RE Investors Driven By “Hope and Faulty Math” – “Despite claims of a buoyant rental market investors are ending up with an astonishingly low return on invested capital.”

“Economists will tell you that one of their biggest challenges is figuring out why Canadians still gather in long lines for a chance to buy a condo in a major city even as the economy deteriorates and the housing market looks more and more wobbly.
To the development industry, the answer is simple: The population is expected to continue to grow and as long as it does, demand for living space, such as condos, will move up as well. On top of that you’ve got the foreign investors, especially from Asia, arriving in significant numbers in search of a safe place to stash their money.
Admittedly, there’s a degree of logic to that — prices are going up because demand is going up. But those in search of more detail have been left scratching their heads. How many Toronto condos were bought by foreigners in the last year? What proportion of units are purchased as investment properties? How big a role in the market does CMHC insurance play? Nobody seems to know.”

“Enter Ohad Lederer, an analyst at Veritas Investment Research, a Toronto-based provider of independent analysis to the investment industry. Like many others, Mr. Lederer was surprised by the extraordinary growth of the condo industry and wanted to understand it better. But instead of setting off on a wild-goose chase for non-existent numbers, he took a different approach, examining some of the basic assumptions about the market. The project included mystery shoppers dispatched to a couple of downtown Toronto sales offices. Mr. Lederer comes to some some interesting conclusions.
“We believe that buyers in the current condo market exude hope over experience,” he said in the report, adding that despite claims of a buoyant rental market investors are ending up with “an astonishingly low return on invested capital.”

– from ‘Condo market driven by easy credit and faulty math: analyst’, John Greenwood, Financial Post, 1 Nov 2012 [hat-tip allen]

The buyers are all speculators, buying on the assumption that RE prices will continue upwards at 7%+ per annum.
– vreaa

17 responses to “RE Investors Driven By “Hope and Faulty Math” – “Despite claims of a buoyant rental market investors are ending up with an astonishingly low return on invested capital.”

  1. Heck… anyone in the know could have told them that to really lever their investment toonies they should have opted for a Kerrisdale “HappyGirl ExpertAsianFingers Massage” franchise outlet…

    “I cannot talk to you, my English no good.” – Receptionist, HappyGirl ExpertAsianFingers Massage

    [G&M] – Alleged Brothel Sues Vancouver Over License Denial

    …”But a petition to the court by Haiyang Enterprises Ltd, owned by Jennifer Juan Mei Cheong, claims that the city was wrong to take away its right to operate as a health enhancement centre – a specialist in therapeutic touch techniques.”…

    [NoteToEd: Q: How is TherapeuticTouchClinic like HollyWood Movie? A: With both you get HappyEnding.]

    • BonusLitigiousTreat… or… BadMonth for HappyTouchPrivateResidence… GoodMonth for Lawyers…

      [CBC] – Buyers sue Hotel Georgia developer: 7 pre-sale buyers in high-end Vancouver condo project want out

      “A flurry of lawsuits has been filed against the developer of Vancouver’s revamped Hotel Georgia by pre-sale buyers of condominiums at the project who now want out of their deals.”…

      • NoWooorries! WeeWillie, yee kin pit yer BraveHeart to rest… It’s WhoopityScoories AllRooond as Ceann-CinnidhGregor has geet ye coovered from yer BlackBuns to yee Sporran with heez NewzFangled WeiBoTweets…

        ““I expect that will be a real gift from being on Weibo, getting that much more feedback from people who, up until now, haven’t had a way to communicate with me.” – Mayor Robertson

        [G&M] – Robertson To Beat LanguageBarrier with ‘ChineseTwitter’

        “On the heels of new census data showing Chinese languages top all immigrant tongues in Metro Vancouver, tech-savvy Vancouver Mayor Gregor Robertson has signed up for what has been called a “Chinese Twitter” account.”…

      • William Wallace


    • William Wallace


      The neighbors, the pharmacist, the business association, the police, the city council and, the reporter and of course, the globe and mail, are all a pack of hate filled racists.

      Brothels and human trafficking are protected under the FIPA, right?

      Can we get Mr Kenney re-trained?

  2. Real Estate Tsunami

    In Richmond, I wonder how much longer Major Malcolm Brodie will hold on. Would not be suprised if we get an Asian major next election.
    The Richmond News (this Wednesday) reports that 3/4 of Kindergarten students in Richmond are ESL and from Asian ancestry.
    And, get this, most of them are from Asian parents who came here in the 80s and also went through ESL.

    • William Wallace


    • From the Richmond News:

      “But recently educators have faced a new challenge: Canadian-born children entering kindergarten with inadequate English skills because they speak a different language at home, said district curriculum coordinator Diane Tijman. Many are the offspring of former ESL students who moved to Richmond from Hong Kong in the 1990s amid uncertainty over the transfer of authority from Britain to China.”

      I see this is an astonishing failure of Canadian multiculturalism. Canadian multiculturalism has long espoused the mosaic model as opposed to the melting pot model. That is, new immigrants are encouraged to retain the cultural attributes of their home country as opposed to becoming completely assimilated. That said, immigrants to Canada have always been expected to learn the official language–that is why the government pays for ESL training for immigrants. So the fact that we now have second-generation Canadians who do not speak either official language and require ESL in school speaks to an inadequate level of integration of immigrants into Canadian society. This may significantly undermine social cohesion in Canada.

      • Real Estate Tsunami

        Thanks Anon for making my point much better than I could have.
        Multiculturalism has been declared a failure everywhere else, but we keep pretending it’s different here.

      • Multiculturalism looks okay when everybody is relatively rich.
        When you put the economic screws on, not so much (risk of ugly fault lines opening up around previously celebrated differences).

      • Have it not occurred to anyone that these HK migrants in the 90s never intended to actually stay in Canada, be Canadians, and contribute to Canada? They went to Canada because Canada at the time was the only developed commonwealth country that was willing to take them all in with relative easy, and they only reason they left HK was because of the fear over the Chinese takeover. Once the fear dissippated, they see no reason to stay and contribute in Canada other than our free healthcare, school, etc. To them, Canada was simply a temporary vacation home to go to when your principle residences is facing a hurricane or some other natural disasters.

        The last set of really true HK immigrants who came to Canada to make a better lift and contribute are probably those that came prior to the 90s, or maybe even the 80s.

      • All true. I lived in a townhouse in Richmond for 10 years until we sold it last summer and few of my close neighbors were Honkong Chineese arrived in 1990. When we met, they were not talking Engl 10 years after. When we sold, they were still not really speaking fluent Engl. Nice people but most of them kept being confinded to their language groups and since their size growed all the time they did not rally feel the need to learn.
        Of interest in this story is its RE context – we bought in 2001 for 206K and the owner paid 280K when it was new in 1991.

      • [NoteToEd: As regards CurrentOutcomes, PoeticJustice, Much… Eh? Built on their bones. Next up was this: ]

  3. @William Wallace
    So you have Internet too ?

  4. For the uninitiated ‘William Wallace’ is a poster with protean handles, and one who uses sarcasm freely. ‘anonymous’ and ‘Jonny’ can both be excused for responding as they did.
    WWallace (et al), please pick one handle (or one very obvious ‘handle-theme’, such as the recent ‘Rusty’ riffs) and stick to it… very confusing otherwise for casual readers.

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