This 18,633 sqft house on 1.12 acres [3489 Osler] in Shaughnessy sold for $17.5M on 22 Oct 2010. It had been listed since 21 Oct 2009 with an ask of $22M.
Regarding higher end properties in this part of town, a successful young Vancouverite sent the following anecdote and request for opinion to VREAA by e-mail. Perhaps readers can volunteer their thoughts. :
“I have some questions, but first, let me give you some background. I was born and raised in Vancouver. I am 33 and married. My wife and I live with my parents in Vancouver and I’ve been watching the prices in Vancouver soar. I could have bought an apartment several years ago but I decided that it would have been foolish. I had some money to play with so I decided to start a company with a few friends. I am in the process of selling my share of the company for approximately $7 million. My dream is to purchase a home in First Shaughnessy and the home I fancy is on the market for approximately $5 million but its assessment is $2.9 million. The house is from 1910s, approximately 7,000 sqft in need of some renovations. Lot size is around 14,000sqft. I am a bear to some degree, but I do not know if we are headed for an absolute crash of 30%+. I am willing to pay more than the assessment, but in short not a dime more than $3.5m.
Do you truly believe Vancouver west side is bound for a crash when it is irrefutable that the Mainland Chinese are buying everything they can get their hands on? Furthermore, First Shaughnessy is tiny and thus I can see demand for that part of town outweighing supply for years to come. I am curious to hear your opinion on what you would do if you were in my position. Do you believe that Westside homes will sell near their assessment prices?”
Find some place you like that rents for $5000 a month – which what you’d earn in interest even if you invested your after tax $3.5 million in GICs. Wait to see what happens. In a normal economy I’d say buy, but there is too much craziness going on to risk money in a venture that has already crashed and burned south of the border.
My family originally was thinking to buy in the westside, first shaunghnessy was always nice too drive by, but not first choice to live. However, in regards to the post above, I totally see a downward spiral–when late 2011/2012 maybe!!!
As for the Chinese…they buy with all cash–to hide the money from China, being here they make money the only way they can, which is counterfeit, drugs, brothels and more!!! Do you honestly want to live near, besides those types of people or homes they’ve previously owned???…especially for this ridiculous mounts of money???? We all know they are ka-chinging WESTSIDE. We’ve decided to look elsewhere!
“Do you truly believe Vancouver west side is bound for a crash when it is irrefutable that the Mainland Chinese are buying everything they can get their hands on?”
Why is it irrefutable? I’ve covered this in a post of my own.
http://financialinsights.wordpress.com/2010/09/11/the-hot-asian-money-fallacy/
If it’s so irrefutable, why are sales at near decade lows? Where are these rich mainland Chinese investors? They should be gobbling up the units at Millennium Waters at a discount, but they’re not.
Congrats on doing so well for yourself. You obviously must be an intelligent person. Think critically about the whole ‘rich Asian’ story. It doesn’t add up.
Cheers
Ben
“If it’s so irrefutable, why are sales at near decade lows? Where are these rich mainland Chinese investors? They should be gobbling up the units at Millennium Waters at a discount, but they’re not.”
Isn’t this guy from the OP talking about detached homes on the westside? RE bears are always using the MW development as ammo but in reality it is way overpriced for area. West side is still doing ok from what I’ve seen.
Ben -> Agree, it doesn’t add up.
As I’ve also commented in various places, the ‘rich Asian’ story has the following effect:
1. Some modest direct demand (still only a small % of overall sales).
2. A way, way more important indirect effect, in that local speculators have piled in based on the ‘rich Asian’ story.
All of the speculators, local or foreign, especially those purchasing in last 3 years or so, are end-of-cycle dumb-money momentum players who will high-tail it (or try to, anyway) the moment we next get a substantial pullback.
Prices will likely fall. It’s a question of how long you’re willing to wait for it to happen. Could be a few years still…
First congratulations on the liquidity event in your business. I believe that being able to create value that others want to pay for through building a business is probably the best thing to do in the current economic environment.
Given that you are getting 7 Million out of the transaction I assume you will owe at least a few million in taxes therefore a 5 million purchase for a home means that you will be very house rich and cash poor. Plus if you believe in a balanced portfolio then you have decided what percentage of your net worth you want to put into Real Estate and use that percentage as the max you are willing to pay.
Being house rich and cash poor takes the power of your money out, if prospective vendors know that you have cash then they will do their best to do things for you. For example real estate agents and financial advisers will be very happy to help you spend your money but you can extract a price from them for you spending money with them.
1) Find a well connected real estate agent promise them your business in return ask them for very detailed data about the area that you are buying in, not just the past year or so but a decade or more worth of data about sales and how those sales were financed prices paid. Offer them to pay them 10,000$ for the report, on a 5 million potential purchase 10,000 is not a bad investment.
2) With 7 million – taxes in cash the banks will be happy to offer you private banking services whatever that means, milk that for all you can. Tell the private bankers that you are thinking of buying house and will use them if their private banking arm is capable of providing you objective advice based on data, have them research the market and prepare a report for you. Maybe they have access to internal bank reports / data there is no other way to obtain, not sure if this approach would work but it is worth trying.
3) Being an entrepreneur myself who has not yet experienced a significant liquidity event, I would imagine that you have to develop a new relationship to money this new relationship will either help you preserve and grow what you have or help you promptly loose it. I have met a few entrepreneurs who had liquidity events and lost it all and then rebuilt and lost it all. So I would intentionally advise you not to make any major decisions until you have done the following.
1) Put the money in the bank and keep living the way you are currently living don’t spend an extra penny than you have spend now, keep doing this and observe what happens to you on the inside. Where are your emotions and impulses pulling you, whatever decision you would have made write that decision down and in a few months evaluate if you would have made it again. You also need to find out what your wife is like with money vs. not money. Whats your ego telling you … etc!
2) If the sale conditions allow you to quit the company or take some time off I would say to take time off and travel the world go to the major capitals of the world in both the West and the East. Don’t stay at expensive hotels that give people clues that you have money and get to know people there and just learn how people think in those countries. We live in a global world and but most of us have not traveled and have strange ideas about others across the world. Given that global events such as the rise of China have huge local impact for example all the rich Chinese are buying my neighborhood why not go on a trip and find out how the global world really works.
3) If you have not studied economics and finance I would take a good 3 to 6 month vacation from work and study those topics, you will learn the basic terminology and concepts and then hear various economic narratives and decide if you agree or disagree.
4) Having spent the first 15 years of my life in a war zone I can tell you that great family and personal experiences are awesome, where you live and how you pay for it do not define who you are.
ams -> Some sound advice, thanks for the comment.
The mainland Chinese investors were buying like crazy in Orange County in 2005 too… It didn’t prevent the collapse, which is still unfolding to this day. People in Canada have a hard time understanding this. When RE falls out of favor, it falls out of favor. It’s a massive headache for everybody. People with cash and the desire to take on debt have already jumped in the pool. There are no buyers left. This is why the canadian market is a ticking time bomb. I would stay on the sidelines for a few years, and then see. We are early on the call here. People won’t realize the extent of the problem before summer-fall 2011 in my humble opinion.
If you are planning for taxes, upkeep, and insurance; are comfortable with the possibility of losing 40%; the house makes only part of your overall investment portfolio; and you’re willing to pay for lifestyle choices – well, then, do as you will.
If I had money to burn and a desperate house craving, I would still put some bounds on my mad-money spending. I would research the area. I wouldn’t pay over assessment. I wouldn’t lock in more than half my liquidity into a house. For that price and with those reserves I wouldn’t be buying something that needed renos, or I would buy something cheaper and have reno money, for a total coming to under half of my assets. I would have some sense of where my next million was coming from.
That said, and I was watching Shaughnessy at the beginning of this run up and it went crazy later than Kits – at one point, you could buy these big Shaughnessy houses on big lots for not so far off the sticker price on Kits teardowns. It was bizarre. I stopped watching when Shaughnessy took off, so I don’t know how far that neighbourhood is above what makes historical sense, especially given the diversity of the housing stock. And, when looking at the high end, the fundamentals are a little bit different than what we can shake out of the medians on income for the overall market.
I’d see if you could mine Larry’s site or some other friendly realtor for some info about the market since, say 2000. Do your research – hard numbers – to find out what the growth curve is, starting when. Then you lay your money on the table having some sense of what gamble you’re taking.
I also agree with ams’s amazing advice on giving yourself some time to live with the money…. I forgot to say that, but it struck me as very smart and humane advice.
If you don’t mind perhaps losing up to 50% of the estimated worth in the house, then go ahead and buy. If I were you I’d wait a year or two and see if the market tanks. Smells like ’05 in the U.S. to me.
If you really want to buy a large house, they are pretty cheap in Seattle right now. Lots of good deals & good investments. They could be a nice weekend retreat. Friend just bought by Greenlake for about 300K. the house sold in the boom at 600K. Or look at the Islands near Seattle for a retreat. mansions can be had for under 500K.
Ultimately I don’t know what will happen to the housing market. Maybe it won’t drop like a stone. But surely you can rent a nice place and wait about two years to see if it sinks.
@ financialinsights 1 November 2010 at 6:37 am
“If it’s so irrefutable, why are sales at near decade lows?”
– I don’t think he’s suggesting that Chinese are currently gobbling absolutely everything up sight unseen, but they are certainly in this market in a big way, right or wrong, ready to buy in selected areas of GV. They are also keeping BMW, Mercedes and Audi salemen busy and have places reserved at the front of the line at schools like St Georges so their kids can get the best schooling possible. Sales volumes have fallen off a cliff because the cash poor/overleveraged slice of the population is no longer willing and/or able to buy with nothing down anymore. For now, many sellers are holding off and waiting for the weather to improve. We’ll see how that works out (I’ve lived in Vanc for over 40 years and the weather hasn’t changed one bit)
“Where are these rich mainland Chinese investors?”
- Uh, all I can say is open your eyes and take a look around.
“They should be gobbling up the units at Millennium Waters at a discount, but they’re not.”
- Why would they buy at MW while it’s currently plagued with “issues” of various sorts? Have you even seen the units up close and personal? Nothing special, really. Instead, they are buying elsewhere. BTW, what discounts are you talking about? A few grand here or there won’t cut it.
This market is no longer the full on, buy in at any price feeding frenzy it once was and that is a good thing. Many people have either been priced out of this market or can no longer qualify for financing for a variety of reasons. I’d describe this as a cherry picker’s type of market which is ok for those looking to sell nicely located, higher end properties for a top price (for now anyway) and not so good for those looking to unload all those poorly built, cookie cutter presale deals that were quickly slapped together and moved out the door by the truckloads in recent years.
Of course, this also means the gap between the “haves” (ie. those who can afford to buy a det home IN Vanc) and “have nots” (ie. those looking to sell and move up or first timers just trying to get in) is just going to get wider.
Congrats on realizing the the result of your hard work. Now, you might ask yourself why you’d want to put the resulting cash into an investment that is practically guaranteed to lose a big chunk of its value in the next couple of years.
We are early 40s, with 2 young kids, sold our condo in Jan 2009, planned to rent 1 year then buy. Started shopping Oct 2009, willing to spend up to 520K in Langley (25% down) for Walnut Grove house. Looked for about 6 months but our price limit gave us few suitable properties (!).
Then, we began questioning why we had to spend such a massive pile of cash to buy a mediocre house in the burbs. We figured, who in the world can afford such prices? So, we started doing a lot of reading about Canadian local, regional, and national economics, housing fundamentals, historical valuations etc., and the more we read the more we came to feel that the Canadian/BC/Vancouver RE markets are a train wreck waiting to happen. After reading a lot of ‘holy crap!’ articles, blogs, and books we decided to delay purchasing a house for at least a couple of years, until after the collapse has reduced prices to something more in line with historical trends.
Don’t get me wrong, we badly want a house of our own, but also don’t want to devastate our lives by buying something that quickly loses half its value and takes years to recover, and locks us into an enormous debt, when we can save a small fortune by renting a reasonable house for a few years first. Our numbers: $1800/mo to rent 3br/2.5ba 1780sf house on 8600sf lot in W.G. and keep the $135K cash DP in investments, or buy the same house for $500K, with a $370K mortgage that we’ll be paying for the next 25 years and that with mortgage interest, taxes, maintenance, opportunity cost, etc. would cost us about $2800/mo (and a lot more after interest rates normalize). It makes no sense to us to buy for the sake of being ‘owners’, especially while the housing market is dropping. Each 5% drop in price is the equivalent of one year’s rent! (Also, having lost a good chunk of change in the
dotcom bust in 2001, we are much more attuned to the risks of buying into a bubble).
IMO there is no good reason to buy into the current RE market.
So, to get back to you, why do you want to own now? You sound like a sensible, independent thinker, willing to delay gratification by living with your parents instead of buying a place previously, and not worrying what others think of your decision to not own. In short, you’ve made wise decisions regarding RE up until now, why change? We can all want the “Canadian dream” of the big fancy house, impress your friends and all that, but few of us have the discipline to make sound financial decisions that may be contrary to the “wants”.
My suggestion to you is to not consider buying until you and your wife have spent the next month reading in depth about the realistic state of the Canadian housing market (ignoring advice from anyone with a vested interest in housing prices increasing, such as RE boards, CREA, banks that lend for mortgages, builders, renovators, mortgage brokers, newspapers and others who derive significant revenue from RE ads, etc.). My reading list included VREAA of course, greaterfool.ca, David Rosenberg, Globe and Mail (only the RE bear articles, but there were a surprising number of these), Irrational Exuberance by Robert Shiller, and many others like vreaa’s blog lists here.
I think that after you two have done your reading, you’ll run screaming from the Vanc RE market and settle into a very nice Westside rental if you want to leave the parents, or just take them on a nice vacation to thank them for giving you a place to live for now.
Then when the dust has settled on the great Canadian housing collapse (using the US example, about 5 years from now), you’ll buy the home of your dreams at a deep discount to today’s prices, and have preserved and invested your entrepreneurial gains to pay a far smaller portion of it for the new house.