Vancouver Real Estate 'Bubble' at 30-year Peak

[Changing City]

Originally Posted by whatnext

“These units are competing for the same land base [as purpose built rental], but under a different financial situation. Condos pay back within five years, but a purpose built rental generally pays you back in 10 or 20 years.

“If you want to be a profit maximizer, why would you want to provide long-term, stable rental if you can make a heck of a lot of money off short term rental? So it’s precarious rental,” he said.

“We haven’t built purpose built rental on scale. We’ve supplemented it with this precarious rental in this condo environment. It’s not a replacement.”...(bold mine)

https://www.theglobeandmail.com/real...nvestor-owned/

Really? An investor can pay off a condo by renting it out in five years? That seems unlikely, even going the AirBnB route. If it's true, it's not at all surprising that nearly half the condos in the city are owned as investments. (Some were second homes, but we know that the new tax regime has pushed some of those back into the market).

[misher]

Originally Posted by Changing City

Really? An investor can pay off a condo by renting it out in five years? That seems unlikely, even going the AirBnB route. If it's true, it's not at all surprising that nearly half the condos in the city are owned as investments. (Some were second homes, but we know that the new tax regime has pushed some of those back into the market).

You mean in a city that is half rental half the condos are investment condos? That news is completely shocking. I never would have imagined that all the units renters are living in are investments. Absolutely Shocking!

Seriously this article seems pretty dumb as its just stating obvious facts. Of course most rentals are investment units.....

[Changing City]

Originally Posted by misher

You mean in a city that is half rental half the condos are investment condos? That news is completely shocking. I never would have imagined that all the units renters are living in are investments. Absolutely Shocking!

Seriously this article seems pretty dumb as its just stating obvious facts. Of course most rentals are investment units.....

No, you're missing the point. We've known that nearly half the condos were owned by someone who didn't live in them for some time.

It's the idea that you could pay it off by renting it out in five years I was questioning. If you could find a $500,000 condo for sale (and there aren't many) and you ignore the cost of the mortgage financing or the strata fees (which you shouldn't) to pay it off in 60 months (5 years) you'd have to get rent of $8,333 a month. Even Klazu doesn't pay that much! Or am I making some fundamental mathematical error?

[whatnext]

Originally Posted by Changing City

No, you're missing the point. We've known that nearly half the condos were owned by someone who didn't live in them for some time.

It's the idea that you could pay it off by renting it out in five years I was questioning. If you could find a $500,000 condo for sale (and there aren't many) and you ignore the cost of the mortgage financing or the strata fees (which you shouldn't) to pay it off in 60 months (5 years) you'd have to get rent of $8,333 a month. Even Klazu doesn't pay that much! Or am I making some fundamental mathematical error?

If you emailed Yan, he would probably explain where that came from.

[CanSpice]

Originally Posted by Changing City

No, you're missing the point. We've known that nearly half the condos were owned by someone who didn't live in them for some time.

It's the idea that you could pay it off by renting it out in five years I was questioning. If you could find a $500,000 condo for sale (and there aren't many) and you ignore the cost of the mortgage financing or the strata fees (which you shouldn't) to pay it off in 60 months (5 years) you'd have to get rent of $8,333 a month. Even Klazu doesn't pay that much! Or am I making some fundamental mathematical error?

No, you're not, but you can come at this another way. Using this calculator, if you have a $500k mortgage at 2.75% for 25 years, you'd have to have an additional $6750 per month on top of the mortgage payments to pay it all off in 5 years. I don't know any $500k condos renting anywhere near that high.

Edit: I think what the original quote is saying that the costs to developers are paid off within 5 years if they build condos, versus being paid off in 10-20 if they build purpose-built rentals. In this quote:

“If you want to be a profit maximizer, why would you want to provide long-term, stable rental if you can make a heck of a lot of money off short term rental? So it’s precarious rental,” he said.

...I think the "you" is the company building the building, not the person buying the condo.

[Changing City]

Originally Posted by CanSpice

No, you're not, but you can come at this another way. Using this calculator, if you have a $500k mortgage at 2.75% for 25 years, you'd have to have an additional $6750 per month on top of the mortgage payments to pay it all off in 5 years. I don't know any $500k condos renting anywhere near that high.

Edit: I think what the original quote is saying that the costs to developers are paid off within 5 years if they build condos, versus being paid off in 10-20 if they build purpose-built rentals. In this quote:

...I think the "you" is the company building the building, not the person buying the condo.

Alright! I think you cracked it - that makes more sense - well, mathematically, anyway.

So all Andy Yan is doing is explaining why developers - or most developers - favour condos over rental. That's obviously been true for many years, while there has been high demand for condos (including from investors), rising home values, and a generally low interest rate.

That's changing a bit because prices have apparently stalled a bit - although that may or may not be a longer term trend, and some municipalities are requiring a proportion of rental in larger projects. There are also some developers (Bosa, Onni, Concert for example), who are building up a portfolio of rental assets in addition to building condos. The rents cover their construction debt over a longer period - 15 years is probably a good guess - and after that they're a very profitable holding.

Whether we see as many investors buying condos to then rent out will be interesting. The stalled condo projects suggest they are out of the market for now. Certainly the flippers, who buy in and then sell as assignments or immediately after completion, might be reluctant to buy into a lower demand market. The longer term 'hold and rent' investors may still be around, although whether they can access mortgages as easily as in the past is also a question.

[whatnext]

Originally Posted by Changing City

Alright! I think you cracked it - that makes more sense - well, mathematically, anyway.

So all Andy Yan is doing is explaining why developers - or most developers - favour condos over rental. That's obviously been true for many years, while there has been high demand for condos (including from investors), rising home values, and a generally low interest rate.

That's changing a bit because prices have apparently stalled a bit - although that may or may not be a longer term trend, and some municipalities are requiring a proportion of rental in larger projects. There are also some developers (Bosa, Onni, Concert for example), who are building up a portfolio of rental assets in addition to building condos. The rents cover their construction debt over a longer period - 15 years is probably a good guess - and after that they're a very profitable holding.

Whether we see as many investors buying condos to then rent out will be interesting. The stalled condo projects suggest they are out of the market for now. Certainly the flippers, who buy in and then sell as assignments or immediately after completion, might be reluctant to buy into a lower demand market. The longer term 'hold and rent' investors may still be around, although whether they can access mortgages as easily as in the past is also a question.

Just shows that Trudeau really missed the boat in not bringing back MURBs as a tax incentive to spur rental construction. There needs to be more than just zoning carrots.

[misher]

Originally Posted by whatnext

Just shows that Trudeau really missed the boat in not bringing back MURBs as a tax incentive to spur rental cosntruction. There needs to be more than just zoning carrots.

Yep. The incentives for rental are much less than they should be. Strata condos are still generally more profitable. If government truly wanted to help affordability 50% of whats coming out would be rental.

And unfortunately it seems like government has forgotten what a carrot is and keeps applying the stick which just makes things worse.

[whatnext]

Better Dwelling clarifies the "good news" about May's figures. Turns out the gain was the smallest May gain outside of a recession year:

Canadian real estate prices broke a seven month losing streak last month. Teranet–National Bank of Canada House Price Index (TNB HPI) numbers show prices made a monthly increase in May. The increase broke a very long losing streak . However, National Bank warned it wasn’t the good news it may appear to be. May is typically the second largest monthly price increase of the year. This past May was the smallest gain outside of recession.

The C11, a weighted price index of Canada’s 11 largest cities, advanced on both a monthly and annual basis. The index increased 0.47% in May, compared to one month before. This works out to a 0.69% increase compared to the same month last year. Prices are now down 1.31% from the peak reached on September 2018. On the upside, prices increased breaking a seven month streak of declines...

...Vancouver real estate price decreases are getting larger by the month. The region saw prices decline 0.25% in May, from the month before. This works out to a decline of 4.05% compared to the same month last year. It’s also a 4.98% decline from peak pricing, which hit in July 2018. Like REBGV stats, the losses are larger for detached homes and smaller for condos....

https://betterdwelling.com/canadian-...es-get-larger/

[WarrenC12]

In before misher calling this a recovery.

[Changing City]

CBC are reporting that purchasers are getting into trouble closing on completing condos. There are two problems for them. The mortgage they can obtain is less than they anticipated, as lenders are valuing the apartments at less than they agreed to pay. On top of that, the mortgage stress test reduces the amount lenders will advance.

So the falling market is having consequences for the condos under construction and nearing completion as well as those that aren't now starting construction. If a buyer walks away from the contract, they lose their deposit, and if the developer can only sell at a lower price, they're also liable for any difference as well. These risks have always been present, there aren't any new rules, but with the market having only gone up for a long time, lots of potential buyers have never experienced a falling market, so had no idea that they were taking a financial gamble (and one they can't easily get out of).

[rofina]

Originally Posted by Changing City

CBC are reporting that purchasers are getting into trouble closing on completing condos. There are two problems for them. The mortgage they can obtain is less than they anticipated, as lenders are valuing the apartments at less than they agreed to pay. On top of that, the mortgage stress test reduces the amount lenders will advance.

So the falling market is having consequences for the condos under construction and nearing completion as well as those that aren't now starting construction. If a buyer walks away from the contract, they lose their deposit, and if the developer can only sell at a lower price, they're also liable for any difference as well. These risks have always been present, there aren't any new rules, but with the market having only gone up for a long time, lots of potential buyers have never experienced a falling market, so had no idea that they were taking a financial gamble (and one they can't easily get out of).

The salt in the wounds is being on the hook for the difference.

You're out 100k deposit and then owe the developer another 100k for difference in sales price.

That aside, I do remember back in 08/09 The Beasley in Yaletown offered good size discounts to presale buyers to incentivize them to not walk away.

I think the developers are aware the mechanics of reclaiming that unit difference means substantial legal fees, and years wasted.

[whatnext]

As sales stall, Metro Vancouver caught between a buyer’s and seller’s market

This is the first of a five-part series on the state of real estate in Metro Vancouver.

Back in 2016, Vancouver’s white-hot real estate market looked as if it would never cool down.

Three years later, industry experts say times have changed.

“Prices now are back to where they were around, say, mid-2015,” Brendon Ogmundson of the B.C. Real Estate Association said...

...In the Fraser Valley, 2018 numbers show that sales in townhomes were down 26 per cent, condos sales declined 30 per cent, and sales of detached homes plunged 34 per cent.

Sales are only sliding further this year, according to Saretsky, and inventory continues to accumulate as buyers and sellers sit on the sidelines.

“We’re five months in, it’s pretty much at 30-year lows,” he said. “I think right now the big thing is just trying to get sellers to come to grips with the changing market reality.”(bold mine)

https://globalnews.ca/news/5418388/a...ellers-market/

[whatnext]

From today's South China Morning Post:

Foreign ownership main culprit for unaffordable housing in Vancouver, a top destination for Chinese funds, ‘unimpeachable’ study says
-A study found a near-perfect 96 per cent correlation between detached housing unaffordability and foreign ownership rates across 14 Vancouver municipalities
-The Canadian city has for decades attracted waves of millionaires and money from mainland China, Hong Kong and Taiwan

...A study has found long-sought evidence linking foreign ownership to extreme housing unaffordability in Vancouver, a Canadian city that has attracted waves of Chinese capital and millionaire migrants.
The white paper by Josh Gordon, an assistant professor at Simon Fraser University’s school of public policy, found a near-perfect 96 per cent (or 0.96) correlation between various metro Vancouver municipalities’ price-to-income ratios (a common measure of unaffordability), and the proportion of their detached houses in which at least one owner was a non-resident.
A leading researcher who was not involved in Gordon’s study said its findings were “unimpeachable”: the more that a Vancouver municipality was favoured by non-resident owners, the more unaffordable its detached houses tended to be.

“When I plugged the numbers in it blew my mind … I mean, holy smokes,” said Gordon of the strikingly close correlation.

...“This is compelling evidence that when it comes to the extreme ‘decoupling’ [of prices from local incomes] seen in the Vancouver housing market, foreign ownership is the primary culprit,” the paper said.
Vancouver’s housing has long been considered among the world’s most unaffordable. The city ranked second – behind only Hong Kong – in the latest Demographia study of unaffordability in 309 cities around the world, with a price-to-income ratio for all housing of 12.6....

It is also consistent with the findings of Markus Moos and Andrejs Skaburskis, who concluded that Vancouver prices and incomes decoupled because recent immigrants’ housing consumption was less tied to their local labour-market participation than it was for other buyers.
“These are proxies for foreign money at times when we don’t have direct measures of foreign money,” Yan said. “So we have these various scholars, with various data sets, all pointing in the same direction. That is a call for action.”

https://www.scmp.com/news/china/mone...rimary-culprit

[WarrenC12]

Latest email headline from my favorite realtor:

"Presale Assignments Available - Sellers Motivated! Bring an Offer!"

I wonder if you can get down to original asking price. He has a bunch in the burbs.

[rofina]

Originally Posted by WarrenC12

Latest email headline from my favorite realtor:

"Presale Assignments Available - Sellers Motivated! Bring an Offer!"

I wonder if you can get down to original asking price. He has a bunch in the burbs.

You think were at peak desperation where people just want to bailout?

This City is so strange - at a time where volume is down at 30 year lows, prices are down double digits, there are still buyers for properties 3 million plus in cost.

[WarrenC12]

Originally Posted by rofina

You think were at peak desperation where people just want to bailout?

This City is so strange - at a time where volume is down at 30 year lows, prices are down double digits, there are still buyers for properties 3 million plus in cost.

No we will be at the peak when people walk away from a 20% down payment.

There will always be buyers and sellers. Just like the stock market. It takes wild swings but there's always volume.

[rofina]

Originally Posted by WarrenC12

No we will be at the peak when people walk away from a 20% down payment.

There will always be buyers and sellers. Just like the stock market. It takes wild swings but there's always volume.

Fair enough - I just find it hard to fathom buyers are stepping in at the levels they are.

Liquidity here is definitely one of the most under appreciated perks. The fact that multi million dollar properties can move in weeks or months is pretty amazing.

That can take years elsewhere, even in a sellers market.

[retro_orange]

Greater Vancouver New Home Sales Drop Nearly 90%

Greater Vancouver real estate sales are dropping incredibly fast these days. Data from MLA Canada, a notable pre-sale marketing firm, shows a big drop in sales in May. Developers are responding to the decline by cancelling or delaying many projects.

Greater Vancouver Pre-Sale Listings Decline Over 65%

Greater Vancouver pre-sale listings for real estate made a large decline. Only 539 new pre-sale units launched in May, down 37.98% from the month before. This represents a decline of 65.44% from last year. The number launched in May is 23% lower than MLA had anticipated a month before. Developers are responding to softening sales by cancelling or delaying projects. Presumably they’re waiting for demand to return, or the cost of holding underdeveloped property gives them incentive to build.

Greater Vancouver Sales of New Construction Drops Nearly 90%

Sales of new construction dropped by an even larger number. There were 119 pre-sales made in May, down 31.21% from the month before. This represents a decline of 89.10% from last year. The sales are the fewest monthly sales in at least two years, for any month – not just May. Things are really slow across Vancouver these days.

Demand For Greater Vancouver Real Estate Is Pudding Soft

Sales made a larger decline than new listings, driving relative demand lower. The sales to new listings ratio (SNLR) declined to 22% in May, down a massive 68.57% from last year. The market is a buyer’s market when the SNLR is below 40%, and prices are expected to decline. Above 60%, and the market is a seller’s market, where prices are expected to rise. Between 40% and 60% the market is balanced – meaning priced right.

Greater Vancouver New Home Pre-Sale Absorption

Inventory of new pre-sales is on the decline, falling below estimates for the month. However, the decline in inventory wasn’t as large as the decline in sales. This resulted in further deterioration of relative demand, causing developers to respond. Units launched in the month are below estimates, with a few future projects now delayed. Condo resale prices are making large declines, so it remains to be seen if this can soften the price drops.

https://betterdwelling.com/city/vanc...rop-nearly-90/

[whatnext]

Don’t those silly developers know that if they just keep churning out supply the market will become affordable and buyers will magically flock back and all will be well?