Category Archives: 11. Regrets about Investing in RE

I thought I’d make a bundle……

Man Loses $745,000 Vancouver Condo Deposit

“A man who put down and then lost a $745,000 condo deposit when he failed to complete the sale can’t get his money back, says a B.C. Court of Appeal ruling.
Afrasiab Amiri agreed in 2005 to pay a 25 per cent deposit of $745,325 for a $2.9-million condo in the Erickson development, located on the oceanfront on False Creek, before construction was completed.
The condo sale was valued at more than $3 million after the developer agreed to install limestone floors, which increased the price by $71,300.
The balance of the purchase price was to be paid on closing, but the purchaser did not secure financing to complete the deal by the contract deadline.
The seller refused further extensions, and relying on the terms of the contract retained the purchaser’s deposit.
Amiri filed legal action, claiming the seller was in breach of the contract. He sought the return of his deposit, contending the contractual terms calling for its forfeiture were invalid.
The trial judge rejected Amiri’s claim, and on Tuesday three judges of the B.C. Court of Appeal upheld the lower court’s ruling.”

– from ‘Man loses $745,000 deposit after $3-million Vancouver condo deal fails: court’, Canadian Press, 9 Apr 2013

It’d be interesting to know why “the purchaser did not secure financing to complete the deal by the contract deadline”.
Was it for reasons specific to the individuals economic situation, or was it because the market value of the property had plunged and no lender would consider making the loan?
– vreaa

“I know someone who just declared bankruptcy because her condo was assessed at $150k and she bought it presale north of $250k in 2005 or 2006.”

“I know someone in BC who just declared bankruptcy because her condo was assessed at $150k and she bought it north of $250k in 2005 or 2006 (presale). Tried to rent it out for the past few years but the rents kept drifting lower and lower, and the tenants stayed shorter and shorter terms (I think they moved on to better places, this is a city in BC where rents are down significantly since there was a boom-the boom is long over). She was losing more than $10,000 a year and just couldn’t get ahead. Time to hand the keys back to the bank and start over.
I hear stories like this all the time. A friend’s dad in the same city bought a house during the boom “everyone wants to live here!”. Now his mortgage is $2500/month (blue collar worker) and he tries to rent out the basement suite for $1000 a month (no takers-though it worked during the boom). The house is worth about 30% less than what he paid for it (maybe less, not a lot of sales these days).
All we have to do is look north a bit to see these stories.
Quiet suffering. These stories don’t seem to make the news but they do exist.”

pricedoutfornow at VREAA 1 April 2013 7:55 pm

“She said the market was dead in Victoria and that it would remain so for a very long time. I asked how she knew. Her answer was fascinating and should scare the pants off the real estate crowd.”

“Yesterday two old friends, J & M, from Victoria, mid 50′s, both very bright and mid level bureaucrats at separate provincial government departments came to visit us in the Comox Valley. At one point the topic moved to real estate. I began to say that the market was dead here when J interjected that it is the same in Victoria and that it would remain so for a very long time. I was surprised by her response and asked how she knew this because I know that neither of them reads any of the real estate bear blogs. Their answer was fascinating and should scare the pants off the real estate crowd.

First, both live in Townhouses and J is the head of her strata council (46 units). She said that last year about 7 units sold. This year one of the most desireable units was listed and got no inquiries at all. It was pulled. In addition one of the vendors of a unit last year did want to buy back in but could only do so with a 0/40 mortgage, which is of course no longer available. She had no idea what he had done with the equity from the sale.

Second both pointed out that their incomes have remained largely static for years but that housing prices and strata fees (not to mention special assessments) have increased relentlessly to the point where they felt prices are ridiculous relative to income. J was of the opinion that the townhouse unit in which she lives has about $60K of material in it and yet these units were until recently selling for $300k plus. She felt that the spread between material cost and selling price was indefensible. J also pointed out that despite being mortgage free her strata fees and hydro per month were in excess of $500, the better part of a mortgage payment not that long ago.

Third J said that the price of real estate would be down basically forever because our generation had had few children, overall. As a result who was going to buy our houses when we depart for the great hereafter?

Fourth both believe that the potential sales price of their own units have decreased substantially in the past year and will probably continue to decrease but they intend to stay put. They do not see any point, for example, in selling and then renting despite knowing that prices are inflated vis a vis rent.

Fifth both pointed out that they work at very large institutions and that they, of course, interact with many of their fellow employees. One of the constant topics is real estate and these days the virtual impossibility of finding buyers for the units that their fellow employees have for sale. They report that the view of the majority of their fellow employees is similar to their own – real estate is dead.

Finally, and very ironically, at least for most of us at this site, both get most of their news from CBC and CTV. Their overall impression of reports on both channels was that the real estate market is collapsing.”

- Ford Prefect at VREAA 31 Mar 2013 8:46am

“A beautiful Belfast home, in the equivalent of 1st Shaughnessy, bought at their RE peak in 2007 for £3.5 million, has now sold for £800K, almost 80%-off. The market didn’t suffer any significant economic shocks. Rates & unemployment didn’t skyrocket. They didn’t build more land. Sentiment just changed and the prices fell and fell.”

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“My old high school pal works at a Belfast, Northern Ireland newspaper – The News Letter – I believe it is the world’s oldest, continuously published paper. Unlike Vancouver journalists he regularly wrote “this is a bubble” articles during the incredible real estate boom that Belfast endured. It was at LEAST as extreme as the 2000-2012 Vancouver bubble period. Their bubble burst in 2007 and real estate has been a taboo topic at middle-class dinner parties ever since. I must say, my return visits have been much more enjoyable since people there stopped crowing about their real estate winnings.

Anyway, his latest of many articles highlights the plight of the owner of a beautiful home bought at the peak in 2007 for £3.5m. The area is the equivalent of 1st Shaughnessy. It has just sold for £800,000, or [almost] 80%-off. I must stress that 80% is not indicative of the average market which ONLY fell about 55% from peak.

Why this is relevant is that the Northern Ireland market didn’t suffer any significant economic shocks. Rates didn’t skyrocket, neither did unemployment, there is a huge percentage of people there who have safe government jobs with pensions. They didn’t build more land; and for those who don’t know the geography, Belfast is surrounded by the Irish Sea and an agriculture land reserve where there isn’t sea.

Sentiment just changed and the prices fell and fell. I will also add that my friend was considered a kook when he quoted the rare economist who called for a massive price correction. People just couldn’t conceive of such an outcome.

If you’re interested in the article it’s available here.”

- Ulsterman at VCI 29 Mar 2013 9:38pm

A story for Vancouver RE market observers that requires no commentary.
– vreaa

“Two family members of hers are trapped, underwater, in condos on the East Side.”

“My new business partner & I were talking about office space and got to talking about the cost of RE, as always seems to happen in this city. I don’t like to bring it up having been contrary for so long, but it does come up anyway, and I get a pained look on my face. Anyway, happily, we had a shared moment of agreement about renting. My partner hasn’t done extensive reading in RE, having decided it was “a ponzi scheme”, but had a simple story that she felt proved her out. Two family members of hers are trapped, underwater, in condos on the East Side. One is looking at assessment or maybe maintenance increase? and wishes to move because work situation has changed and he’s commuting to Surrey. The other has too little room for a growing family and is thinking of moving out, renting space, and putting their condo up for rent … “if they can get enough to cover the mortgage”. We both pulled a face at that. Seems unlikely.”
Absinthe at VREAA 27 March 2013 7:59 pm

Rumor that some OV units will be reduced by 20%.

“I’ve just had a re-freshing chat with that realtor who’s selling an investor-held unit in the Olympic Village. He told me that Rennie has applied to the City to have certain, hand-picked units at the OV reduced by 20%. This guy is very straightforward and has insight into how investor bulk buying works.”
– Posted by mac to Whispers from the Edge of the Rainforest at March 24, 2013 at 6:31 PM [hat-tip Whisperer]

“The ‘investor’ who purchased our house put it up for sale two months later, in January 1981, but the bubble had burst.”

“Ah, Vancouver. How quickly we forget. We moved to Vancouver from overseas in July 1979, bought our house within ten days the market was heating up – a fixer upper on the westside, Pt. Grey for $105,000. Totally renovated new heating, plumbing, electrical, some cosmetics for $25,000. By July of 1980 the market was on fire, prices were increasing weekly. There were no bidding wars I think it was illegal at the time, but mortgage rates were in the area of 20-21%. We decided to get out, and tried to sell the house by ourselves: first week of August listed for $235,000, no bites. Second week advertised for $245,000, some phone calls, one showing. Realized sheeple would only believe agents’ pricing. Got an agent who evaluated/listed it at $265,000. The house sold in 6 weeks for $254,000. Here comes the good part: we gave a first VTB [Vendor Take Back] non-transferable mortgage for $180,000 at 18% for one year, moved to Windsor and bought a bigger, newer, renovated house in the best neighbourhood for $125,000. It gets better: The “investor” who purchased our house put it up for sale two months later January, 1981, but the bubble had burst. He sold it just before his mortgage was due for $180,000. In one year, he lost $74,000 of his down payment plus the $26,000+ he paid us in mortgage payments, plus taxes, closing costs, agent fees for selling the property. Not counting, I’m sure, what it cost him in nerves. He who does not know history is doomed to repeat its mistakes.”
diva at greaterfool.ca 15 Mar 2013 9:58 pm

And, to round the story out, that same property probably hit recovery in real terms over about 20 years (by about 2001 it probably would have been selling for about $500K, which is $254K in 1981 dollars, inflation adjusted).
And by 2011 the same property was ‘worth’ $1.7M, given the action of our 2001-2011 spec mania. It is now, Mar 2013, likely worth 10% or more below that (sans rebuilds etc.)
After the current bubble bursts, it’ll be interesting to see if real prices recover within 20 to 25 years (that’s what it took on average last time round).
It’ll be particularly intriguing if, in the coming trough, houses like the one described return to their inflation-adjusted 1980 peaks (in other words, about 66%-off). That’d be really cute, and something that’d get the TA guys into a tizzy (it’d look cool on the charts).
66%-off is the very high end of our guesstimate for the trough; we suspect 50%-off is more likely.
– vreaa