“I had dinner with a good friend of mine last night. He got back from Korea five months ago after four years working there. We were discussing about his work situation as he can’t find a job here and is now considering moving out of Vancouver.
The trick? He bought two townhouses in Langley, one for him to live in (20% down) and one as an investment (30% down). His father bought four townhouses in the same development (“his retirement plan”), all of them bought with 20% down. He told me: “we got them under market value, the developer gave us a discount”…
I asked him the question:”if the market goes down by more than 20% in the next 5 years and the bank asks you to put more money into the houses at refinancing time, will you be able to do so?” Puzzled answer: “no”.
He and his dad have basically put all their savings into that development. These are not the type of people you would imagine being RE speculators (they don’t see themselves as such), but they just don’t have a clue of what’s going on in the RE market here. They’ve bought into what the developer told them…
So here we are: one unemployed and one retired putting all their savings into RE. How strong can the market be when people like them are so over-leveraged in real-estate? How many people like them on the market?”
- Makaya at VREAA 6 Jul 2012 10:41pm
These guys are gamblers who don’t even see themselves as such. They think they’re ‘investing’. They’d be better off taking their down-payments, walking up to the roulette table, and putting everything on black. In that scenario the close to one in two chance of doubling their money is better than their current set up, where there is a close to 100% chance of losing it all. Seriously… Gambling is not raised here as metaphor nor as hyperbole… they statistically would be better off with a two to one bet. Even at this extremely late stage of the cycle, we have buyers entering who cannot imagine Vancouver prices dropping. Truly mind-boggling.
And the “got them under market value” line is just so pathetic that hearing it induces cataplexy, a state where, overcome by emotions, your muscles lose tone and you collapse to the ground.
As Makaya says, how many like them in the market?