Back in January when I posted my Spring 2011 Forecast, I forewarned of the possible rise in Foreign Investment and how it might strongly influence the dynamic and prices of real estate. Click HERE to connect to my Forecast.
I even made light of my Housing Psychic abilities back in March. Click HERE to read that post.
Once again, this past week has seen a lot of news about the rise of foreign investment in Vancouver and the rest of Canada. Here's our latest press on the subject matter as quoted in PropertyWire.ca. Read on below for the full story!
The Centre of Canadian Real Estate Moves to the Left
Heather Wright, Real Estate Trade Journalist
Published on Propertywire.ca, a resource for Real Estate and Mortgage Professionals, May 2011.
It has been said, that currently, there are two Real Estate markets in Canada. There is Greater Vancouver- and then there is everywhere else.
There is has been a seismic shift in Canadian Real Estate- and its’ epicentre is in Greater Vancouver. There is no question that there has been far reaching impact, from a sustained burst of activity in a specific region that has spread it’s way, from coast to coast.
Vancouver, too, benefitted from intense international focus during the 2010 Olympics. Eyes from all over the world got to know the city over the two weeks that the Olympics ran- and clearly- they liked what they saw
Prices have risen so dramatically, that CREA has made adjustment upwards to its’ national average home price, propelled by unexpected, and unprecedented activity in the Greater Vancouver housing market. It is no great mystery what is at the source of all of this activity.
“Although sales activity in the first quarter of 2011 came in largely as expected, multi-million dollar property sales in Greater Vancouver have surged unexpectedly. These sales have upwardly skewed average sale prices for the province and nationally, prompting the average price forecast to be revised higher.” commented Gregory Klump, chief economist of CREA, in their revised 2011 forecast. And who is buying all of these multimillion dollar homes? This push comes partly from domestic sources, as many Canadians- and their assets – have survived the financial crisis unscathed- and are in turn, pouring their investment money into luxury housing.But for the most part- the wave that has landed on the shores of Vancouver has Asian origin- Taiwan and Singapore to a lesser extent- but mostly from China.
Cause and Effect
The thing with Real Estate is you can almost always trace cause and effect. In Asia- China in particular at the moment, there are a series of impositions and restrictions placed on property investors in a furtive effort to throw the anchor in an overheating property market, and keep inflation under control too.
After being shut out of the market at home, these Asian investors have started looking elsewhere for suitable properties, and many eyes have turned towards Canada- in particular towards Vancouver.
Don Lawby, President of Century 21 Canada Limited Partnership, summarizes the allure for these investors. “Foreign investors, many of whom come from mainland China, have a lot of reasons that they are here now. Their government has imposed legislations and restrictions... that have caused them to look elsewhere.”
What is it that draws these foreign investors? After they have been essentially forced to look outside their borders, the first stop – figuratively and almost literally- is Vancouver. Says Lawby,” It is an easy flight in a welcoming country. Calgary and Toronto are receiving many of these investors as well, but to a lesser extent. The things that are attractive to these investors in a city are a strong Asian community and an opportunity for family- for education and schooling (both university and private school) “
And come they have in droves, and started a series of events that has buoyed the property market in Vancouver, and has had implications both for those selling their properties, and to the general price appreciation in the city. Says Lawby, “People got dislodged and walked away with sizeable money to buy high end properties, which has contributed to skewing the prices upwards.”
Not just Vancouver
Vancouver isn’t the only city to be on the receiving end of a flood of foreign investors. Toronto is also becoming a hot destination for Chinese property investors. Toronto too, has the draw of education and a vibrant Chinese community (second in the country only to Vancouver).
"Changes to mortgage regulations that took effect in April 2011 likely sidelined a number of first-time homebuyers," said Klump in a release. "By contrast, higher end home sales in Greater Vancouver and Toronto had their best April ever."
Toronto Realtor Steven Fudge, Bosley R. E. Ltd., has witnessed this activity in his market, and has seen a subsequent rise in price: “In Toronto, foreign investment is one factor contributing to an increase in real estate values. The unusually long winter has delayed the arrival of listings more typical of the spring market, while demand has continued swelling. The lack of product has made bidding wars a common occurrence."
Prices have gone up quickly and sharply in the Vancouver area. According to research released by Royal Lepage, the average price for two-storey house in the city and on the north shore bolted up by 10% in the first three months of 2011 alone- which works out to an average price of $1.1 million. To put that in context- the national average price elsewhere across the country is a much more modest $379,000.
It’s not just the high end homes that are enjoying this handsome price appreciation; there is an impact on buyers from all ranges of the market. Comments Vancouver Realtor Jay McInnes, Sales Agent, and Macdonald Realty: “There has been price appreciation throughout the different areas of the market. For example, with heritage buildings in Yaletown since the tailing months of 2010 and now we have seen roughly a 5% increase in value.... In the heritage products throughout Gastown Vancouver we have seen an increase of 5% - 8%. This has been pretty consistent through every corner of the market in the past 6 - 9 months.”
The problem too, is that incomes are not skyrocketing at the same pace, so the real question is, for those who are not members of Canada’s ‘millionaires club’- what does this do to affordability in Vancouver now- and beyond?
This is just the beginning says McInnes. “Affordability will be a factor from now on in the Vancouver Real Estate Market. The rate that the city is growing and the product ranges that we are seeing, it will get harder and harder to enter the Vancouver Real Estate Market. This is just a fact of life if you are living and working in this part of the world. If you want all of the luxuries that the world has recognised we have here in Vancouver, the majority of people have a very hard road ahead.”
Add to that the knowledge that there is a likely interest rate hike coming and a marked increase in the prices of gas and food. And to make matters worse for those on the periphery of home ownership, Jim Flaherty’s mortgage changes took effect during the spring- making home ownership an unlikely prospect for some.
And as Fudge points out, it is not just the leap in property prices that shuts the door on home ownership for many. “The closing costs for real estate have continued to impact affordability. In Toronto, the city and provincial land transfer taxes are making the total cost of real estate prohibitively expensive for many buyers.”
So the concern may be for some, how far, and how deep the reach for this investor led price appreciation? This wave touched down in Calgary and Toronto- and has affected all areas of the country by the way of average national prices.
What goes up must come down
It seems that the flow has ebbed slightly- if only for now. The surge amplified by foreign investors has begun to cool modestly, with most of the activity having registered in Q1, according to statistics.
CREA, in their forecast readjustment, said that foreign investment was running full steam ahead: “The extent to which high priced sales activity in Vancouver will pitch up the average price locally, for British Columbia and nationally will likely diminish in the next couple of months in line with a seasonal increase in national activity,” Klump added. “That said, foreign investment in Vancouver residential real estate is showing no signs of slowing, so it seems likely to remain a prominent market feature for some time.”
While very much still a driving factor, local realtors have seen a more cyclic picture unfold. Jay McInnes said:” They ( foreign investors) played a larger role in the first quarter of 2011 than they do now. Especially in the Richmond & West Side of Vancouver detached home market. With foreign investors (depending on the calibre) the interest ideally lies in land acquisition. Then you have the investors for the very high end condominium market, followed by the smaller investors will move to the typical condo market because it is a much more flexible with not so difficult entry price points. There is always going to be a consistent role for the foreign investor in Vancouver, it just tends to fluctuate year after year.... But that will never go away.”
The sky is the limit
That said, there appears to be a steady stream of interest continuing to pour into the country, and invariably there will soon be issues with supply. The million dollar homes, while plentiful in Greater Vancouver, will run out at some point. Property investors, having begun to exhaust the supply, have started buying less expensive homes at a premium as well- just for the land. It has become about location as well, and these investors are willing to pay top dollar to be there- even if it means knocking an undesirable property down, and starting over.
Clearly, they know what they want, and they aren’t going to let a little thing like a price tag get in the way of having it. The fear too, is that, as inventory becomes leaner and leaner over time, prices may be pushed up even more.
It seems that Vancouver may be slightly insulated as a market as well, and that prices are likely to stay close to where they are in the future as McInnes suggests:” Without a crystal ball, I believe the market (in general) will continue to slowly rise over the next few years (assuming world economies move positively forward). Don't forget, after the recession hit in '08 the Downtown Vancouver market was back to where it began (pre-recession) within 9 months! I greatly thank the conservative levels of Canadian Banking for that and I don't see that changing any time soon.”