42.5 per cent drop from the 2,795 sales in November 2017, and an 18.2 per cent decline in one month since October.

The total was also 34.7 per cent below the 10-year average for November home sales, making it the slowest November activity since 2008, when the last recession hit.

With the market cooling, many potential sellers are sitting on the sidelines. The number of new listings in November dropped 15.8 per cent compared with November 2017 and a 29 per cent compared with October 2018, at just 3,461 new home listings.

With sales so slow last month, the number of homes for sale as of the end of November totalled 12,307, which is 40.7 per cent more than November 2017 and a 5.2 per cent decrease compared with October 2018.

Phil Moore, REBGV president, said, “Home buyers have been taking a wait-and-see approach for most of 2018. This has allowed the number of homes available for sale in the region to return to more typical historical levels. This activity is helping home prices edge down, across all property types, from the record highs we’ve experienced over the last year.”

Metro Vancouver real estate is now sitting firmly in a balanced market. For all property types, the sales-to-active listings ratio for November 2018 is 13.1 per cent (a balanced market is between 12 and 20 per cent for a sustained period). Breaking this down by property type, the ratio is 8.9 per cent for detached homes (firmly in a buyer’s market), 14.7 per cent for townhomes and 17.6 per cent for condos (both balanced markets). This compares with October’s ratio, where condos temporarily crept back into seller’s market territory.  

The composite benchmark price for all home types in Metro Vancouver stood at $1,042,100 as of the end of November. This is 1.4 per cent lower than November 2017 and 1.9 per cent less than October 2018.

“Home prices have declined between four and seven per cent over the last six months depending on property type. We’ll watch conditions in the first quarter of 2019 to see if home buyer demand picks up ahead of the traditionally more active spring market,” added Moore.

Sales and prices by property type and area

Detached houses continued to see the steepest price declines. There were 516 single-family home sales in November, a 38.6 per cent decrease from the 841 detached sales recorded in November 2017. The benchmark price for a detached home in the region stands at $1,500,100, which is a year-over-year decrease of 6.5 per cent and a 1.6 per cent drop since October 2018.

The areas with the sharpest price drops in the detached sector continue to be West Vancouver, where single-family benchmark prices are down 13 per cent year over year, and Vancouver West, down 10.3 per cent – with both those annual decreases increasing from one month previously. House prices in Maple Ridge, Pitt Meadows, Sunshine Coast and Bowen Island remain above that of a year ago – with the Sunshine Coast’s detached prices leading, up three per cent.

Sales of attached homes such as townhouses, duplexes and rowhomes totalled 282 last month, a 36.8 per cent decrease compared with November 2017 and 18 per cent lower than October’s total. The price of a typical attached home is now $818,500, which is off 1.3 per cent from October’s price but still 2.6 per cent higher than November 2017.

Only Vancouver West, Vancouver East and Tsawwassen saw lower benchmark townhome prices last month compared with one year previously. The highest price jumps in this sector were seen in Pitt Meadows, where townhomes are up 11.8 per cent since November 2017.

Condo sales dipped dramatically in November, totalling just 810, which is a 46.3 per cent decrease compared with November 2017 and a 17.7 per cent drop from October. The benchmark price of a condo is $667,800, which is 2.3 per cent higher than November 2017 but a 2.3 per cent decrease compared with October 2018.

Vancouver West and North Vancouver were the two areas to see year-over-year price declines in the condo sector, down 3.6 per cent and 0.2 per cent respectively. New Westminster condo prices are still going strong, up 10.8 per cent compared with the same month last year.

Home prices vary widely in different areas throughout the region. To get a good idea of home prices in a specific location and by property type, check the detailed MLS® Home Price Index in the full REBGV stats package.

Copyright © 2018 Western Investor

Premier Vancouver estate to be auctioned to int’l investors

Ephraim Vecina
Canadian Real Estate Wealth

A high-end property in Vancouver’s premier West End district will be put up for sale to the highest international bidder as part of Concierge Auctions’ December sale.

The single-family, multi-level 6137 Collingwood Place, which boasts of a design by legendary Vancouver architect Kenneth McKinley, will be offered at Concierge’s online marketplace to Chinese property investors starting December 14. Bidding is expected to close at a live auction in Hong Kong on December 20 (December 19 Canada time).

The 2,900-square-foot property was previously offered for $3.67 million – and taking updated zoning into account, the parcel offers substantial opportunities for expansion into a multi-family building, “either up to approximately 8,147 square feet,” Concierge said.

 “Between its multi-family development potential, land assembly condo potential, location and superior design, the property itself appeals to a wide range of buyers,” according to listing agent Mark Wiens of Dracco Pacific Realty.

“I believe a set auction date will induce the buyers who have already expressed interest to take action. I can personally attest to the extra exposure the property is receiving since starting the Concierge Auctions process. This has already led to enquiries coming from areas where a standard Multiple Listing Service listing would not have reached.”

Copyright © 2018 Key Media Pty Ltd

A cocktail of pressures drag down Canadian residential market

Ephraim Vecina
REP

A potent cocktail of pressures will drag down the Canadian residential market well into 2019, according to the latest Quarterly Financial Report new report by the Canada Mortgage and Housing Corporation.

In the study covering the quarter ending September 2018, the CMHC stated that the trend shouldn’t be surprising, as the housing segment has already exhibited signs of cooling earlier this year.

“Taken together—tighter mortgage rules, rising interest rates and a slowing economy—are expected to underpin reduced demand for housing, resulting in slower price growth over the near term,” the report warned.

The national average MLS® price stood at $452,233 in the first 8 months of 2018, declining by 3.7% year-over-year. This marked the first decline in national prices since the 2009 recession.

This was made even more manifest in sales activity: MLS® transactions nationwide recorded a significant 11.7% annual slowdown from January to August this year, down to 327,206 units. Canadian housing starts during the same period remained flat at around 144,644 units.

And while the national economy is expected to benefit from a moderate pace for a prolonged duration, annual GDP growth will likely settle at 2% this year and 1.9% in 2019, “with the economy operating close to its potential rate,” the Crown corporation stated.

This economic robustness will also contribute to further interest rate growth, which in turn would propel debt service costs. The nationwide mortgage debt service ratio went up slightly to 6.5% in the second quarter of the year, compared to the 6.3% during the same time in 2017.

Further rate hikes imply “that an increasing share of household income would be required to service higher debt repayments,” according to the report, adding that “although debt levels remain elevated, these trends are expected to curb borrowing activity, while also reducing dependence on debt to fuel economic growth in Canada.”

Copyright © 2018 Key Media Pty Ltd

Vancouver office tower to showcase latest green innovations

Ephraim Vecina
Canadian Real Estate Wealth

A 36-storey office tower touted by its developers as the tallest commercial building in Vancouver to date will feature the latest innovations to meet the “net zero carbon” emissions standard – a major step in Canada’s long-term program to combat the worst effects of global climate change.

The 161.5-metre Stack tower by Oxford Properties Group will be among Canada’s very first buildings to pilot the new standard, a move that is anticipated to magnetize a greater volume of high-quality investment, according to head of real estate management Andrew McAllan.

“There’s a convergence of interests in sustainable building. Some are altruistic and some are just good, old-fashioned capitalism,” McAllan told The Globe and Mail.

Scheduled for completion by 2022, the complex will offer 540,000 square feet of office space. That volume of commercial space operating to the specifications of the most advanced green standards will cement Canada’s place as a worldwide leader in sustainable development, Oxford said.

The building is the latest in Canada’s drive towards illustrating that environmental consciousness and high-class commercial spaces are a package deal. The Canada Green Building Council estimated that since 2004, it has certified over 3,600 LEED buildings nationwide and registered over 7,600.

“Overall, Canada ranks very high in terms of green building construction,” Starlight Investments building automation and energy specialist Trevor McLeod stated. “More than ever, sustainability is now in the conversation with regard to building design or retrofits, so things are moving in the right direction.”

Copyright © 2018 Key Media Pty Ltd