Rather than pay the Empty Homes Tax, some owners of high-end homes are renting

Steve Randall
REP

Students and other renters in Vancouver are able to live in luxury thanks to Vancouver’s tax on vacant homes.

Rather than pay the Empty Homes Tax, some owners of high-end homes are renting out their properties according to a report by Bloomberg, especially as sales have weakened.

With wealthy Chinese owners pulling back and home prices impacted by the mortgage stress test, a growing number of owners are turning to the rental market where the vacancy rate has been near-zero.

It’s easy to see why owners may be tempted to wait for a rebound before selling their luxury homes.

One real estate agent, Lisa Sun, told Bloomberg that things are tough. She is trying to sell a Vancouver mansion for a wealthy Chinese-Canadian owner but the listing price of $10.9 million isn’t attracting offers.

With some hopeful buyers offering as little as $6.2 million for the 8,343 square foot home with a wine cellar, home theatre, and pool, Sun is considering a reduction in the asking price to $8.3 million.

“I’ve been through only the peak, never the low,” she said, noting that she doesn’t expect a rebound for Chinese interest in the luxury market due to curbs on Chinese capital by Beijing.

A report from CBRE reveals that Asian investments in Vancouver homes fell to around $350 million in 2018, down from more than a billion in 2017 and 2016.

If Sun can’t sell, the home would attract Empty Homes Tax of $140,000 annually in extra tax.

Copyright © 2019 Key Media Pty Ltd

BC multi-family market continues to draw investors

Ephraim Vecina
Mortgage Broker News

Multi-family investment volume in B.C. exceeded the billon-dollar mark for the second straight year in 2018, according to new research by Avison Young.

The Spring 2019 BC Multi-Family Investment Report – which specifically tracks multi-family investments valued at more than $5 million – showed that activity in this asset class reached $1.51 billion in 2018, establishing a new dollar volume record.

This considerably outstripped the $1.41 billion seen in 2017, although that year still holds the record in terms of the total number of transactions with 89 completed deals, Avison Young stated.

And there are little to no indications that this trend will cool down any time soon, the study added.

“Despite a tightening of underwriting criteria, particularly related to acquisitions that involve a significant land and/or redevelopment component contributing to the overall value proposition, access to financing remained key in a record-setting 2018 as potential interest hikes failed to materialize in the latter half of the year. As a result, the cost of capital for qualified buyers remained low by historical standards and will likely remain so for the near term.”

However, despite steady investment activity last year, Avison Young observed that the market is increasingly becoming top-heavy.

“Low-yield deals were largely absent in the market in the second half [of 2018] as some investors started reconsidering their asset repositioning strategies,” the report noted.

“Political intervention, which started with the recommendations from the provincial Rental Housing Task Force – particularly the change to the province’s rent increase formula that saw the current formula of inflation plus 2% reduced to inflation only – has had a significant impact on the multi-family market. Municipal elections in October 2018 also resulted in many local city councils adopting more of a pro-tenant stance and displaying more anti-development bias. This has largely resulted in the exit of most of the aggressive value-add investors from the Metro Vancouver market.”

Copyright © 2019 Key Media

New regulations pushing investors to Toronto

Ephraim Vecina
Mortgage Broker News

Vancouver’s rapid-fire introduction of new regulations that target foreigners is pushing away more and more investors towards Toronto, observers warned.

Among these rule changes, speculation levies and a wealth tax on homes have had the most impact, discouraging a significant slice of foreign capital, CBRE Ltd. stated.

The recently proposed Landowner Transparency Act – which will compel corporations, trusts, and partnerships to reveal ownership information – is also cited as a major factor scaring off investors.

“You have policy changes on a snap, on a whim,” CBRE Ltd. executive vice president David Ho told Bloomberg in an interview.

“Investors typically look at stability in a market and this is not stability.”

Figures from CBRE showed that from the $1-billion-plus volumes seen in 2016 and 2017, foreign investment in Vancouver sharply plummeted to just shy of $350 million in 2018.

For perspective, Toronto surpassed its 2017 volume with its $526 million in Asian investment last year. One of the market’s noteworthy 2018 transactions was the $256-million deal for an office building, purchased by Chinese private investor Tigra Vista Inc.

Ho also attributed the shift to Toronto’s healthier demographic spread, which is largely comprised of immigrants and millennials. A significant proportion of these two groups is participating in Toronto’s burgeoning tech and financial services market.

“That spells money because young people have to consume, they’re growing families,” Ho explained. “That’s a huge advantage against the Vancouver market, which is more of a retirement market.”

Avison Young principal Bal Atwal added that Chinese investment activity in Vancouver “had always been predicated on land, placing bets on land, whether it’s old shopping centres or office buildings even — they see underlying development and land value.”

“They’re looking at Toronto now because they’re seeing a better arbitrage on that than they are here.”

Copyright © 2019 Key Media

Mortgage volume fell last year

Ephraim Vecina
Mortgage Broker News

The tighter mortgage stress tests mandated by B-20 is responsible for Canadian residential mortgage volume falling by as much as $15 billion last year, according to a new CIBC report.

Said regulations, introduced in early 2018 as a response to the then-fevered pace of home price growth in the country’s hottest markets, represented anywhere between 50% to 60% (around $13 billion to $15 billion) of the overall shrinkage in last year’s volume.

Total mortgage lending activity across Canada dropped by 8% annually in 2018, representing a loss of $25 billion. Aside from B-20, other contributing factors were interest rate hikes and continuously declining affordability.

CIBC World Markets Inc. deputy chief economist Benjamin Tal stated that this trend points towards a clear conclusion: while the stress test is indeed necessary, the federal government should also begin contemplating possible amendments.

He argued that the regulations have become “a bit too severe at this point in the game.”

“I’m not saying to kill B-20 by any stretch of the imagination,” he told The Globe and Mail. “I’m just saying it should be a bit more flexible, and more dynamic, to reflect market conditions.”

Aside from lower mortgage volume, the stress test has also been attributed as a major influence in lower sales activity, with transactions plummeting by 11% last year. This was most apparent in Vancouver, which suffered a 32% decrease in home sales in 2018.

Worse, this weakness is showing no signs of abating any time soon. Latest data from the Canadian Real Estate Association showed that national home sales fell by 4.6% year-over-year in March, leading to the lowest readings for that month since 2013.

Copyright © 2019 Key Media

BC developers not prepared for extended housing downturn

Josh Sherman
other

Some BC developers aren’t prepared for an extended Vancouver housing downturn, and that’s creating increased risk for the market, a local realtor and industry commentator warns.

“I think the 2008 financial crisis in Canada created a false safety net,” realtor Steve Saretsky, also the creator of the popular Vancity Condo Guide website, tells Livabl.

Over eight months in 2008, Saretsky estimates home prices dropped 12–15 percent. While that was a sharp and sudden decline, it pales in comparison to what unfolded stateside, where American homebuilders, and the national market at large, struggled to regain their footing throughout the following decade.

“If that’s the worst-case scenario,” says Saretsky of the Great Recession, “what could possibly derail Vancouver?”

Roughly 20 years of home price growth might have some developers missing red flags. Perhaps they’ve forgotten about the late-’80s bubble and subsequent ’90s stagnation or simply were not active in the industry at the time.

Troubling signs include high levels of construction — a record number of condos were under construction in 2018 — at a time when sales activity and prices are depressed.

In March, condo sales plunged 35.3 percent from the same month last year, while prices were down 5.9 percent over the same period.

Of course, unlike in 2008, uninsured mortgage borrowers face tougher lending rules today. In January 2018, stress testing was extended to the uninsured-mortgage segment, meaning borrowers with downpayments of 20 percent or more now need to qualify at a rate that is 200 basis points higher than what is on their contract.

The British Columbia Real Estate Association has blamed the stress tests for weakened sales activity across the province.

To drum up sales in a more challenging environment, Lower Mainland developers are offering incentives. Discounts at projects currently selling include a 10-percent discount on units and $10,000 in upgrades, according to MLA Advisory, the research branch of MLA Canada, a condo-marketing firm.

And there are signs that developers are stalling on launching approved projects because they haven’t been able to sell existing inventory. In the first quarter this year, Lower Mainland developers brought 2,950 pre-sale units to market, representing a 40-percent decline observed during the same three months last year, according to MLA.

“I think there’s going to be a lot more [condo project] cancellations,” Saretsky predicts.

© 2019 BuzzBuzzHome Corp.

BC developers not prepared for extended housing downturn

Josh Sherman
other

Some BC developers aren’t prepared for an extended Vancouver housing downturn, and that’s creating increased risk for the market, a local realtor and industry commentator warns.

“I think the 2008 financial crisis in Canada created a false safety net,” realtor Steve Saretsky, also the creator of the popular Vancity Condo Guide website, tells Livabl.

Over eight months in 2008, Saretsky estimates home prices dropped 12–15 percent. While that was a sharp and sudden decline, it pales in comparison to what unfolded stateside, where American homebuilders, and the national market at large, struggled to regain their footing throughout the following decade.

“If that’s the worst-case scenario,” says Saretsky of the Great Recession, “what could possibly derail Vancouver?”

Roughly 20 years of home price growth might have some developers missing red flags. Perhaps they’ve forgotten about the late-’80s bubble and subsequent ’90s stagnation or simply were not active in the industry at the time.

Troubling signs include high levels of construction — a record number of condos were under construction in 2018 — at a time when sales activity and prices are depressed.

In March, condo sales plunged 35.3 percent from the same month last year, while prices were down 5.9 percent over the same period.

Of course, unlike in 2008, uninsured mortgage borrowers face tougher lending rules today. In January 2018, stress testing was extended to the uninsured-mortgage segment, meaning borrowers with downpayments of 20 percent or more now need to qualify at a rate that is 200 basis points higher than what is on their contract.

The British Columbia Real Estate Association has blamed the stress tests for weakened sales activity across the province.

To drum up sales in a more challenging environment, Lower Mainland developers are offering incentives. Discounts at projects currently selling include a 10-percent discount on units and $10,000 in upgrades, according to MLA Advisory, the research branch of MLA Canada, a condo-marketing firm.

And there are signs that developers are stalling on launching approved projects because they haven’t been able to sell existing inventory. In the first quarter this year, Lower Mainland developers brought 2,950 pre-sale units to market, representing a 40-percent decline observed during the same three months last year, according to MLA.

“I think there’s going to be a lot more [condo project] cancellations,” Saretsky predicts.

© 2019 BuzzBuzzHome Corp.

BC developers not prepared for extended housing downturn

Josh Sherman
other

Some BC developers aren’t prepared for an extended Vancouver housing downturn, and that’s creating increased risk for the market, a local realtor and industry commentator warns.

“I think the 2008 financial crisis in Canada created a false safety net,” realtor Steve Saretsky, also the creator of the popular Vancity Condo Guide website, tells Livabl.

Over eight months in 2008, Saretsky estimates home prices dropped 12–15 percent. While that was a sharp and sudden decline, it pales in comparison to what unfolded stateside, where American homebuilders, and the national market at large, struggled to regain their footing throughout the following decade.

“If that’s the worst-case scenario,” says Saretsky of the Great Recession, “what could possibly derail Vancouver?”

Roughly 20 years of home price growth might have some developers missing red flags. Perhaps they’ve forgotten about the late-’80s bubble and subsequent ’90s stagnation or simply were not active in the industry at the time.

Troubling signs include high levels of construction — a record number of condos were under construction in 2018 — at a time when sales activity and prices are depressed.

In March, condo sales plunged 35.3 percent from the same month last year, while prices were down 5.9 percent over the same period.

Of course, unlike in 2008, uninsured mortgage borrowers face tougher lending rules today. In January 2018, stress testing was extended to the uninsured-mortgage segment, meaning borrowers with downpayments of 20 percent or more now need to qualify at a rate that is 200 basis points higher than what is on their contract.

The British Columbia Real Estate Association has blamed the stress tests for weakened sales activity across the province.

To drum up sales in a more challenging environment, Lower Mainland developers are offering incentives. Discounts at projects currently selling include a 10-percent discount on units and $10,000 in upgrades, according to MLA Advisory, the research branch of MLA Canada, a condo-marketing firm.

And there are signs that developers are stalling on launching approved projects because they haven’t been able to sell existing inventory. In the first quarter this year, Lower Mainland developers brought 2,950 pre-sale units to market, representing a 40-percent decline observed during the same three months last year, according to MLA.

“I think there’s going to be a lot more [condo project] cancellations,” Saretsky predicts.

© 2019 BuzzBuzzHome Corp.

Spring home sales are up and down across the country

Steve Randall
REP

The spring season is a mixed one for Canada’s housing markets with some showing gains while others remain under pressure.

More than a year on from the introduction of mortgage stress tests, the impacts are still being felt and new measures to help buyers have not yet taken effect.

Despite some positive economic conditions, the Canadian Real Estate Association reports that activity remains at some of the lowest levels in years.

Home sales via Canadian MLS® Systems edged up 0.9% in March 2019 following a sharp drop in February while actual (not seasonally adjusted) sales activity fell 4.6% year-over-year to the weakest level for the month since 2013; and was also almost 12% below the 10-year average for March.

“March results suggest local market trends are largely in a holding pattern,” said Gregory Klump, CREA’s Chief Economist. “While the mortgage stress test has made access to home financing more challenging, the good news is that continuing job growth remains supportive for housing demand and should eventually translate into stronger home sales activity pending a reduction in household indebtedness.”

Mixed markets There are some areas where things are improving.

While sales in British Columbia, Alberta and Saskatchewan were more than 20% below their 10-year average for March, activity is running well above-average in Quebec and New Brunswick.

New listings rose 2.1% in March with new supply increasing in about two-thirds of all local markets, led by Winnipeg, Regina, Victoria and elsewhere on Vancouver Island. New listings declined in the GTA, Ottawa and Halifax-Dartmouth.

There were 5.6 months of inventory on a national basis at the end of March 2019.

The national sales-to-new listings ratio eased to 54.2% from 54.9% in February.

Prices are down The Aggregate Composite MLS Home Price Index declined by 0.5% year-over-year in March, the first decline of that size since September 2009.

In British Columbia, prices were down on a y-o-y basis in Greater Vancouver (-7.7%) the Fraser Valley (-3.9%), and the Okanagan Valley (-0.8%). By contrast, prices rose by 1% in Victoria and by 6.4% elsewhere on Vancouver Island.

For the Greater Golden Horseshoe housing markets tracked by the index, benchmark home prices were up from year-ago levels in Guelph (+6.6%), the Niagara Region (+6.0%), Hamilton-Burlington (+3.7%) the GTA (+2.6%) and Oakville-Milton (+2.3%); but fell in Barrie and District and remained below year-ago levels (-6.1%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.9% in Calgary, 4.4% in Edmonton, 4.6% in Regina and 2.7% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply become more balanced.

Home prices rose 7.6% y-o-y in Ottawa (led by a 10.4% increase in townhouse/row unit prices), 6.3% in Greater Montreal (led by an 8.1% increase in apartment unit prices) and 2.1% in Greater Moncton (led by a 12.9% increase in apartment unit prices).

Sidelined buyers “It will be some time before policy measures announced in the recent Federal Budget designed to help first-time homebuyers take effect,” said Jason Stephen, CREA’s President. “In the meantime, many prospective homebuyers remain sidelined by the mortgage stress-test to varying degrees depending on where they are looking to buy.

Copyright © 2019 Key Media Pty Ltd

Canada?s home prices continued their downward trend

Steve Randall
Canadian Real Estate Wealth

Canada’s home prices continued their downward trend last month according to a leading measure.

The Teranet-National Composite House Price Index was down 0.3% in March compared to the previous month, marking its first decline for any March in its 20-year history with the exception of the 2009 recession.

The sixth monthly decline meant a cumulative drop of 1.7% across the surveyed markets.

Indexes were down month-over-month in seven of the 11 metropolitan markets surveyed – Ottawa-Gatineau (−1.5%), Victoria (−1.1%), Vancouver (−0.5%), Calgary (−0.5%), Toronto (−0.3%), Winnipeg (−0.3%) and Hamilton (−0.1%). Four markets were up: Halifax (0.8%), Quebec City (0.5%), Edmonton (0.4%) and Montreal (0.1%).

Many of these markets have been showing declining prices for many months; including Calgary for nine (-3.7% cumulative), Vancouver for eight (-4.3%), Victoria for six (-3.5%).

Montreal by contrast has only seen one decline in the past 12 months (with a 5.5% cumulative gain) and Halifax has advanced in each of the past five months (+2%).

The index shows a percentage movement in house prices with indices’ base value of 100 in June 2005. For example, an index value of 130 means that home prices have increased 30% since June 2005.

No collapse The declining trend is not a sign that house prices are in free fall.

“In Toronto, Canada’s largest real estate market, apartment prices have been up for 17 consecutive months, while prices of other types of dwellings declined only 1.4% over the last 6 months. In Vancouver, the most expensive market, employment growing 2.9% in Q1 on a y/y basis should limit further home price declines,” the report says

Copyright © 2019 Key Media Pty Ltd

Key professions in the BC real estate sector gave recommendations on money laundering

BCREA

Organizations representing key professions in the BC real estate sector submitted joint recommendations to the provincial and federal governments today to help protect BC’s housing market from money laundering.   The participating organizations include the British Columbia Real Estate Association, the Appraisal Institute of Canada – BC Association, BC Notaries Association, Canadian Mortgage Brokers Association – British Columbia, and the Real Estate Board of Greater Vancouver.   In their submission, these organizations also commit to shared best practices to help keep the proceeds of organized crime out of the economy. Their efforts focus on helping protect the real estate market from unscrupulous operators and ensuring the public can have full confidence in BC’s real estate market. All of the organizations have fully supported and participated in the government’s investigations into money laundering and real estate.   A real estate transaction involves multiple professionals. It will take a coordinated effort by all involved, working in collaboration with government, to stop money laundering. The joint recommendations and best practices submitted by these organizations reflect their commitment to the professionals and consumers they serve.

Real Estate Sector Anti-Money Laundering Statement

                                    As a group of real estate organizations representing industry professionals, we are committed to a transparent real estate market and to ensuring that the public can continue to have full confidence in the real estate industry. Illegal funds have no place in BC’s real estate market. We are supportive of the government’s investigations into money laundering and real estate, having actively participated in Peter German’s review and the Expert Panel on Money Laundering. As an industry, we have come together to commit to shared best practices and make recommendations to government. By aligning as an industry and working in collaboration with government, we can help facilitate an environment in which consumers are well-served and industry professionals can thrive.
Anti-money laundering recommendations Our collaboration has resulted in a commitment from the undersigned organizations to pursue the following shared best practices and recommendations for government:

1. Accept only verified funds – For sectors of real estate that are not already required to do so, we recommend that they accept funds only in forms that are verifiable through Canadian financial institutions.  
2. Mandatory anti-money laundering education – We recommend the introduction of mandatory anti-money laundering education for all real estate professionals subject to the reporting requirements administered by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to ensure that those professionals are trained in recognizing and reporting suspicious transactions. FINTRAC should work with sector organizations, regulators and the provincial government to improve existing resources so that they better reflect real-world situations and improve compliance.  
3. Smart regulation – We recommend that the federal government amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to allow FINTRAC intelligence to be made available to additional regulatory authorities, including the BC Securities Commission and the Financial Institutions Commission (FICOM). Optimally, the federal and provincial governments, as well as their respective agencies, should coordinate their actions, share information, such as the provincial assignment registry, and create a comprehensive, efficient enforcement regime.  
4. Ongoing engagement – We recommend governments and regulatory agencies, including FINTRAC, better utilize on-the-ground experience of real estate professionals to develop compliance resources and test policy ideas. This will result in well-crafted, practical regulation and foster a culture of compliance to protect consumers and the economy.  
5. Timely and transparent reporting – We recommend that FINTRAC implement a framework to identify and report trends on a regular basis and in language that is consistent and understandable to professionals, the public and media. This reporting system should also include consistency in examinations with immediate feedback designed to help industry professionals improve their compliance systems.

Copyright ©2019 BCREA