Chinese real estate investment slowdown likely short-lived

MICHAEL BERNARD
The Province

The Chinese government crackdown on capital flight from that country has combined with the 15 per cent foreign buyers’ tax on residential properties to dampen buyer demand in Vancouver’s sizzling real estate market.

But two senior executives at Macdonald Commercial, a real estate brokerage firm that monitors Chinese investment in Canada, say that the Chinese real estate investment slowdown will likely be a short-term trend.

“My sense is that it’s more of a struggle for Chinese investors to send funds from China now, but we are still seeing some significant income and land deals being done in Metro Vancouver,” says Tony Letvinchuk, managing director of Macdonald Commercial.

As an example of China’s abiding interest in our region, China Minsheng Investment Group recently purchased Grouse Mountain ski resort for an estimated $200 million. An unidentified banker said that Minsheng had been searching for a year throughout Canada for investments.

As well, several other significant state-related Chinese companies have set up shop in the city over the past year and are quietly buying up real estate around the province, despite the official policy, says Dan Scarrow, head of the Canadian Real Estate Investment Centre and Macdonald Commercial’s representative office in Shanghai.

Chinese foreign investment outflows — which have fallen from nearly $1 trillion in 2016 to $126 billion so far in 2017 — will continue to play a key role in Vancouver real estate in the long term, he said.

He noted that despite attempts to control capital flight, the Chinese government is simultaneously nudging the country into economic superpower status, a process which necessarily involves diversification of global investment over the longrun.

In addition, attempts by the municipal and provincial governments to cool down demand for capital flow into Canadian real estate are being counteracted by Ottawa’s continued expansion of immigration (increased to 300,000 annually), tourist (1.4 million 10-year visas issued to Chinese nationals since 2014), and foreignstudent (over 300,000 with onethird from mainland China) access to Canada.

On top of that, a critical mass of 70,000 well-heeled mainland Chinese immigrant families in Vancouver will continue to pull in seemingly endless Chinese capital to the region, he said.

“Money eventually gets to where it wants to go, despite policy efforts to the contrary,” said Scarrow.

Adds Letvinchuk, “There are so many reasons we are an attractive real estate investment destination for global capital and that’s not going to change anytime soon; and with an abundance of local equity, the commercial property sector will remain very strong.”

Founded in 1944 in Vancouver, Macdonald Commercial is the commercial investment arm of Macdonald Real Estate Group, which employs more than 1,000 people in over a dozen real estate offices across British Columbia and opened its Shanghai office in 2014. Last year, sales volume exceeded $8.9 billion while assets under administration grew to over $5 billion.

© 2017 Postmedia Network Inc.

Andy Blatchford
REP

The Bank of Canada left its benchmark interest rate unchanged Wednesday following two straight hikes, but suggested future increases are still likely, albeit at a more-gradual pace.

In its scheduled announcement, the central bank said it held off this time in part because it expects the recent strength of the Canadian dollar to slow the rise in the pace of inflation.

To make its case, the bank also pointed to the substantial, persistent unknowns around geopolitical developments as well as U.S.-related fiscal and trade policies, such as the renegotiation of the North American Free Trade Agreement.

Governor Stephen Poloz has introduced two rate hikes since July _ at consecutive policy meetings _ in response to the economy’s impressive run over the last four quarters. The increases removed the two rate cuts introduced in 2015 as insurance following the collapse in oil prices.

The bank warned Wednesday it expects to stick to its rate-hiking path, although at perhaps a more-tentative pace.

“While less monetary policy stimulus will likely be required over time, governing council will be cautious in making future adjustments to the policy rate,” the bank said in a statement.

The bank stressed it will pay particular attention to incoming data to assess the unfolding impact of higher interest rates, the evolution of economic capacity, wage growth and inflation. Its next rate announcement is set for Dec. 6.

The central bank also released updated projections Wednesday that forecast economic growth to moderate after Canada’s powerful performance, particularly since the start of the year.

It now expects growth, as measured by real gross domestic product, to slow from its robust annual pace of 3.1 per cent this year to 2.1 per cent in 2018 and 1.5 per cent in 2019.

The economy expanded at a annual rate of 3.7 per cent in the first three months of 2017 and 4.5 per cent in the second quarter. The bank’s latest outlook now predicts real GDP to grow at an annual rate of 1.8 per cent in the third quarter and 2.5 per cent in the final three months of 2017.

“Real GDP growth is expected to moderate to a still-solid pace close to two per cent … over the second half of the year,” the bank said.

The bank forecasts declining contributions from residential investment and consumption, which largely fuelled Canada’s recent growth spurt. These changes will largely be consequences of higher borrowing rates, higher household indebtedness and policy measures aimed at cooling hot real estate markets, the report said.

The bank provided an estimate for the economic impact of incoming guidelines to reinforce mortgage underwriting practices, which were announced recently by the Office of the Superintendent of Financial Institutions. The changes, which will take effect Jan. 1, are expected to trim 0.2 per cent from GDP by the end of 2019, the bank said.

Moving forward, the bank said economic activity will advance on a “more-sustainable” trajectory led by rising foreign demand, recent increases in commodity prices, still-low borrowing rates and government infrastructure spending. It also projects steady growth in business investment, which rebounded in early 2017.

The weaker-than-expected roll out of federal infrastructure spending will provide a smaller boost for the economy in 2017 than the bank had anticipated. The commitments, however, are expected to lift growth over the coming quarters, the report said.

Copyright © 2017 Key Media Pty Ltd

Jordan Press
Canadian Real Estate Wealth

Not everyone wants to own a home these days, Evan Siddall concedes, not even his own millennial-age son. For the head of the Canada Mortgage and Housing Corp., that’s really saying something.

But Siddall’s experience is far from uncommon, the latest census figures show: 30-year-old Canadians are less likely to own a home today than their baby boomer parents did at the same age, mirroring a modest but unmistakable decline in the national home ownership rate.

At age 30, 50.2 per cent of millennials owned their homes, compared to 55 per cent of baby boomers at the same age. Young adults today are more likely to live in apartments than their 1981 counterparts, are less likely to live in single-detached homes, and, as Statistics Canada revealed over the summer, more likely than ever before to still be living at home.

The figures should change the way Canada thinks about its real estate sector, said Graham Haines, research and policy manager at the Ryerson City Building Institute in Toronto. Policy-makers have focused almost exclusively on policies to promote home ownership over the last 20-plus years, he said, pointing to tax policy and incentives.

“We have to start thinking about _ if rent is going to start becoming a more important part of our real estate sector once again _ how we make sure we’re building the right type of rental, rental where we need it and rental that’s affordable for the people who are going to be using it,” Haines said.

In 2016, more than 9.5 million of the 14.1 million households captured in the census owned their homes, an ownership rate of 67.8 per cent _ down from 69 per cent in 2011 after 20 steady years of baby boomers flooding the real estate market.

Since 2011, the census shows, the value of homes has steadily increased to a national average of $443,058, up from $345,182 in 2016 dollars. Vancouver had the highest prices in the country with the average home valued at over $1 million; Toronto was at $734,924 and Calgary at $527,216. Montreal came in at $366,974.

As values have climbed in cities like Toronto, Vancouver, Calgary, Edmonton and Ottawa, so too have the percentage of renters, even though the supply of purpose-built rental units nationally has been on a decades-long decline as developers build more condominiums than apartments.

Census data showed renters are more likely to be over-stretched financially to keep a roof over their heads.

Almost 40 per cent of renters captured in the census spent more than 30 per cent of their average monthly income on housing _ a figure largely unchanged from 2011 and more than double the approximately 17 per cent recorded for homeowners.

Overall, affordability remains an issue for almost a quarter of Canadian households, a figure that hasn’t changed much in a decade, with the pressure most acute in the hot housing markets of Toronto and Vancouver.

The federal Liberal government has promised to address affordability issues as part of an $11.2 billion, 11-year housing plan to be released in the coming weeks. It’s expected to have a heavy focus on building affordable units, with a new portable housing benefit that would be tied to individuals, rather than properties.

Speaking earlier this fall about work on the strategy, Siddall said that the focus wasn’t solely on helping the ranks of homeowners.

“Rent or own, a home is a home,” Siddall said in an interview.

“When we think about housing we have got to think about renters who need support to rent, renters who rent on a market basis, and make sure people can migrate and own homes who should own homes.”

The migration to home ownership is likely to pick up for millennials in the coming years as they start families and look for homes or condominiums _ a class of home that saw a 1.2 per cent increase in households from 2011 _ to fit their growing brood. At the same time, seniors will be looking to downsize.

That means the baby boomers will continue to fuel changes in the housing market by how long they remain homeowners and whether their children and grandchildren decide to rent or buy.

Haines said the two age groups, even though they are at different points in their lives, are likely to compete for the same kind of two-bedroom units that are a rarity in the market, potentially driving up costs. That may require policy-makers to get more involved in the market to make more family-friendly housing gets built instead of a heavy focus on studios and one-bedroom units, Haines said.

“We’ve fallen into this trap of building (condo) units for investors rather than end users,” Haines said.

“There are positive signs that we’re starting to recognize that over the last 20 years, we’ve sort of let the market do what the market wants and maybe we need a little more attention (to make sure) that we’re actually getting what we need for our population.”

The Canadian Press

Copyright © 2017 Key Media Pty Ltd

Vancouver’s west side tops list of Canada’s priciest real estate markets

Derrick Penner
The Vancouver Sun

No one in Metro Vancouver needs to be told Vancouver’s west side is a pricey place to buy a home, but real estate firm Century 21 has crunched numbers from its own realtors to list it the most expensive neighbourhood in Canada, ahead of downtown Vancouver and West Vancouver.

Using the parameters of a self-defined “typical home,” Century 21 estimated that with a price-per-square foot of $1,201, Vancouver’s west side topped the list of cities surveyed, followed by downtown Vancouver at $863 per square foot and downtown Toronto’s $819 per square foot.

“West Vancouver and the west side, those are extreme ends of the survey and there’s not really new information here,” said Century 21 Canada executive vice-president Brian Rushton.

However, he thinks trying to break down per-square-foot values will give potential buyers a little bit more information to analyse.

“If (a consumer) is able to look at East Vancouver and say, ‘We know the benchmark is $718 per square foot, what sort of property can we get into,’” Rushton said. “Can you afford 1,200 square feet, or 900 square feet? It makes a difference, and can be helpful for first-time buyers.”

Century 21 released its survey at a time Metro Vancouver communities have been seized with discussions about how the region’s relative unaffordability is affecting patterns of migration and whether high prices are driving middle-class residents out of the city.

And Metro Vancouver municipalities placed seven of the Top 10 most expensive locations on Century 21’s list, with tony West Vancouver clocking in a close fourth at $817 per square foot.

Century 21’s 2017 study is a companion to similar efforts in 2006 and 1997, the company said, which also provides a snapshot of price growth over time in many locations.

In B.C., Vancouver’s west side saw the steepest price appreciation at 400 per cent over the 20-year period, followed by North Vancouver at 367 per cent and West Vancouver at 355 per cent.

The Century 21 calculations also offer a point of comparison with values in other regions.

For instance, with the Vancouver west side at $1,201 per square foot, Vancouver east side at $718 and Burnaby at $588, Victoria came in at $424, Vernon at $331 and Chilliwack at $232 per square foot.

And while other high-growth municipalities have also seen significant price inflation, such as 238 per cent over 20 years in Victoria, growth in other locations has been more modest, Century 21 found.

In Vernon, for example, prices are only up 12 per cent, the lowest rate across B.C., Alberta, Ontario and Quebec.

“Regions are absolutely susceptible to the economic factors in their province, like oil prices in Alberta,” Rushton said in a statement. “But we’ve seen steady growth for two decades.”

“Certainly, Vancouver and Toronto have seen significant price spikes, but other areas like the Prairies and Atlantic Canada have had fairly steady and predictable markets.”

© 2018 Postmedia Network Inc.

A new report shows a 23 per cent decrease in Metro Vancouver apartment sales and cautions that municipal intervention may hinder the proposed new supply

Tanya Commisso
Western Investor

 

Multi-family sales have slowed by a third year-over-year, possibly signaling a shift in investor sentiment, according to a new report by HQ Commercial‘s the Goodman team. 

The Goodman team’s third quarter Greater Vancouver report suggest that the 23 per cent decline in rental apartment sales may be due to recent interest rate hikes, stricter mortgage stress tests and government intervention. 

Goodman believes these factors may have caused prospective buyers to remain as tenants, slowing down sales but increasing the value of multi-family stock.

“It’s expected many will forgo buying and continue renting. New mortgage stress-testing is certain to impact the ability of all types of home purchasers,” the report states. 

New stress test requirements will see prospective buyers with less than 20 per cent down having to qualify for a mortgage at Bank of Canada’s five-year posted rate of nearly 5 per cent. The rate is higher than the discounted rate applicants would pay in reality. 

Sales have decline from 148 buildings in Q3 2016 to 114 Q3 in 2017. Meanwhile, dollar volumes increased 35 per cent, led by in-demand redevelopment site sales. The majority of sales took place in Vancouver Eastside and Burnaby. Both areas have a supply of older apartment buildings ripe for redevelopment. 

Dollar volumes in the suburbs – including Burnaby, New Westminster, North Vancouver, Surrey, White Rock, Maple Ridge and Coquitlam – have increased 86 per cent, while Vancouver values have increased a more modest 7 per cent. Total Matro Vancouver dollar volumes have increased from $1.24 billion in 2016 to $1.69 billion in Q3 2017. 

New supply is projected for Metro Vancouver’s rental stock by 2022, to the tune of 7,724 units in Vancouver and 8,454 across the suburbs. However, Goodman cautions that municipal intervention may prevent new projects from materializing. 

“Are Metro Vancouver’s municipal governments really doing enough to address the dire shortages of market rental housing? We think not,” comments Goodman. “Proposed projects in our chart could quickly disappear should public officials adopt punitive polices that create disincentives for developers to build rentals.” 

The city’s rental vacancy rate remains at 0.7 per cent, according to the Canadian Mortgage and Housing Corporation. 

Copyright © 2017 Western Investor

Neil Sharma
Canadian Real Estate Wealth

Greater Vancouver has seen a major drop in commercial sales over the last year, but not for lack of demand, as the supply is seriously constrained compared to last year’s available inventory, according to a report released by REMAX Commercial.

There were 875 sales during Q2 last year, but only 595 this year.  Last year’s $4.62bln fell 37.5% in 2017, as commercial sales in Q2 only totalled $2.89bln. Land sales also decreased year-over-year in Q2, from $2.12bln in 2016 to $1.51bln this year – a 29% drop.

The report noted that local investors are Greater Vancouver’s greatest market drivers, but that there’s also strong interest originating from south of the border, as well as Europe and Asia.

The GVA is absorbing office space quickly –  the vacancy rate for A-class offices is 6.7% — and, in Q2, over 700,000 square feet of industrial space was absorbed, 50,000 more than the same time last year. Helping pad those numbers was Amazon, which leased 76,000 square feet of office space earlier this month. Post-secondary institutions are feeling the squeeze for more infrastructure space, and the 30-storey Bosa Waterfront Centre near B.C. Place could help, as it will have 355,000 square feet of office space. West Pender is also slated for development in the near future.

The REMAX report stated Bank of Canada interest rate hikes haven’t affected the market yet, but that could change next year with the expected hikes December 6. Low supply in the commercial market will also continue well into next year.

The outlook for Alberta capital city is bright, as there was a 39% increase in commercial sales value year-over-year through Q2, hitting the $1bln mark for the first time in three years. Private investors are the most active cohort in Edmonton’s commercial property market, and institutional investors have their sights set on core retail and industrial properties. The retail vacancy rate is 5%, with sales at $331,872,034 through Q2 (up from $158,933,000 from the same time last year), while it’s just below 8% in the industrial sector.

Office space sales increased 202% through the first half of the year compared to the same period in 2016, largely because of a five-building office portfolio sale. Due to 1.8 million square feet of new office space being injected into downtown Edmonton, the vacancy rate is higher than the commercial property rate. Buyers in the market to grow their investment portfolios can take advantage of office space property owners looking to sell assets.

Edmonton’s commercial property market is recovering in tandem with the price of oil, and investors are cautiously optimistic.

Calgary has many reasons to be optimistic these days – a marked change of fortunes since 2014 when the oil sector plummeted. It is believed by many economists that the worst of the recession is in the rear-view mirror, but the oil sector is unlikely to return to its zenith.

The commercial market through Q2 got a 55% bump in year-over-year sales through the first half, hitting $1.43bln from $932mln last year. Office space vacancy hovers around 30%, however, as ramification of the oil crash. At least two office buildings in downtown Calgary have applied to be rezoned as apartments, and that’s a trend that is expected to continue. While RocketSpace, a Sillicon Valley-based company, is renovating 75,000 square feet of office space, demand remains low and is expected to stay that way.

Industrial space in Calgary has a vacancy rate of 10-11%, although traditional levels hover around 6% — which is also the vacancy rate in the retail sector. American and European investors are taking advantage of the low Canadian dollar to take up space in the industrial sector.

Saskatoon is experiencing less activity in 2017 because of the depressed resource sector. Out-of-province and foreign investors are driving demand for commercial properties. The hotel sector is robust, as well, two major projects expected to inject 200 rooms into the city, but the office vacancy rate is 20%, and industrial vacancy rates are expected to surpass 10% by year’s end.

Commercial real estate in Regina is connected to the provincial downturn in commodities. The office vacancy rate is slightly lower than 2016’s 12%, as the average cost per square foot for Class-A office space is between $20 and $24. However, the commercial vacancy rate is a healthy 4%.

Winnipeg’s demand for commercial properties is outpacing supply, and sales were up year-over-year through the first half of the year, largely the result of low interest rates. The market forecasts well for the future, as the city’s good fortunes are tied to Alberta’s misfortune.

Copyright © 2017 Key Media Pty Ltd

WeWork deals show tightness of local office market

Derrick Penner
The Vancouver Sun

The $1-billion deal that saw commercial real estate firm WeWork buy the Hudson’s Bay Co.’s flagship Lord and Taylor store in New York will spark a small transformation of downtown Vancouver’s commercial real estate sector between the office and retail sectors.

WeWork will take over Lord and Taylor’s landmark building on Fifth Avenue in Manhattan as its global headquarters in a transaction that will also allow the firm to lease store space in Frankfurt, Toronto and Vancouver.

And in taking the upper floors of Hudson’s Bay’s historic Vancouver store, WeWork wins some additional space in Vancouver’s increasingly squeezed downtown office market to expand the beachhead it established in the city earlier this year by leasing seven floors in the Bentall III office tower downtown.

“(The deal) says two things very clearly,” said Norm Taylor, executive vice-president of commercial realtors CBRE, speaking about its implications for Vancouver. “The fact (WeWork) is coming into our marketplace is a positive because it’s validation for our economy and local talent pool.

“And secondly, it shows the tightness of the downtown (Vancouver) market.”

WeWork, which packages shared office space for short-term users, was looking to recruit a roster of freelancers, technology-and-design-firm customers, but saw most of the space snapped up by online retail giant Amazon to expand its already substantial presence in Vancouver, according to a report in the Financial Post.

CBRE, on the morning that WeWork and Hudson’s Bay announced the deal, released its latest market report, which showed that downtown Vancouver’s office vacancy had dropped to five per cent, its lowest rate since 2013 when the city was in the middle of its biggest office-construction boom in the last two decades.

Taylor said turning old retail space to office space isn’t a new phenomenon for Vancouver — the former Sears location on Granville was converted to a smaller Nordstrom, with office space that includes prominent branded space for Microsoft and Sony Pictures Imageworks.

And with big-box retail becoming a tougher business the world over, Taylor said such conversions serve a dual purpose, particularly in Vancouver where the market has run out of options for tenants that need large spaces despite the recent building boom.

“These buildings, built a long time ago (have) big floor plates that you wouldn’t be able to convert to residential easily,” Taylor said. “But they will work for office.”

Downtown Vancouver saw its office-vacancy rate peak at 10 per cent at the start of 2016, according to CBRE’s report, but has been steadily ratcheted down by demand driven by the city’s still-growing tech sector, Taylor said.

“Right now, over 50 per cent of tenants in the market, true demand looking for (office space) is from technology companies,” Taylor said. “At times it’s been as high as 70 per cent.”

WeWork hasn’t confirmed that it is Amazon that has leased most of its initial setup in Vancouver, but the Financial Post reported that the online merchant and cloud computing company grabbed WeWork’s floors as a stopgap while it secures purpose-built space in a new building that Oxford Properties is developing at 401 Georgia Street.

On Tuesday, Commercial realtor Avison Young also commented on the tightness of downtown Vancouver’s office-leasing market.

“As the year has progressed, the availability of office space in downtown Vancouver continued to dwindle,” the realtor wrote in its latest report, “creating a more challenging environment for tenants of various sizes of various sizes to secure office space.”

The last round of office construction in downtown Vancouver saw new landmarks such as Oxford Properties’ MNP Tower on Hastings Street, the 745 Thurlow building — developed by Bentall Kennedy on behalf of B.C. Investment Management Corp. — and Westbank’s Telus Gardens office tower initially flood the downtown market.

However, despite projections that all that new space would “crater our market,” Taylor said it has been steadily absorbed and even conservative institutional investors are taking speculative bets on new Vancouver developments.

“The fact that vacancy rates have halved in under two years is testament to the economic vitality of the city and the expansion of business in the city,” Taylor said.

© 2018 Postmedia Network Inc.

Home inspections save money

Neil Sharma
Canadian Real Estate Wealth

Home inspections are one of the most important facets of buying and selling homes, but, unfortunately, they’re often overlooked.

Such has been the case during Toronto’s bidding war frenzy over the last few years, during which prospective buyers forfeited their right to a home inspection for fear of their bid being rejected. According to Alice Soon, marketing manager of national programs at Pillar to Post, there was an uptick in calls from people who’d foregone their right to inspection, and got stuck with thousands of dollars in repairs. She says that’s a mistake that can be easily avoided.

Additionally, whether you’re an end-user in the market for a new home, a seller, or an investor, home inspections are integral to saving money down the road.
Just imagine buying a rental property only to find out the roof need replacing, warns Soon.

“If you’re buying an investment property, when you have a certified home inspector they should be giving you a thorough report of every part of the house, all the major systems,” she said. “A person buying a property as an investment is different than a person buying to live, though that’s important too, because it’s supposed to make you money, not lose money, so you need to know the condition of the home. If you buy something and you don’t get an inspection but find out later replacements need to be done, that eats into your profits.”

For sellers, pre-listing inspections are also important, says Soon. For starters, transparency is a bargaining chip.

“You can get a higher asking price if you get a pre-listing inspection,” said Soon. “The seller can decide if they want to repair it or not, but you’ll avoid problems later. If you’re more transparent, even if you decide not to fix it, you have better negotiating power because the buyer will be comfortable.”

Pillar to Post has inspected over a million homes in the last 20 years, inspecting homes as an impartial third-party. However, everybody from buyers, sellers, and even realtors, reap the benefits.

“We’re there to represent the client’s best interest, and give them honest third-party objective feedback about the house’s condition,” she said. “But from a realtor’s perspective, we’re like part of their team because we help their client.”

Copyright © 2017 Key Media Pty Ltd