Tag Archives: Foreign buyers

Brent Toderian, Former COV Director Of Planning – “The competition between external demand and local demand is one of the reasons that barring a collapse and a crash, we are going to remain a very expensive city to own in.”

Question (woman at microphone): “I would like to hear your comments on limiting foreign ownership as it addresses local affordability.”
Brent Toderian [Brent Toderian, former Director of City Planning, COV]: “Great question.”
Other male panelist: “I call that the elephant in the room.”
Toderian: “I’m really glad you brought it up because I had it on my list. That is the elephant crushing the table. It’s not under it, it’s not on top of it. It’s something the Mayor’s Task Force on Housing Affordability dropped the ball on. The competition between external demand and local demand — that’s the nicest way I can put it — is one of the reasons that barring a collapse and a crash, we are going to remain a very expensive city to own in.”
- from exchange at a keynote panel discussion on “Living Affordably in Greater Vancouver” at BUILDEX (convention on designing, building and managing real estate), Vancouver Convention Centre, 13-14 Feb 2013. Quoted in comment by ‘urbanizta’ at their own blog ‘CityHallWatch’, 15 Feb 2013 at 12:01am

To say “barring a collapse and a crash, we are going to remain a very expensive city to own in” is a tautology; it’s like saying “if prices don’t go down, they will stay up”. In other words, to say this is to say nothing at all.
That aside, this exchange, and the article above the comment, does demonstrate how people are continuing to wrestle with the issue of ‘foreign ownership’ and how it may effect the Vancouver market. The discussion is hobbled by a number of things: lack of actual data, lack of political will to gather pertinent data, the mixing-up of local and foreign buyers, and a lack of understanding of what constitutes speculation. We anticipate that this issue will continue to be ineffectively churned over in many similar discussions while prices begin to collapse. Once the price collapse is convincingly underway, we won’t hear much about ‘foreign ownership’ for quite some time. Firstly, because foreign buyers, like local speculators, will disappear in a falling market; they are momentum players and hate any asset falling in price. Secondly, many locals will be dearly wishing for buyers – any buyer – to rescue them from their real estate holdings. Once prices have ground down into a trough (likely over years); once speculation has been wrung out of the market and the dust settles; – then there will likely be a meaningful place for civic discussion about the wisdom of regulation of foreign ownership.
Currently, the far, far larger ‘elephant in the room’ is a speculative mania that has yet to unwind.
- vreaa

‘Martin From Richmond’ Update – “Prices are down more than 15%. Another thing worth considering is that 2013 is the Year of the Snake for those of Chinese ancestry.”

“Prices have dropped more than 15 per cent in one popular neighbourhood in Richmond.
Almost a year ago, a 2800 square foot, five bedroom three bath house sold in the Garden City area for $952,000, a bit above asking price in what was described as a cash sale that followed a bidding war between two interest parties.
Within the last week, another house, a 2400 square foot, three bath house on a similar-sized lot sold in the same neighbourhood for $805,000, below the asking price of $838,900 and even below assessed value.
In both cases, the homes didn’t need any work, and were move-in ready, updated, and well-designed.
The $147,000 drop in price works out to be a 15.4 per cent price drop in the area.
And I think it’s an indication that at least one home owner seriously considered “cashing out”, and ultimately did, and that others might do the same, if the real estate industry continues to grind to a halt.
Another thing worth considering is that 2013 is the Year of the Snake for those of Chinese ancestry.
A renowned Richmond fortune teller and feng shui expert predicts that the Year of the Snake will see profit margins slip, and said business will slow down
Whether you believe in Chinese astrology is not the point; considering the influence of foreign and mostly Chinese buyers on the price spikes since late in 2010, it’s whether this significant subset of deep-pocketed people believe it.
The fortune teller said 2013 will see a significant slow down, and said people will be more careful in spending their money.
As with my earlier “self fulfilling prophecy” comment, if Chinese investors really do believe that 2013 will be a slow year, that could influence their decisions, and in fact, result in a slow down. It all depends on if enough people are drinking the Kool-Aid.
But the fortune teller also noted that the “wealthy Chinese” are unlikely to liquidate their assets by taking low-ball offers, and will decide to rather sit on their properties, awaiting better times.
So, recent sales activity (according to the Greater Vancouver Real Estate Board, January 2013 sales were the second lowest for that month since 2002) combined with the Chinese New Year, could further trigger prices to slide.
Something worth considering for those who are mullling over the possibility of re-entering the world of home ownership.”

- Martin from Richmond, via e-mail to VREAA, 6 Feb 2013

We don’t believe in astrology any more than we believe in leprechauns, but we do ‘believe’ in the fact that others believe in such things, and that those beliefs can influence herd behaviour.
A speculative mania is itself based on false beliefs.
- vreaa

“The most extreme example was a house on Wesbrook Cr that had just sold for $7M. It was a crappy house being rented for ~$2K/mo, but it was on a fantastic piece of land. It had been bought by a family from China that was planning to hold the property and eventually build on it.”

“Recently when I was looking for a new rental, I came across numerous examples of recently-purchased foreign-owned houses that were being rented out. The most extreme example was a house on Wesbrook Cr that had just sold for $7M. It was a crappy house being rented for ~$2K/mo, but it was on a fantastic piece of land. I spoke to the rental agent, it had been bought by a family from China that was planning to hold the property and eventually build on it.”
- M-dash at VCI 27 Oct 2012 7:30pm

This strongly suggests that the buyers bought believing that similar properties would sell for considerably more than $7M in years to come.
So much so that they are shouldering considerable carrying expenses to simply hold the property.
- vreaa

Arguments With Myself – “The perception of offshore money pouring into the area to acquire properties without foreigners even visiting them has been overstated.”

“The perception of offshore money pouring into the area to acquire properties without foreigners even visiting them has been overstated, said Cameron Muir, chief economist at the B.C. Real Estate Association.” – from ‘UniverCity condo project feels market chill’, G&M, 23 Oct 2012

Gee. And where would people have gotten that impression?:

“There are high-net-worth Asian purchasers buying as investments, as second homes, or for satellite families.”Cameron Muir, chief economist for the British Columbia Real Estate Association, Businessweek, 24 Jun 2010


Off-shore buyers have had a small but significant direct effect on prices, and a very, very large indirect effect as a story that has fuelled locals in their speculative buying. We’ve consistently believed that.
- vreaa

“You will buy this unit, and four others like it…”

– image from ‘Vancouver Housing Bubble Doesn’t Scare Chinese Investors’, Huffington Post BC, 4 Oct 2012

Headlined for the nature of the image, and the quality of the emotion portrayed. 
Infatuated. Besotted. Entranced. Lustful.
When price drops establish themselves, these feelings change to disillusionment; guaranteed.
- vreaa

“The agent in China was caught off guard as well – the brochure showed trees and ocean!!!”

“With regards to ‘Yu Living’ green condo at UBC south campus, my in-laws in China bought a place site unseen. They are furious now that the view overlooks a future BC Liqour store and Save on Foods. The agent in China was caught off guard as well – the brochure showed a trees and ocean!!!
They should not bought a place with so little advance research; they come from a generation that respected universities and assumed that they were buying into a quality life style for future grand kids.”

- ‘Not too happy’ at VCI 27 Aug 2012 6:02am

It’s easy to be happy with almost any property when prices are barrelling upwards.
When prices stagnate or start falling, owners become more critical of a property’s shortcomings.
Expect lots of stories like this in the downturn.
- vreaa

“I am in the market for a downtown 2 bedroom condo as first time buyer. Here comes the death spiral.”

“Here comes the death spiral at Cosmo 161 W Georgia St:
I am in the market for a 2 bedroom condo as first time buyer in downtown for the past few months. My budget is 500k. I have been watching this building closely.
There are 6 units that are exactly the same layout on MLS. Unit 807, 1608, 1708, 1808, 2108, 2208. Asking price from 575k to 629k.
807 had open house two weeks ago (I viewed) and was the lowest priced at that time. Now 2208 entered the market last week and priced lowest. 807 (V949770) just reduced it’s price to beat 2208 (V962354) this week.
At this rate, I hope they will drop to $500k by Nov. this year.”

- G at VCI 20 Jul 2012 10:14pm

If a ‘death spiral’ is beginning (as may indeed be the case), why plan to buy in November?
- vreaa

“There are many, many homeowners whose financial security and that of their children are inextricably linked to their homes, and who regard the erosion of their biggest asset with real fear.”

Three months ago:
“And [28 years ago], as now, Vancouver’s real estate was unaffordable. Nothing in that regard has changed.
What has changed are expectations. There are those who feel that the lack of cheap housing in Vancouver is an abomination. They feel that the convenience of a short commute or the proximity to a really good Ethiopian restaurant should be the natural order of things. …
Vancouver, of course, will always be the centre of things in the Metro area. It has history and critical mass on its side.
And by its very nature, it is going to attract people who want to come here and live in the city.
… the market will propel any kind of property here into the stratosphere.”

- ‘Affordable housing in Vancouver? Why bother?’, Peter McMartin, Vancouver Sun, 22 Mar 2012

Last week:
“Be careful what you wish for. Real estate is a two-way street, and while the issue of high housing prices has been dominated by Yellow Peril alarmists and affordable housing advocates, and by those who despair at the effect high prices have had on their neighbourhoods, there are many, many more homeowners, I’d suggest, whose financial security and that of their children are inextricably linked to their homes, and who regard the erosion of their biggest asset with real fear. They won’t care who buys their home, as long as it’s for a good price. And if the projections of the TD Bank’s economist come true [Predicted price drops of 15%. -ed.], those days when an offshore Asian buyer came calling will be remembered wistfully.”
- ‘The housing market is teetering. Happy now?’, Peter McMartin, Vancouver Sun, 22 Jun 2012

The speculative mania in Vancouver RE has been caused by locals overextending themselves by overbidding on homes using cheap financing; paying prices far above those supported by fundamental values; speculating that those prices could only go up further.
Any situation where the “financial security” of a large percentage of the population becomes “inextricably linked to their homes” is deeply unhealthy, and should always sound alarms. Such alarms have indeed been ringing loudly in Vancouver, for a good many years, but very few have cared to listen to them.
There are now, unfortunately, many individuals and families at risk of future financial distress as a result of the inevitable unwinding of the resultant market conditions.
- vreaa

“Friend of mine just bought a foreclosure, fully furnished, of a family who hightailed to Asia, leaving a pile of unpaid debt.”

“Friend of mine just bought a foreclosure, fully furnished, of a family who hightailed to Asia, leaving a pile of unpaid debt.
Not sure of the details, didn’t ask too much, but the story is that the family owed money — not sure how much — and simply pulled up their stakes and left. Think it was family of 4. I don’t think it’s that common but who knows. The guy got the place with all the high-end furniture still there.
Banks now require a certain level of capital in Canadian jurisdiction to approve stated loans. Before February 2012 or so they didn’t.”

- jesse at VREAA 30 May 2012 3:39pm and onwards

‘Urgent To Return China’ – “In the vancouver west very expensive premium real estate is very difficult to find such a cheap price; there are a lot of room for negotiation; a total of nearly 200 000 discounts; distribution of aristocratic furniture; piano.”

Craigslist Ad reads:

“8br – 4000ft² – VANCOUVER WEST LUXURY HOUSE JUST BUILT SALE WITH FREE PIANO&FURNITURE
craigslist.ca
Date: 2012-05-19, 10:05PM PDT
Reply to: gt63v-3026416518@hous.craigslist.org [Errors when replying to ads?]

Address 3243 W 33rd Ave, Vancouver, BC V6N 2G8, Canada
View map
Bedrooms (#) 6 or more bedrooms
Bathrooms (#) 6 or more bathrooms
Size (sqft) 4000
For Sale By Owner

hour of the open house: every weekend Fri, Sat, Sun all afternoon 2pm – 4pm

Note: the owner because of a urgent to return China, so the asking price there are a lot of room for negotiation, coupled with the distribution of the total value of 80000 full set of aristocratic furniture, piano, plus on the government’s home purchase cash back, buyers will get a total of nearly 200 000 discounts, which in the vancouver west very expensive premium real estate is very difficult to find such a cheap price, welcome to the OPEN HOUSE to look at the new luxury house just completed! NEAR TO U.B.C!”

On MLS as follows:

3243 W 33rd Ave (V944504)
2,982 sqft* SFH; 33×130 lot; Built 2012
Listed 16 April 2012.
[No price changes since. -ed.]
Asking Price: $2,480,000
BRAND NEW high-end custom-built house selling now at the well sough after Mackenzie Height area. This is a dream house that comes with high-end Kitchen Aid stainless steel appliances, HRV, air-conditioning, two gas fireplaces, central vacuum cleaner, crystal chandeliers, electronic door lock, security system with intercom speakers and monitor, jacuzzi tub in master bedroom, granite counter-tops throughout house and granite tiles at the entry foyer. This house comes with just almost everything you need. Possession is AVAILABLE NOW. Open house Saturdays. Will you be this brand new house’s FIRST homeowner?

[* Note: Square footage in the two ads is different, we have no explanation for this. There is a small possibility that the craigslist posting is a hoax, or that they got the address wrong. Readers can decide for themselves. We also welcome any further information, confirmatory or otherwise. -ed.]

Is this a one-off anecdote, or something we’ll hear more of as prices begin to fall?
We have long surmised that foreign demand can rapidly become supply.
And, of course, the story that foreigners are buying can evaporate in a second, causing locals to draw in their horns.
- vreaa

Caution About Canada? – “I was watching Al Jazeera English via satellite dish. A report came up about the buoyant Canadian housing market and how the level of household debt is now a cause for concern.”

“I was watching Al Jazeera English via satellite dish. Suddenly one report came up. It was about the buoyant Canadian housing market and the level of household debts that are now a cause for concern. Nothing is new actually but this means the world is now cautious about Canada.”
- ‘Thai-born Chinese Canuck’ at VREAA, 5 May 2012 2:57am

Getting To Know What We All ‘Knew’ – “I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the west side doesn’t support those prices.”

“Realtors say the small boom of sky-high prices for Vancouver west-side houses – one that provoked media around the world to claim with scant proof that mainland Chinese investors were buying up the city – is fizzling out.
Both sales and prices are down at the top end even more markedly than in the rest of the region, which has also seen a general slowdown this spring.

A house on the 3000 block of West 24th Anenue, first listed at near $4.5-million six months ago, sold on April 15 for $3.35-million.
Fresh statistics from the Greater Vancouver Real Estate Board show the number of sales on the west side is down by nearly 40 per cent for the first four months of the year. Only a third of the nearly 400 homes listed in April have sold – one of the lowest rates in the region.

Realtors say the slowdown appears to have resulted from a combination of tighter lending practices by local banks, which now want proof of income to service large mortgages, more restrictions on how much capital can be taken out of China, and fewer immigrants.

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said west-side realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.
He and other realtors are saying the west-side slowdown is a good thing because the short-lived boom, which prompted local owners to start listing at increasingly inflated prices, was unrealistic and unhealthy.

“I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the west side doesn’t support those prices,” said Andrew Hasman, who specializes in single-family homes on the west side.

Prominent condo marketer Bob Rennie said the high-end house prices in west-side Vancouver were so out of line with the rest of the region and country that it was skewing people’s perceptions of real-estate increases, not just in Metro Vancouver, but in all of Canada.

“In 2010, reports were saying real estate went up 8.9 per cent in Canada. But if you took out Vancouver, it only went up 4.3 per cent,” he said.

The spike in west-side house prices the last two years has provoked intense media coverage – with one Bloomberg News story in late May headlined, Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC – and debate among residents, politicians and commentators both here and abroad.

Much of it was attributed to “mainland Chinese” buyers, although no one had hard overall numbers to support that. Nor could anyone say whether that group might be 100 or 1,000 people, or whether they were truly offshore investors or immigrants.

But that didn’t stop arguments about the need to limit foreign ownership or to tax speculation to prevent the nebulous phenomenon.

A number of realtors said early signs started appearing six months ago that the market was slowing down, but the difference really appeared in early March. There is usually a surge of buying in Vancouver around Chinese New Year, as visitors from China come to see family or friends in the city and often make decisions to buy.

This year, the buying spree after Chinese New Year was much smaller, and house sales have slowed in March and April instead of the typical pattern of accelerating into spring.

Jean Zhang, with Sutton Group, said her clients, who tend to be immigrants looking to settle here permanently, are waiting longer to make offers.

“A few months ago, people were thinking, ‘I have to get in right away,’ ” she said. “Now, they see there are lots of choices. And they are giving lowball bids. They want to have good bargains in this market.”

- from ‘Sky-high housing prices in Vancouver’s west side short-lived’, Frances Bula, Globe and Mail, 6 May 2012 [entire article reproduced here; not our normal practice, but we really could find anything we'd want to leave out. - ed.]

And so it begins.
We don’t see the described $3.35M sale of a house with a $4.5M ask price as being that big a deal, the $4.5M could have been unrealistic to start, and it’s far from hearing of homes being sold for 25% less than prior sales. But the fact that this “price drop” is announced in the G&M is likely important.
Once ‘falling prices’ becomes an established idea, this will self perpetuate.
Owners dependent on the value of their homes for future financial security will come to market, attempting to realize years of paper profits, now evaporating.
Buyers will either not qualify under the new scrutiny, or will simply sit on their hands.
Lower prices will beget still lower prices.
This is how price collapse starts, but it is only the very beginning.
There are now about 1000 SFHs for sale on the West side.
‘Supply and Demand’ can turn on a penny.
- vreaa

Guest Post – An ‘Ex-Vancouverite In Asia Considering A Return’ Lays Out ‘Why Vancouver Real Estate Prices Might be Justifiable’

The View from Asia: Why Vancouver Real Estate Prices Might be Justifiable
[A guest post kindly submitted by 'an ex-Vancouverite in Asia considering a return' (handle 'BLM'), 27 Apr 2012.]

Like many of you, I too have been in shock and denial at the astronomical rise of Vancouver’s property prices. How could the city I grew up in, without the jobs to keep me there in the first place, support such exuberant real estate prices?

After nearly a decade living in Asia, I am now contemplating a return to Vancouver because there really is no better place to live – economics aside. I hope to share with you a new perspective as a prospective buyer of Vancouver real estate and to provide insight into the thinking of several investors I’ve conversed with here in Asia.

It all started back. Such a long, long time back.

The year was 2001, when the US Fed rate began the year near its historical average at 6%. By December it fell to 1.75% – the lowest in over 40 years. Alan Greenspan was steering the slowing US economy away from a recession following the bursting of the dot-com bubble and the 9/11 terrorist attacks. With rates that low for the next three years, the scene was set for hard asset prices to rise.

The rates did go back up very briefly to the 5% level in 2006 to 2007 but quickly returned to a historical low of 0.25% after the financial crisis of 2008. The rate today continues to stand at 0.25% and is expected to until well into 2014.

Simplistically speaking, this is why real estate prices in select cities around the world have become out of reach for many locals – not just in Vancouver.

Why are Vancouver property prices more adversely affected?

One could argue Vancouver is Canada’s most international city in terms of ‘main street’ capital flows (i.e. money earned in Asia but spent in Vancouver). Being on the Pacific Rim and acting as Canada’s strategic link to Asia Pacific means its economy will take on characteristics unique from other Canadian cities. Canadian economists only have hard Canadian economic data to work with which is why it has been so difficult to forecast and explain Vancouver’s economy (and indeed real estate prices)!

What about Toronto? Don’t they have large ethnic groups and immigration inflows?

The difference is in the foreign economies they link to and the quality of the capital flows. There are far fewer direct flights from Asia to Toronto than there are in Vancouver. This means, on a whole, Asians who immigrate to Toronto are less likely to maintain regular links to Asia and therefore fewer capital flows.

Why Asian ‘main street’ capital flows matter?

Asian economies are booming. For countries that aren’t, like Japan, they have huge aggregate amounts of savings that if deployed in numbers to any one country (think Australia), it would have a very meaningful impact on asset prices. What makes Asia’s economies matter to Vancouver, other than the ‘main street’ capital flows mentioned earlier, is perhaps their close reliance to the US economy and ultimately the US Fed rate. To simply put it, Asia’s booming economies, fueled indirectly by cheap US borrowing costs, is expediting a new wave of middle class savings and a new breadth of real millionaires and billionaires in the region (fact: there are more billionaires in China than in the US). This glut of savings, together with low savings interest rates coupled with low borrowing costs, in places like Hong Kong and Singapore have pushed domestic property prices up to become some of the world’s most expensive.

Why don’t they just buy more property at home rather than abroad?

For the wealthy in China, where there are limited avenues for investments other than stocks and property, many have begun to move some of their wealth offshore. It is also partly driven by the lack of trust in their own government and legal system. It doesn’t hurt that there are still living memories of the revolutions that began in the 40s which led to personal possessions being confiscated. Additionally, the Chinese government has been implementing policies to rein in domestic property prices making it harder for the middle class and the wealthy to invest in multiple properties even if they are financially capable in doing so.

Other regions such as Hong Kong and Singapore have also seen their governments implement policies making real estate investments less attractive for speculators and investors.

Limited investment options in China and extremely low interest rates in places like Hong Kong and Singapore are forcing capital to go offshore and back into the West.

Why are they choosing Vancouver?

So why are investors looking to Vancouver? To answer that, let’s put ourselves in the shoes of an investor in Asia looking to diversify their assets in real estate abroad in a politically and economically sound country.

Closer to home, you have Hong Kong and Singapore but prices there have become some of the world’s most expensive. Further abroad, you have time zone friendly Sydney and Melbourne but their prices too, along with their currency, have risen to what some call ‘frothy’ levels as a result of Chinese trade and Japanese capital. Then there is London, with its property priced in the expensive Sterling and New York with its tough immigration laws. These have been some of the more popular destinations for Asian capital to invest in which brings us to Vancouver.

Vancouver has no major policies to limit real estate investment . It’s currency is cheap relative to the Sterling and the Australian dollar. The Canadian dollar is also expected to appreciate which provides either a limited hedge to falling property prices or a bonus return on investment. Access to the city is easy with numerous airlines flying direct from a variety of Asian cities. The list goes on and on.

How did they acquiring their wealth?

No one can clearly answer that but if we just think of the thousands and thousands of companies in Asia (especially China) that have gone public in stock exchanges at home and around the world, it is not hard to imagine the number of affluent individuals in Asia.

Others have surely made their money in property along with the region’s economic rise. In Hong Kong, for example, the equivalent of a 400sqft 1 bedroom apartment in a similar district to Coal Harbour now goes for about CAD $1.2mn – thanks in part to Chinese money inflating the city’s property prices.

For some families who immigrate to Canada from Asia, it makes all the sense in the world to diversify their assets into Canada with the view of settling there. Some might even buy a few condos, lowly leveraged, to generate CAD income for their living expenses as a bubble popping in Vancouver is perceived to be no more likely than in Asia.

Brown barbaloots

Vancouver is not an exception where locals have been pushed out of the city core. This is a phenomenon that has been repeated many times throughout history. Today, in many cities across Asia, where there is a lack of a social safety net, high property prices are leading to street protests and influencing election outcomes.

Unfortunately, the wealth gap across the world has been widening for many reasons. Vancouver is not alone in that young couples are finding it hard to develop a career, start a family or to purchase their first home. In fact, let’s not forget these problems are more magnified in China, the source of hot Asian money, than anywhere else in the world.

Unless

Unless there is global economic calamity or unforseen restrictive policies towards immigration/real estate as an investment, prices are likely to tread higher, retreat slightly, or stabilize in the long term regardless of the ‘expected’ interest rate moves.

It is hard to see a scenario where Vancouver prices will ‘crash’ with supportive interest rates and rising Asian economies. What makes Vancouver unique is that the majority of home owners are not overly leveraged (from my own anecdotal observation). Certainly the newly landed buyers and existing homeowners of SFHs do not appear to be. Yes, there were a few who took out 40 year mortgages and those who put down a 5% down payment but those days are long gone and prices have risen since then.

More importantly, the majority of the most vulnerable seems to be first time buyers who typically bought into the $250k-$400k range over the last 10 years in the lower mainland. Should there be a decline of 25% percent, a clear crash, even a $400k property would still be worth $300k. With interest rates this low, principals are being paid down rather quickly.

Foreclosures will be the first sign of real trouble, not price declines.

Covered bonds

The final thing I wish to touch on, as a keen observer of the bond markets, is Canada’s mortgage market in relation to covered bonds being issued by Canadian banks. Canadian banks are keen to expand their mortgage businesses in pursuit of profitability. However, this tenacity differs from that of the US sub prime crisis. Canadian banks have been active issuers of covered bonds, which unlike the toxic CDOs that US banks issued before 2008, are guaranteed by the banks’ balance sheets. With Canadian banks being some of the world’s strongest, many of the covered bonds they issue (which consists of mortgage loans) are rated AAA – the same credit worthiness as US treasuries, which are considered to be the world’s safest investments. Institutional investors are keen to buy as much Canadian covered bonds as possible given the lack of AAA bonds in the world and because of the expected currency appreciation of the Canadian dollar.

We can blame many factors for Vancouver’s high real estate prices but ultimately, through the invisible hand of the markets, it is only a result of the low US Fed rate.

My considerations as a prospective buyer with foreign assets

My wife and I have decided to return to Vancouver with our young family at some point in the future. The hope is to give them the same experience we had growing up – Canucks, PNE, Stanley Park, Granville Island, street hockey, camping, fishing, etc. This view is increasingly shared by ex-Vancouverites all over the world. Even some of the immigrants from Hong Kong of the 90′s who have since left Vancouver seem to have budding fantasies of returning once they have children.

We’re squarely middle class with decent savings and significant equity in our home in Hong Kong. Property prices here have appreciated with the same velocity as Vancouver. In our minds, we have several decisions to make. When to move and whether to move all or some of our assets back.

If we decide to move back this summer, we have the option of renting out our home here and refinancing it (mortgage rates at 1.5%-2% in Hong Kong currently) so that we have a substantial amount along with our savings to shop for a condo or townhouse. Or we could sell all of our assets here and look for a SFH completely paid off (or with minimal leverage).

However, if we decide to delay our move, we could consider hedging, for better or worse, by buying into a pre-sale condo. Our savings needs to be invested and the stock market does not offer the same sense of security for our future plans. So if we are to make an investment, it might as well offer some hedge for our future aspirations.

As a prospective buyer with foreign assets, I have two variables to consider: FX and real estate prices. This makes me see things very differently compared to a local buyer. Property prices may stay high but if the Canadian dollar falls by 10% against the Hong Kong dollar (in effect the US dollar), it makes it very attractive for me to take action.

I will be in Vancouver for vacation this summer and no doubt visiting some open houses. We shall see where the Canadian dollar stands and what the state of the real estate market is at the time. Stay tuned as I will report back in due course.
——-

Editor’s comments:

Many thanks to ‘an ex-Vancouverite in Asia considering a return’ (handle ‘BLM’) for submitting this carefully considered piece. We welcome all stories of the effects that the Vancouver RE market is having on citizens, and BLM generously shares with us his own considerations as he looks to buy property in Vancouver. He weighs information at his disposal, concludes that the market will remain strong into the future and, despite price levels that he’s found “shocking”, and price rises that he judges to be “astronomical”, he is planning to buy. This is all very important information to students of the Vancouver RE markets: If enough people continue to see what BLM sees, and act on their conclusions by buying, will the Vancouver RE market simply power upwards, relentlessly, forever?

BLM offered this piece for the sake of discussion, and he welcomes your thoughts on his opinions and circumstances; he also invited comments from vreaa, so here are a few thoughts and questions on some of the specific points he raises:

1. “I am now contemplating a return to Vancouver because there really is no better place to live…”
– The vast majority of us here know that Vancouver is a fine city. Welcome back.
When you say “there really is no better place to live”, is that based largely on a direct comparison with HK? Are there other places you’ve considered living?

2. We’d agree with the conclusion that easy money has caused the global RE price inflation, and that the Fed’s profligate ways were a central cause.

3. Are “capital flows” really that dependent on direct jet flights?

4. When comparing us with Australia, the Aussie dollar is not really that much stronger than ours, is it? And their real estate is similarly “frothy” compared to Vancouver, not moreso. In fact, aren’t we now ‘ahead’ of them in that regard, in some recent survey? (There are so many surveys, one can’t keep up). So it’s not that more expensive RE makes Australia less attractive to buyers outside the country. One difference of significance is that Australia has moved to limit off-shore ownership of RE.

5. More billionaires in China than in the US? I don’t believe that’s true. Wikipedia says 412 in the US vs 115 in China (2011). So, yes, there are rich people in China, a lot, but let’s not get too far ahead of ourselves (or underestimate the staying power of the US).

6. We have little doubt that, in the long run, China will become a stable and firmly established economic power. It’s already large, that’s for sure. Currently, however, we read much about China’s own (deflating) RE bubble, and about the shaky foundations of their GDP numbers; we hear credible commentators predicting a period of much slower real growth for China. Such a period of contraction would be expected to effect capital flows out of China, but by how much? Massive? Negligible?

7. Yes, the perception that the loonie will rise may make Canada more attractive, and the fact that it has been strong compared with the USD has made Vancouver RE gains seem even larger from outside of Canada.
But is this to remain the case? Couldn’t the loonie just as easily see 80c-85c US again before it sees $1.15c? If RE prices drop, and the loonie drops (the scenario we see as most likely),  how would foreign holders of Canadian RE respond? Buy more at ‘discount’ prices? Or worry that a Vancouver RE bubble has begun to deflate and hurry to sell? We’ll find out in the coming ‘grand experiment’.

8. “With interest rates this low, principals are being paid down rather quickly.”
– On aggregate, surprisingly not; it is stunning to consider, but total equity in Canadian homes has been falling despite increasing home values.

9. “With Canadian banks being some of the world’s strongest..”
– It’s a nice thought, and we know it’s gospel in some circles, but is this true? Or do they look strong because they haven’t been tested yet?

10. “What makes Vancouver unique is that the majority of home owners are not overly leveraged (from my own anecdotal observation).”
- Not being overly leveraged doesn’t mean that an owner is not overly dependent on RE price strength.
Of the owners you know, what percentage of their net-worth would you estimate they have tied up in Vancouver RE? How dependent are they on rising or at the very least stable RE prices, for their financial futures? How will they respond to price drops of 10%? 15%? 20%?

11. We particularly appreciated the section where BLM shared his own considerations as a prospective buyer.

12. “We’re squarely middle class with decent savings and significant equity in our home in Hong Kong.”
- Great; you’re in a similar position to many Vancouver owners. Well, apart from the savings bit, that is… Most Vancouver owners are over-invested in RE, especially when age, net-worth, and retirement plans are taken into account. So, it sounds like you’re actually better off than most “squarely middle class” Vancouver owners with young families.

13. “…we have the option of renting out our home (in HK) and refinancing it (mortgage rates at 1.5%-2% in Hong Kong currently) so that we have a substantial amount along with our savings to shop for a condo or townhouse.”
- In which case you’d have no savings and own a property in Vancouver and a property in HK; with low leverage. What would you estimate your maximum downside risk would be in that scenario?

14. “…we could consider hedging, for better or worse, by buying into a pre-sale condo. Our savings needs to be invested and the stock market does not offer the same sense of security for our future plans.”
– We personally consider Vancouver pre-sale condos one of the worst investments imaginable at present. But, yes, the stock market is likely to be volatile through the next year or two (with significant downside risk). Why do your savings ‘need to be invested’ in one or the other?

15. “Property prices may stay high but if the Canadian dollar falls by 10% against the Hong Kong dollar (in effect the US dollar), it makes it very attractive for me to take action.”
– Are you sure that would lead you to act? Imagine a global deflationary wave, in which Vancouver property prices started falling, fell 15%, and the loonie dropped 10%. Are you sure you’d be looking to buy at that point? Would you be having any other thoughts in that scenario?

‘An ex-Vancouverite in Asia considering a return’ (BLM), many thanks for your thoughts and your story. Thanks, too, for your promise to keep us updated; please report back, we’ll be interested to hear how things play out for you, and we’ll headline your updates. All the best with all of your endeavours.

- vreaa

‘First We Take London and Manhattan, Then We Take Berlin’ – Limitless Demand Argument Revisited, Again – “Anytime a midlevel city grows and becomes a popular destination to live, people come, demand increases, supply dwindles, and prices go up.”

“Anytime a midlevel city grows and becomes a popular destination to live, people come, demand increases, supply dwindles, and prices go up. Witness New York and London 100 years ago and what it’s like now.
New York City police and firefighters earn about $100k a year yet can’t afford to live in Manhattan. They live in New Jersey and commute. When I was in London, a shuttle bus driver told me he grew up in Earl’s Court, but had to move to Reading and commuted to work. This is a normal state of affairs.
Vancouver is an international city. People are going to move here, as is happening in Germany. Real estate prices in Berlin and other cities are increasing because the remaining wealthy Europeans are moving and investing there because of the solid economy and collapsing prices in their home countries. They are pushing out middle-class Germans. The movement of people and capital to better places is normal development. What’s happening is not new. It has happened since the dawn of civilization.
If [anybody] feels disenfranchised and displaced, [they] should remember the plight of the First Nations people. Their homes were taken from gun point and they were subjected to genocide. The remainder were made to feel really welcome by being forced to live on reserves and treated like second-class citizens in their ancestral homeland. At least the Chinese purchased their homes legally and are contributing to the economy by buying Canadian natural resources from which she is benefitting.”

- Terry Chan, Letter To Editor, Vancouver Courier, 20 Apr 2012

Excellent debating technique, Terry.
- Hand-waving comparisons linking our (modest, small, provincial) city to capitals such as New York, London, Berlin.
- Vague claims of historical precedent (“since the dawn of civilization”).
- Superficially arresting but essentially empty concepts (“Vancouver is an international city”)
- Avoid mention of all non-supportive data (thus let’s not talk about any actual numbers)
- Pre-empt dissent by associating any would-be opponents with historical atrocities (“plight of First Nations people”).

While it is true that cities do develop, the problem is that the vague arguments used by Terry, if accepted, can be used as an excuse to justify just about any price, for any property, in any growing city.
Show us the math that supports current Vancouver prices. None does.
Yes, Vancouver will develop.
But, yes, too, Vancouver is in a huge speculative RE mania that can only end with implosion.
The two ideas are not mutually exclusive.
There are at least 150 other cities around the globe as important as Vancouver – Does Terry argue they are all on the brink of becoming the next NYC; London; Berlin?
- vreaa

Also see:
Vanhattan”.
Various posts in the sidebar category “Limitless Demand Argument For Ongoing Market Strength”.

Federal Immigration Minister – “People in Vancouver ask why we facilitate this. It is leading to inflated real estate prices. Great if you are well-established, but if you are a young family starting out, good luck being able to afford a house in Vancouver. A lot of people who aren’t rooted in Vancouver are inflating the costs.”


Kenney – “We had begun to devalue citizenship.”

Nine out of 10 wealthy immigrants accepted into Quebec’s investor immigrant program never come to Quebec, federal Immigration Minister Jason Kenney said Friday.
“I do think it is peculiar that the province that was given power to select immigrants primarily to reinforce the French fact in Quebec is in fact flipping Asian people into Vancouver,” Kenney said during a meeting with The Montreal Gazette editorial board.
“In principle, the Quebec immigration program should be about immigration to Quebec.”

Kenney defended the [national] investor program.
“There are millions of millionaires. There is absolutely no shortage of demand for this kind of program. We have a huge surplus of applications.”
But the immigration minister said he would like to see both the national and Quebec programs revamped to better reflect the demand from rich people while making the programs more valuable to Canada.
Under existing criteria, the national and Quebec versions of the program accept applications from investors with a net worth of at least $1.6 million, provided they make an $800,000 loan to the state, which is repayable without interest in five years.

Kenney said the “vast majority” of the roughly 4,500 people Quebec accepts under the investor scheme settle elsewhere.
“As far as we can tell, about 90 per cent of those people end up settling in Vancouver and Toronto. They don’t even come here,” Kenney said.
“Quebec gets the money. Ostensibly, they are supposed to be coming to Quebec, but they go to Vancouver and that is where they stop.”
He said in most cases, the family sets up a household in Vancouver while the breadwinner “goes back to Asia or wherever to run the business, where they are not paying Canadian taxes.”
“Here’s what often happens. Quebec will get the $800,000 for five years. B.C. will get the social services costs for health care and everything else for the dependents who have been brought to Vancouver.

“People in Vancouver are always asking me why are we facilitating this because it is leading to inflation of real estate prices. Which is great if you are well-established and you have paid down your mortgage. But if you are a young family starting out, good luck being able to afford a house in Vancouver. A lot of people who aren’t rooted in Vancouver are inflating the costs.”

“We have decided that we have to raise the price point. There is a huge surplus of people applying for these programs beyond our ability to admit them and we just aren’t getting enough bang for the buck.”
Kenney rejected suggestions that the program feeds into the perception that Canada is ready to sell citizenship to the highest bidder.
“It’s not citizenship, it’s permanent residency,” Kenney said.
“There is a compelling rationale to attract high net worth investors to help bring capital and ongoing investments into the Canadian economy . . . But the current one is not meeting those objectives. What we want is investment that puts real skin in the game, not just a loan so people can move in and out.”

Meanwhile, Kenney said the federal government is in the process of revoking the citizenship of 2,300 people, with at least 6,000 more cases under investigation.
He said a two-year investigation by the RCMP identified at least 8,800 cases of alleged residency fraud.
“Thousands of people were using crooked immigration consultants to create fake proof of residency in Canada. When we find several thousand people who have broken the law, it is pretty widespread.”

“We had begun . . . to devalue citizenship in the sense that we were not consistently applying the statutory requirements to obtain citizenship,” he said.

- from ‘Que. immigrant program funnels rich newcomers to B.C.: Kenney’, Montreal Gazette, 20 Apr 2012
[hat-tip Jeff Murdock]

“Check-out clerk at Safeway told me that she was a mortgage broker who had just done a deal by telephone with a guy from Shanghai who had bought a house in Richmond.”

“Vancouver moment today. Check-out clerk at Safeway in Vancouver was talking to a co-worker about her phone call from Shanghai. I asked what was she doing, and she told me that she was a mortgage broker who had just done a deal with a guy from Shanghai who had bought a house for his aged parents to come over and live in Richmond.You can’t make this stuff up!!!!”
- Westsider at greaterfool.ca 16 Apr 2012 10:42pm

West-Side Street Level Analysis – “I walked Arbutus to Macdonald from 19th to 22nd Ave. These homes are empty. Some have been bought and sold 3, 4 and 5 times in the last 6 years.”

“Trafalgar Park has been torn down and has been rebuilt with these large homes that are never lived in – owned and flipped by people that don’t live here. I lived near here for 9 years. I saw some of the same houses listed and sold up to 5 times… 2 within blocks of me. We have a real problem and people simply don’t believe it has happened and continues to happen.”…

“I took pictures of the kind of “tear downs” that are being taken down and pictures of the kind that is replacing them…. The streets are dead in there- no kids playing. Some of the houses are beginning to mold and sink – just built within the last 5 years!!! It’s so sad and depressing… just 10 years ago it was a middle class ‘hood with nice homes for 500k, now they are all pieces of crapola and are “listing” for $3.5 – 5 million.” …

“Type of homes that have been torn down…lot value now 2.3 million:

“Lot value 2.3 million – if sold , would be torn down:

“This is what is replacing the 1950′s homes…these list between 3.5 – 5 million:

“Lot value only- $2.3 million- will be torn down if sold- I rented one similar:

“Beautiful!!!!:

“West-side has been ruined – it’s soulless. My fear is that unless people stand up and make their feelings known – this city is done for. I refuse to just sit back, have a glass of red……as Cam Good would say…… and watch the destruction. The people are in charge, not the developers, realtors and politicians.” …

“I suggest people stand up for this city and let the politicians know that they want change. if we just sit back and do nothing it will get much worse. Politicians work for us not the other way around.” …

“I’m just pointing out empty houses near where I rent, is all. I have no obsession with the westside. I’m sure there are 1000′s of empty condos downtown and soon the houses that sell for 1 million around Nanaimo street will be bought and torn down only to sit empty as well.” …

“Go for a walk through the neighbourhood I told you about..16th to 33rd / Arbutus to Dunbar or Macdonald to make it really obvious. I am not exaggerating one bit. There you will find 4 or 5 homes per block that sit empty… New homes are empty not old homes… I lived there, I saw it- go see for yourself. Not only do they sit empty but they are being bought and sold many times (flipped) and still never lived in. It has nothing to do with me being a renter… the facts are the facts. No kids playing in the yards, nothing. I’m being told one of our city’s reporters is doing a piece on the specific issue, stay tuned. But go for a walk and see for yourself.” …

“Here is a list for you all- I walked Arbutus to Macdonald from 19th Ave. West to 22nd Ave. West. I lived in this ‘hood and have for 8 years- some of these homes listed below have been bought and sold 3, 4 and 5 times in the last 6 years. One day there will be 50 listings for sale , the next week there will be 20 listed and none will have sold- they are being pulled and placed for sale to manipulate the market in this particular area. I have been obsessed with watching this for years -odd, I know, but I hate how the city is being destroyed. There are more than this -this is just 4 streets… On a side note… I have watched these houses for years and they all have gardeners to keep grounds looking good; so don’t think they are occupied because the lawn is mowed.”

Macdonald to Arbutus:

19th ave
2789 2788 2765 2745
2642 2519 2505 2483 2450 2448 2402
2403 2395 2365 2356 2325 2315 2265

20th ave
2203 2206. 2255 2286 2285 2299 2396 2408 2411 2417 2475 2718 2730 2715 2755 2772

21st ave
2749 2690 2683 2471 2428 2335 2369 2396 2386 2375 2225 2193 2151

22nd ave
2118 2128 2328 2345 2376 2375 2457 2491 2663 2677 2749

“Just watching over the years. Never any lights on, old papers on some, gates always locked down -the ones on the front doors, no shoes out front… Christmas decorations in the windows, never any lights on, no cars out front or driving into garages..the list goes on. Living there for so long, I know. It is a very serious problem. My wife worked for a firm in the city that was mainly chinese workers. They asked where she lived …when she told them the area they said ohhhhh i know it -the chinese housewives trade those homes like stocks from China. I saw so many of the homes listed so many times and each time for approx. 500k more than the last buyer that had never moved in. I have a few friends that are left in the area -they all say the same homes are empty. The area has been destroyed and it will continue to move across the city. I had a good chat with Andrew Hassman last year (a west-side realtor)… he told me 90% of his sales were to Chinese that fly in, buy and leave. He told me not to buy.”

- vancouverbubbleman, via e-mail and series of comments at VREAA, 10 & 11 Apr 2012

West Vancouver – “A lot of these crazy sales were done with the Buyer’s realtor coming from over town, and not knowing our local market. That is partially why we have seen some down right stupid sales over the past 18 months. It has finally slowed up. Did these people always have a plan to flip, or is it money laundering, or a change in monetary circumstances, who knows? But I smell a change.”

“West Vancouver has definitely seen the ripple effect over the past two years. The demographics in West Vancouver are changing rapidly. The bridge kept the West Vancouver real estate market (reasonably) a best kept secret, but no longer, the flood gates are open with approx. 70% of our sales coming from Asian buyers, and add in another 15% from Iran. It has been hard for the locals with such a big shift in such a short time. Real estate prices in some of the main target areas such as Ambleside, Dundarave, Queens, and the British Properties have increased as much as 50% in the last two years. A lot of the locals have sold out, with people moving to other B.C. locations, down sizers going to strata, and some just going to rentals. Sustainable? I don’t think so, but we shall see. I have never seen so many new spec. builds on go, and the number of lot value purchases that are soon to be pulled down. I don’t think any of these small time builders have thought out demographics, and how many new builds there will be coming to the market with only one group of buyers that would buy them.
Interesting when this major West Vancouver leg up started in the late summer of 2010 we really got saved as the listing count in West Vancouver was at an all time high for single family (577) matching 1998. I thought, as well most of my colleagues thought the West Vancouver market was set for a big decline, but in August 2010 (generally a slow seasonal local market time) some big sales started to occur. I think this was started as the West Vancouver market place seemed like such a better buy compared to the West Side, and people finally figured out some of West Van’s best kept secrets. Shhhh…… can’t talk about how quiet (45,000 people, and not going to move up much), safe, proximity to downtown, lot sizing, views, and price in comparison to the West Side it is. Sales were crazy in 2011, and our inventory dropped to under 400, and prices just went straight up. A lot of these crazy sales were done with the Buyer’s realtor coming from over town, and not knowing our local market. Lol…Can you imagine your Realtor showing you properties that he has no idea where he/her is, and having to use gps, and ask the Listing Agent where his/her next showing appointment is. How could you possibly assist the Buyer, and that is partially why we have seen some down right stupid sales over the past year, and a half. We have had two countries (China, Iran) where people having been trying to move money into property in a safe haven.
It has finally slowed up. For how long who knows, but we are due for a pause. The sales have really slowed up the last two weeks of March, and the listing count is moving up(426). Interesting how many of our listings were purchased in the last two years. Did these people always have a plan to flip, or is it money laundering, or a change in monetary circumstances, who knows, but I smell a change.”

- nsguy at RETalks 3 Apr 2012 9:05am

“I have a have a good friend whose dad is a developer in China, and he knows some developers here. Here are the possible explanations that he offered for why the influx of foreign cash seems to have dried up.”

“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?
-vreaa

Vancouver RE Blogosphere Watch – Poster Publishes His Annual ‘The Wengzhou Money Is Coming’ Post

2012
“Wenzhou money is now in Vancouver. An article from Vancouver’s chinese media talked about groups of businessmen from Wenzhou are in Vancouver now and purpose of their trip is to buy properties. One agent by the name of Zhang Wei Bin of Sutton picked up 4 parties at the airport alone on Monday, the first day of the year of dragon. Starting on Tuesday, they have started to look at ocean view properties in West Van, most in $5 million range, including one at 2400 Halston Crt, which those businessmen consider very cheap, comparable properties cost 3 times more in China.
Most of you may never have heard the city. It is the birth place of current day capitalism in China and it is estimated the residents of the city have amassed over $90 billion investable capital, people from Wen Zhou are known as fierce business competitors, and fearless properties buyers. Wen Zhou housewives formed buying teams and go from city to city to buy big chunk of new development projects and sell later for profit.”

- unicas at RE Talks 26 Jan 2012 8:44pm

2011
“The Wenzhou ladies may be coming. Wenzhou people are feared in China both as fierce business competitors and real estate buyers. 30 years ago, they were among the first Chinese who set up private business shops. They calculated profit by fraction of a penny. For the past decade they have been known as bigshot condo buyers. They form teams of RE buyers, go from city to city in China, and bring up prices whereever they go. And for the first time ever, they are allowed to invest directly overseas. So the suit case for cash will not be needed anymore. And “I buy 3, husband buy 3 thing may not be evening news material anymore. The money they are allowed to invest oveaseas may not initially sent out of the country in the name of RE investment, eventually most of the money will find their way in some kind of real properties.”
- unicas at RE Talks 23 Jan 2011 10:05am

Well, they certainly have more inventory to choose from this year.
Any news on how Wenzhou Chinese stock market and RE investments have done over the last 12 months?
What do these guys do when they’re holding assets in falling markets?
- vreaa

It’s The Locals! – “All my friends and everyone I work with has bought a house. None of them are Chinese.”

“All my friends and everyone I work with has bought a house. None of them are Chinese. You people have to get out more.”
- WhatProblem at vancouvercondo.info 12 Dec 2011 3:45pm

Foreigner On Visitor Visa Buys House – 35% Down, 65% Canadian Bank Financing

“Have any [of your readers] ever seen any articles regarding “foreigner mortgage”?
Here is the story - 
One day I attended a lunch in a friend’s house; I did not realize there were her other friends coming over from China and visiting the same time.  During the lunch, our topic was buying house in Vancouver – The friend who was from China was looking for to buy a 2M house and it did not surprise me at all since I have been hearing the story about those wealthy buyer.  What surprised me was the mortgage.  This friend of mine whom is on the visitor visa and that means not yet a Canadian citizen nor Residence.  In the first place, I thought she bought her house in 100% cash since she has no any credit or nothing in Vancouver…  Till, she mentioned to me that she feels that cost of living in Vancouver is very high and I started to asked her what made her think this way; she said the hydro bill, the tax and the mortgage fee…etc.  I was kind of in shocked when I hear “mortgage”.  She later told that she has a 65% loan with the local bank and she has only paid 35% down.  She said she has a business in China and the bank required her to provide some documents from her business in China then she got the mortgage from the Canadian bank.  I had my month wide open – - believe or not.
My question is – is the foreigner really buying the house with whole cash? or it’s sooner going to be Canadian bank’s debt?
I wish someone could provide some comments or stories if they do know anything….. I have been sitting on my cash and don’t want to put them in the bubble market.”

-’Sab’ via e-mail to VREAA 11 Mar 2011

Can any readers verify whether the described financing scenario is occurring in the Vancouver market?
Further: On an obliquely related note: We recently spoke to a couple with a modest annual income who had used a cash windfall as a 30% down-payment on a BC property. They were puzzled, given the size of their down-payment, that they’d had to undergo such prolonged scrutiny by the lending bank. The degree of scrutiny was likely because their deposit was too high for the mortgage to be CMHC insured. If they’d had only 10% down, it likely would have been quicker and easier for them to ‘qualify’. – vreaa.

Architect Bing Thom – “The city needs a strong vision to avoid becoming a tourist resort and a place to park money.”

“We rely on each other, so it’s really important for us all to engage in dialogue,” emphasizes Thom. Which is why – even though friends warn him that he may be alienating himself from potential clients – he has rallied publicly against the now-defunct bid for a casino at B.C. Place and the “god-awful” Canada Pavilion built in the city during the Olympics.
“Actually, I’m a very optimistic person, so it’s not that I go out of my way to be controversial,” he says with a boyish laugh, throwing up his hands. “It’s just that we have to earn democracy every day, which means caring about your community. And if you care, it’s your duty to speak up.”
Currently irking him is the “issue” of Metro Vancouver: to his mind, Vancouver needs to accept that there are no more boundaries between it and the wider metropolitan area, and to be thinking and acting regionally – especially in terms of economic development – as well as globally. “This little paradise is only here because we simply exported all the dirty stuff to the developing world such as polluting heavy industries and unwanted toxic wastes,” says Thom.
The city needs a “strong vision,” he believes, to avoid becoming “a tourist resort and a place to park money.” For example, as an architect who builds “homes – not commodities to be traded or vertical gated communities,” he applauds social-housing policies that mix people of different incomes in the same building. “It’s a way of building a real community,” says Thom, who lives nearby in a condo – that he designed himself – with his wife Bonnie, whom he met at high school in Kerrisdale.

- from ‘Lunch with Vancouver Architect Bing Thom’, BC Business, 7 Nov 2011

Sandy Garossino – “We need a thorough and rigorous analysis of our housing market, the causes of its extreme condition, the risks it poses for our long-term economic sustainability, and a study of the levers and mechanisms available to government to modulate those risks.”

From a post by Sandy Garossino, independent candidate for city council in the recent civic elections, at her blog votesandy.ca 28 Nov 2011. The entire post is a must read for those concerned about Vancouver housing. Some excerpts below for our chronological archive. -

“Relative to household income, our property values are now among the most severely unaffordable in the world. Relative to income, Vancouver’s property values are 56% higher than New York’s, and 31% higher than London’s.
In its November, 2011 report on the Canadian housing market, RBC notes that 94% of average household income is required to cover the ownership costs of a 2 storey detached home in Vancouver.
This development is new and unprecedented.”



“Excesses in the housing sector can generate key vulnerabilities in the financial system and the economy as a whole.
Rather than stimulating productivity and competitiveness through business investment, cheap credit has been used to bid up the price of houses.
Vancouver residential real estate values began to detach from their historical relative values to the rest of the Canadian market sometime around 2006, when volatility began to get very choppy.”

“Many see Vancouver in a housing bubble, and it may well be. Others however, such as celebrated architect Gregory Henriquez, think our prices still have far to go to reach that point. Amazingly, Henriquez says that Vancouver is still under-priced. He is not looking at local economic conditions, however, but at the international forces in play. Viewed globally, Henriquez says that our market has become the “safety-deposit box for the world.”

“… circumstances militate against Vancouver being able to compete in the global marketplace for the best and the brightest talent needed to drive the knowledge and creative economies that will sustain cities in the future.
Our universities are losing key talent and find themselves unable to attract replacements or build on what we have. Our business sector cannot recruit, our local merchants are caught in a fight for an ever-dwindling supply of disposable incomes, and attitudes are hardening against even modest tax increases necessary to maintain our basic infrastructure.”

“Many Vancouverites seem unaware of the strange drama unfolding in many of our neighbourhoods.
The west side of the city is shedding residents almost daily as international buyers purchase more and more housing stock. These homes often sit empty or are re-cycled into the market and re-sold at significant gains within months to other international purchasers.
The west side real estate market is behaving exactly like a secondary market in financial instruments rather than a shelter market. Often the commodity is not actually used or consumed, but only traded. This trait allows valuations to inflate so long as the market is supported by global buyers, completely independently of local economic conditions.
During the recent civic election I was twice approached by people who reported that their homes were the only ones occupied on their block.”

“Yet Mark Carney’s sobering warning last summer seems to have fallen on deaf ears. To hear local developers, urbanists and planners discuss this issue, you would think our market is within the normal range, and people concerned about the speculative spree fueled by interest rates and global capital influx are alarmists and potentially xenophobic.” [Well put. - vreaa]

“The theory currently dominating the discourse on our housing market points to natural or systemic causes for our pricing: our limited land base pressured by in-migration. According to this view, the cure for this market is to build more housing—ie. condominiums.
Yet in-migration is occurring at historically normal rates and we didn’t grow mountains and a southern frontier overnight.”

“Conclusion: It is time to take off the rose-coloured glasses and face some hard truths. We need a thorough and rigorous analysis of our housing market, the causes of its extreme condition, the risks it poses for our long-term economic sustainability, and a study of the levers and mechanisms available to government to modulate those risks.”

Great article. As we’ve said before, Garossino is to be applauded for publicly articulating the ‘hard truths’.
We agree with Garossino’s analysis in many respects.
The hope that there are ‘levers and mechanisms’ to ‘modulate the risks’ the market imposes, is similar to the hope for a ‘soft landing’ after a speculative mania. Some tweaking could alter the flight path, but who is going to be stepping in to buy very overpriced RE that has started a downward price trajectory?
- vreaa

[hat-tip Makaya.]

ADDENDUM 6 Dec 2011 8:20am

This comment posted to Sandy Garossino’s site:

Sandy,

Many thanks for this thoughtful and eloquent article.
We’ve headlined, excerpted, and commented on it in our chronological archives.

You are one of the few public figures speaking out on these issues, and we commend you for that. To point out these truths is brave; the thoughts are deeply unpopular in many quarters. As a consequence, most local  discussion of these issues has been done ‘underground’, in anonymous online forums. Some individuals, such as Gord Goble and Peter Ladner, have spoken out publicly, and you are a welcome continuation of that move.

We agree with your concerns about the multitudinous deleterious consequences of the massive misallocation of resources that comes with a speculative mania in housing. The optimist in us wishes you well with your endeavours to alter policy for the better. The realist is concerned that the only path forward for the speculative mania is a crash.

Judging by historically valid underlying fundamentals such as incomes and rent levels, Vancouver RE market prices are 2 to 3 times fair value, perhaps even more.
You see the speculative mania for what it is, and you are suggesting we attempt to orchestrate a ‘soft landing’ (no mean feat, if it is possible at all).
That suggestion itself creates a massive dilemma:
Given that there is such a large difference between the market price of properties, and their fundamental values, who do we hope to be buying these properties at perhaps slightly reduced but still massively elevated prices in the coming years?
Wouldn’t any such buyers be risking financial suicide?
Isn’t the only credible resolution a marked drop in prices, and then a recovery from the rubble?
Aren’t band-aid solutions on the way down simply going to put even more locals at dire financial risk?

Keep up the good work,
vreaa
(vancouver real estate anecdote archivist)

“Yes, There Is Such A Thing As Falling House Prices” – Ordos Down 62.5% Or More In 2 Months

For example, local “Jinxin Han Lin Yuan” project , its second-hand house prices are around 10,000 yuan , while the market price now only is 3750 yuan.
The example given is a 62.5% decline but some properties may have fallen 70%. Either way, that is one hell of a price decline since September.

- From ‘Home Prices Crash 62.5% Since September in Erdos, a Chinese “Ghost Town”, Global Economic Analysis, 25 Nov 2011

“My Vancouver house is valued around 750k. My other homes are much lower in value, but are outside the city. If you can’t manage your money well, you will always be poor, no matter what your income.”

“My Vancouver house is valued around 750k. My other homes are much lower in value, but are outside the city. If you can’t manage your money well, you will always be poor, no matter what your income.” and
“Those who live beyond their means can not afford to buy a home regardless of price. Those who manage their money well will prosper over time. For someone earning a low wage, it can take many years before they can buy a home. The size of the family also effects the ability to buy, but where the fantasy exists, is in your own mind.
I had to buy and sell houses many times over, reinvesting my money, and living very cheaply to get where I am. My children had to go without a lot of things during the early years, but they went to university, and got the things they needed. We saved our money as a family, and we can now enjoy our success. I know that I am not that smart, but I am smart enough to know that I have to save more than I spend to get rich. I still don’t make near 100k per year, but I enjoy my life, and have all that I need. I feel sorry for those who don’t.”

- stopyourwhining in the comments section of ‘Is it time to curb foreign real-estate buying in Vancouver?’, The Province, 14 Nov 2011.

 

Repost: It Is Dangerous To Blame The Consequences Of A Speculative Mania On One Sector Of Our Community: Let’s Make Sure We Don’t Do That.

[This was originally posted here almost exactly six months ago, VREAA 18 May 2011. Reposted in view of discussion regarding foreign ownership in local press, and in light of upcoming election. - vreaa]

Imagine you own a beach house in a resort area and you decide, at the end of a beautiful summer, to revive the memories of your youth by organizing a BBQ and bonfire on the beach in front of your home. You invite all your local friends, you organize the food, and you ask everybody to bring along their families, their friends, and their own booze. With plans for a whopping big bonfire, you also ask them to bring wood. Everybody complies, similarly eager for a beach bash. One of your buddies, Ken, has access to some really good firewood, so he brings a trunk-load of the stuff. The BBQ goes well, drink and chat flows, you and your buddies start to build the bonfire. Everybody is in a disinhibited party mood, and you all somewhat unwisely start constructing the bonfire a little too close to the house. A couple of people mention this but, the wind is blowing in the safe direction, it’s an arguably fair distance from the house anyway, and, besides, there is a fire extinguisher in the kitchen, right? Consensus is that the fire site is fine, and a really seriously large pile of wood accumulates.
So, the bonfire is lit, it looks glorious, and, in the fading light, everybody has a great time… marshmallows, jokes, dancing, singing. Everybody piles on the wood they’ve brought; everybody is particularly grateful to Ken, as his supply burns extremely well, it gives off a wonderful aroma, and it warms everybody very nicely.
You can see where this is going: The wind changes, the fire roars, the fire extinguisher is woefully inadequate, the house burns down, neighbouring houses catch sparks, the whole beachfront is destroyed, and everybody blames Ken.
Did I mention that Ken is from mainland China?


The speculative mania in Vancouver RE had its roots in the early part of last decade. Vancouver housing was already pricey by Canadian standards, the good-weather premium was baked in. Things really took off after 2003, when very low interest rates allowed home prices to divorce themselves from fundamentals such as local incomes. This effect occurred in all major Canadian centres, it was a monetary and not a local effect. Through 2004, 2005, 2006, 2007, local Vancouver speculators threw themselves onto the fire, borrowing large amounts to buy primary-residences and ‘investment’ properties at prices that were only justifiable if you thought that prices would continue up forever. People told themselves all the necessary stories to reassure each other that prices could, indeed, only go up: Best Place On Earth; Running Out Of Land; Olympics; and, yes, Limitless Demand From China. Under ‘normal’ circumstances, 2008 might have marked a top, but we all know that little about Vancouver RE is ‘normal’. Prices started dropping from the summer of 2008. Perversely, shortly thereafter, the world financial system imploded and interest rates, already at low levels, dropped to essentially zero. Vancouver RE didn’t need a bail-out, but it got one anyway. Prices had only been able to drop 15% before being re-ignited, taking out prior highs, and blazing on to their current dizzy heights. Now, with Australia finally pulling back, our real estate is arguably the most overpriced in the entire world. We are the last remaining pristine and unimploded RE bubble.

The most important fuel for this market fire, by a very, very long way, was and is local speculation. Local buyers, through all of these years, have continued to mercilessly overextend themselves to purchase property at prices that they would never dream of paying if they foresaw a significant risk of price downside. This applies to primary residences as much as it does to ‘investment’ properties. If locals had not speculated, or had speculated less, prices would not have gotten so very far divorced from fundamentals. Yes, there is a direct influence of foreign buyers on the market, more so in some areas of the city. But these buyers still participate in less than 5% of all property transactions. In the part of the city most affected by this phenomenon (the high end of the westside), realtors report that 50% of sales are to this group. That means, of course, that the other 50% of sales are to locals, overbidding on properties by arguably a factor of two or three times fundamental value. Our speculative mania has attracted non-local momentum players, and, yes, there may be a need for some consideration of specific limits on their activity; but let’s be very clear that these players are only a small part of the entire phenomenon.

There is no easy way out. That is the nature of speculative manias, they harm many on the way up, and a lot more on the way down. There is no way of ‘landing’ them ‘softly’. By their nature, they run out of fuel and implode. We have built and ignited a bonfire here that was long ago completely out of control and destined to raze the whole block. It would be very unfair and disingenuous to blame the outcome on our buddy Ken, who we invited to the party, who only brought wood with our encouragement, and whose fuel we appreciated while all seemed okay.

We are very concerned, however, that our city is setting up for such a scapegoating. Canada’s policies of multiculturalism encourage people to celebrate their differences. This is hunky-dory when everybody is rich and has adequate resources; it is easy to celebrate your neighbour’s good fortune when you are experiencing similar luck. But, if you put the economic screws on a society that has been encouraged to emphasize difference, it is probably more prone to developing ethnic fault-lines than a society that puts more effort into celebrating similarities.

There has been more and more media prominence given to foreign buyers recently. Local politicians such as Peter Ladner are pointing to this group as the cause of our lofty prices. We are concerned that many are going to be getting their wires crossed by associating foreign buyers with the existence of the bubble. There is a very real subsequent risk that many of those who suffer the consequences of the imploding Vancouver RE bubble will mistakenly blame foreign buyers and, by extension, specific ethnic groups, for the whole phenomenon, and for the inevitably devastating outcome.

As we said in our end-of-2009 predictions for the coming decade: ‘A Real Estate Bear Market Will Be Vancouver’s Defining Social And Economic Event.’ We hope that, as a society, we will be able to successfully navigate the substantial challenges of that event in a mature and wise fashion.
It is dangerous to blame a speculative mania on one small sub-sector of our community.
Vancouverites built this bonfire, and Vancouverites need to take responsibility for its consequences.
No scapegoating.

- vreaa

Comments In ‘The Province’ Regarding Foreign Buyers – “Affordability has nothing to do with the colour of your skin; it impacts every resident of Vancouver. Politicians need to step up on this. And please, please, please, look deeper than what the RE industry has to say on this.”

From the comments section of ‘Is it time to curb foreign real-estate buying in Vancouver?’, The Province, 14 Nov 2011:

“I run and own a successful mid-sized company, if I hadn’t a bought my small house 10 years ago, I would not be able to live here. My company would go somewhere else and 60 people in Vancouver would be looking for work. It strikes me that this is not about racism, as affordability has nothing to do with the colour of your skin. A lack of affordability impacts every resident of Vancouver. The Politico’s need to step up on this. And please, please, please-look deeper than what the real estate industry has to say on this, pardon me but they cannot be viewed as owning an objective POV.”
- The Drake

“I lease a 4000 sq ft commercial property in the city my property taxes are 24,000 a year (yes 24 thousand dollars a year.) These investors are buying to make money, treat them like the businesses that employ people in this city.” and “Last year my household income was 171000 I could afford a house but I’d be strapped for cash. If I moved to another city and earned the same I could buy a house and stIll enjoy my life. There is no reason Vancouver is as overpriced as it is except for speculation.”
- Paulys (13 Nov 2011 10:52pm)

“I was born and raised in Vancouver and I have never seen anything like what is going on now. I attended two first day sale events for a highrise tower in Burnaby and a low rise townhome, also in Burnaby. Both events were packed with Chinese/Korean purchasers snapping up everything in sight. The real estate agents on site didn’t even bother to give me the time of day although initially I was interested. I felt myself to be the victim of reverse racism due to my white skin and possible perceived lack of big money to spend. I employed numerous university students and witnessed time and again the purchase of large “family” homes, all the children going through university and attaining Canadian passports. The children have all gone back home, the properties have been sold and the children come back every 5 years to renew the passports. The parents aren’t interested in doing business here due to our red tape and tax issues but want a bolthole to escape from Asia.”
- anonymous (13 Nov 2011 10:55am)

“I would totally support restrictions on foreign buyers in GVRD. I was born and raised here, have multiple degrees and work my tail off (and save a tonne) but there’s no way I’ll ever be able to afford a million dollar home – and that doesn’t buy much. Its a darn shame that good people can’t afford housing. There won’t be much more complaining from me, but this will drive me to leave the GVRD.”
- anonymous (13 Nov 2011 11:55am)

“I realize this story is about foreigners purchasing Vancouver real estate to the detriment of your average born and raised here Canadian, but I’ve just got to mention how many young people I know here in Greater Victoria who plan on moving somewhere else due to the horrendous cost of living in the Capital region.”
- DC in BC

“My parents bought a house in west Richmond for just under half a million dollars. 50K in renovations and 6 years later, it was sold for just under a million dollars. I love them, and am happy for their success, but it’s stuff like that that’s ruining Vancouver. I’m 25, and I cannot come close to affording a house with my salary (I have a full time job). I’m looking to move out of the country. I’ve had it. If it’s not real estate agents pushing up prices, we have indifferent and out-of-touch politicians looking to raise taxes, and not offer anything worthy in return.”
- Allan Hall

“I just bought a house on an acre of land, in Hawaii, for the cost of a rock bottom condo here in Vancouver. Plus, the weather is better. :) Seeya!”
- anonymous (13 Nov 2011 11:43pm)

Tyee Bridge – “Two quick chippy points”

Tyee Bridge is the author of the recent much appreciated ‘Going Going Gone’ [Vancouver Magazine, 1 Nov 2011], an article dealing with the challenging effects of the Vancouver housing market, and our economy, on a generation of industrious young people. The article was much discussed here (12 Oct 2011), and was also followed by a CBC interview (19 Oct 2011). Tyee posted a comment containing discussion and a question in an older thread last evening, so we thought we’d headline it here, with our reply, for sake of ongoing discussion.

Tyee Bridge, at VREAA 21 Oct 2011 9:28pm-

“Hi, Tyee of the article here, with thanks to Jesse and VREAA for their input on the piece early on. If you’re interested, go to the link HERE [CBC, 19 Oct 2011] for a response to the CBC interview and my response in return (assuming the moderator lets it thru)– relates to the premise of the effect of Chinese capital.

Two quick chippy points:

1) I know this is not Jesse or VREEA’s position, but I often hear a sort of default assumption that media and journalists are unwitting (or witting) dupes for the real estate industry– cheerleading for the market to stay ludicrously inflated, or something, an uncritically regurgitating PR as part of the corporate media conspiracy. I’d suggest that this characterization is off the mark, certain Sun columnists excepted. I for one would selfishly love to see the market take a nosedive, if it didn’t kick the heck out of all those I know who do own homes. I do think it will correct, perhaps seriously, esp if something hammers the Chinese economy. But as mentioned, I don’t know that it matters, which brings me to the next pt.

2) I read somewhere on this blog– can’t find it at the moment– that I was wrong in my my assertion that a 40% market crash would not put median-income earners in reach of a 3-bdrm home in Vancouver. By my rather ham-handed calculations, a household income of $68K (the family median here) would get you a mortgage of about $300K. That means you would need to have 3-bdrm homes that go for $500K to make them affordable to median-income earners in a 40% crash. Am I wrong here? When I looked on MLS this week there were exactly 19 three-bdrm homes of any description (condo/townhome/detached) in all of Vancouver and North Vancouver going for less than $500K. Unless I’m missing something, that’s only 19 of 150,000 owner households, which seems negligible.”

—-
Tyee, thanks for your article; as you will have seen it was much appreciated here.
And thanks for the comment. Regarding the points you raise:

1) As you point out, most of us here know that Vancouver journalists aren’t all members of some kind of RE cabal or “corporate media conspiracy”. But you have to acknowledge that, as a group, they haven’t accounted well for themselves when reporting on RE in this town over the better part of the last decade. Sure, there may be a few journalists, like yourself, who do not have direct self-interest in ongoing supernatural Vancouver RE market strength, but they compose a very small minority, and that has been reflected in how the market has been covered. If you look back through the last 5-8 years of media coverage, it is very clear that the vast majority of all published and aired stories promoted and championed the market; only very recently have there been any significant numbers of articles questioning the sustainability of the boom, or critical of its effects.
There may also exist some local journalists who own property but have been able to overcome self-interest and see the mania for what it is. But they, again, are in a (even smaller) minority.
Here’s a mental-exercise ‘poll’ – Make a list of ALL the journalists/producers/newswriters/editors you know who have a voice in the local media. Ask yourself whether each of them owns real estate in the city. For each of them, what percentage of their net-worth is tied up in the RE market? For many (most, perhaps?) the answer will be over 100%. (We’d love to hear your ballpark estimate results.)
Apart from the fact that bubbles are hard to identify from the inside, those who have vested interests in them continuing are particularly bad at spotting them. This could be happening consciously or unconsciously, so this is not to say that all of the bubble-pumpers have necessarily been ‘bad’; many have simply been herd-followers, or vacuous cheer-leaders. Regardless of the exact motivations, the market has for years been covered in a very biased fashion.

2) Yes, at 40% off, this city will still be woefully overpriced.
You may have seen from our prior posts that we now fully expect a 50%-66% price drop (peak to eventual trough; real prices).
At that level fundamentals will kick in, certain properties will be persuasive to cash-flow seeking investors, that’ll put a floor under the drops (but, as with the implosion of most manias, we may well overshoot).
Like raises in interest rates, an economic implosion in China will speed a crash in Vancouver RE, but neither are necessary for this mania to end. All that needs to happen is for prices to stall and then fall, a process that may have already commenced. In the current economic environment, a small price drop could be the spark to the tinder.
You may also have seen our posts where we discuss the massive amount of ‘covert’ speculation in the market. We suspect that very few players can imagine the effects of that evaporating.
Simple price drops may bring some prices into an affordable range for some citizens, as you are calculating. The vanilla math still looks fairly bleak, as you point out, but a speculative mania aftermath has some weird consequences, and many of the variables won’t respond in a linear or predictable fashion.
If prices drop 30%, we’d imagine effects would include:
– complete absence of new speculative buying (= far fewer buyers)
– very few move-up buyers (almost all wannabe-move-uppers will be stuck with low or negative equity in condos and townhomes)
– tighter lending practices (= fewer buyers)
– attempt to lock-in-your-profit selling; perhaps even panic selling (from off-shore investors, local speculators, boomers in retirement, pure flippers; = more supply)
– slump in the economy; lower wages (= fewer buyers; = more sellers)
– disgust with RE (= markets correcting to even lower than the means and fundamentals would suggest; overshoot).
- rents may drop, with falling wages & lost jobs (= drop in income yields; fundamental ‘floor’ prices drop lower)
– other factors
* Overall, there are many factors that will feed off each other once price drops have clearly commenced. The ‘virtuous’ cycle of the boom will become the ‘vicious’ cycle of the bust. If you can imagine 30%-off, all the factors would be in play to take us to 55%-off.

So, that figure of ’19 out of 150,000′, for $500K, may change very substantially.
In the trough, there may well end up being something like one to two hundred 3BR homes selling for $200K-$250K at any one time. But there won’t be many buyers around to take advantage. And, ironically, at the precise point when true speculators should be stepping in, they’ll mostly be gun shy, because most are momentum and not value investors. And people who expect off-shore money to surge in and scoop up all sales at 10%-off or 20%-off will be surprised to find these guys sitting on their hands at 30%-off and 40%-off (because why buy something that’s losing value, right?). In fact, we wouldn’t be surprised if off-shore investors, rather than stepping in to buy, actually become sellers, dumping assets that are dropping in value. A falling loonie will at that point make the RE price fall look even worse from their perspective. Suddenly Vancouver, rather than appearing to be some kind of charmed safe-haven, will look exactly like hundreds of other cities around the world with falling RE prices.

There will be very substantial consequences of the crash, many are impossible to predict. When it has all shaken itself out, and everybody has dusted themselves off, only then will it make sense to discuss a sustainable housing strategy for the region. In current discussions, the biggest ‘player’ (by far) is being left completely out of the equation. Whether you’re talking about DTES subsidized accommodations, or young couples looking for affordable first time buys, or UBC staff/faculty housing plans, the whole terrain will look different at ‘half-off’. There will still be challenges, but they’ll be different, and, we suspect, more addressable.

We hope you, Tyee, stick around to see it all play out, and we hope that all goes well for you and your wife with future endeavours (real estate and otherwise). Please continue to share your thoughts.

- vreaa

“Our youth is getting screwed over at the expense of realtors, developers, and a government that’s all too eager to bend over backwards and let a rampant real estate market guide itself.”

“Our youth is getting screwed over at the expense of realtors, developers, and a government that’s all too eager to bend over backwards and let a rampant real estate market guide itself.”
- JCVdude, youtube, 24 Jan 2011 (quote at 3:15 on video)

Somehow we missed this video when it was posted earlier this year. It covers many of the commonly discussed issues relating to the speculative mania in Vancouver housing. Good production values for an informal video; nice general Vancouver footage; worth the watch/listen. We are impressed with JCVdude’s very reasonable and controlled expression of his frustration. – vreaa

“Just moved back to Vancouver, bought and sold some property in south-western Ontario over the last 15 months, sold my Vancouver real estate in 2009.”

“Just moved back to vancouver bought and sold some property in south-western ontario over the last 15 months,sold my vancouver real estate in 2009. I hate to tell everyone, vancouver is not a favoured destinations for many people. I didn’t meet one person who would move their family to vancouver and pay outrages prices to live here. Oh and there were asians and indians in ontario that are happy where they are living and would never pay vancouver prices. Most world investors have taken their money out of vancouver and are investing in places like west palm beach and miami beach. Not sure about most of you but 100 grand for a nice condo in miami beach with a great night life, culture and alot of sun is much mor appealing than the rain in no fun vancouver. Only here in vancouver for work and yes i am renting”
- sebastian at vancouvercondo.info 20 Sep 2011 9:04am

We disagree with the statement “Most world investors have taken their money out of vancouver and are investing in places like west palm beach and miami beach”; that hasn’t yet happened.
We suspect that the bulk of foreign investors in Vancouver RE have been very happy with price increases (compounded by loonie strength) thus far. They will liquidate when prices weaken.
That’s how momentum speculators behave in markets; buy strength, sell weakness.
-vreaa

“A Caucasian friend who owns a house told me that in 20 years time in Vancouver the only Caucasians left will be serving moneyed Asians. Does he intend to then sell for 10 million dollars and leave?”

“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.
- vreaa

Complex Pressures On ‘A Simple Man’ – “My rant about the Asian mentality toward housing. My getting married and having children is, to my parents, the sum total of my goal for existence. I can’t move out of Vancouver even if I want to.”

“I immigrated from Vietnam 14 years ago. We had about the same culture and mentality as Chinese people. My parents are both teachers, and teachers in Vietnam get paid peanuts. That is an issue that angers me, but I will not dwell on that. I just want to tell my perspective as well.

We came to Canada with practically no savings. My mother forbid me to sell the house in Vietnam to get some seed money. She would have a relative of ours stay there instead, because in her mentality, once a family (and by this I mean an extended bloodline of 20-30 people) acquires one or more houses, relinquishing it is unthinkable.

My parents have been working a full time job and a part time job for most of their time here, clocking in 60-70 hours a week average. Meanwhile I have been going through university, maintaining A to A+ grades and getting scholarships, while working 25 hours a week part time. I also work full time + part time (60-70 hours week) whenever not in school. I am not saying this out of arrogance. I burn away my health and lifespan to maintain this sort of productivity, and trust me, I am not happy living like this. And we also skimp our spending and lifestyle to completely unimaginable levels. I will spare you the details. But the alienation from my parents, family, and community in general is a worse alternative.

Our family did this so that we could buy a house in Vancouver as soon as we could so that I can get married. It sounds absurd to you but my getting married and having children is, to my parents, the sum total of my goal for existence. To understand how much weigh my parents place on marriage, children, and house, I will tell you the anecdote that I once sat through a 6-hour long lecture about the need for me to buy a house and court more girls the night before the final round interview for a 6-figure job (needless to say I did not get the job). [My friend] Julian [Lee] is quite civil in his post about this [VREAA, 7 Sept 2011], but his parents are also significantly more easy-going than mine, and so he had not felt the pressure to buy a house as keenly as I do. And yet, my parents are still a long way from the true “Asian fanatical parents” out there.

Neither Julian nor myself belong to the “rich and probably questionable Asian” group, by the way. Both of our families are honest, upper-middle class at best, and just very hard working.

I managed to buy a house in the end of 2005 and rent out half of the house. I have been comfortably paying down the mortgage for the last few years, but the story didn’t end here…

Recently, I told my parents that if I sell this place and buy in Surrey or Port Coquitlam, I would be able to get a much better house and yet pay off all the debts, and actually still have a bit of money to spare. I got a week-long lecture about how the location is far from the city center, dangerous (because it is far from the city center), etc. etc. I will spare you the details because it all doesn’t make much sense to me either. I know that my parents were just frightened with the prospect of giving up a house because it is, in the community and to my aunt’s family who also live in Vancouver, a lost of status.

I also told my parents that I would like to get a job in the US and live there. My parents then gave me another earful on how I am irresponsible and leave my old parents alone to deal with the renters in half of my house.

There you go, my rant about the Asian mentality toward housing. Perhaps a generation later, this mentality may fade. But right now, I can’t move out of Vancouver even if I want to. Julian and I had talked for a long time about the subject of Vancouver RE, and I suspect that he is as stuck in Vancouver as I am.”

(Afterthought: My parents bought their first house in Vietnam the same way, through ridiculous amount of hard work and sacrifice of lifestyle. They did this because, tada, my dad needed to prove to his own family that he could buy a house before marrying my mom.
To me, that attitude is nihilistic and, eh (let’s not insult my parents here) wisdom-challenged, but it is the attitude of a people, a society, immovable regardless of my wish.)

- ‘a simple man’, at VREAA, 9 Sep 2011, 1:18pm

Your’re obviously not that ‘simple’ a man. Many thanks for a story well told.
We trust that your satisfaction with life will increase, and that you’ll be able to eventually enjoy the results of your labours.
We suspect many readers have had experiences with parental ethics that allow us to empathize with you.
We hope that the extreme infatuation with home ownership that you describe in some individuals cools and moderates in the years to come. We’d venture that it is not good for a society to have such beliefs driving housing ownership costs to irrational levels. (Yes, we’re aware that this is a judgment call.)
We suspect these apparently firmly held beliefs will be significantly challenged when prices drop. Nobody, regardless of cultural background, likes assets that lose value. So, just how ‘immovable’ are those beliefs?
What has happened elsewhere in the world to individuals with this housing ethos, when markets have gone through crashes?
Any Vietnamese Dubliners or Chinese Las Vegans out there to share their experiences?
- vreaa

“I am a first generation immigrant here to Vancouver. I bought my place last year. I expect a correction of 10% over 3 years. People always ask me: why do the immigrants come here?”

Julian Lee at VREAA 29 Aug 2011 1:56am & 7 Sep 2011 12:08am -
“I am a first generation immigrant here to Vancouver. I came about 20 years ago with my parents from Asia. This is a beautiful city and I am proud to say that I am now a Canadian and have completely integrated into the culture. I have a particular perspective on the Vancouver real estate bubble as I am very familiar with both cultures. Here are my 2 cents:

1. Are there rich asians who are buying houses? Yes, there are a lot of it. But they are not the majority of real estate purchasers. They make up purchases in some of the most expensive areas. But it doesn’t justify that all areas should go up by the same percentage. For example, if you go to an open house on some of the Westside neighbourhoods, you’ll be amazed by their purchasing power. It’s incredible, beyond anything that we have seen here, completely consistent with other stories. The street is loitered with expensive cars. You can also take a look at the parking lot of some west side schools, their kids roll in far fancier cars than their teachers. But, if you are to go to an open house say in the commercial area, these guys are nowhere to be found. So it’s not true that they are the single most important factor in driving up house prices in every area, but they do certainly make a difference in some areas. I think across the entire lower mainland they don’t make up the majority as they almost never touch anything in Surrey (except South Surrey White Rock) or Langley. For now they mostly operate in Vancouver, Burnaby, Richmond (until the Tsunami, notice how Richmond’s price stopped flat at the same time as the earthquake), and West Van. As for the 5% foreign buyer stat that have been bandied about here, I would be very curious to ask who is classified as a foreign buyer? Is an immigrant a foreign buyer? Is it simply a non-canadian citizen or a non-canadian resident? That does make a difference because a lot of these rich asians park their wife and kids here. So their family is technically canadian residents, are they still considered a foreign buyer at that point? The final thing is, almost all of them will buy. They will not rent, every investor immigrant that lands here from Asia will buy a property of some sorts. They really don’t care about how high the price is, we have not reached a level that would make them feel that we are expensive compared to a place like Beijing.

2. About this bubble. Is there a bubble? I would say there probably is. But it is not as big as one may imagine. Here is why. All the statistics that have been gathered have been compared to western stats. Meaning that all rent to own ratios, average cost to income ratios, etc, are all using historical statistics in the Vancouver / Canadian markets. But that’s not necessarily correct. Because the demographics of Vancouver is shifting. When you look at any given city’s ratios, you need to take a look at their demographics. So for example, if your city is 20% chinese, I would use Beijing’s ratios multiplied by 0.2. If the city is 10% Indian, then use Mumbai’s ratios multiplied by 0.1, etc. Basically, I would take into account the cultural differences of these ratios. Taipei’s rent to own ratio is a lot worse than Vancouver’s, to the tune of double or triple as bad. This is just an example, do I expect that Taipei or Beijing will ever correct to Western levels? Not a chance. It’s just the way that different cultures value real estate. I would be curious what that ratio would look like once the cultural differences have been considered. I would imagine that we would still be higher than the number, but it wouldn’t be as astoundingly high as it currently is. So while I feel a correction is in order, I would be shocked if Vancouver housing crashed.

3. People always ask me this, why do the immigrants come here? I am a Canadian Citizen who immigrated from Asia when I was young. I have to say, it’s the best thing that has ever happened to me. To understand the core immigration issue, one must examine what is important to rich asian people. Believe it or not this all starts with the one child policy in China. As a result of this policy, Asian families, who normally are very children focused, have become even more so. For anyone who has ever received an education in China, he/she would know that it is worse than hell to go through the highschool final examination (the so called gao kao). Basically, you prepare night and day since the age of 15 till you graduate when you will take a national university entrance exam which will determine your fate for the rest of your life. Like it or not, whether you are rich or poor it does not matter. Everyone needs to go through this. No matter how rich you are, places in the best Universities in China cannot be bought with money, no matter how much. Anyways, no parent wants their kids to go through this. So they must find a way to get them abroad.

Now you ask, there are a ton of places with good education systems, why here? Well, when you only have one child, you really don’t want anything to go wrong with this kid. The only other person that you trust with this child is your wife. So the wife must also immigrate with the child. However, unlike the child who can probably integrate into any community easily, the wife can’t. I am not even 30 and I have to say it is hard for me to drop into somewhere say Germany and integrate easily into the community. Try learning another language when you are 40 and you’ll find out in a hurry that it is not that easy. So you need a huge chinese community where the wife can pretty much not learn english, or know very little of it, to get around. Sound familiar now?

Now, it may sound absolutely absurd to us, but everytime I travel to the states for business or pleasure my relatives get worried. Why? Because there is this nice misconception that the US is dangerous amongst chinese circles. Why? Cause they have guns. Now, remember, the kid is the most important part of the family, do you really want to send him to somewhere where anyone can carry a gun? Not likely.

This really narrows the places down to a few in the world. You are looking at Vancouver, Toronto, Melbourne, Sydney, Singapore. At this point, you have to look at yourself, now imagine that most of your time is spent in the bustling chinese cities where air pollution is a huge problem, where the only thing green you see if likely the little patch of grass the government decided to put there to show the foreigners, where all you see is skyscrapers, etc. You only have about 3 weeks vacation each year, do you really want to go to Toronto? I have not heard one investor immigrant who have ever said they prefer toronto to vancouver. Vancouver is as beautiful as any city in Asia. And here is the kicker, we are a relatively new city, we bring an air of invigoration to some of these people who simply see a better lifestyle here.

Now, you are down to Vancouver and the two Australian cities. Well, unfortunately for us, the Aussies seems to be perceived as more racist than us nice Canadians. At least in some chinese circles. And, asian people aren’t adventurous like their Western counterparts, they tend to want to stick to a tried and true formula. So, as the first wave of rich asians have landed here and shown that their families will settle nicely in this City without much issues. More will follow. They do NOT take the path less traveled, they like the one that has been stepped on by thousands of people.

Finally, one last thing to consider. It is very difficult to get money out of china. If you are very rich, you need to have an excuse to get your money out. Well, guess what, thanks to our abundance of resources, these guys have a nice excuse to get their money out. They can say that they are coming here to buy resources. Much easier sell to the government.

So there you have it, if you look at all these factors, you quickly realize why it is that they don’t go to Miami, or Phoenix, or Portland, hell, or even Seattle, but they come here.

That said, to cool off the bullish camp. A few thousand immigrants does not make up the whole market, so you will still get the swings, but they will come and snap up anything they can get their hands on if we do go down significantly. Because they know that in this is perhaps one of the rarest places on Earth that fits everything they and their peers are looking for. The ones who are here are buying because they know more are coming. There is a three year waiting queue in Beijing for applications. The scariest part is there have not been any significant efforts to market Vancouver abroad. This is all done by word of mouth.

So there are my 2 cents, I wish everyone good luck in this market. I am not convinced that the market will go up forever as I am intelligent enough to know that no market acts that way. I expect a correction of about 10% over the period of say 3 years. Then it might still go up a bit after that. But I think it’s unrealistic to expect ridiculous returns that we have seen. I bought my place last year, but I had to search very very hard to find the best possible deal in the market in order to hedge myself against a correction. I am actually really glad that there is this forum as it is good to hear a contrarian view over the normal “yeah it only goes up comments”.”


Thanks for sharing your story and your thoughts, Julian.
Your argument that Vancouver is an attractive city for Asian families is persuasive in a broad fashion, but hard to actually quantify. It is a form of the ‘Limitless Demand Argument For Ongoing Market Strength’. It amounts to ‘Vancouver is attractive to Asians’ + ‘There are lots of rich Asians’ = ‘Ongoing price strength in Vancouver ad infinitum’. We have always had the position that there is a chance of this playing out, but that that chance is low (less than 5%).
Many aspects of human behaviour are similar across different cultures, and if you’re a regular reader here you’ll know we expect all market participants to respond in a similar fashion to a pullback in what is an overextended speculative market driven largely by very cheap financing. Markets behave under the same principles in Beijing, Mumbai, Taipei, Europe, and North America; we expect human responses to a failing Vancouver RE market to be similar across cultures. Namely, many buyers will sit on their hands, some sellers will come to market as prospects of ongoing steady gains fade. People almost everywhere have recently learnt that when assets start falling, they can fall a lot. We think they’ll realize that about Vancouver RE in good time.
Asian buyers may well have been attracted to Vancouver, and see it as a safe-haven, for the very reason that prices seem bullet-proof. We expect Vancouver RE to be a lot less attractive to ALL players on the way down.
In the relatively brief 2008-2009 dip, all Vancouver buyers, of all nationalities, disappeared, and only came back when money was handed out for free. There will be no such springboard under the market when it next weakens.
If your way of thinking is true, then we would expect to see an increase in Asian buying in the event of any future price drops. Personally, we don’t see that happening, and expect the opposite.

We’d classify your prediction of no more than a 10% pullback over 3 years as a prediction of ongoing price strength; after a run-up of hundreds of percent, such a ‘correction’ would be nothing more than ‘noise’.
We’ll see how our various predictions play out in the coming years. It probably won’t be long before we get a chance to see how market participants respond to an initial price pullback.
Thanks again for your posts, please continue to contribute here, and all the best with your endeavours.
- vreaa

“He says he made more on the sale of that house than he made in his entire career as a dentist.”

“My neighbor is a dentist, probably in his 70s. He owned a house in Shaughnessy, custom built decades ago, which he recently sold. The buyers, from Beijing, viewed the house for 20 minutes, then wrote a cheque for the entire asking price. He says he made more on the sale of that house than he made in his entire career as a dentist. I asked him why he doesn’t sell his current house too. He says that, because he can defer the property taxes, he can live in it essentially for free, and the property tax bill that his heirs will be faced with in 20 years pales in comparison to the capital appreciation that the house will experience by then.”
- from Jeff Murdock, via e-mail to VREAA, 21 Aug 2011

Thanks, Jeff. A remarkable story.
The appreciation in the price of a house overshadows monetary gains from an entire professional career of honest labour. Breathtaking, actually.
What are the consequences for the society?
- vreaa

“Both my grandfathers came to this city in the dirty 30s with NOTHING and worked hard to raise families, fight World Wars and make B.C. the AMAZING province that it WAS years ago.”

“It’s funny that since we left and two other couples that we were really good friends with in Vancouver have also left around the same time. We all tried so hard to make things work, two incomes, NO kids and still No home ownership. Now, what ticks me off the most is that both my grandfathers came to this city in the dirty 30s from NOTHING and worked hard to raise families, fight World Wars and make B.C. the AMAZING province that it WAS years ago. Suddenly all the foreigners walk into the front doors with LOTS of money from Asia. Who knows if it is clean or dirty money, I don’t know. They start buying up and taking over everything. I don’t understand why the Asian culture was just ALLOWED to walk through the front doors and start taking over Vancouver neighbourhoods that were originally built by European settlers and knocked down to build these MASSIVE homes that don’t even fit properly onto the properties that were meant for, much smaller homes. Now for many European Canadians the opportunity to ever own your own home and property is now gone FOREVER due to the OUTRAGEOUS real estate prices. The only chance that my husband and I would have had in ever owning a home in this city would have been to do Ilegal drug activity and I’m PROUD to say, NO WAY. I’m true to my ancestors that if I cannot earn my way in life the OLD fashioned way by hard work and paying my DUES then I DON’T want it.”
- Carol at VREAA 12 Aug 2011 12:44pm

Note: Archived here for the record. Headlining a story does not mean we endorse its content. -ed.

Vancouver Westside – ‘The Greek Church House’ – “The figures, while crazy, don’t tell the whole story of the madness that has gripped the market. “

“The figures, while crazy, don’t tell the whole story of the madness that has gripped the market. The real estate board doesn’t keep figures for specific neighbourhoods, but that doesn’t mean there aren’t benchmarks from which to gather intelligence. There are the stories, passed on through friends, retold at Caffè Artigianos. A realtor friend told me about one particular house in Quilchena, and within two weeks I must have heard the same story a half-dozen times. 
 ‘The Greek Church House’, as it came to be known, sits on a moderately quiet street, Maple, behind Saint George’s Greek Orthodox Cathedral. After hearing the tale, I decided to drive by and check it out. It was a nice enough house: a one-level rancher, the type of place you’d be proud to show your parents if you didn’t have to tell them how much you’d paid for it. It had last changed hands in 2006 for $1.5 million; in 2010 it had been assessed at $2.3 million; and then, amid a flurry of missives on the late-March [2011] “offer day,” it was sold to an overseas buyer for $4.3 million. Its listing sheet cooed about its Sub-Zero appliances and walk-in closets, but its 12,482-foot lot was the real kicker: it meant that the next house to be built there could conceivably be almost 8,000 square feet.
” [4491 Maple Str, Vancouver Westside; 4,600sqft SFH; 12,482sqft lot]
- from Frank O’Hara’s ‘China’s Real Estate Spree in Vancouver’ [1 Jul 2011 edition of BC Business]. Frank’s own personal anecdote from that article was archived here 18 Jul 2011.

“I was at a birthday party on the weekend and had the bad luck of getting stuck sitting next to a realtor for most of the evening.”

‘YLTN @ Work’ at vancouvercondo.info 18 July 2011 12:37pm -
“I was at a birthday party on the weekend and had the bad luck of getting stuck sitting next to a realtor for most of the evening. This one has been in the biz for 3 years after leaving a career in the film industry and actually agreed with me that she thinks it is time to sell and rent and is actively trying to sell her burnaby condo. What really shocked me though was her description of some of the West side homes she has been to and what she has seen:
The first one was a 3.8M place for sale and when she went to look at it, the guy that came to the door barely spoke a word of english, had food stains on his clothes, slippers and pajamas (in the middle of the day). She said the guy looked like a backwoods asian peasant and was living in the place with almost no furnishings. She went on to say that she has been to a number of places where they have furnished the multi-million dollar places with a few scant pieces of garden furniture.
Her belief is that the owners are offshore and have hired poor peasants to essentially squat in the place to make sure it is lived in to prevent burglaries and to forward mail that comes there to claim it as a primary residence. They have given the “squatter” a minimal amount of cash to buy furniture which is why garden furniture is the usual choice – cheap and easy to carry with no car! Any one else heard of this?”

No, we hadn’t quite heard of this exactly, although we know of new build westside homes which sell and then essentially sit empty (or with what appears to be a single person living in one room). We wouldn’t quite describe the occupants as ‘squatters’ or ‘backwoods peasants’, but the main idea may be essentially the same. – vreaa

“It seems to me that people in Van don’t have a strong appreciation for the amount of wealth that is actually coming across the ocean. I could only dream of the wealth that I have seen and it honestly churns my stomach.”

people observer at vancouvercondo.info 19 Jul 2011 8:34pm -
“It seems to me that people in Van don’t have a strong appreciation for the amount of wealth that is actually coming across the ocean currently and in past years. We can really only look at anecdotes here since it is not observed through income.
I am heavily exposed to the current wave of asian immigrants – i could only dream of the wealth that I have seen and it honestly churns my stomach. Simple examples of new immigrants whom, on first glance I would never have known had that kind of wealth. The current wealth is much greater, and deeper than that from Hong Kong and Taiwan.
1. family of three, wealth generated offshore (which is why there are semi-annual trips and wire transfers): two condos paid cash, looking for another house now –
2. renter family I knew (new immigrants), thought they were lower – mid income, purchased house, cash for $900K, father is a a helicopter parent. family background in Asia – super rich. Wife has clearly said, she dresses down in Canada to not be noticed, in Asia everything is top tier Chanel, Gucci, etc. family drives a typical car here.
3. Couple in building, seemed like a blue collar worker. Turns out they were recent immigrants from China that go back for business reasons a couple times a year. Turns out they bought 3 units in the building for cash, renting out two living in one.
4. Girl I went to school with- realized she was wealthy, didn’t know how much – just bought a maserati (daddy’s money) – still owns a place in Van but generally travels the world
This just scratches the surface. It makes me sick, but this is real wealth and it is here. Some try to hide it, others do not. when you look out on the street, and you see the Pradas, LVs, Chanels etc on girls in their mid teens and 20s, the maseratis, ferraris, mercedes slks driven by kids – remember that is real money, and those are purchased – not leased. It is play money for a lot of them, and it makes me sick and tired, but it is real.”

Following on this and another recent anecdote: Envy is not a sin, folks, it’s a normal human emotion; one of the emotions that makes the world go ’round. If your dog dies, you experience loss and grief; if your friend sells his inherited house for a $1.8M tax-free profit, you experience envy. Don’t be ashamed about this, it just happens. If you then calculate that, given your income, and your disposable income, and your savings, and current interest rates, it would take you ‘x’ years to accumulate $1.8M after tax, where ‘x’ years is greater your working lifetime,… well, then, who wouldn’t experience envy?
This will all go on until the bubbles implode. Then a whole different mix of equally powerful emotions will be at play. – vreaa

Spot The Speculators #47 – $1.6M Tax-Free Profit In 36 Months – “The mere act of overpaying for a house three years ago might have been the smartest financial decision we had ever made.”

Frank O’Hara’s ‘China’s Real Estate Spree in Vancouver’ [1 Jul 2011 edition of BC Business] is a ‘must-read’. This personal anecdote excerpted -

“The note, one of those yellow stickies from 3M, was stuck on the door of our west side Vancouver home late one Tuesday night in March. My wife, Cynthia, found it early Wednesday morning while letting our dog out and called to me upstairs: “Baby, you’ve got to come down here.”
In clear, studied script it read, “I would like to buy your house. I am not a realtor. Please call me.” It listed a local phone number and was signed “David” in block lettering. We looked at each other, both resisting the urge to cackle with glee and dance around the room with our winning lottery ticket. Barely resisting.
Like just about every other homeowner, non-homeowner or potential homeowner in the Lower Mainland, I was aware that property values had soared in recent years. I also knew that this was largely due to overseas buyers – and that “overseas buyers” was a euphemism for several strata of mainland Chinese buyers, some of whom are visiting the region on property-buying trips, some of whom live here already (or have family who do) and some who, so sure are they of the wisdom of investing in Vancouver, buy sight unseen from China. …

Until David’s Post-it note showed up, the figures and stories were just … cocktail-party fare that seemed largely divorced from our day-to-day lives. In theory, people who had purchased their homes long ago were now presented with the opportunity to make exponential gains over their initial purchase price. We were in a less rarefied group since we had bought our house only three years ago: a large lot in what we euphemistically called South Kerrisdale, an area realtors call South West Marine that’s frequently called Marpole by our friends. We had paid what had seemed an ungodly sum: $1,875,000, which was, everybody told us, “definitely” the peak of the market. But now, three years later, the stories circulating around town telling of impossible windfalls made our “peak of the market” purchase look as if we’d merely hit the base camp of Mount Everest. And the sudden presence of a suitor opened our eyes to the reality that the mere act of overpaying for a house three years ago might have been the smartest financial decision we had ever made.
 …

It took almost a day for Cynthia to call David back, a period in which we simultaneously imagined spending our impossible gains and then chastised ourselves for such greedy thoughts. One terrible idea then came into our minds: “David doesn’t actually sound like a Chinese name,” Cynthia mused. The implications of such a thought were dire, especially given that, due to his neat handwriting, he clearly wasn’t a doctor either. Even the most reckless North American buyer would be loath to pony up the sort of money we were angling for. We needed someone with a briefcase full of cash if we were to become the next Greek Church House.
But as soon as David picked up the phone, such concerns were assuaged. He spoke in competent but halting English and explained that he was looking for a house for his parents. While driving around town, he discovered our block and thought he’d skip the realtor fees by coming to us directly. He asked if he could return sometime over the next week to see the house, with parents in tow. We cleared our calendar. …

Cynthia mentioned our idea of selling to Mabel, our tough-as-nails next-door neighbour, who was part of the mid-’90s Hong Kong exodus (she has the peach-coloured box to prove it). Mabel often brings potato salad to our house as a gift and once a year at Christmas takes my wife and daughters out for an extravagant Chinese lunch and tells us the state of things, such as, “The former owner of your house was stupid to plant bamboo in your backyard. I told him so. If it disrupts my pipes, I’ll have to sue you.”
Mabel’s response to our thought of selling was equally measured: “You’re crazy.” In 15 years she had yet to develop a touch for the Canadian art of diplomacy. “The Chinese who are coming now are paying with cash – no mortgages. There will never be a downturn because they will never sell at a loss because they don’t have to. They’d rather just give their house to their kids than sell for a loss.” Her message was clear: anyone expecting a major market correction didn’t understand the psychology of the average Chinese purchaser, for whom concepts such as a change in interest rates were of no concern.
Mabel had us second-guessing ourselves. Were we like a mid-’80s Seattle couple selling our Microsoft shares because they had made such nice gains already? …

David and his parents arrived separately, a week after the note had appeared, to tour the house. His parents showed up first in a black Mercedes S600, a $190,000 bank vault on wheels that throughout the world announces, “I’m rich and powerful, and now that that’s out of the way, let’s get down to business.” The father had dark glasses and a stripe of distinguished grey at the temples, and didn’t give his name upon shaking hands; the mother, Maggie, was more gregarious and, as she was taking English lessons, anxious to practice speaking like a local. David, who turned out to be all of 18, arrived a few minutes later in an electric orange $355,000 Lamborghini Murcielago.
The cars alone were a good sign. They marked David and his parents as belonging to the truly wealthy class of Chinese buyers. …

Cynthia led David and his family on the tour as I tagged along. The parents spoke little or no English, so David helped translate such phrases as “steam room with rain-shower fixture” and “programmable Nuheat floor.” (We decided we didn’t want to tax him too much, so we avoided making him translate knob-and-tube wiring.) The parents politely nodded at Cynthia’s detailed chronicling of every upgrade, no matter how small. Halfway through the tour of our cavernous basement, the father muttered something. “My father is very afraid of this space,” deadpanned David. “He would very much like to return upstairs.” In truth, I think we knew that the house tour was a flight of fancy. All the things we had spent $1.85 million on would soon be rubble, replaced most likely by a nondescript house of no discernible era or architectural style.
We moved upstairs to our living room to discuss business. Contrary to the stereotype of tough, straightforward Chinese negotiators, we actually ambled around the question of the house and a selling price for a good half-hour, a long time with most strangers and an eternity when major language barriers exist. Even a month later, I’m at a loss to recall what we talked about. I do recall the line that broke the ice: “The house down the street sells for $1.8 million,” the father instructed David to tell us. It had been an opening salvo but one I was unprepared for.
He was presumably referring to a house a few blocks away in deplorable condition on a small lot. Worse, that price was not only less than we paid but $750,000 below our woefully out-of-date assessed value from the city. The discrepancies were so great that had I been sitting with anyone else my stock response would have been, “What does that have to do with the price of tea in China?” It quickly became apparent we were at cross purposes, but I couldn’t muster any animus. We were the ones who had equated Chinese with irrational spending. They continued to express serious interest in the property, but although we continued to chat for a few minutes I knew our untethered dreams would not be granted by these particular visitors.
 …

Ideally, this would have been a self-contained parable, a caution to greed, prejudgment and a score of other vices. A three-by-three-inch sticky note had turned us into speculators – and now a four-by-four-foot sign rises out of our newly reseeded lawn. The asking price? $3.5 million – twice what we paid just 36 months prior.
The open house is next Saturday.”

Very smart to be selling.
We’d ourselves, however, attribute the resultant $1.6M windfall to exceptional good fortune rather than ‘the smartest financial decision (they) ever made’.
Frank and Cynthia bought in 2008, after the speculative mania was very clearly established (they admit they ‘overpaid’), and they could very well have lost much or all of their RE equity at any point during the 36 month holding period.
If somebody goes to Vegas, puts $1.6M on Black, gets lucky and doubles their money, is it correct to say that the action was “the smartest financial decision they ever made”? – vreaa

“We had a computer fire in our Arbutus basement a while back and, even though there were six emergency vehicles out front, not one of the other residents on the block came over to see if we were okay.”

rmac at VREAA 1 July 2011 8:23am -
“I grew up in Kitsilano (when it was pretty well all immigrants and working class) and moved into the Arbutus neighbourhood in the 80′s. Every house has at least one suite, many have three and a couple of the big $3M Chinese style mansions on my block are operated as B & Bs for mainland Chinese tourists. We had a computer fire in our basement a while back and, even though there were six emergency vehicles out front, not one of the other residents on the block came over to see if we were okay. The locals don’t even talk or appear to acknowledge each other – it is a very odd feeling to think that one is isolated in ones own neighbourhood. I don’t feel that the new immigrants are here to stay – they appear to be riding the wave of home flipping and moving on. The houses are poorly maintained and hardly furnished – just walking around the neighbourhood it’s apparent that lawns are only being mowed occasionally and basic home repairs are not done (yes, even on the new houses). It gives the area a weird feeling of impermanence and I really can’t predict how it will all play out.”

Opinion And Anecdote – “We have a disenfranchised class in Vancouver from a real estate perspective. My children had to move away to own their own homes.”

Excerpted from a letter by ‘ Trevor Gibbs, Vancouver‘ published in the National Post, 21 Jul 2011 -
“My children had to move away from Vancouver to own their own homes. Meanwhile, financial institutions push mortgages like crazy. At the same time, planeloads of investors from Mainland China are buying downtown Vancouver properties that regular Canadians can’t afford. So we have a disenfranchised class in Vancouver from a real estate perspective.
Children of immigrant families are doing better in school than their peers, and as a result they are first in line for university professional degree classes. So we also may have a disenfranchised education class who may never get to university.
This could be the reason why many of the people watching the hockey game felt little hope for the future. As long as the Canucks were winning, they could still feel good about themselves. When their team lost, their one emotional crutch collapsed, and they vented their frustration, urged on by a core group of criminals in their midst.
That basic disenfranchisement is still there, and will come out again. Someone should study the effect of foreign investment in residential real estate, and how it is a threat to a cohesive and equitable society. Last week’s riot may be a clue that something more is at work behind the scenes than just hockey frustration.”

‘Facts’ On Foreign Investors? – “Out of the 55,512 sales in 2010 only 195 were to people outside of Canada. Foreign investors only own 0.5% of the total housing stock of 774,600 residential properties in the Lower Mainland.”

From Garry Marr, Financial Post, 23 Jun 2011 -
“Local firm Landcor Data Corp. says it has been tracking property tax assessment bills to pinpoint the percentage of transactions driven by foreign investors in Vancouver’s suburbs — a trend the real estate industry says has been driving up average prices in the country’s priciest city.
Richmond and the west side of Vancouver, favourites of Chinese investors, were the focus of a first-quarter report form Landcor’s which looked at the profile of buyers from 2008 to 2010. It found buyers from the “Middle Kingdom,” as the company put it, dominated purchases.
In 2008, there were 69 sales of homes priced at $3-million or more, the most expensive $10.5-million, and 46% were purchased by Chinese buyers. By 2010, there were 164 sales in the same category, the highest-priced being $17.5-million, and 74% went to Chinese buyers.”

“Andrew Ramlo, executive director of The Urban Futures Institute, a Vancouver research firm that worked with Ledcor, says the data proves that influence of foreign investment is not a major factor in most of the Lower Mainland.
His group points out of the 55,512 sales in 2010 only 195 were to people outside of Canada — 0.4% of all sales for the year. Furthermore, he says, foreign investors only own 0.5% of the total housing stock of 774,600 residential properties in the Lower Mainland.
“These data contradict what seems to be largely anecdotal evidence indicating foreign investment is a significant driver to residential price increases in the Lower Mainland,” he said in a report.”

China – Print, Lend, Steal, Spend

“When the global financial crisis impacted China’s exports in 2008, Beijing ordered its banks to support a massive credit expansion to create jobs and stimulate growth. The banks eagerly went into action and in 2009 and 2010 made new loans amounting to a total of 20 trillion yuan ($3.1 trillion). Of these a significant amount went to local government borrowers.” – from ‘China’s Bank Reckoning Approaches’, Wall Street Journal, 19 Jun 2011

“Thousands of corrupt Chinese government officials have stolen more than US$120bn and fled overseas, mainly to the US, according to a report released by China’s central bank. Between 16,000 and 18,000 officials and employees of state-owned companies left China with the funds from the mid-1990s up until 2008.
The officials used offshore bank accounts to smuggle the funds, according to the study posted on the People’s Bank of China website this week but which has since been removed. It said the officials smuggled about 800 billion yuan into the US, Australia, Canada and Holland through offshore bank accounts or investments, like property or collectables.”
– from ‘Chinese officials stole $120 billion, fled mainly to US’, BBC, 17 Jun 2011

Perhaps Vancouver RE has ‘benefited’ from some of these funds.
Is this an effect that we can expect to continue? – vreaa

House Prices Up 25% YOY (But Skewed By 3 Areas); Buying From China By “Remote Control” Via Internet


From Global TV 17 Jun 2011  [ care of video archivist Greenhorn] -

Excerpt:

Announcer: “In Richmond, West Vancouver and on Vancouver’s Westside, 25% of the sales come with bidding wars.”

Mahmood Ladhani, BMO Area Manager: “There are some bidding wars happening within our markets, where people are getting passionate about buying a home.”
Announcer: “Some of the off-shore buyers aren’t even coming to view the homes, they’re doing it by remote control.. viewing the images on the internet and making bids.”

Ladhani: “In certain parts of Vancouver you start to see helicopters flying around and … you know people are taking pictures, and.. you start to see people just buying stuff through the internet.. realtors are very active with the overseas market.. it’s driving up prices because people aren’t taking a look at the properties, they’re actually just making bids on it.”


Thoughts:
1. More info regarding market losing breadth towards top.
2. ‘Passionate’ about buying houses? ‘Panicked’ and ‘Desperate’ also apply. All signs of a mania. Remember, locals are doing more than 80% of this buying. They are all buying expecting future price gains.
3. Sky-Cams and “Remote” buying by internet? We particularly like the sinister shot of the surveillance device under the chopper. A higher order of hyper-efficient buyer has taken over!.. We’re becoming game-pieces in some kind of intercontinental computer game!.. (are the implications). All smack of top o’ the bubble stuff but, as we’ve said before, we’ve made so many prior incorrect calls on the matter we’re not making them any more. We’re just patiently waiting for the inevitable to play itself out.
- vreaa

“…or (B) The locals are trying to keep up with the Chinese version of the Joneses and heavily indebting themselves in the process.”

A must read commentary by Ben Rabidoux (at The Economic Analyst 14 June 2011) on a must read report, ‘Have Canadian Consumers Reached
Their Limits?’, Certified General Accountant Association of Canada
. Excerpts-

“If we are to preserve our orthodox economic system, it is time to empower Canadians to engineer an economy which relies less on immediate consumption, excessive leveraging, and hardship – one that commands a cultural shift more befitting of our resources and our experiences.” – CGAAC

“I also find it amusing that in BC, the land where wealthy immigrants are purchasing homes with suitcases full of cash….or so the story goes….the debt service ratio and total indebtedness is by far the worst of all provinces. How do we reconcile this data except to say that: A) The buyers overwhelmingly appear foreign, but are still taking on mortgages to buy….or B) The locals are trying to keep up with the Chinese version of the Joneses and heavily indebting themselves in the process. Neither of these are good. Clearly it is debt that is driving the BC market, just as in every other market in Canada, though the Hot Asian Money story is quite likely what is causing the locals to line up in droves for a lifetime of debt servitude.” – from Ben’s commentary
[Frequent readers here know that this has been our thesis for some time; the debt numbers back that up. - vreaa]

One chart of oblique interest (answers that question “Is that Beemer purchased or loaned?”):

“I thought if I sold my house in London, UK, I could buy a much bigger place in Vancouver. I had no idea Vancouver was so expensive.”

This exchange at city-data.com/forum/vancouver  1 Jun 2011, on a thread regarding Vancouver RE prices  [hat-tip Polly] -

LondonUSA: “Is it really that expensive in Vancouver? Is it talking about in the city or suburbs? Where I live [is] still technically in London but in the suburbs my house (4 bedrooms, 3 bathrooms) would easily go for £450,000 if not more. If this was sold I could buy a much bigger place in Vancouver, I thought, exchange rate taken into account.”

rockerode: “yep. i just did a search for 4 bedroom 3 bathroom houses in vancouver, and the cheapest is £420,000 house in one of the less desirable locations in vancouver. you need at least £600,000+ for decent housing, otherwise you gotta rent.”

LondonUSA: “£450,000 is $720,000. I could buy but would not be able to sustain a reasonable living standard. I had no idea Vancouver was so expensive. Are theses places in the city or suburbs?”

Cam Good Offers Locals Little Sympathy – “If you don’t want to live in a city that beautiful, with that much demand, then maybe you should live somewhere else. Either you want to live there or you don’t.”

From ‘Asian Real Estate Influx’, Global TV News, 7 Jun 2011 -

Announcer: “Demand from Asia is one of the reasons Vancouver prices have kept rising. There are now one million millionaires in China, that’s tripled since 2005… and many are looking to invest in Canada.”

Announcer: “In downtown Beijing, these women are looking to buy some real estate – in Vancouver. They are at the Beijing office of a Canadian real estate firm which offers hundreds of homes for sale in Vancouver and Toronto.”

Ma Ying, Shanghai resident – (translation over) “Vancouver is relatively cheaper than big cities in China, it is well worth it. Toronto is even cheaper than Vancouver.”

Announcer: “Can Good is the president, we met him in Hong Kong where he is now setting up another office to sell Canadian homes.”

Cam Good: “We are really at the very start of a big wave of demand coming mostly from the uber-rich in Chinese (sic) which has been there for years, but what we’re seeing now is a growing middle class, that is just now being able to afford international options for their kids/ for their children, for real estate…”

Announcer: “Fearing a property bubble, China’s government made second mortgages difficult to acquire, and is considering a new tax on principle residences… it’s led to a stampede of buyers to Canada.


Announcer: “In Vancouver it’s grown to the point Good provides helicopter tours for Chinese real estate agents. Many are buying near good schools.”



Ma Hong: (translation over) “I think I will send my kids to primary school in China, and send them to high school in Canada, which I think is better in education”

Announcer: “In the Vancouver suburb of Richmond, average home price is over a million dollars. This home sold for $500K more than it was bought for just last year. It’s considered a teardown. Many worry the Asian influx will lead to a backlash from locals squeezed out of the market. Good doesn’t have much sympathy…”

Cam Good: “If you don’t want to live in a city that beautiful, with that much demand, umm.. then maybe you should live somewhere else, because in any city, no matter where it is, if there is international demand you are going to have these concerns, so either you want to live there or you don’t.”

Announcer: “And clearly China’s new rich want a piece of the Canadian dream.”

Cam Good is on a roll, clearly, but his words remind us of a player taunting the goalie at the end of a, say, 8-1 win. He’s gotten a lot nastier than on earlier broadcasts. Perhaps not the best long-term game strategy for a salesman.
Cam is ‘all-in’ the ‘new Monaco’ scenario for Vancouver. File under ‘Limitless Demand Argument For Ongoing Market Strength’.
- vreaa

UBC Hospice Approved


‘Residents of this high-scale apartment building at 2688 West Mall UBC, like Janet Fan, here in Vancouver, B.C. on January 12, 2011, are outraged that a proposed hospice would be built next door to their building. The building is 80% Chinese extraction and there are major cultural implications with living next door to people that are dying.’ – from The Province, 3 Jun 2011

Noted here, for the record. We applaud UBC for this move, it took some courage. It was admirable for them to be able to separate issues of inter-cultural respect from those of personal expedience. We also applaud ‘The Province’ for using a photo that converts the mundane into something that is aesthetically pleasing. – vreaa

WSJ – ‘Chinese Fuel Vancouver Home Boom’

Excerpts from the ‘Chinese Fuel Vancouver Home Boom’, by Monica Gutschi, WSJ 1 June 2011 -
“A fresh wave of Chinese buyers, coupled with Canada’s already frothy home prices, has vaulted Vancouver into the ranks of the world’s most unaffordable real-estate markets.
Bungalows—small, detached, single-story homes, some in need of significant repair—can command prices well above a million Canadian dollars (US$1.02 million.) One local website, crackhouseormansion.com, invites visitors to guess whether homes pictured on the site are property sold for more than C$1 million or are alleged crack houses.” …
“Sales of homes worth more than C$2 million soared by 118% in Vancouver in the first four months of this year, real-estate brokerage RE/MAX reported in May. The average price in the high-end segment now tops C$3 million.” …
“Vancouver real-estate agents say Chinese buyers dominate the high end of the market, fanning demand and prices across the city. The strong demand for high-end homes has helped drive up prices for more modest houses. Some Vancouverites are selling their now richly valued homes and buying more-expensive ones, while new buyers are scrambling to buy before prices rise further, agents say. “It creates this positive vibe, this dynamic to the market that is upbeat,” says Elton Ash, vice president for western Canada at RE/MAX. …
The city always has been more expensive than most in Canada. Its location, sandwiched between the sea and the mountains, constrains the supply of available land. Vancouver also has long been near the top of global surveys in terms of quality of life. The 2010 Winter Olympics helped showcase the city to the world.” …
Some economists are starting to wave warning flags. Royal Bank of Canada says monthly carrying costs—mortgage payments, property taxes and utilities—for a detached bungalow represent 72% of the average Vancouver household income. That is more than double the 32% threshold that Canadian banks use to gauge whether a borrower can handle a loan.
“The prices appear disconnected to the level of activity and the balance of demand and supply,” RBC economist Robert Hogue says.”


For the record, the author of this WSJ article had a conversation with vreaa during it’s writing. Obviously the article is of interest, and is important to students of our RE market, because it gives prominence to the ‘Chinese Fuel Vancouver Home Boom’ meme in a respected international publication with wide readership. As a story about the Vancouver RE market, it is, however, lacking. Mention is made of low interest rates, easy borrowing, and “new buyers scrambling”, but, in our opinion, it should have put all the facts together and explicitly concluded that local buyers are responsible for this speculative mania. China is a subplot. It is remarkable that a US based publication, circa 2011, can’t see a housing bubble for what it is. – vreaa