SUMMER SLUMP

Sam Cooper
The Vancouver Sun

Home sales dropped in Metro Vancouver by up to 86 per cent after the introduction of the foreign investor tax on Aug. 2, according to official MLS data only available to realtors.

The Multiple Listing Service data obtained by Postmedia News and anecdotal information from 10 real estate agents suggests that the region’s previously ultrahot market for single-family houses has frozen solid. Some luxury homeowners have already slashed their asking prices in order to quickly escape dangerous market conditions.

“The detached market has just fallen off,” said realtor Steve Saretsky. “It’s crazy. It’s actually scary. The week the tax was announced, it went dead across the board.”

And in an indication of just how powerful a force offshore buying had become in the Lower Mainland, MLS figures shows that the high-priced areas with the highest percentages of foreign buyers — according to government statistics and real estate agents — are now suffering the steepest drop-offs.

“The offshore tax just put on the brakes,” said realtor Nirma Desai, who sells homes in south Surrey. “The offshore buyers became a huge portion of the market. They were the driving force.”

Some examples of key markets for offshore buyers:

• Richmond. From Aug. 1 to 15 last year, Richmond had 89 detached sales. For the same period this month, 12 homes were sold.
• West Vancouver: Last year, 59 detached homes were sold during the first half of August. This year, nine.
• Vancouver’s west side: 72 detached homes were sold in the first half of August 2015, but only 15 this year.

And realtors said they expect the second half of August to be even slower, as foreign buyers rushed into the market in late July and the first day of August to beat the introduction of the 15-per-cent tax.

It is a different story in Abbotsford, which borders Metro Vancouver but is not subject to the new tax. Forty-five detached homes were sold in Abbotsford the first half of this month, one more than the 44 sold in Vancouver and West Vancouver combined, and down only 19 per cent from the first half of August in 2015. In Squamish, an increasingly popular market that is outside the Metro Vancouver tax zone, detached home sales in August 2016 are equal to August 2015.

Meanwhile, with Metro Vancouver buyers now demanding discounts in a slowing market and offshore buyers either leaving or making lowball bids, some realtors say they are advising clients to cancel listings and come back in September, a month which usually has brisk sales.

“I’m telling all my clients, if we’re going to do anything, let’s come back in September,” Desai said. “I think the offshore buyers are being savvy right now, and playing a waiting game.”

Desai says she’s cautiously optimistic sales will bounce back in September after the shock of the new tax wears off.

Steve Saretsky says this optimistic view is held by many realtors.

“I might be the only one willing to accept that it might be a crash,” he said. “But I think a lot of realtors have the conception that it will pick back up in September.”

Saretsky says he worries that all the inventory pulled from the market in August “because nothing is selling” could pile onto September’s normal housing supply and skew the market even further in favour of buyers.

Prices rose in Metro Vancouver by 30 per cent in the past year. But Saretsky notes that in Tsawwassen, where his mother is a prominent realtor, veteran realtors say that surreal price rises of 48 per cent last year were driven mainly by buyers with links to Mainland China. Over the past 60 days, the only successful sellers in Tsawwassen were ones that dropped their prices sharply, Saretsky’s MLS data shows, sometimes by over $300,000.

He says that if September also experienced steep sales drops across Metro, more realtors would be convinced a serious correction was underway.

Brent Eilers, a veteran West Vancouver realtor, says that based on reported sales across Metro Vancouver he can already predict that the average prices of detached homes for August will be down between 15 to 25 per cent. Those figures roughly agree with the “real-time” average prices for August 2016 posted online by a national real estate firm, Zolo.

Eilers cautions though, that it is “a bit unfair” to judge the market on a 30-day period.

Regardless, choosing his words carefully, Eilers repeatedly said that he is advising his sellers — many of whom are downsizing baby boomers — to sell sooner, rather than risk being caught in a severe correction.

“The tax grossly expanded a shutdown in the market that was already happening,” he said.

Eilers draws on 35 years of market history and four different corrections to advise his clients of a range of possibilities.

In 1980, mortgage interest rates rose as high as 21 per cent, dropping prices from 40 to 60 per cent over six months in a gut-wrenching correction that took years to recover from, Eilers says. In the next three corrections, including 2009, prices dropped about 10 to 25 per cent and recovered within about 18 months to new highs.

The similarity in all cases, he says “is the urgency or fear drifts from the buyers to the sellers overnight, and prices always follow several months after the slowing in sales. That is why it’s so dangerous.”

Even though interest rates are unlikely to rise this time, Eilers fears that banks will not extend loans to local buyers with relatively low incomes if rich offshore buyers who have driven the market suddenly disappear due to the tax.

“The structure of the current market suggests it could go” to a 1980-type correction, Eilers says. “What I see suggests that this correction could be more significant than ones in the recent past.”

Danny Evans, a Langley-based realtor, says in some areas he has seen sales drop by 95 per cent in August and buyers are only making lowball bids.

In one case, a Vancouver property he listed had received offers of $2.3 million and $2.45 million. “The day after the tax was announced, the offer was for $1.7 million,” Evans said.

Evans said he is optimistic sales will bounce back in September because he believes offshore buyers will find ways around the new tax. He said he has already seen that happen in one sale that he feared could collapse after the tax.

“I’m sure there is a lot of people that will no longer go on title, but there still will be money coming in from China,” he said. “It all now will be under the table, and there will be side deals for the people that are going on the title (as owners).”

Meanwhile, lower-priced Metro Vancouver homes, including condos and townhouses, are still selling in a slowing market, realtors say.

Stephanie and Corey Goudriaan, a couple in their early 30s, say they were happy to sell their Surrey condo in early August at a slight profit.

Stephanie Goudriaan says the couple is living with her parents while they consider whether to dive back into the market for a townhouse, or rent while hoping for a market drop.

“We are confused to be honest,” she said. “It’s a crazy market. After being in for six years, it feels like to stay out is a gamble, and not to get back in is a gamble.”

UBC real estate economist Tsur Somerville says he believes that the offshore buyer tax slowed sales, but he would caution against reading too much into August statistics.

“It was a dramatic intervention,” Somerville said. “Part of that could be the foreign buyers (exiting the market) but more critically I think it is people saying ‘I don’t know where this is going, let me wait it out.’ So that would cause a drying up in market liquidity in August.”

© 2016 Postmedia Network Inc.

Justin da Rosa
REP

Record starts and price moderation are on the horizon for Vancouver, according to the British Columbia Real Estate Association (BCREA).

“The introduction of a 15% tax on foreign national home buyers in Metro Vancouver is expected to accelerate a moderating trend in the market that began earlier in the year,” Cameron Muir, BCREA Chief Economist, said. “However, other regions of the province are performing above expectations and at the provincial level, largely offsetting Metro Vancouver’s deceleration.”

Overall, British Columbia is expected to see 113,000 home sales this year – up 10% year-over-year.

And while many would-be buyers in Vancouver have struggled with affordability, the BCREA predicts a slight respite in the form of moderated demand and an uptick in housing starts.

“While the cyclical nature of housing markets can exact a harsh toll on affordability in the short term, there is some relief for beleaguered home buyers on the horizon,” Muir said. “Housing starts in the province are expected to reach near record levels this year, and the highest amount since 1993. In Metro Vancouver, a record number of homes are now under construction.

“A moderation in housing demand combined with a rising number of both new and resale homes on the market is expected to create more balance and less upward pressure on home prices.”

Copyright © 2016 Key Media Pty Ltd

BCREA 20 1 6 Third Quarter Housing Forecast Update

BCREA
other

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Provincial association predicts record transactions and continued rising prices this year, as strong early sales and growth elsewhere offsets Vancouver losses

Joannah Connolly
REW

Home sales across the province are forecast to climb 10.4 per cent to a record 113,000 total units in 2016, before slowing again in 2017, according to a quarterly housing forecast issued August 25 by the British Columbia Real Estate Association (BCREA).

Total BC residential sales for the whole of this year are expected to eclipse the previous high of 106,310 units in 2005 – despite Lower Mainland home sales falling in July and the early part of August.

Unprecedented sales in the early part of the year, and strong growth in other parts of the province, will more than cancel out any second-half losses seen in the Lower Mainland, predicted BCREA.

“The introduction of a 15 per cent tax on foreign national home buyers in Metro Vancouver is expected to accelerate a moderating trend in the market that began earlier in the year,” said Cameron Muir, BCREA chief economist. “However, other regions of the province are performing above expectations and at the provincial level, largely offsetting Metro Vancouver’s deceleration.”

The average BC home price is forecast to increase 11 per cent to $706,900 this year and a further 5.2 per cent to $743,700 in 2017.

Muir offered some hope to buyers aiming to get into the market but struggling to afford high prices.

“While the cyclical nature of housing markets can exact a harsh toll on affordability in the short term, there is some relief for beleaguered home buyers on the horizon,” added Muir.

“Housing starts in the province are expected to reach near record levels this year, and the highest amount since 1993. In Metro Vancouver, a record number of homes are now under construction.

“A moderation in housing demand combined with a rising number of both new and resale homes on the market is expected to create more balance and less upward pressure on home prices.”

© 2016 Real Estate Weekly

Alban Wang paid $208,881 out of his commissions by 17 deals referred to him from Chinese real estate website

Jason Proctor
other

A Richmond real estate agent has been suspended for a year for paying more than $200,000 for referrals on 17 house sales which came to him from a Chinese website dedicated to pushing B.C. real estate.

According to a consent order posted by the Real Estate Council of B.C., Xiao Ming (Alban) Wang did not tell purchasers who used the website he was remitting 90 per cent of his commissions in exchange for their business.

Wang’s name was not on the site. He has been disciplined for paying referral fees to an unlicensed brokerage without disclosing the fact to clients.

The identity of the website and its owners are blanked out in the disciplinary documents, but the name Vanfun.com appears unredacted at one point.

Vanfun.com came under scrutiny earlier this year for appearing to post new properties for sale in Shanghai before they became available to customers in the Lower Mainland.

According to the consent order, the website Wang dealt with is headquartered in China, but the woman who launched it has a home in Richmond and has previously been a director of a B.C.-incorporated company.

Wang told the council he was approached by a former client in September 2012, who said a friend called FN was in search of a Realtor. Wang met with the woman a few days later.

She told him she was going to launch a website displaying comprehensive housing data and information about schools, prices, numbers of days on the market and historical records of transactions.

“Wang stated FN told him she would introduce him to customers, almost all of whom had determined which properties they wanted to purchase,” the consent order reads.

In exchange for 90 per cent of his commission, Wang was required to arrange showings, draft contracts for purchase and sale and present offers.

“Wang stated that he agreed to the arrangement because it was easy,” the consent order says.

“Wang also stated that his name never appeared on any advertising for Vanfun.com, and he was never issued with any business cards.”

Between November 2012 and July 2013, Wang said he completed 17 property transactions on homes in Vancouver, Richmond, Surrey, Coquitlam, Port Moody, West Vancouver and White Rock.

He told the council he paid a total of $208,881 out of his commissions.

Wang was previously disciplined by the real estate council in 2012 for collecting deposits and waiting as long as 67 days to hand them over to a brokerage. The council identified 12 transaction and a total of $785,000 worth of deposits in that case. Wang was suspended for 14 days and ordered to pay $1,000.

The latest disciplinary measures also include a fine of $10,000, the maximum the council can levy.

In a separate matter, Wang is being sued by a pair of brothers who claim he was operating a “real estate scam” in Richmond aimed at convincing owners to sell their houses for the purposes of “shadow-flipping”.

The B.C. Supreme Court claim alleges the plaintiffs sold their home after receiving a pamphlet from someone named ‘Sunny’ who was interested in purchasing their property.

The brothers claimed they met with ‘Sunny’ and Wang, with whom they signed a limited dual agency agreement. The court claim says the sales contract contained an addendum allowing the buyer the right to assign the contract.

After selling the house, the brothers claim they learned the “property had been relisted for sale, presumably under the assignment clause as a shadow flip.”

In their response, Wang and the real estate firm named in the suit deny “being a party to any conspiracy or scam.”

They claim the brothers had done their own research and knew the market value of the property. The response says Wang and the firm had no knowledge ‘Sunny’ intended to assign the contract to another buyer.

Wang claims he first learned about the move to assign the contract several weeks after the contract was executed.

The response also notes the brothers agreed to the addendum explicitly providing the buyer the right to assign the contract.

None of the allegations have been proven in court. 

Wang declined to comment on the real estate council’s current order.

CBC is not responsible for 3rd party content.

©2016 CBC/Radio-Canada.

Higher-end markets in Vancouver, Richmond see house prices reverse for first time in a more than a year

Frank O’Brien
Vancouver Courier

Detached housing sales have plunged 84 per cent on Vancouver’s West Side and are down 88 per cent in Richmond during the first two weeks of August compared to the same period in 2015. Total detached house sales through the Real Estate Board of Greater Vancouver plunged 71 per cent in the same period, with only 169 sales registered compared with 565 in the matching two-week period a year earlier.

The sales slide coincides with the introduction of a new 15 per cent provincial sales tax on foreign home buyers that came into effect Aug. 2, and which may have exasperated a drop in sales that began three months earlier.

According to the Finance Ministry, which began tracking foreign buyers in mid-June, Vancouver’s west side and Richmond had the highest proportion of foreign buyers in Metro Vancouver.

“Single family home sales were already down over 30 per cent in most areas since May,” noted real estate investment analyst Ozzie Jurock in his latest Jurock Insider newsletter this week, adding, “That slowdown was not too surprising when you consider the incredible run up in values.”

However, those incredible price increases have come to a screeching stop in some high-priced neighbourhoods.

Data released to BIV by real estate agents show that, after increasing an average 4 per cent month-over-month for the previous year, benchmark prices fell 1.2 per cent from June to July in Vancouver’s university neighbourhood, to $6.3 million; Point Grey house prices were down 0.8 per cent to $3.7 million; and South Granville house prices dropped 0.1 per cent to $4.1 million. In Dunbar, Kitsilano and South Cambie, benchmark prices for a detached house were virtually unchanged from June to July after increasing an average of 15 per cent in the previous three months.

In Richmond, where foreign buyers account for 10 per cent of housing sales, the benchmark price of a detached house fell in five neighbourhoods and increased just 1 per cent across the municipality in July from a month earlier.

Jurock said it is likely that there will be a sharp increase in listing inventory in the weeks ahead.

“As investors, we need to batten down the hatches,” Jurock told his readers this week.

Zolo Realty BC Inc., a real estate firm that tracks average, rather than benchmark, prices in Vancouver’s housing market, reports that as of Aug. 22, the average home price in the city dropped 17.1 per cent from July 25, to $1.1 million.

© 2016 Vancouver Courier

 

Was the foreign buyer?s tax necessary?

Justin da Rosa
Canadian Real Estate Wealth

There is some evidence Vancouver’s housing market has already begun to cool and, with its recently implemented foreign buyer’s tax to boot, a rise in unemployment could lead to further price declines, according to Fitch Ratings.

“We believe there is some risk to residential house prices in Vancouver if there is a rise in unemployment. The city’s job market has been strong. Statistics Canada reported that Vancouver added 83,500 jobs over the prior year,” the ratings agency said in a recent research note, entitled Vancouver Tax Raises Employment Risk to House Prices. “Its unemployment rate fell to 5.5%, the lowest rate in the country. However, Canada’s other major metropolitan areas have seen much slower growth. In July, Ontario’s unemployment rate was unchanged at 6.8% and Montreal’s stood at 7.9%.”

Not to worry just yet, then.

Still, the agency cites affordability as a concern, with the average price up 24% year-over-year in July.

And that the government estimates 7.9% of housing investment in Vancouver between June 10 and July 14 came from foreign nationals. That influence is likely on the decline, however.

“The tax is part of a broader effort to slow the country’s housing markets. Last year, the minimum down payment on loans insured by Canada Mortgage and Housing Corporation was increased to 10% on the portion of the loan over C$500,000,” Fitch said. “This June, the finance minister announced the formation of a working group that will make recommendations designed to increase affordability and bolster the market’s stability.”

And while the recent measures will likely cool the market somewhat, Fitch believes the market may already be experiencing a slight decline.

“Canadian Real Estate Association data indicated that the number of national sales fell by 2.9% since last July,” Fitch said. “Vancouver’s monthly sales have declined substantially by 21.5% since they peaked in February. While there is no direct relationship between the number of sales and prices, we believe declines in the number of sales of high magnitudes are worth consideration.”

Copyright © 2016 Key Media Pty Ltd

Ephraim Vecina
REP

Dozens of agents in Calgary are owed more than $1 million from their transactions prior to Discover Real Estate’s closure in July, highlighting a significant risk that Alberta agents face at present.

Over 70 agents are still waiting on the payments for their commissions, CBC News reported.

“They’ve always been a little bit slower to pay commissions,” former agent Ibrahim Elhage said. “It would be two weeks, three weeks, sometimes a month. But in the last year or so it got more out of hand. It got worse because you’d stay there hoping to recover some of the money.”

Elhage, who had been one of the company’s top performers for more than a decade, recently had to refinance his home to remain solvent. He is still owed $122,866 by the brokerage.

“It’s disgusting. It’s theft,” he lamented, adding that he attempted contacting Discover owner Graham Mayne, with little success.

Similar efforts by reporters to get in touch with Mayne were unfruitful.

“I will phone you when I have the money to pay the agents. That will be very soon,” Mayne wrote in an email to CBC News dated July 16. A follow-up email sent afterwards failed due to an “invalid recipient” error.

When some former agents tried petitioning the Real Estate Council of Alberta for redress, they found out that commissions in Alberta are neither insured nor protected. According to current provincial regulations, any professional fees go into the brokerage’s general account before agent payments.

“I realized, what happened to our money? Is our money protected? No! I was just speechless. What do you mean no?” agent Hong Wang said.

Prior to going bust, Discover has at one time held the title of the largest independent brokerage in Alberta, boasting of over 600 agents.

Copyright © 2016 Key Media Pty Ltd

Lenders have added more insurance on loan portfolios

REP

Royal Bank CEO David McKay says the lender is “closely monitoring” the real estate markets in Vancouver and Toronto, where home prices have been climbing at a breakneck pace.

“The short supply of single-family homes in both cities coupled with strong demand fuelled by household formation, including net immigration has driven strong price appreciation,” McKay said during a conference call to discuss the bank’s (TSX:RY) third-quarter results.

“We have prudent underwriting practices in place and the necessary technology to closely monitor these markets and quickly react as situations may materialize.” McKay added that he supports Ottawa’s plan to form a working group to study the housing market and develop recommendations to mitigate some of the risks stemming from the combination of soaring house prices and record levels of consumer debt.

Executives at RBC, which reported $2.895 billion of net income in the third quarter, were peppered with questions about the bank’s residential mortgage portfolio during Wednesday’s conference call.

Analysts wanted to know what contingency plans the bank has in place in the event of a downturn in house prices.

RBC’s chief risk officer Mark Hughes touted the bank’s “diligent” process for verifying the incomes of borrowers and noted that the bank doesn’t participate in the second mortgage market or offer subprime mortgage loans.

Hughes also highlighted the fact that 48 per cent of the loan portfolio is insured, up from 46 per cent last year.

The bank purchased additional portfolio insurance this quarter, Hughes added.

“Overall, we remain comfortable with our exposure to the Canadian housing market,” he said.

“Our clients’ credit profiles are strong and have remained stable.”

Edward Jones analyst Jim Shanahan said that while having credit-worthy customers is important, it doesn’t insulate the bank from potential losses in the event of a correction or a crash.

“If there’s a substantial decline in home prices in Canada, it’s unlikely that any Canadian bank wouldn’t feel some pain, whether they were selecting high-quality customers or not,” he said.

According to Shanahan, slightly more than half of RBC’s $531-billion loan book is comprised of Canadian residential real estate loans such as mortgages and home equity lines of credit.

“It’s the biggest pocket of risk in the loan book,” he said.

“There’s some concern from time to time about oil and gas loans, but that’s only a $7-billion portfolio out of $531 billion. That’s really small.”

Shanahan noted that for now, there’s no data to suggest that a correction is coming _ but it’s certainly something worth keeping an eye on.

Housing affordability has become a concern in Toronto and Vancouver. According to data from RBC, home-ownership costs for a single detached house in Toronto were 71.4 per cent of the median household income, while in Vancouver costs were at 109 per cent of the median income.

RBC’s third-quarter profit was up 17 per cent from a year ago, when it had a profit of $2.475 billion. The increase was partly due to the sale of an insurance business. The earnings amounted to $1.88 per share, up from $1.66 during the same quarter in 2015.

Excluding the after-tax gain of $235 million from the sale of RBC General Insurance, RBC’s net income would have been $2.66 billion, or $1.72 per share, up seven per cent from a year ago.

RBC had total revenue of $10.26 billion during the quarter ended July 31, compared with $8.83 billion during the same period last year.

The bank also announced it is raising its quarterly dividend by two cents to 83 cents per share.

Copyright © 2016 Key Media Pty Ltd

Canadian Real Estate Wealth

VANCOUVER – The Fraser Institute calculates that the average Canadian family paid $34,154 in taxes of all sort last year, including “hidden” business taxes that are passed along in the price of goods and services purchased.

The Vancouver-based think-tank estimates that the average bill for income taxes collected by governments was $10,616 in 2015.

The second-biggest category was payroll and health taxes, at $7,160, followed by sales taxes at $4,973 and property taxes at $3,832. The other categories include taxes on profits, liquor or tobacco, fuel, natural resources and import duties – totalling $7,573.

The study’s authors conclude that visible and hidden taxes would have been equal to 42.4 per cent of the cash income for an average Canadian family in 2015, estimated at $80,593.

By comparison, the study estimates the average Canadian family spent $30,293 on housing, food and clothing last year – about 37.6 per cent of the family’s total cash income.

The Fraser Institute uses its own “Canadian consumer tax index” to track the tax bill paid by a family with “average income.”

“The objective is not to trace the tax experience of a particular family, but rather to plot the experience of a family that was average in each year,” the 11-page report says.

“The ‘consumer’ in question is the taxpaying family, which can be thought of as consuming government services.”

Copyright © 2016 Key Media Pty Ltd