‘Unprecedented’ listings reflect landlord frustration with rent caps, soaring property taxes and regulations

Frank O’Brien
Western Investor

In the past few weeks, landlords have besieged Mark Goodman, a multi-family specialist with Vancouver’s Goodman Commercial Inc., wanting to list their properties for sale, including rare portfolios in Vancouver’s hottest rental neighbourhoods.

“This is unprecedented,” said Goodman, who has been selling rental apartment buildings for 18 years.

He said most of the potential sellers are local families that have held rental property for years. Now, he said, many want to get out of the market, even with Vancouver rents at historic highs and the city’s vacancy rate the lowest in Canada.

“We have 18 active listings now worth more than $250 million,” he said.

Goodman expects to have two dozen within weeks. Current listings include a four-building portfolio in the South Granville area, totalling 114 suites that the longtime owners have listed for the first time.

Each sale is individual, but Goodman contends they are fuelled by an underlying frustration with provincial legislation that caps rent increases at 2.5 per cent this year, combined with soaring property taxes, based on assessments that are now often higher than the buildings could sell for.

For example, BC Assessment has valued an aging 16-suite, walk-up apartment building on Bute Street in Vancouver at more than $10.9 million, with the land alone assessed at $10.3 million.

Goodman has it listed at a discounted price of $9.25 million.

The owner of a 44-suite building on Balmoral Street put it up for sale this month after annual property taxes hit $50,000, based on a spike in its assessed value to just under $19 million resulting from an $850,000 increase in assessed land value from a year earlier.

Because BC Assessment values land at its highest possible use, property taxes for Metro Vancouver landlords have increased as much as 25 per cent in the past year. But Goodman said landlords are restricted in how much they can raise rents and even in how extensively they can renovate their buildings.

He added that some of the older rental apartment buildings — the average age in Vancouver is 61 years — have a majority of long-term tenants who are paying rates well below market value.

Under the City of Vancouver’s new Tenant Relocation and Protection Policy, if a landlord evicts a tenant to make way for substantial renovations, a person who has lived in the apartment for more than 20 years is entitled to a full year of rent, paid for by the landlord. Someone who has rented an apartment for between one and five years is now entitled to four months’ rent.

Goodman said some of the older buildings are “falling apart and unsafe,” but landlords can’t afford to fix them because of the penalties for “renovictions.”

The recent spike in apartment listings marks a sharp reversal from earlier this year.

In 2019’s second quarter, Metro Vancouver rental apartment building sales fell 66.7 per cent to just 13 compared with the same period a year earlier. The dollar value of sales was $152 million, down a staggering 73.9 per cent from 2018’s second quarter, according to the Real Estate Board of Greater Vancouver’s commercial division.

Goodman said the current rush of listings, which other agents are also experiencing, represents a “changing of the guard” in the Metro rental market.

“We are seeing more institutional buyers like REITs [real estate investment trusts] and pension funds.”

But Goodman added that they are looking mostly at new buildings or large portfolios. There is still a local appetite for one-off, older buildings, but he said sellers might have to discount prices.

Goodman added that foreign buyers have expressed interest in Vancouver buildings but are put off by B.C.’s 20 per cent foreign homebuyer tax, which applies to rental apartment buildings.

“The taxes are just crazy. Some owners have simply had enough.”

Copyright © Western Investor

B-20 mortgage will see the qualifying rate hold steady

Steve Randall
Canadian Real Estate Wealth

Mortgage rates are expected to remain at roughly their current level through to the end of 2020 according to a new forecast.

The British Columbia Real Estate Association’s Economics team says that, notwithstanding any major changes to the economic landscape, the 5-year qualifying rate is set to remain at 5.19% in the fourth quarter of 2019 with the 5-year average discounted rate at 2.77% (down from 2.86%).

Falling bond yields in the third quarter have helped reduce the 5-year contract rate with some fixed-rates of as low as 2.25%. However, those borrowers that are subject to the B-20 mortgage stress test will see the qualifying rate hold steady despite the lower rates offered by lenders. The lack of variation in the qualifying rate is “a puzzle” the report says.

BoC on hold BCREA Economics does not see the Bank of Canada making any changes to interest rates in the near term but notes that major changes in the economy may prompt a cut. For now though, employment and inflation data support a hold-steady for monetary policy.

The report calls for the Canadian economy will post trend growth of about 1.8% in 2020, though “significant downside risks remain due to elevated trade tensions and their consequent impact on exports and investment.”

Copyright © 2019 Key Media Pty Ltd

Should the stress test have been introduced in the first place?

Neil Sharma
Mortgage Broker News

Andrew Scheer proposed extending amortizations for first-time homebuyers, loosening the stress test and eliminating it for renewals, but that might be unwise, say experts.

The Canada Mortgage and Housing Agency’s CEO Evan Siddall previously noted that B-20 brought housing prices down 3.4% and a separate TD report from earlier this year also surmised housing prices would increase 6% by the end of 2020 if it weren’t for the stress test.

Thomas Davidoff, a University of British Columbia Sauder School of Business professor, says Scheer’s proposals aren’t fit for all markets. Moreover, Davidoff added that even Prime Minister Justin Trudeau’s promise that, if re-elected, he would expand the Frist-Time Home Buyer Incentive isn’t without its problems for taxpayers, but it’s inherently less risky than what Scheer is proposing.

Tsur Somerville, another professor from the UBC Sauder School of Business, and Davidoff say increasing housing supply would improve affordability.
“There’s no magic bullet on housing,” said Somerville. “If we’re concerned about Canadians’ level of debt, why are we helping them take on more debt?”

However, Angela Calla of DLC-Angela Calla Mortgage Team says that the stress test should never have been introduced in the first place, adding it was implemented without proper industry consultation.

“As mortgage professionals, we’re on the frontlines of seeing how people spend money day-to-day,” she said. “The fact they had zero care or regard for our industry, and for the last two years have operated with a closed door, has been frustrating.”

Further to that point, Calla noted that the Conservative Party of Canada consulted with the mortgage industry before Scheer announced his proposals regarding amortizations and amending the stress test.
“The Conservative Party reached out to our industry to learn about financial prudence while still giving Canadians the power of choice,” continued Calla. “It’s different when government listens to you and asks for data that would help people. I think this approach would be much more beneficial because Canadians are the best decision makers for where their money goes to help their families.”

Copyright © 2019 Key Media

Reality platform is promising to make buying and selling homes in Alberta easier

Ephraim Vecina
REP

A just-launched augmented reality platform is promising to make buying and selling homes in Alberta easier and more streamlined.

Bōde Canada has recently announced the inauguration of its portal in Calgary and Edmonton. The platform, which will eventually cover the rest of the province, is designed to connect buyers and sellers directly.

“The buyer ends up paying less, the seller makes more,” Bōde founder and CEO Robert Price told Global News.

This will essentially eliminate the need for middlemen.

“There’s a growing segment of people that already do business this way,” he added, citing the examples set by major disruptors like Airbnb and Uber.

Price assured, however, that this doesn’t mean that users will have to forego the services of brokers altogether.

“There will always be the need for an agent,” Price said. “We’re not saying this is going to change overnight for that segment, but we believe this new segment of people would love to do business this way.”

Bōde will be taking a 1% service fee on the final transaction price.

Earlier this month, the Alberta Real Estate Association announced the launch of its interactive Statistics Dashboard tool featuring more than 18 years of data on the province’s housing activity.

The dashboard is accessible at the association’s website albertarealtor.ca, and can present long-term sales activity, price movements, inventory, and many other trends in an easily digestible visual format.

“Most people have an interest in the housing market as it is typically their largest investment,” AREA chief economist Ann-Marie Lurie stated. “The statistics tool can provide them insight into current movements in supply, demand, and prices at both regional and provincial levels.”

Copyright © 2019 Key Media Pty Ltd

Vancouver defied the national housing price trend in August

Ephraim Vecina
Mortgage Broker News

Vancouver defied the national housing price trend in August, being the only major market to have seen an annual decline during that month.

The latest edition of the Teranet – National Bank of Canada House Price Index indicated that Vancouver’s average housing price (across all asset classes) fell by 6.63% year-over-year, bringing composite prices down by 6.96% from the peak seen in July 2018.

“The city’s index has shown negative growth every month this year,” Better Dwelling stated in its analysis of the data – an observation that has been mirrored in another study.

“In recent months, home prices have generally been stabilizing in British Columbia and the Prairies, a measure which had been falling until recently,” the CREA noted recently.

Across all asset classes, the benchmark price fell by 8.3% annually to $993,300. This was the lowest level since May 2017, according to the Real Estate Board of Greater Vancouver.

This is in contrast to the overall Canadian figure, with prices reaching new highs last month.

“The sudden acceleration of price growth came largely from smaller markets. Most cities saw price growth last month, with Vancouver being a notable exception.”

The aggregate Canadian index went up by 0.41%, up 0.61% from August 2018 last year. Much of this strength was due to an upward surge in Toronto, which benefited from an especially robust market that saw marked increases even with detached segment’s flat prices.

 “The index for the city showed prices increased 0.80% in August, and are now up 3.79% from the same month last year. Prices are now just 0.11% below the all-time high reached in July 2017.”

Copyright © 2019 Key Media

If interest rates climb as high as 5.5%, the stress test would effectively decimate the market

Neil Sharma
Mortgage Broker News

If elected, Andrew Scheer promises to raise amortizations to 30 years for first-time buyers.

But if interest rates go up as expected, amortization periods may need to increase for all Canadians.

“If you look at the reduction from 40 to 35 years, it coincided with a reduction of interest rates by almost a full percentage point in a short span of time with no visible indication of those rates rising again anytime soon,” said Dustan Woodhouse, president of Mortgage Architects. “Each subsequent amortization cut—from 40 years to 35, 35 to 30, 30 to 25—mathematically was roughly the equivalent of a 1% interest rate hike and it offset the lower rates. In other words, reducing amortization by 15 years was the equivalent of a 3% interest rate difference. So interest rates fell about 3% from historical averages but the shorter amortizations put the payment in line with a higher interest rate over a longer amortization.

“Naturally, as interest rates move up, you want to undo the changes, but the problem is math is hard, and at some point they forgot in government that the reason they reduced amortization all the way down to 25 was to address the amount of mortgage people were qualifying for.”

Not much changed over a decade. With a 2.5% interest rate and $100,000 income in 2017, Canadians qualified for the same amount of mortgage money that they did in 2007 when the interest rate was considerably higher at 6%.

“Even though interest rates fell by more than half, you technically didn’t qualify for more mortgage money,” said Woodhouse. “People had the perception that Canadians were able to get themselves into bigger mortgages than ever before because of lower interest rates. It didn’t matter what was real; politicians needed to address the perception.”

Mortgage Professionals Canada authored by economist Will Dunning, Woodhouse explains that if interest rates climb as high as 5.5%, the stress test would effectively decimate the market because real estate lending would become well-nigh impossible.

Scheer also announced he would ease the stress test on mortgages and eliminate it on renewals.  James Laird, president of CanWise Financial, called the amendment long overdue because B-20 in its current form is punitive.

“Those different qualifying standards at renewal allowed those existing lenders to charge high mortgage rates because they knew that their customers would have to pass the stress test to go with a different lender,” he said. “This inhibited Canadians with mortgages up for renewal from shopping around to find the best rate.”

Copyright © 2019 Key Media

Ozzie Jurock’s annual conference full of investment advice, life philosophy and predictions

Michael Geller
Vancouver Courier

“If you have a living room, start living in it.”

“Enjoy your own reality show. Don’t watch somebody else’s”

“Over 65 with all your assets in a $2-million home? Sell it and live.”

“Over 70? These are crazy times. Protect what you have. Keep half your portfolio in cash.”

“To survive in 2020 and beyond, become a student for the rest of your life.”

 “Don’t eat kale. Eat steak. Die from something tasty.”

These are just a few of the brainchilds offered by Ozzie Jurock at his 27^th annual Real Estate Outlook 2020 conference held at the Sheraton Wall Centre this past Saturday. (Full disclosure: Glacier Media was a sponsor of the event.)

German-born, 75-year-old Jurock is a legend for many in the real estate industry, and regular listeners to Michael Campbell’s Money Talks program on CKNW. Once the national president of Canada’s largest real estate brokerage firm, today he is an entrepreneur, real estate advisor, author and highly sought-after public speaker.

At his annual spring and fall conferences, he dispenses his own brand of real estate advice, life philosophy and oftentimes surprisingly accurate predictions to hundreds of people who pay good money to attend.

In 2012, he told attendees to expect Christy Clark’s government to win the forthcoming provincial election and plan accordingly. In 2016, he correctly predicted Trump’s victory and expects him to be reelected.

Given the political events unfolding in our federal election, he is no longer certain whether Trudeau or Scheer will win. But he does predict a minority government. He is quite certain the NDP will win the next provincial election.

Over the years, Jurock has helped a lot of ordinary people make money by investing in real estate. When asked what is now going to happen to the Vancouver housing market, he responds there is no Vancouver housing market. There are many markets.

There is a single-family market that performs differently from the multi-family market. There is a rental market and condominium market.

Downtown Vancouver is not the same as Maple Ridge, Port Coquitlam or West Vancouver.

For the past decade, Jurock has told investors to buy in Phoenix. Today, he maintains it is still a good place to invest, along with other American cities such as Dallas, Houston and, more recently, Seattle.

Closer to home, while prices have softened considerably over the past 18 months, Jurock remains bullish on Vancouver and many British Columbia regions. He expects a third of the 300,000 Canadian Chinese in Hong Kong to eventually come back to Canada.

He observes that 70 per cent of Canadians say they would like to retire in British Columbia, and this bodes well for many retirement communities on Vancouver Island, the Sunshine Coast, the Kootenays and Okanagan.

Approximately 60,000 people move to B.C. every year, and this is expected to increase to 75,000 and higher.

Jurock was joined by a variety of experts, including an engaging Englishman who travels across America buying distressed properties, tax deeds and liens at auctions. His recent purchases included a $10,000 eight-unit multifamily project in Indiana that he fixed up and now rents for $850 per month per unit.

Another speaker, who owns an Edmonton property management firm, asked landlords in the audience how many of them give their tenants an annual Christmas gift. Quite a few did.

For 15 years, Jurock has been urging business owners to buy their own offices, and invest in industrial space, mobile home parks, mini-storage and prime recreational property.

Don’t buy hotel condos, time-shares or ski resorts that do not have golf and other year-round activities.

Over the years, he has urged his audiences to buy rental properties, but only if they offer positive cash flow.

He agreed with apartment realtor David Goodman that we can expect more apartment buildings to come to market since long-time owners are fed up with new government regulations that don’t allow rent increases to cover costs, or tenant removal to carry out renovations.

Observing how the retail industry is changing, Jurock advised investors to avoid traditional retail centres, but invest in inner-city warehouses to store all that “next-day-delivery” product.

Jurock concluded the day by observing that real estate markets have come and gone for thousands of years, but we only have one life to live. So, live it to the full, and take the occasional bubble bath. Oh yes, and drink beer. He is German after all.

Glacier Community Media © Copyright ® 2013 – 2019

Real estate and social media go hand in hand

Danny Kucharsky
REM

When Montreal-area luxury real estate broker Martin Rouleau started to use social media in 2011 to promote his business, people told him that “the $2-million vendors are not on Facebook.”

But Rouleau didn’t listen to them and it turned out to be a smart move. He now conducts most of his marketing via social media and “business has been booming.” In fact, the Engel & Völkers broker was honoured by the brokerage in 2018 as one of its Top 10 in the world.

Rouleau has 80 current listings worth $150 million, mostly in the tony Westmount area of Montreal.

“Real estate and social media go hand in hand,” says Rouleau, who has a reach of more than 50,000 followers. “Using social media on a daily basis is a way to keep at the top of people’s minds,” he says. “Often, I’ll see contacts and they’ll tell me that they see me every day when they open their computer. Also, it shows your clients that you are working and producing.”

Rouleau has 5,000 friends on his personal Facebook page, 10,801 on his business Facebook page, 24,400 followers on Instagram and 3,700 on Twitter. He also likes LinkedIn because it reaches professionals who are not on other social media.

Aside from being a social media buff, Rouleau conducts his entire business on the cloud. “I keep no paper in the office” and almost all of his business is done electronically. Everything is saved on Dropbox and all documents are readily available to each member of his team.

“I’m dealing with a big volume of sales and I find that in order for the whole team to be efficient everybody has to have access to the same information at a moment’s notice,” he says. “I don’t believe in hiding information. I think everything has to be centralized.”

Rouleau even forbids brokers from leaving a pile of paper listings in a house when they have a showing. “We are always improving our listings, so I always want to have the latest version on everybody’s phone or iPad to avoid mistakes.”

He decided to go the social media route after returning from a two-year sabbatical from 2009 to 2011. During his sabbatical, he would go to Starbucks every day and noticed everybody had a computer and that there was always a Facebook page open. “I said to myself, ‘That’s going to give me enough business if I can reach all of those people.’ ”

He ignored what his competitors were doing and started doing most of his marketing on social media. The strategy was: “I’ll let the competitors fight and get the bigger ads in the paper at $20,000 a page and I’ll just build my social media brick-by-brick.”

Traditional advertising still makes up 30 per cent of Rouleau’s marketing budget, however. He places corporate ads – photos of himself instead of properties – in luxury glossy magazines and in two local newspapers. He also distributes flyers in targeted areas, “which I honestly wish I did not do. I don’t think it’s environmentally friendly.”

After spending his career at Groupe Sutton, Rouleau switched to Engel & Völkers four years ago, citing the brokerage’s “modern approach” to real estate. “The timing felt right. It’s actually a great decision. It’s really helpful to my business.”

Rouleau usually posts twice daily on Instagram and everything is shared on all of his other platforms. A team handles his social media but “I keep a very, very close eye on how they post and I have meetings with them on the tone.”

Most personal posts are created by Rouleau. “You have to be careful. You can’t just delegate all of your social media because then it’s completely impersonal.”

He tries to combine lifestyle posts with real estate posts. “If you give them too much real estate it becomes a hard sell and people don’t like it. It has to be like a magazine – a bit of real estate, a bit of food, a bit of travel, a bit of family. But it’s always focused mostly on real estate.”

Rouleau says given the comments and the numbers of likes he gets, the current format is what most followers want to see.

He uses a high-end photographer for real estate photos and spends a lot more for the images than competitors “because I always say we don’t have a second chance to make a good first impression on the Internet. Today, people don’t talk to each other; they just look at visuals.”

Clients are more than happy to see their houses on his posts, he says, and often ask, “When are you going to post my property again?” After all, he notes, “real estate is a happy subject. Nobody gets bored of a beautiful interior.”

While Rouleau says it is important that he show on his posts that he is successful, it has to be done honestly and without bragging. “You have to show them that you’re doing well. But you also don’t want to get on people’s nerves. It is a fine line. You don’t want to rub it in people’s faces.”

Rouleau urges less tech-savvy agents to make an immediate switch to social media and the cloud. Otherwise, “you will lose market share to the new generation of tech-savvy brokers.”

New brokers are all on social media and those that are not will see a hit to their bottom line “because social media is a lot less expensive than any print advertising,” he says. “Social media and real estate go well together. People on social media love seeing beautiful properties. It’s something people can dream of, can use to compare with the value of their own home.”

© 2019 REM Real Estate Magazine

Recession scare compels wealthy families to stockpile cash

Suzanne Woolley and Benjamin Stupples
Bloomberg

Rick Stone, a former partner at Cadwalader, Wickersham & Taft, sees treacherous times ahead for family offices trying to deploy cash.

The head of Stone Family Office said he doubts the bond market will provide any real return over the next decade, that equity markets will suffer a substantial drop and then be flat, and that too much venture capital and private equity money will continue to chase too few opportunities.

“It’s a very hard time for family offices to allocate money,” said Stone, 60, whose initial wealth came from class-action litigation fees.

Stone has a good vantage point on the action, since he runs the bi-monthly meetings of the Palm Beach Investment Research Group, a network of 35 family offices in Palm Beach, Florida. “The areas to invest in are fewer, and there is a lot of money looking for those spaces,” he said.

Regional Divide

North America family offices have more than a third of assets in equities

That view of the markets is shared by many of the 360 global single- and multi-family offices surveyed for the 2019 UBS Global Family Office Report, which was done in conjunction with Campden Research and released Monday. A majority expect the global economy to enter a recession by 2020, with the highest percentage of gloomy respondents in emerging markets. About 42% of family offices around the world are raising cash reserves.

‘More Caution’

“There’s more caution and fear of the public equity markets among ultra-high-net-worth investors,” said Timothy O’Hara, president of Rockefeller Global Family Office. “That has more people thinking about private investments, alternative investments or cash.”

Jeffrey Gundlach, chief investment officer of DoubleLine Capital, said this month he thinks there’s a 75% chance of a U.S recession before the November 2020 presidential election, while the World Bank cut its 2019 global forecast to the slowest since the financial crisis a decade ago. More than two thirds of European family offices surveyed by UBS, meanwhile, think Brexit will hurt the U.K. over the long-term.

The UBS/Campden report offers an insight into the discreet world of family offices, which manage the fortunes, tax affairs and even lifestyles of the wealthy. Taxing the super-rich is increasingly becoming a topic of discussion in North America ahead of next year’s U.S. presidential election. Democratic candidates Elizabeth Warren and Bernie Sanders have proposed wealth taxes that may cost the nation’s richest billions of dollars.

Family offices have become a greater force in global financial markets. Campden estimates that such firms manage around $5.9 trillion. The offices in the UBS survey had an average of $917 million under management.

Investing results have been mixed for those responding to the questionnaire, which was conducted between February and March. Average family-office returns for the 12 months prior to taking the survey were 5.4%, according to UBS. Developed-market equities were a big disappointment, providing an average 2.1% return. The highest average gains — 6.2% — were for family offices in the Asia-Pacific and emerging markets regions, followed by 5.9% in North America and 4.3% in Europe.

Star Asset

Private equity was the star asset class, with an average return of 16% for direct investments and 11% for funds-based investing. Real estate also performed well, returning an average 9.4%, and now makes up 17% of the average family-office portfolio, up 2.1 percentage points from last year’s survey. In the year ahead, 46% of families said they plan to put more money in direct private equity investments, with 42% devoting more to private equity funds and 34% funneling more into real estate, according to the survey.

Family offices are also increasingly focused on a different kind of potential disruption: succession planning. This year, 54% of those surveyed said they have a succession plan in place, up from 43% last year.

“We didn’t really see the community addressing this issue in the way that it needed to” in previous years, Campden Wealth research director Rebecca Gooch said. “As the saying goes, ‘Wealth can be made and lost in three generations.’”

© Bloomberg