“Housing market in East Vancouver has collapsed. No bidding wars.”
By Angela Johnson, Vancouver, Canada, for WOLFSTREET.com:
As Vancouver’s manifold attractions decrease, witness the appearance of a sign that we haven’t seen in these parts for a while:
Foreign investors are met with a cold shoulder in the form of the contention-breeding 15% land transfer tax instituted without warning in July. Hard on the heels of this tax is yet another one, this one aptly named the Empty Homes Tax, courtesy of the City of Vancouver. This tax targets the close to nil rental vacancy rate.
The result of tax upon tax? Total home sales in September plunged 32.5% from a year ago. This includes a vertigo-inducing plunge in sales of detached homes of almost 47%, according to the Real Estate Board of Greater Vancouver. Apartments and townhomes hardly fared better with sales dropping respectively 20.3% and 32.2%.
The benchmark home price remained flat compared to August but was still up nearly 29% from a year ago.
But consider the words of William Wat, the realtor for a neighbour’s house, which sold after two weeks on the market: “The housing market in East Vancouver has collapsed. No bidding wars. That was two months ago.”
Selling in less than a week over asking is apparently sooo last season. This almost 50-year-old house, which listed for C$1.35M, was well maintained but by no means renovated. Nor does it have an existing rental suite in the basement as “mortgage helper,” necessary for mere real-estate mortals. Final selling price: C$1.17M. This is what that million-dollar palace looks like:
Guess the buyers didn’t get the memo from Swiss Bank UBS, which last week belatedly joined the bubble-calling-party, pointing out that Vancouver has the bubbliest housing market in the world, with the highest likelihood of a property price decrease, a dubious distinction of being in first place:
- Vancouver
- London
- Stockholm
- Sydney
- Hong Kong
- Munich
- San Francisco
If sentiment turns nastier on Canada’s west coast, where might the hot money flow next?
Try Toronto, Canada’s other glittering city, nicknamed HogTown. Though Toronto does not appear on the UBS bubble city list, and the average home price is not nearly as eye-watering as Vancouver’s, since last year it has still jumped by 20.4% to C$755,755. Sales were up by 21.5% year over year.
“The sustained lack of inventory in many neighbourhoods across the Greater Toronto Area continued to underpin high rates of prices growth for all home types,” says Toronto Real Estate Board President Larry Cerqua.
The respective realtors associations of Toronto and Ontario raised hue and cry against the possibility of a foreign buyer tax similar to Vancouver’s in Greater Toronto, precisely what Bank of Montreal chief economist Douglas Porter advised Ontario’s government to “take a long look at.” In Ontario, home buyers’ citizenship is not yet documented, a move British Columbia necessarily implemented the same month as its foreign buyers transfer tax for Metro Vancouver.
Just this Monday, Finance Minister Bill Morneau ended the opportunity of tax-free capital gains by closing the tax exemption loophole meant for those purchasing their principal residence. This was thought to be taken advantage of by some wealthy foreign buyers installing “homemakers and students” as principal homeowners. In BC, it was recently found that their presence there was made possible by generous yet suspicious “gifts,” enough to buy swank multi-million dollar homes on the tony West Side.
In September, two of Canada’s “Big Five” banks, the Bank of Montreal and Bank of Nova Scotia, put restrictions on foreign buyers, who must now have their wealth and income origin verified as legitimate. This previously allowed newcomers to Canada to leverage their money from whatever source, legal or otherwise. It was originally meant for those without Canadian credit history who arrived in the last 5 years. Though it’s only a policy change and not even across the entire banking industry, it’s another step toward calming the real estate frenzy.
Will these measures keep those oh-so-easily created currency units at bay or send them closer to Bay Street, the business hub of Toronto?
Avery Shenfeld, Chief Economist at Canadian Imperial Bank of Commerce (CIBC), is hopeful that, for Toronto’s sky-rocketing prices, a “gentle end” can be brought about. Is there such thing as a soft landing? “An end” to this golden age of real estate is the last thing those with vested interests want to hear about, and only a very distant possibility while the strategy of kicking the can is continued ad infinitum (we’re looking at you, Bank of Canada, and those low interest rates.)
Mr. Shenfeld’s idea of cooling off the market “without killing the Toronto or Ontario economies in the process” is by increasing the supply side of the equation. Indeed Toronto is familiar with subdividing heritage mansions and building high rises behind them. The prices of those urban shoe boxes in the sky however, may be prohibitive for those 56% of Canadians who would experience a euphemistic “negative cash flow” if their monthly debt increased by a paltry C$200. By Angela Johnson, Vancouver, Canada, for WOLFSTREET.com.
In another city on UBS’s bubble list, San Francisco, there’s a new phenomenon. Read…Owners at “Leaning Tower of San Francisco” Knock Condo Values to Zero
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Try not to conflate “investors” with “speculators,” “flippers,” and [possibly] market manipulators.
And some people (who benefited directly or indirectly to the RE craze in Vancouver I’m sure) claimed only 5% of of RE transactions in Vancouver involved foreigners. How do they explain the dramatic decline in home sales after the introduction of the “foreign tax” then?
Is the party truly over for this bunch of hustlers in Vancouver? Hope so.
I wondered the same thing. When the tax was originally brought up, the realtors claimed that there were so few foreign buyers that it wouldn’t be effective or necessary but apparently foreign buyers were the foundation of the pyramid. Toronto will continue letting prices rise until normal folks are completely priced out.
This may have been the public cant but if you talked to Vancouver realtors off the record plenty of them had stories of mainlanders stepping off planes with suitcases of cash for houses. With so little actual documentation or statistical information collected at the time, it was easy to accuse people of being racists for noticing the gradual onset of a an enormous influx of extremely wealthy Chinese housewives with party connections..
There goes the neighborhood, absent immigration of affluent and educated!
Tell that to the thousands of un- or underemployed STEM PhDs here. We don’t need any more “affluent and educated”, thanks- nor would I hire out of a Macau casino.
The featured house for 1.35 million would go for $135,000 in my nearby town, and would be 1 block to a Marina with a nice restaurant, 8 km to a golfcourse, and might even have a view of the cruise ships passing by.
Screw Vancouver and the bubble it likes to whine about.
I thought $75000 when I looked at the million dollar home. My view must be distorted by living in the Rust Belt.
http://www.bloomberg.com/news/articles/2016-10-04/chinese-buyers-returning-to-hong-kong-housing-wheelock-says
These foriegn buyers are CHEAP!!!! All it took was a 15% surcharge tax in Vancouver and they bailed to Toronto. I hear more foreign buyers are flocking to Seattle after the surcharge tax, just across the border from Vancouver.
they are not fleeing the 15% tax but rather the canadian revenue agency.
There have been stories of in the canadian media that some of them flipped more than 20 houses a year making a profit of over 2 millions yet declaring very little or no income. Combine that with the extraditions deals for the crooks getting done between the canadian and chinese government and you have a playing field that does not suit criminals any more.
It is no secret, chinese take multimillion dollar loans from banks in china with no intention of paying it back and move that money to canada where they immigrate as investors, claim free healthcare while their kids attend public schools and pay no taxes while still speculating in real estate.
And then we wonder why there is emergence of xenophobia and racism. As usually, a few a$$holes are ruining it for the rest of “us”.
Went to Seattle this morning by bus through the Lake Union neighborhood and was just absently looking out the bus window and realized I had just counted 14 cranes in just a few blocks. All kinds of holes where old buildings had been and are now waiting for a crane.. I realize we are getting a flood of tech workers but there is no way we are going to get that many..
I’m surprised, is it so difficult to evade the 15% tax by setting up a scam company and buying as a business? Speculators do this everywhere in the world …
maybe they realized that the market was getting frothy and decided to leave for greener pastures. And all the local and national buyers that piggy-backed on the Chinese frenzy are now maybe also taking a deep breath, wand waiting for special discounts before diving in again.
IMO the Chinese speculators are not particularly sophisticated. They have the knowhow/guanxi to move money undetected out of China and into Canada. Setting up a Canadian corporation that can evade the non-resident tax is an additional, non trivial burden- you have to have a Canadian-registered corpo that you’re currently, verifiably an employee of (you receive regular paystubs, do identifiable work), the corpo has to make a loan on the property to a Canadian citizen (otherwise the house had to have been sold to a foreign buyer), interest has to be paid on the loan… etc.
I guess there are many Chinese in the US (e.g. those working at the RE agencies) who are clever and more than willing to provide all those services …
In Netherlands we have small offices where ten thousands of foreign companies claim to have their Dutch sister company. All to profit from the Dutch tax heavens, most owners and ’employees’ never visit there except maybe on paper for the yearly shareholder meeting etc. ;-(
but maybe these Chinese are a bit lazy and it’s easier to pump up a bubble in another city …
And where do you live, Paulo? I’m heading to the airport now. Patrick, Sydney.
And for so many years, the apologist for Vancouver’s housing bubble were saying that the locals were the ones running up the cost of housing. Ya right, now all those locals are moving to Toronto. Real estate is business full of crooks these days. On the street I live on in SF where house prices average 2 million plus, half the houses lie empty, they are neither occupied nor airBnB’ed.
Real estate has ALWAYS been full of crooks. I remember my older sister telling me about 30 years ago that real estate agents are worse than used car salesmen. Central banksters experiments on us, lately NIRP/ZIRP, have intensified the problems.
expensive houses staying empty, same story in my Dutch hometown and it has been like that for many years (at least 10-15 years). It’s not half the houses, but more like 10-20% in the inner city and it’s sad, because many of those are monumental buildings that are very nice to live in, they are now only used for speculation. Sometimes the owners put in a table and a few chairs, so that they can claim the home is being used ;-(
Some of the buildings are occupied by anti-squatters and in a few cases I’m suspecting they are AirBnB’d (illegally) which is even worse, because all those tourists will quickly demolish those ancient buildings. I don’t doubt that the owners will let the government pay for all the required repairs and maintenance down the road, it’s easy if you have the right connections :-(
How duplicitous, when a CIBC spokesman hopes for a ‘soft landing’ in the market, all the while opening their doors to loans to money launders.
Hopefully, the same taxes introduced in Vancouver will come to Toronto.
By the way, whomever feels that people buying ‘investment” properties are not the same as buying homes to ‘flip’, is mistaken.
Hopefully, there’s a market correction. And those who have either speculated or foolishly bought (and foolishly LENT) at ridiculous prices soon learn that fools and their money part company.
I see that Melbourne, Australia is not on that list, but Sydney is…………
Here in Melbourne we still have a long way to go until we reach the levels in Sydney.
And for many out in the Melbourne suburbs, that Sydney level will never, ever be seen.
Well, maybe in some areas!
these lists are always very unreliable …
Amsterdam isn’t in the list either, it was up 22% yoy this summer and the situation is getting more crazy with the day, even if you seriously overbid you have little chance of getting the property. Some people expect the yoy gains might reach 30 or even 40% soon… And all that is on top of an already existing bubble that reached 1000-2000% gains in 25 years (maybe for Amsterdam itself even over 2000%). And without any foreign investment …
In my hometown – far away from Amsterdam – prices are rising again too but at slower pace, 5-10% yoy. The most obvious change is that properties of over 1 million euro are starting to sell again instead of lingering unsold on the market for years. The more modest homes are only slightly more expensive than at the previous peak in 2008, and apartments are often cheaper than at the last bubble top.
Home valuations relative to income are still higher than ever within the last 400 years; only in 2002-2008 the ratio was slightly higher.
All thanks to the idiots at the central banks and in the government.
San Francisco is at the bottom of the list. And it’s totally crazy here. But I think Vancouver deserves a spot at or near the top.
Long time lurker, first post. Wanted to chime in as I live in Toronto and can share a bit of perspective.
I bought a house in a GTA suburb in 2009, sold it in 2014 as I was sure the bubble couldn’t extend any further and the property had already appreciated by 50%. So cash in right? Be prudent, rent and keep my capital intact.
The property has appreciated by 50% since then, 2 years!
So I’ve capitulated. Even knowing that prices are ludicrous, I’ve gone out and bought two properties because it’s just the only place I can make any return on my capital.
When I bought my place in 2009 the bank approved me for max 275k mortgage. I just got approved for 600k. .. Eventhough my income has only gone up by maybe 5k/yr.
Is everything shady and out of control? Absolutely. However, speculators are rewarded and backed by governments and the prudent savers are getting whipped. Same throughout the world at this point.
I’ve heard that CHMC (mortgage insurance company backed by gov) is approaching 1 trillion in insured property.
There’s no way the gov can allow the bubble to pop. I believe further rate cuts are on the horizon if there’s even a sign of problems in housing.
I feel bad for buying into a bubble, but it’s that or get priced out forever.
“I feel bad for buying into a bubble, but it’s that or get priced out forever.”
This sounds, almost verbatim, like the refrain from homebuyers in 2004-07.
“There’s no way the gov can allow the bubble to pop.”
At some point, there’s nothing the government can do to stop it.
“I believe further rate cuts are on the horizon if there’s even a sign of problems in housing.”
This will not stop a bubble from popping. If rates go as negative as you propose they might, pensions will go belly up– many around the country, public and private, are in dire straits because of where rates are right now. Banks will go belly up. Absolute chaos. Far worse than another real estate bubble popping.
Any idea when the next housing bubble will pop? Just looking to get some insight. Some say US Housing prices will drop in 2017, some predict later.
Thanks for your input
I know of a number of people who did the same thing in Hong Kong – they put bit price tags on their properties not really wanting to sell but willing to if someone would bite.
They sold a few years ago thinking prices could not go any higher.
Their expectation was that a crash was inevitable and they’d buy back in.
Didn’t happen – prices kept climbing – and are climbing again after a brief dip.
Rickards should write a new book – property wars – how governments try to outdo each other trying to stop property bubbles – and punters just shift their cash to the market with the least punitive measures on foreign buyers.
Foreigners like Vancouver and would not chose Toronto or Hogtown as its known.