May 2016 18

Vancouver Market in April 2016: Affordability is a Receding Goal

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Play it Sam. Play it may not be 1942 in Casablanca but it feels like a war in the Vancouver real estate market. The April stats are just more of the same old story: highest selling April on record, prices for all properties up 25.2% since April 2015, for detached homes a 30.1% increase to a benchmark of $1.4 million with Vancouver Westside at a sizzling benchmark of $3.2 million. Affordability out the window.

False Creek Sunset by Colin KnowlesFalse Creek Sunset by Colin Knowles

Government on every level is trying to obfuscate the problem and kick the can down the road with rules about ‘shadow flipping’ as though selling a few homes on the Westside of Vancouver to layers of Chinese investors before completion on the original contract makes any difference to the rising prices of properties. Completing the sale and selling it again will just be an added cost of doing business to the parties involved and maybe return more Property Transfer Tax to the provincial coffers.

There was an illuminating story in the Globe and Mail last week about the frustration of one potential purchaser who got into a threatening shouting match with a prominent Westside Chinese realtor. The conversation was conducted in Mandarin, recorded by the hopeful buyer and translated by the G&M. The realtor had sold a Point Grey property for $4.2 million and when it closed the new owner asked her to resell it. The realtor’s assistant called buyers who had expressed interest the first time round and offered them a chance to bid on it. When she explained that the listing price was the opening offer and they were expected to go a million $$ higher one resident Chinese buyer screamed and yelled at the assistant about how they were ruining the real estate market in Vancouver and giving Chinese people a bad reputation and why couldn’t he just buy a home for his family (a familiar conversation in all circles in Vancouver). The realtor called him back about his treatment of her assistant and he started in on her. She threatened him with retribution from Chinese Mafia investors if he continued on his rant about reporting her to CRA for tax evasion. He then received a threatening call in Mandarin from an anonymous Chinese man. The buyer called the Real Estate Council and the police to report the incident and was not happy with the slow response to his perceived threats. Everybody wants to blame the realtor for the rising prices and lack of affordability even at the $4 million level but truly it is caused by growing demand and diminishing supply.

What seems to be missing at all levels of government is a grasp of the big picture of how the world has changed in this post-Industrial era of globalization and instant communication. Huge amounts of capital are washing around the world ready to pile up on any friendly shore. There is no place friendlier than Canada with its unrestricted, unregulated access to residential and commercial real estate purchases by non-residents. There is no place with fewer safeguards against money laundering. Welcome to Beautiful British Columbia where nothing has to be disclosed and your funds can be wired into the bank or lawyer’s trust fund of your choice with almost no questions asked as long as the vig is high enough to make it worthwhile for the bank and law firm to turn a blind eye to the probable source of funds.

According to the National Post China is now the No. 1 investor in residential real estate in the US (where such stats are transparent and tracked as opposed to Canada which has no idea where the money is coming from). Chinese buyers are paying more than the average price in the US because they settle in wealthy neighbourhoods in California and New York. In New York there are the same complaints as Vancouver about gentrification of working class neighbourhoods. It is playing out here in the sudden desirability of the East Side. People on the Westside are selling their homes for astronomical amounts to Chinese purchasers and moving to the more culturally compatible East Side of Vancouver for half as much. Back to the $4 million sale and a $2 million purchase.

The Asia Society, a non-profit organization out of New York reports that in 2015 direct Chinese investment in the US was $22.2 billion of the $118 billion that left the PRC. It’s impossible to know how much of that $118 billion came to Canada as the market here is not transparent as is the US market but investments are flowing from residential real estate into large commercial projects such as the Bentall Centre in Vancouver. In May a Chinese investment company out of Hong Kong purchased InnVest Real EstateTrust for $2.1 billion, a major hotel player in the Canadian market. Their portfolio includes Best Western, Comfort, Delta, Fairmont, Hilton, Hilton Garden Inn,Holiday Inn, Holiday Inn Express, Homewood by Hilton, Les Suites, Quality, Radisson, Sheraton, Staybridge Suites &Travelodge.

Hotels are a hot commodity with Chinese investors. Probably because millions of middle class Chinese tourists will be travelling the world in the next few years. In the national holidays in October 2015 600 million people travelled to visit family or tourist destinations in China. At the Lunar New Year 2.9 billion residents travel to provincial family homes. Since 2010 Canada has had "approved destination status" which expedites group travel. BC is a favoured destination especially Vancouver and Victoria. There were 700,000 Asian visitors to Metro Vancouver in 2015. There will be 1.5 million to Canada in 2016. As tourists they are big spenders. In Heathrow Airport Chinese travelers are 1% of the population and purchase 25% of the luxury items in the Duty Free shops.

So now that Vancouver is an international destination what do people do who live here and see the world changing around them? The Premier suggests that high density development in the form of high rises and multifamily accommodation be built around transit hubs. This is already happening in Burnaby, not so much in Vancouver where there is rampant NIMBYism. The high cost of land creates high prices per square foot in most new strata properties. A brand new neighbourhood unhampered by existing structures is the up and coming River District in South Vancouver. Four concrete hi-rises that are projected to be completed in 2019 are sold out. Buyers are couples, young families, people moving from the suburbs to be closer to work, those planning future retirements from other parts of Canada, downsizing in the Lower Mainland, thinking ahead to future accommodation for children or aging parents. There is a pent up demand for reasonably priced homes even if you have to wait for them to be built.

Affordability is a receding goal. There is no question that innovative and uncomfortable solutions will need to be found. There is no going back to the old days before Expo 86 invited the world to discover us. There was a revealing anecdote from a realtor quoted in the Vancouver Sun. He said he and his now ex-wife purchased a home in Kits Point in Vancouver for $195,000 in 1980. The wife got the home in the divorce settlement and he just sold it for her for $4.1 million. An object lesson in staying married to profit from the real estate market.

As discussed here in the past there is a huge problem for companies trying to grow their workforce particularly in the tech industry. Employees just can’t afford to live in Vancouver. Ryan Holmes, CEO of Hootsuite worries that Vancouver is at risk of becoming an economic ghost town with no viable economy, other than a service industry.

Millennials are mostly staying because of jobs, family and friends but are spending a disproportionate amount of income on housing.

Quality of life in Metro Vancouver and the low Canadian dollar puts it on the list of the top three desirable cities in which to live and/or invest. Let’s hope governments can work together at all levels to keep it there for everybody.


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