Non-Resident Canadian Citizens Buying and Owning Residential Property in Vancouver and British Columbia – End Users & Investors
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June 10, 2020
Christian Dy, Latitude West Financial
What is happening now with buyers and sellers in real estate?
We are at the front lines right now – I work with 10 realtors across the Greater Vancouver area, the Fraser Valley, and Southern Vancouver Island. We do a lot of presale, pre-construction and new construction and resale properties. This includes single-family homes and condos – the whole range of property types.
We’ve seen a big drop-off in volumes but without a big drop in price – this is reflected in the statistics. Some commentators are not in touch with what’s happening in Vancouver and are predicting a massive, dramatic fall in prices, but we’re just not seeing that. There has been some price softness for certain types of properties in certain areas but, overall, prices are stable. In some areas, prices are even starting to rise. The reason for this is because we’re seeing central banks and governments across the world* create a variation of the wealth effect.
Central banks are cutting interest rates dramatically – we’re seeing five-year fixed mortgage rates at 1.99%, which is crazy low! They’re also doing something called quantitative easing, which is basically printing money. Then, we’re also seeing central governments like our Federal Government go into huge debt, upwards of $175-250 billion this year, to spend money in the economy and keep it going.
The quantitative easing, super-low interest rates, and amount of deficit spending create the wealth effect – that is, the spending maintains or increases the value of stock portfolios and real estate portfolios. What this does is to avert what we saw in 1929-1932 – when we had a deflationary spiral. At this time, governments cut spending, raised interest rates, and removed stimulus from the economy. The deflationary spiral this caused resulted in what we know as the Great Depression.
The process we’re seeing now was pioneered by Ben Bernanke, the head of the Federal Reserve during the 2008-2009 financial crisis. Then, we averted a much worse crisis because governments were creating that wealth effect and stimulating the economy to keep the value of stock and real estate portfolios stable so people with money would continue to spend.
This is what we’ve been seeing now. Prior to the Coronavirus hitting, up until February, prices were rising for many housing types across the region and volumes were up about 45% compared to the year before. The Vancouver market went “on ice” as a result of the Coronavirus – it affected volumes but not price so much.
I absolutely agree – I’m not on the front lines of real estate but I am on the front lines of financial planning with my clients.
This past month, I had three clients buy real estate and one of them made the mistake of going in too low. They were the only buyer, and their offer wasn’t taken. After a week, they reconsidered and suddenly another buyer came to the table. They really loved the place, so my advice, since the seller had already priced in the discount (it was lower than the assessed value from the year prior), was to go with their best possible offer, even if it was asking price. They went in at asking price and lost it. My other two clients went in at asking or almost asking price. One got it (the other didn’t but they are about to get a different property).
None of these people were buying in January or February – I’ve found there have been people on the sidelines with cash. COVID-19 is starting to settle down a bit with the world starting to open back up and they need a place to live. They’re active and looking. Those who have to sell and then buy are in a trickier position.
What have you been seeing most recently, this month?
There has been a consensus in the news media that real estate has been doing terribly – with few exceptions, they’ve been uniformly pessimistic. But the reality is the market has been hot for certain things, like single-family homes in East Vancouver. Prices are rising for these right now. We’re seeing multiple offer situations for development lots that you can turn into a duplex. Condos on the west side of Vancouver are up 5.6% over the past year. Though prices are down a bit over the past month, I’d argue that’s a reflection of sales that occurred when the news cycle, which hugely influences real estate prices and activity, was extremely negative.
But we’re seeing volumes ramp up in the real estate market and I expect prices to continue to rise because of the signals from the Bank of Canada. They’re going to keep monetary conditions in Canada very accommodated and keep that stimulus for a significant time after this crisis is over. This is to make up for lost GDP, as real estate transactions hugely stimulate the economy and are a very powerful way for central banks and governments to get the economy back up and running, just like they did in 2008-2009. You can see this in some of the policies that came out. The department of finance, which covers mortgages, has tightened mortgage conditions so housing prices don’t go crazy. I don’t think this will happen, but we’ll see upward pressure on price from the amount of stimulus from the Bank of Canada and the federal government with all the deficit spending we’re seeing.
Many people have joined today’s webinar because of the title: Hot areas in Vancouver. To me, this means in demand and an area to keep an eye on, or a place that’s discounted for whatever reason. What are some specific hot areas you’re seeing?
There was a homeless encampment in Oppenheimer Park in the downtown eastside of Vancouver. The City secured housing for these people during the COVID-19 crisis. Many of these people have been moved into popular and attractive higher-end areas of downtown Vancouver. We’re seeing a buildup of supply of one-bedroom condos in these areas which we very rarely see. I think some of the slowdown here could be attributed to the fact that these formerly homeless people are congregating in areas they normally wouldn’t be and are engaging in antisocial or unpleasant behaviour, like open drug use or public drinking.
So, right now, one-bedroom condos downtown could be a very good buy because of the large amount of supply and we have seen some discounted sales just recently. The situation with formerly homeless people being where they are is temporary because once COVID-19 is done, I think they’ll go back to the downtown eastside and the situation will change. These one-bedroom condos get very, very good rent and are very popular. Historically and traditionally, they’ve been great investments from a capital appreciation perspective and a rental perspective. They’re very stable and get a lot of demand.
Another thing I’ve seen with the onset of COVID-19 is, because remote working has been proven as a successful way of doing business and operating large corporations, a lot of institutions, businesses, and bosses, particularly older ones, are more comfortable allowing people to work remotely. We work closely with a group of people in Squamish and Victoria who have seen a big uptick in those markets because people are starting to move to those places. For instance, someone might think why they should live in a place like Burnaby when they love to mountain bike and have to drive a half-hour to North Vancouver, when they can sell their place, move to Squamish, pocket a couple-hundred grand, and ride right to the mountain trails from there – all while they work remotely without a commute. Or, maybe you like to sail but live in Coquitlam where it’s a pain to get to your boat. You can sell, move to Victoria, pocket a couple-hundred grand, and be able to walk to your boat with much cheaper moorage and easier access to the Gulf Islands.
So, because of COVID-19, people established in their careers will sell properties where they thought they had to live because of work and their kids and will move to places where they want to be. The downtown core of cities will still be popular with younger people and those establishing their careers, but places like Squamish and Victoria, where people move because they want to, not because they have to, will become more attractive with the wide acceptance of remote working. These markets could be great options for investors because some people will want to rent, as well. Plus, a place like Squamish doesn’t have the punitive 20% foreign buyers’ tax, so overseas buyers can do well there.
I know you also like the Broadway corridor area. Is that because of the future light rail transit that’s coming?
It’s actually going to be a SkyTrain system. Right now, it’s going to Arbutus, but they’re working with provincial and federal governments, and First Nations, to get it to UBC. This is very positive. If you’re looking for long-term hold capital appreciation and you want something a bit more conservative, this is the west side of Vancouver in a good, decent area. The Broadway corridor is a great place to buy, particularly older, low-rise condo buildings that are solid – you’ll see upzoning coming with the SkyTrain expansion.
You have your opinion on pricing but we also have our facts on pricing. Explain what this graph is showing.
This is the home price index. 100 is 2005 and here we can see prices since January 2005. You should note this isn’t prices for specific neighbourhoods but for Greater Vancouver – all areas but different property types. You can see that prices are effectively 250% of what they were 15 years ago, since January 2005. You can see that prices are actually up in May 2020 from September 2019. There is a slight decrease from March 2020 to May 2020, but based on what I’ve seen, those prices will continue to rise to where they were before COVID-19.
The thing with COVID-19 is it’s not a political crisis like we had during the Second World War, and it’s not the financial crisis where we had suspect financial assets underpinning the entire economy and there was a total lack of confidence in the financial system. It’s a health crisis that is solvable and we are dealing with it. Humans are immensely adaptable and I’m optimistic we’ll be just fine.
The CMHC came out with this report saying prices were going to crash by 18% across Canada. But this country has 32 or 33 million people and is 5,000 km wide, and the real estate markets, city by city, are vastly different. Even within Vancouver, if you look at the charts, there are big differences in what the properties have been doing. The foreign buyers’ tax crushed sales on the west side of Vancouver, West Vancouver, and Richmond because that’s where international money was going (from places like China, Iran, and Russia). But, condos and properties that appeal to the local market are up and stable. A lot of what you read in the media is hype.
This is an amazing report. It breaks things down by benchmark, price index, monthly change, Burnaby East, Burnaby North, Coquitlam, Ladner, Maple Ridge…we don’t have time to go through everything, but to get this report that breaks everything down you can connect with Mike and he’ll send it to you.
What are you advising your clients, and why, in regards to pre-builds?
A pre-sale is a bet on the future of the real estate market. You buy something at today’s price and presumably want it to be worth more than what you paid in the future. It’s been slower and volumes have been down, but I’ve completed transactions people have been surprised to see. For instance, six weeks ago I sold a $3.3 million penthouse at 777 Richards. I also sold a pre-sale in North Vancouver and, a couple of weeks ago, I sold a half-duplex we’re developing ourselves. We’ve been doing all different types of properties. Pre-sales and new construction have been very active. There is a lot of confidence in the market going forward and, though volumes are down due to friction from COVID-19, presales are selling. But it will improve as we master ways to do business that is safe from a public health perspective. We shut down our email campaigns when things were really bad in the news but now we’ve started up again. We have very big email lists and get good responses from people interested in pre-sales. Our pre-sale VIP lists talk about new pre-sales in various regions (like Vancouver, Burnaby, Surrey, Fraser Valley, and Victoria) – just reach out to me if you’re interested and I can add you to them.
Once the mortgage deferral program ends and with unemployment in the double digits, what do you think will be the biggest impact on the real estate market?
There is a lot of negativity in the media about unemployment and people affording property. I’m speaking to people with the financial resources to buy and sell real estate – most of these people have continued to work remotely throughout the crisis because their businesses are set up in such a way that they can continue to work. These are people like doctors, accountants, and lawyers – people who make a high income. I think a lot of the unemployment is affecting many people who didn’t have the income to buy real estate in the first place, such as those in hospitality, restaurants, and airlines or industries where the average income is rather low.
I don’t necessarily think there’s an upcoming financial cataclysm because of withdrawals and support from the Federal Government and the mortgage deferral program. A lot of the jobs that were easily lost will easily come back because they’re relatively simple jobs – airline workers, servers, businesses that are relatively low skilled and low paid. I don’t see the doom and gloom.
I tend to agree. The majority of my clients, except for dentists, kept working during COVID-19. Those who stopped really were on the lower end of the employment scale in terms of income. For everyone else, it was a change in how they did business. The overall unemployment rate did not apply to my clients and going forward it will get back to normal.
I was on a webinar this morning from an economist. She had sifted through data and was predicting we’ll be in a low interest rate environment for quite some time to get stimulus going. Whenever we’re in a low interest rate environment, we see real estate stay steady or grow – it’s never gone down. People like to buy and invest, many of whom have multiple properties. So, I agree – we’re not heading into doom and gloom.
*The Bank of Canada, the Canadian federal government, the US Federal Reserve, the US federal government, the European Central Bank, the European Union, and central governments and banks of major economies