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Vancouver Real Estate and the Episode of the 15% Foreign Buyers Tax

Many of our Team Andruff clients want to know what the impact of the 15% Foreign Buyers Tax will be. One month in we are on a quest to find an appropriate answer. We listen to economists, review similar instances and rely on our experience to guide our clients and here is what we see so far:

Blog at a glance:

  • Markets were cooling before the tax was instituted.
  • We have seen a similar scenario with the transition from GST/HST – the market will adjust and rebound.
  • Higher end homes (one-million-dollars-plus) will be slowed down – Resale condo market still robust.
  • The fundamentals of supply have not changed while demand is on the sidelines in some cases but not in others.
  • BC Government was politically motivated to make this move but foreign buyers will have ways around the 15% tax and this may push affordability problems to other markets.
  • A strong Greater Vancouver and BC Economy with continued in-migration will still make Vancouver’s affordability a challenge over the long run.

 

The Rest of the Story

On an anecdotal note, leading up to summer, there was a sense of a turn in the market. The market was taking a more “traditional approach” or what would have been a more typical response to a hard press in pricing than what we had seen in the last few years of accelerated prices. There was some seasonality to the market where people took a step back and simply enjoyed their summer (which a few years ago was normal).

The Senior Economist with Central 1 Credit Union, Bryan Yu, indicated the tax will put further downward pressure on a market that already had a slowing, after a very strong spring. He further prognosticated the new tax on foreign buyers will cause a substantial but temporary 10 per cent drop in Metro Vancouver sales that will extend into 2017.

This is not unlike the transition from the GST to HST scenario in 2010.  The market pulled back to see what would happen and then slowly returned to business as before.

We again get back to the tale of two markets (foreign and domestic). What we are seeing today is the higher end of the one-million-dollar-plus homes are slowing considerably (mainly affected by foreign money).  While my experience over the last month is the resale condo market (read local market) remains fairly robust.  The reasoning behind this is many (of course not all) foreign buyers were more involved in the higher end of the market and the new construction coming to market.

The 15% tax therefore is having less impact on the…let’s say…one-million-dollars-or-less type of properties, (mainly condos and mainly “locals”) and so we are still seeing things move at a fairly strong pace.  The fundamentals of supply and demand are still driving the resale condo side of the market for the most part.

 

I dare say that The Foreign Buyer Tax was not all that well conceived. It appears to be a political, knee-jerk response by the BC Government. Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres share this sentiment stating, “Housing affordability is a hot-button political issue, so it is not surprising that the B.C. Government, facing an election in less than a year, has felt compelled to do something to dampen the fervor.”

A few of the flaws as I see it:  It will have a mushrooming effect on non-Metro-Vancouver areas like for example Kelowna, and Victoria on Vancouver Island. By pushing the foreign money further out from Metro Vancouver, this potentially is passing the buck and creating affordability issues in these other areas too, perhaps even as far away as Toronto. Also, some of the buyers of presale condos are finding local friends or family members in order to assign their contracts, and hence sidestepping the 15% tax.

At the end of the day, some foreign funds will still be invested in the Vancouver Real Estate market. They still can and will.  For now, there will be a shock to the system.  Arguably the market is naturally correcting already which is good and healthy for the market.  Remember there are always two sides to the story, and while Sellers have had their turn with a Sellers’ Market, now Buyers may see some opportunity. As density remains a focus at city hall and in-migration remains a reality with a strong local economy both in Greater Vancouver and BC, the underlying lack of affordability will likely remain.  However, at this time the pace of the market will be slower.

Metro Vancouver home sales return to typical August levels

For the second straight month, home buyer demand in Metro Vancouver* moved off of the record-breaking pace seen earlier this year and returned to more typical levels.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential MarketUpdate_thumb.jpgproperty sales in Metro Vancouver:

Totalled 2,489 in August 2016,  ↓ 26%  compared to the 3,362 sales in August 2015

10.2%  ↓ than the 2,771 sales in August 2014

and 1% ↓  than the 2,514 sales in August 2013

August 2016 sales also represent a 22.8% ↓ compared to last month’s sales.

From a historical perspective, last month’s sales were 3.5 % below the 10-year sales average for the month.

“The record-breaking sales we saw earlier this year were replaced by more historically normal activity throughout July and August,” Dan Morrison, REBGV president said. “Sales have been trending downward in Metro Vancouver for a few months. The new foreign buyer tax appears to have added to this trend by reducing foreign buyer activity and causing some uncertainty amongst local home buyers and sellers.

“It’ll take some months before we can really understand the impact of the new tax. We’ll be interested to see the government’s next round of foreign buyer data.”

New listings for detached, attached and apartment properties in Metro Vancouver:

Totalled 4,293 in August 2016.

an ↑ of 0.3% compared to the 4,281 units listed in August 2015

18.1 % ↓ compared to July 2016 when 5,241 properties were listed.

The total number of properties currently listed for sale on the MLS® in Metro Vancouver:

8,506,  21.9% ↓ compared to August 2015 (10,897) and  1.9% ↑ from July 2016 (8,351).

The sales-to-active-listings ratio for August 2016:

29.3%. This is indicative of a seller’s market.

Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12% mark, while home prices often experience upward pressure when it reaches the 20 to 22.5% range in a particular community for a sustained period.

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver:

$933,100. This represents a 31.4% ↑ compared to August 2015 and a 4.9 %↑ over the last three months.

Sales of detached properties in August 2016:

715, ↓ 44.6% from the 1,290 detached sales recorded in August 2015.

The benchmark price for detached properties:

↑ 35.8 % from August 2015 to $1,577,300. This represents a 4.2% ↑ over the last three months.

Sales of apartment properties:

1,343 in August 2016, a ↓ of 10.1% compared to the 1,494 sales in August 2015.

The benchmark price of an apartment property:

↑ 26.9% from August 2015 to $514,300. This represents a 6.1% ↑ over the last three months.

Attached property sales in August 2016:

431, ↓ 25.4%compared to the 578 sales in August 2015.

The benchmark price of an attached home:

↑ 31.1% from August 2015 to $677,600. This represents a 7.1% ↑ over the last three months.

Home buyers remain active across Metro Vancouver

Last month’s Metro Vancouver Real estate numbers have been released, and even though the market is still very active, there shows a slowing heading into the summer months. Below is the paraphrased report.

Home buyers continue to compete for homes listed for sale across the Metro Vancouver housing market.

Last month’s sales were 28.1 per cent above the 10-year sales average for the month and rank as the highest selling June on record.

“While we’re starting to see more properties coming onto the market in recent months, the imbalance between supply and demand continues to influence market conditions,” Dan Morrison REBGV president said.

“Since March, we’ve seen more homes listed for sale in our market than in any other four-month period this decade,” Morrison said.

Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark, while home prices often experience upward pressure when it reaches the 20 to 22 per cent range in a particular community for a sustained period of time.

 

The sales-to-active listings ratio- June 2016 it is 56.3 per cent.  The lowest it has been since February, but it is still considered a sellers’ market.

 

Home Price Index- Metro Vancouver $917,800 ↑ 32.1% from June 2015

 

Residential property sales in June were 4,400 units – ↑ 0.6% from the 4,375 in June 2015 but ↓7.7% from May 2016 when there were 4,769 units sold.

 

New listings totaled 5,875 in June ↑ 1.2% from June 2015 where 5,803 were listed. This is ↓ 6.6% from May 2016 where 6,289 properties were listed.

 

Current Listings on MLS- 7,812- ↓35.9% compared to June 2015 and ↑ 1.1% from May 2016

 

Sales of detached properties in April, 2016 for Metro Vancouver:

– 1,562 units – ↓ 18.6% compared to 1,920 sales in June 2015.

The benchmark price ↑ 38.7% from the year before to $1,561,100.

 

Sales of apartment/condo properties in April, 2016 for Metro Vancouver:

 2,108 units –   ↑ 18.8% compared to 1,774 sales in June 2015.

The benchmark price of an apartment property ↑ 25.3% from the year before to $501,100.

 

Sales of attached property/town homes in April, 2016 for Metro Vancouver:

– 730 units – ↑ 7.2% compared to 681 sales in June 2015.

The benchmark price of an attached property ↑ 28.1% from the year before to $686,900.

 

How to be a battle hardened Vancouver Property Buyer

In the current marketplace there are many stories about the unsuccessful multiple bids of some bkeysuyers. Clearly they have every reason to feel jaded toward the Vancouver real estate market. The following is a prescription for curing the “I don’t got no Vancouver real estate blues”. While this list is primarily aimed at the condo buyer, most of it will also relate to detached properties.

 

 

How to be a battle hardened Vancouver Property Buyer

  • Have your realtor show up with a bank draft attached to your offer (you’re committed right?)
  • Be prepared to spend upfront money, with risk for appraisals and property inspections
  • Have your offer include the sellers preferred dates (or provide the offer with blank dates)
  • Make a non-subject offer (with appropriate buyer protection clauses)
  • Prepare to “slay the dragon”, depending on the number of offers, you may have to spend $000’s over the list price
  • Get into the property ASAP (sneak previews get you off and running)
  • Prior to offer day, have your finances in order, read all strata documents, and inspect.

If mentally and financially, you are not into this type of (the few, the proud, the brave) buying, and hey, this is not every ones’ cup of tea, there is a work around. A capable buyer’s agent can help steer you through the Vancouver real estate battle field. Ask us how we help our clients buy real estate.

 

Will the Vancouver Real Estate Bubble Burst in 2016? Part 1

Who wants to talk about Vancouver’s current favourite subject?!

Many people I talk to all want to know, “If I buy now will there be a bubble? They say this can’t last for ever…” (And it won’t). “Things have to change don’t they? Should I buy, sell or just give up?”
Well, I love the topic of Vancouver Real Estate and often talk all day about the ideas swirling around this subject. There are several pieces and parts we want to look at. So to avoid a long-winded essay on the topic, I have broken down the idea into five shorter installments that will be released over the next few weeks.
In the first installment I will cut to the chase and start off by noting, I don’t believe there is a bubble and I am on record saying this as early as 2010 in my previous blog entitled, Debunking the Bubble.
What I will share with you is simply my experience and knowledge as a Vancouver Realtor. Yes, I make my living by helping people buying and selling homes, which is why I can share with you the “behind the curtain” point of view of what is going on. My opinion is based on experience rather than just making a sensational headline. I will also point out that as a leading edge Millennial, many of my friends and clients are looking at the affordability of Vancouver, and how to work within the current framework of this issue. So this topic hits close to home (pardon the pun) and is something that I help people with everyday.

Part 1 of 5: The Economics.

To start with, I feel it’s important to look at the basic ‘Economic 101 {factors} of Supply and Demand.’ Before we get into the economics, let’s get “the lay of the land” on a quick geography lesson.
The lower mainland Metro area is a collection of twenty-two municipalities. In reality it is not just Vancouver that is being affected, but the over-all region, which has seen a tremendous demand for housing. Mark Twain quipped, “Buy land, they’re not making it anymore.” When it comes to Vancouver we are abundantly aware of our special restrictions. We have mountains to the North, water to the West, the USA Boarder to the South and Agricultural Land Reserve (ALR) to the South and East. So there is not a lot of room to expand. We have sprawled out as far as we can. Hence, we can agree the supply of land is geographically restricted. The result is that we are now going up. We are building higher density and as old houses get knocked down for town homes and condos, the landscape is changing. Okay nothing new and many of you don’t need a Geography lesson so what are we talking about Real Estate wise.

It is estimated that 30,000 people will be moving to Vancouver every year and will need somewhere to live. The graph below compares the number of listings in April 2015 vs April 2016, and the percentage of change:

Area  2015 2106 % change
DT 728 354 -51%
VWS Houses 681 552 -18%
VWS Attached 894 398 -56%
VES Houses 327 389 -19%
VES Attached 510 186 -63%

In many cases over the last year we have seen a striking decline in the housing inventory on the market, coupled with large buyer demand – outpacing the available inventory. What does this mean when we go back to our ‘Economics 101 of Supply and Demand?’ When there is a shortage of supply, prices go up. I know this is not rocket science but as long as there are more people looking to buy into this market than there are options available to buy, the prices become subject to upward pressure. When looking at the numbers, in this context prices are not dropping nor is the bubble bursting.

(Here are the recent BCREA numbers put forward by Cameron Muir.)

So you’re going to say, “Okay, but it’s not that simple!” At the very basic level it is but your right there is so much more to it. What about all the Macro economic factors? Well, you will just have to read the next blog when we get into that!

Look for Part 2 Coming out Wednesday Morning!

Purchase Plus Improvements: Don’t buy your dream home! Create it!

Lego HouseDo you want to get your dream home without having to fight other buyers in a bidding war? Want to get a deal? Want to create value? Do you want a nice home but it seems just out of your reach? Do you find that places just aren’t…right? Do you ever say this would be so much better if…?

What if you found out you could make those changes and create your ideal space?

With the new mortgage rules decreasing amortizations, many buyers need a larger down payment. So then they have less or no funds available to be creative with when it comes to making that nice newly purchased home revitalized so it feels like their “own” home.

With interest rates at all time lows, look at the options of older, beat up, tired properties that no one else wants to update, and turn it into a modern comfortable home for you and your family. If you are willing to put in the time renovating an older home, using a Purchase Plus Improvements mortgage you may be able to not only get a good deal but create the space you want! There are a few different ways to do this. The basic idea is the bank will lend you the majority of your mortgage upfront and hold back a portion of the funds to cover the extra costs of your improvements.

This type of mortgage used for a property purchase does require the buyer to take a few extra steps. You will need appraisals both before and after the renovation. As well, a third party contractor’s quote (on the cost of the work before you go ahead with the project) will likely be required. This means you are going to want to have some good professionals on your side that understand this process and will work with you to achieve your goal.

Let’s work through an example:

Let’s say you buy the home that really needs updating…so you get a great deal because it has a Sunflower Yellow bathtub and toilet, with Avocado Green appliances in the kitchen and shag carpet that looks like it is ready to get up and walk away. Because of the distressed or dated nature of the property, you make a great deal and purchase it for let’s say $800,000. With your contractor and appraiser, you determine after renovations are completed, the home would be worth $860,000. So the bank agrees to funds for the future value of the home, using a purchase plus improvement mortgage allowing you to purchase the home first, with additional money set aside to then cover the costs of renovations. What the bank basically does is provides the regular funds to purchase the home at $800,000 (as they would for any normal transaction) and then allow an extra $60,000 to be held in a lawyers’ trust account to pay for the renovations. As part of this process, the updating must be verified by an appraiser, or via receipts, once all of the renovations are complete.

This type of strategy is done slightly differently by each lender but is a very real option for people in today’s market. It does take some extra work or sweat equity with good planning but it will allow you to take advantage of low interest rates when most of your money is going into your down payment. Use bank financing to your advantage and create a space you truly can call your own.