It’s a Blue Christmas for detached homeowners across Metro Vancouver. It’s challenging for sellers to become accustomed to the new normal after the historic rise in prices and sales over the past two years. Overall for detached homes the number of sales are down 52.2% from November 2015 while prices are up 23% from November 2015 to a benchmark of $1,511,100. Prices are declining slowly. Affordability of detached homes for most buyers is still well out of reach.
In North Vancouver the detached benchmark is $1,625,800, up 27% in one year with a drop in numbers of sales from 102 in November 2015 to 61in November 2016. In Richmond with a benchmark of $1,610,500 that is up 27.2% in one year with a reduction in numbers of sales from 192 to 65 between November 2016 and 2015. It’s a similar story across the Board. In Van East the benchmark is $1,473,900, an increase in price of 21.9% with numbers of sales dropping from 144 in November 2015 to 77 in November 2016. Vancouver Westside still has the highest benchmark price at $3,521,000, a 22.9% increase over the November 2015 figure. Number of sales fell from 165 to 68 in that period. West Vancouver is noticing the numbers. The benchmark is $3,016,600, price increase is 17.7% over the year and sales in November 2016 are at 26 compared to 82 in November 2015.
The largest contributor to the decreased number of detached home sales is the 15% Foreign Buyers tax imposed in July 2016. That and actual high real estate prices. And mainly bad world wide political and economic news.There is anecdotal evidence that some buyers from Mainland China have chosen to invest in Victoria or even further south in Seattle. The pre-sold condo market is also being affected by offshore buyers who do not want to/can’t afford to pay the Foreign Buyer Tax. Many are walking away from properties as the closing day draws near and Property Transfer Taxes will be due and payable at Land Titles on registration.
It’s not only the FBT that is affecting the market. Scales have fallen from regulators eyes thanks to all the investigative reporting done on the Vancouver real estate market. Governments who have been stupid and lax in enforcing money laundering and tax regulations are under public pressure and since the goal of all governments is to be re-elected at last they are paying attention.
A recent front page article in the Vancouver Sun equates Canada with Kenya as the countries with the lowest requirements for registering a company with hidden ownership. According to Transparency International almost half of Vancouver’s 100 most expensive homes are bought through shell companies that obscure the identity of the real owners. BC and Canadian law allows unemployed relations or friends (students and housewives) to be the registered purchaser of multi-million dollar homes. This nominee can claim principal residence exemption and low income tax when he sells the house on behalf of the beneficial owner. The government and Canadian taxpayer is defrauded of millions of dollars of tax revenue. Because Canada has not closed loopholes that aid and abet financial crime it is becoming a popular place to park illegal funds.
There is no way to know how much money is coming into the Vancouver property market but it is clear beyond government nay-saying that it has flowed in while blind eyes were turned. A memorable quote in the Transparency International report says
In Canada more rigorous checks are done for individuals getting library cards, than for those setting up companies.
Many jurisdictions including the UK are moving to require all buyers of real estate to declare the beneficial ownership on the transaction record.
The market does seem to be morphing into a buyer’s market.Still difficult for sellers to get their minds around the changes, especially since the townhouse/condo move down market has remained stable. This market is heavily local in origin except for new condos in Richmond.
Many existing homeowners are feeling hard done by the end of the boom market and declining home prices that are not being taken into consideration by the BC Government Home Owner Grant Program. The Home Owner Grant Program was established to assist BC homeowners to pay some of their property taxes. Every year the threshold is established by the authority. With the rising home prices many owners were house rich and cash poor. In 2016 the grant threshold is set at $1.2 million property evaluation and many owners no longer qualify for it. This has created hardship for some and general bad feeling for most of those excluded. It combines with the July 1 cut off date for home sale data to be considered by the BC Assessment Authority when setting the basis for the mill rate and municipal taxes. Because the information is retroactive taxes are based on higher home prices this year again disadvantaging local owners. Many owners see it as a government tax grab and think that assessments should have been frozen at the 2015 levels.
As a result of the demand and rising prices of 2015 and early 2016 Metro has set a record in housing starts. It’s expected to slow in 2017 as market realities hit. Housing starts in 2016 are expected to reach 27,500. New building rules contemplated in Metro municipalities are also impacting the future of detached homes.
The City of Vancouver has affected the market with their new heritage rules for pre-1940 homes. They are not allowing demolition but are allowing increased density on the lot when the old house is renovated and preserved.That is impacting the values of larger lots that have attracted builders/buyers in the past who want a new large home. As one prominent Vancouver realtor commented "the City should be regulating what they allow to go up, and not focusing so much on what may be coming down." Preserving neighbourhoods with a consistent look that reflects Vancouver style would make sense. The new density allowances appear to be turning every heritage house into a high end condominium development. Increased density by stealth. There are many unhappy homeowners (read voters) out there. Realtors working in those areas affected by RS -5, 3, 3A zoning feel that it is affecting sales of pre-1940 properties.
Mortgage requirements for those with less than a 20% downpayment are making it difficult for buyers to qualify for homes they would like to purchase. Having to qualify at the posted combined rate of the 5 big banks lowers the potential purchase price of a new home for many applicants. Those re-financing or renewing mortgages where there is equity in the property are not having these problems.
This is the Season of Joy and Celebration historically reflected in a generally slower real estate market (except in 2015). There will be unexpected changes in the New Year that will be reflected in sales and activity that will be reported here in 2017. In the meantime we give thanks for living in such a blessed country as Canada.