Question: “Why should a condo in Vancouver cost more than a condo in Toronto (or any other big city in Canada)?”

slice o condo

Correct Answer: “No good reason.” (full marks plus bonus)

Alternative Answer: “It’s a Bubble, Stupid.” (full marks, but no bonus due to unnecessary impoliteness)

Incorrect Answers: “Supply and Demand”, “Everybody Wants One (or two or three)”, “The Views”, “Only Insiders Will Be Able To Live Here”, “Because Downsizers Are Richer Here”, “We Are Running Out Of… Fresh Air?”

Points Further Deducted For Any Answer Qualified With: “Last Year I Made More Money In RE Than In My Last 20 Years Working As A (xyz)” or “What Else Are You Going To Do With Your Money?”

Back of the Class: “(anything involving the words ‘Property Ladder’ or ‘Bullet-Proof’)”, “I’ll Get Rich, Rich I Tell You!! (manic laughter)”

Obliquely related story:

Major condo developers in Vancouver are shutting out average buyers by selling their most affordable new units privately – to clients of select realtors and “family and friends” – before their advertised sale dates, The Globe and Mail has learned.

Eager buyers camp out in lineups for hours or days before the sales events. Thousands also sign up online to get “VIP” access, only to find out on opening day they had no chance. Several have said they were then invited to buy something more expensive.

Mr. Rennie said developers advertise to the public as a sort of fallback policy. If the insiders who get first dibs do not buy enough units, they can sell what is left to the next tier of interested buyers.

Toronto realtor Andrew la Fleur said condos are selling out to insiders in that hot market, too. He said he is one of the few agents whose clients get first crack at properties before the public. He estimates 95 per cent to 100 per cent of new condos are sold to insiders that way. “I think the public is just unfortunately misinformed or uneducated,” Mr. la Fleur said. “Those of us in the industry can see this coming a mile away and we know how to get our clients in at an opportune time.”
However, he said he does not think most units in Toronto will be flipped, because condo prices are not increasing in that city like they are in Vancouver.

– from ‘Vancouver developers shutting out regular buyers with insider condo sales’, Kathy Tomlinson, G&M, 17 Jun 2016 [hat-tip 3rdRock]

36 responses to “Question: “Why should a condo in Vancouver cost more than a condo in Toronto (or any other big city in Canada)?”

  1. Why, vreaa, you forgot that Vancouver has the best weather in Canada. Everybody wants to live there.

    Let me preempt Brian, who will jump all over this to claim that condos may be in a bubble, but detached houses aren’t! Wealhy Chinese want land, you see. That’s why Shanghai is full of lawns and picket fences.

    • Hmm… two questions. Are you allowed to own land in Shanghai city proper? Also.. what do you think would happen to Shanghai if I housed say 30% of their residents in a detached home the size of Vancouver’s? So is it an issue of people not wanting it or… it just can’t be done.

      • There’s lots of land in China.

      • Are you serious??? We are not talking about China, you said Shanghai. How would you like to pack a city that big into single family home lots. How expensive would that be logistically, is that even a possibility? And best of all, can you own land in Shanghai city proper? So please, is it a realistic scenario to have a bunch of single family homes in Shanghai and Beijing? It’s very pertinent to this discussion. If you don’t know why chinese people prefer single family homes please don’t comment like you do. Cause frankly, they never really have this option. So how can you say that they don’t prefer one over the other. The data that proves this fact is that in vancouver mls statistics, there is much greater percentage of chinese ownership in detached than attached.

    • Are you saying Shanghai doesn’t have suburbs?

      • Have you seen Shanghai’s geography? It has suburbs, it’s called Suzhou City. Proper Shanghai city basically is crammed just like any city with 14 million people would. I really like to know from your urban planning expertise how you plan to give even 20% of people in Shanghai a way to own single family homes. Not to mention even if you do, it would have to be at least about 150 km outside of city centre which is basically the equivalent of Chiliwack.

      • Hate to break it to ya, but Point Grey is a suburb.

      • Fair enough. But it is also not 150 km away.Look at Shanghai’s geography, where could you possibly put single family homes that is anywhere within a 90 minute commute into the city. How do you expect to live in a suburb that far?

  2. I know, insiders and junk, but does anyone else think this is just a big confidence scheme? I mean, giving away profits to “insiders”? Do developers think so little of the consumer surplus?

  3. Listing at 5321 Chamber St: “commission only payable upon physical subsequently introduction to the property otherwise $500.”

    Can someone translate?

  4. Is this even legal to bait the public with false advertising?
    Anyway, I am glad that this news is traveling fast and wide through MSN. It may take another two decades, but the world do notice. Just like a whiff of foul smell at the harbour, someone is finally behind bars twenty years later. ‘Karma is a boomerang and a bitch.’

  5. Vancouverites may think it weird Leaving a property sitting empty for years, but take a look at it from a different angle. Asian property developers are not only the most efficient money-making machine in the world, they have the patience and deep pockets to sit it out. And their powerful friends will bend rules simply to facilitate workflow.
    Hongkong Garden was launched in 1985. The last unit was completed after 31 years and fetched many times what it would cost then.

  6. Froogle Scott

    Hi vreaa. Thought I’d drop in to say hi, and acknowledge you for keeping up the faith.

    This most recent leg up in the market has left me somewhat flabbergasted. I’m more inclined to believe that corruption and manipulation play a larger role than I thought previously, while still believing that interest rates are a critical component of what has happened, and continues to happen, in Vancouver. Of course, corruption and manipulation, and interest rates, aren’t necessarily strangers to one another.

    That said, corruption and manipulation don’t exist in a vacuum. They require a critical mass of people willing “to go along to get along”.

    • There are active shortseller forums that explore these very issues in regards to Van RE. There seems to be consensus around the existence of a significant element of foreign and drug money laundering. Local speculators are the useful idiots who believe it’s because “real estate only goes up”, etc.

      I’ll try to dig up the links and pass along.

    • Froogle:
      At this point, ‘faith’ is the correct descriptor.
      So wrong for so long – a religious experience.

      • Froogle Scott

        Well, wrong (so far) about a Great Vancouver Unwinding, but not wrong about all the characteristics of the surreal price escalation and what it’s doing to the city.

        I posted a reply to Arnie that may be hung up in the comment queue.

  7. Froogle – glad to see you post. You did some of the best writing on real estate – ever.

    We bought a year after you – a hundred year old house in Renfrew Heights. Hard to believe we paid $365K. Aside from hooking up with my partner in life and having a couple of kids, it’s the smartest thing I ever did.

    When we moved in it had ugly laminate counters and vinyl flooring in the kitchen. Still does.

    I’ve been a student of real estate, construction, and architecture for decades, so went into the purchase with more knowledge than most.

    When I did my own home inspection and the owner said the lowest point in the house was a foot above grade, I was cranked. He’d also done a ton of electrical work himself – there are two modern electrical panels but, inexplicably, left a vestige of knob and tube. Still don’t know what it connects – maybe the doorbell. That must have scared off some potential purchasers.

    That year I had made several offers and backed out after they were accepted. With this house I made my offer without even going inside. I knew enough.

    To date, I doubt we’ve even spent $30K on the necessaries – including a bsmt. suite. An overlaid interlock roof was only $3K. The furnace was a $5K whack. Double pane windows were also a needed upgrade – the single pane aluminum sliders were awful.

    The house and garage were assessed at $25K at the time. How they escaped the excavator is a minor miracle.

    The best thing about this old house is the huge bay window – what a difference a bay makes. No way is this place heritage – it’s vernacular/pioneer, but it’s homey – unlike Van spec houses.

    But the yard is heritage – the back yard private enough for nudity – find that in real estate comps. There’s a wide side yard and great little front yard. We’re terrible but enthusiastic gardeners. And the street is so quiet people play in it.

    In a sense I’m the richest I’ve ever been, but I’ll never see the money. The house will belong to our kids. I teach them all the time to understand real estate, so they don’t get conned by the game.

    I’m not flabbergasted by the rise in prices. I have regular contact with Chinese moving to Vancouver – the ones popping for one or two houses in the West Side. If people think prices are currently out of whack, “they ain’t seen nothin’ yet.”

    You hear a lot about the problem of lack of supply – the problem for a lot of them is that the poop floating in the market isn’t good enough.

    • I am in agreement with Arnie here. Out of all the supply in Vancouver, the crap that’s on the market is not the gold quality. The gold get snapped up in insane bidding wars or are kept off the market because the owners are smart enough to know how rare it is. And if you have ever talked to these chinese guys who buy on the west side, you would know that you ain’t seen nothing yet. Unless the government puts a stop to this, this is a tsunami. Look at the scale of chinese buying that has happened since the early 2000’s and the trend in the amount of capital.

      • “Look at the scale of chinese buying that has happened since the early 2000’s”

        That’s called rearview mirror investing, aka recency bias. Rookie mistake.

      • Hey, you haven’t answered the questions about owning land in shanghai and the effect of putting everyone in single family homes there.

        But more related to this particular bit, if a trend says that the amount of capital inflow into a particular market is increasing and I see little factor to cause this trend to reverse, what do you expect to see on the price of this market? Is that rear view investing? If foreign capital was 1 billion in 2000 and 12 billion on 2015, what do you expect to see in 2020 for example. It’s a trend.

      • “It’s a trend”.

        Yeah. It’s a trend until it isn’t.

        Trends are only identifiable in hindsight. You’re extrapolating the past in to the future. You know that disclaimer, “past performance does not guarantee future results”? It exists for a very important reason. Now, if you have specific grounds to believe that something will happen, great. But just because it happened in the past does not mean it will continue.

      • Yeah, like I said, I don’t see a reason for this trend not to continue. Government loves this money, they like this place, the capital available to the people who like this place will increase year over year. It’s like why do price of Hermes birkin bags keep on increasing, because the people who buy it have more capital year over year.

      • None of the reasons you provided — none — constitute a basis by which Vancouver RE should continue to appreciate.

        Not because government “likes the money”. They can’t control markets.

        Not because people will have more capital available to them. First of all, you can’t predict that reliably. There is significant evidence that China is in a credit bubble of its own, and a lot of Chinese wealth could go up in smoke. Anyway, so what? There are lots of other things to spend money on.

        And not because people “like” it here. That’s always been the case, always will be. Doesn’t explain the past 5-10 years.

      • “And not because people “like” it here. That’s always been the case, always will be. Doesn’t explain the past 5-10 years.”

        Try the people who like it here have gotten much richer. And the government has allowed much more wealth to immigrate here. Look at the number of millionaires who have come. What, you think the GDP of China 20 years ago is like what it is today?

        Sure you are right, none of this is a reliable predictor. But no reliable predictor that you have could also explain how we got here. Because even with local leverage, you simply can’t get this type of valuation on detached properties. You can’t say oh.. low interest rates caused this, then why don’t we see this valuation in Edmonton? Calgary, what makes Vancouver so unique that it is this out of whack compared to local incomes?

      • Oh and the they can spend it elsewhere argument, look at how most of the other cities have tried to restrict this cash flow, Australia, London, even Hong Kong. What they are all stupid and don’t see this as a major factor.

    • Froogle Scott

      It’s interesting to hear about your experience, Arnie. When I think of alternate paths we could have followed, yours is one of them: keep renos to the minimum required for basic comfort and maintenance, and avoid trying to turn a humble abode into a palace.

      Not that our post-renovation house is a palace, but we spent a ton more money than we ever thought possible. All of it made possible by the rising market and lines of credit tied to those rising values. Our retirement savings have suffered as a result. And now retirement doesn’t seem like such a distant prospect.

      So, sure, we could sell the house, and have a pretty decent retirement fund, but we don’t want to sell the house. We want to live in it and enjoy it. And sell and do what? Use a big whack of it for an $800K condo purchase, as our neighbours did? Throw ourselves into the vagaries of the rental market, where competition for decent units can be intense? And you may get evicted. Leave town and be separated from friends and family?

      Just this past week I was asked to share what I know about Van RE, and Vancouver neighbourhoods, with a colleague of my sister’s. This colleague has been given a corporate transfer to Vancouver, so he doesn’t have much choice. He’s coming from Edmonton, I think, and sounds a bit freaked out about the prices for the Yaletown and Kits condos he’s being shown. He’s wondering about cheaper neighbourhoods, or perhaps neighbourhoods where you get more square footage for your money. I tried to be gentle, and relatively upbeat, without sugarcoating “the challenges”, as I put it. I haven’t heard back. I know he’s talking to other people here as well, trying to get a rounded picture. Maybe he’s begging the bosses to rethink the transfer?

      No good solutions in Vancouver at the moment. I’m seeing plenty of detached listings on the East Side in the $2M range. It was only a few years ago that one of the realtors specializing in our neighbourhood (Grandview) announced the first $1M sale. For prices at the margin to have gone from $1M to $2M in East Van in something like 7 years is astonishing. Although I do think East Van is a bit of a special story. It’s the closest place for West Side real estate refugees to go without crossing a bridge.

      And the band played on…

  8. “I’ll Get Rich, Rich I Tell You!! (manic laughter)”

  9. come on, 65% crash!

  10. 1152 Georgia St E – attic “bedroom” looks like something out of Kubrick’s 2001, or a bad acid trip. It will cook your nuts in the summer.

    A mattress on the floor with a Hudson’s Bay blanket – stagers must have charged extra for that. Don’t even think of standing up unless you’re short; and aligned with the ridge beam, or you’ll bark your head.

    Need to wee wee at night – better to shoot it out the window because the trip down could be fatal.

    Square footage by the agent is given as 3342′. Evalue bc says it’s 2716′. Someone has pulled 626′ out of their ass. That’s a big turd; even for an agent.

    Priced at $600K over last assessed – omfg.

  11. For logistic reason, it is more practicle to put farmers in single family homes that Asian city dwellers, as is already happening.

    On a previous trip to Shanghai, my host took me to Hangzhou West Lake in a company’s car. En route there the driver pointed out to me the farmers’ houses and their farm lands. They were new and modern detached 3-storey homes with white-washed cement-brick exterior walls and shiny ceramic tiles. Sensing my disbelief, I was assured that these luxurious bungalows belonged to the farmers, who were very important to the government. We were traveling on the highway and I did not snap any photos.

    These are some photos found online, at the lower-end of the scale:
    Shanghai suburb detached farmer’s house, 2-storey, 4-roomed type, @180,000 yuan

    Beijing suburb farmers’ homes

  12. The problem is not London’s foreign investors – it’s where their money goes

    Spoken like a fair dinkum: “It is very bad. Without the Chinese nothing would ever get built.”

  13. China’s ultra rich are seeking to preserve and grow their wealth by looking for overseas opportunities.
    Many countries, including Britain, the United States, Australia and Dubai, have noted a surge in Chinese investment, with much of the cash flowing into property.

    The Chinese Real-Estate Bubble Has Gone Parabolic: Land Prices Soar 50% In One Year
    read the comments:

  14. either way ~ capital flight will carry on undeterred.

    In a World of Below-Zero Bond Yields, China Debt Bucks the Trend

    Risk Spreading With 2.34 Trillion Debt Maturing in 2H
    Downgrades are spreading into real estate, electronics, food and beverage, plus local government investment arms.

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