“Now Andrew had a couple of questions about the Vancouver real estate market… In the media he’d been reading that the Vancouver real estate market had seen a significant drop in the last little while, and he wanted to know what the real situation was.” …
“We’ve seen a lot of changes in the economy in China, so there’s a lot less people coming over from China. We’ve also seen changes in mortgage rules which has also reduced a lot of demand for property here in Vancouver.” …
“What are my predictions for the next six months?.. Our major trading partners (US, China) have been having some issues but their economies seem to be turning the corner. So I’m cautiously optimistic. … In terms of changes to mortgage rules, they came in 3 to 4 months ago, we’re feeling the effect now, in the past after mortgage changes, you get about 3 to 6 months where things soften up, then things begin to pick up. So, you know, I’m cautiously optimistic.”
– excerpts from Mike Stewart, local realtor, self posted youtube video, 20 Nov 2012 [hat-tip Anon]
Whenever a speculative mania tops and begins its deflation, participants who don’t understand the fabric of bubbles, and who haven’t seen the mania for what it is, will search for extraneous factors to blame. Sure, some external factors may shape the path of the price descent, but the real cause for the resultant implosion is the fact of the mania.
Quotes from above added to the “It’s Only A Flesh Wound” sidebar post.
“I have a have a good friend who is from mainland China. He rents in Burnaby, and it was pretty easy for me to convince him that right now is not a good time to buy. He is frugal, even though his family could easily afford these outrageous prices for cash. He came here as a business immigrant.
His dad is a developer in China, and he knows some developers here. For example, he recently told me some of his fathers’ friends will be starting a new condo tower build in Richmond.
Here’s are the possible explanation that he offered for why the influx of foreign cash seems to have dried up:
1) In 2010, the law came into effect in China, limiting the purchase properties to two more. I.e. if you have zero, you can buy two more. If you have 20, you can buy two more. Now, those who have the money have already bought 2 more properties, so they can’t buy any more. People who need to sell – e.g. to buy a house in Vancouver – can’t find a buyer. As a result, he says that the prices have taken a tumble in some areas of Beijing from up to $3000 per square meter down to $2000.
2) Chinese people prefer US over Canada – Seattle, San Francisco, LA. According to him, US is the #1 choice. Furthermore, business immigration quotas have been reduced in Canada. He says that it’s now easier (and cheaper) to go the states if you have money. I don’t think I need to spell out the obvious differences in the real estate markets. In his opinion, it’s unlikely that the Chinese would speculate in an area where they can’t live. I.e. he doesn’t think that they would invest in real estate if they can’t get a visa to live here.”
“In addition, let me tell you about a young couple I pried from the hands of the condogeddon. A friend of mine, a young teacher and her boyfriend (engaged) just sold the apartment they shared with his brother. I explained to her the obvious reasons why real estate is overpriced – price to rent, interest rates, speculation, etc. It took no more than 15 minutes. I then provided her the links to this blog, and a couple of other resources to research on her own. They walked away with a profit, and are renting a better place for less than what the mortgage and condo fees were – without the need to share it with his “quirky” brother.”
“Feel free to publish this on your blog.
Furthermore, do you have any questions you’d like me to ask my Chinese friend?”
– this from ‘Some Guy’, via e-mail, 24 Mar 2012
Thank you, Some Guy.
Do any readers have any questions they’d like him to extend to his friend?
“This is what I hear: Vancouver house prices are determined in China. Vancouver houses can be bought right in China. Many, with even a bit of money or more, want one foot in China and one outside, and Vancouver is the main place. A new Chinese middle class is becoming prosperous, but the lower class has not. Only a redistribution of wealth to the lower class prevents violent revolutions, of which the west has gone to the extreme of redistribution. In China, many see that situation. Also, for children’s education opportunities. In China, without a good education, such as engineering, computer science, etc., life will most likely be poor. And that education is hard to get in China, but easy to access in Canada. More and more, the available university seats in China, are taken unfairly, by the ruling classes.” and
“In Canada, the mortgage interest is not tax deductible, but there is no capital gains tax when you sell your principal residence., and I prefer it that way. The house can become the main life investment. The city is behind in mass transit and efficient transportation, to and from areas farther from the city center, where more affordable housing could be built. To avoid 2-4 hours driving, living close to the city center is abnormally attractive, which is multi-family residence for most. It now takes two good incomes to rent, and the city’s skyline is mostly high rise condo and apartments. Compare to Calgary which is far ahead on mass transit and highways, allowing quick commute from far out in all directions, where one good income is ample to afford rent in the center, and where the skyline is dominated by office and business buildings. Some maintain the distortion in Vancouver was partly deliberate by socialist planners, to promote multi residence buildings as the norm, to benefit the environment.”
– two comments from Russell Turner at ‘Mish’s blog, ‘Global Economic Analysis’, 20 Nov 2011
“As a Vancouver real estate agent I share the disbelief at the bizzaro real estate pricing we see so often here. This practice of re-listing at a higher price than a previous, unsuccessful listing is nothing new to Vancouver real estate. Last year I watched a “star” realtor list a $3.5MM condo for $8MM. Not surprisingly the listing was unsuccessful and the property remains unsold and off the market. Vancouver has managed to buck global real estate trends, however, it’s important to remember that sale prices, not list prices are indicative of the presence or absence of a bubble. The motivation for an agent to list a property at twice its justifiable market value is debatable but it does happen regularly. Many agents and sellers are pinning their hopes on the recent influx of Chinese buyers. Regardless, these tactics are not effective and do not necessarily point to a bubble. The reality of our real estate market is that prices are actually quite stable and have only increased modestly in value in the last year or two. Given immigration predictions, low interest rates and the fact that Vancouver has become an urban resort to the world’s wealthy, there doesn’t really appear to be as much froth as one would think.”
– comment from shaunkimmins at Global Economic Analysis 20 Nov 2011
Hey, driver! Want a home? Just 18,000 yuan a square meter. An agent in downtown Shanghai took to the streets in search of buyers. Yong Kai / China Daily
– from China Daily, 16 Nov 2011
“Recent buyers are outraged as the value of their investments fall, sometimes by more than 25%.”
“They worked hard to earn money to buy property, but not long after they bought it, it crashed this much.”
“UBS are predicting the property market will suffer a hard landing in the next few years.”
– from ‘Shanghai Property Crash’, 27 Oct 2011 .
Greenhorn writes, by e-mail:
“This means Vancouver real estate prices will rise, right?
Condo prices in Shanghai are crashing. If you watch this video, you will see that condo prices in Shanghai are falling from $260/sq.ft. to $190/sq.ft. A lot cheaper than Vancouver!
Why are condo prices so low in Shanghai? Because China is a poor country with a per capita GDP of less than $8,000. But Canada’s GDP is only $40,000 and condos in Vancouver sell for over $1,000/sq.ft. so may be this ratio of per capita GDP/condo prices per sq.ft. is about right.
People tell me that if real estate prices crash in China, there will be a flood of money to Vancouver as our real estate market is an excellent store of value. I find this hard to fathom. If your real estate in Shanghai at $190/sq.ft. is crashing, do you then go buy in a market such as Vancouver that is 5 times as expensive? If Vancouver real estate at $1,000/sq.ft. crashes, do you then go buy in Monaco at $5,000/sq.ft.
Sure my examples are extreme, but you get the point I am trying to make.
When China real estate prices are up, Vancouver prices rise because the wealthy Chinese want to diversify their holdings.
When China real estate prices are down, Vancouver prices rise because the wealthy Chinese want to diversify their holdings.
Do prices ever fall in Vancouver?”
Despite our apparently bullet-proof market, we have a hunch that this will have a negative effect on Vancouver RE:
(1. deleveraging in China)
(2. psychological effects of plunging Chinese RE on Vancouver local buyers)
will be greater than
(3. tiny amount of safe-haven money running wishfully to only RE on globe still ‘retaining value’)
Add to this Euro-bloc rolling-crisis, and we think that the next leg down in everything is going to be a doozie. Look out, here comes 2012.
Posted in 08. Overextended Buyers, 11. Regrets about Investing in RE, 15. Misallocation of Resources
Tagged Anecdotes, British Columbia, Bubble, Canada, China, Housing, Real Estate, Sentiment, Vancouver
“A friend (who has a house) told me that in 20 years time Vancouver will be populated by HAM ['Hot Asian Money'], and that the only Caucasians left will be serving them.
Does he picture himself living in such a community, being Caucasian himself? Does he intend to sell for 10 million dollars and leave?
I thought I did not agree with that vision of the future, until I went to Telus World of Science and noticed bilingual exhibition panels: English/Chinese. Not other language. I will sent them a letter expressing my frustration as a non-Chinese ESL immigrant, since they made my kids feel like secondary citizens.”
– painted turtle at vancouvercondo.info 26 Sep 2011 8:06am
We personally don’t foresee that “20 years time” outcome, but we wouldn’t be at all surprised if a good number of local owners, who DO imagine this happening, are harbouring fantasies of cashing-out big and then leaving to retire elsewhere.
Posted in 02. Profiting from the Boom, 05. Where do Buyers get the money?, 20. The Limitless Demand Argument For Ongoing Market Strength
Tagged Anecdotes, British Columbia, Bubble, Canada, China, Foreign buyers, Housing, Real Estate, Vancouver
China’s RE and stock markets have some direct effects on Vancouver RE in that a small number of local sales are to wealthy foreign investors from China. More important, however, is the psychological link between the two markets. Many Vancouver locals believe that our market is buoyed by China, and thus speculate on local property based on that premise. For the latter reason, this story is particularly important. It comes at the same time as ballooning inventory in Vancouver, and mortgage debt that is growing more expensive by the week. More on the Vancouver-China relationship HERE. -vreaa
From businessinsider.com 27 Apr 2010 -
“China’s property transaction volume collapsed last week. Property trading volume went down 64 percent last week from a week earlier in Shenzhen, down 45 percent in Beijing, down 38 percent in Shanghai, and down 2 percent in Guangzhou. In China’s 35 main cities where housing market data was monitored by the newspaper [China Daily], 21 saw their trading volume go down last week, with the figure in Hangzhou going down 73 percent.
China’s recent mortgage restrictions may be having an effect after all. Obviously this is just a week’s worth of data, but if this weekly data turns into a longer-term trend, one has to imagine it could be bad news for prices.”