Real estate has traditionally been considered an illiquid asset. But in Vancouver’s red-hot market, that’s changing.

VG headshot

Volodya Gusak, CFO, PC Urban Properties Inc.

Let’s look specifically at commercial real estate. How long does it now take to sell an office building? An industrial space? Each property is different, but one thing is clear: the time to sell an asset in Vancouver is much shorter than anywhere else in Canada. IntraUrban Business Park, an industrial strata development by PC Urban, recently set a record for new industrial development by completely selling out before construction commenced, evidence that capital flow to Vancouver real estate is creating liquidity for a traditionally illiquid asset.

What’s interesting about this change is that investors are accepting lower cash returns – and paying higher prices –  to own real estate in Vancouver. Why? As long as lenders see Vancouver as a place safe to finance, there is an increase in credit available, increasing the demand for a product that is already in short supply. With more abundant financing available and with knowledge that real estate is in demand, buyers are willing to pay more. And the higher price is simply the “risk premium” a purchaser is prepared to pay, knowing they can always find a buyer should they wish to sell. There are very few regions in the world where this occurs and it’s one of the principal reasons why investor capital is attracted to Vancouver real estate.

Fears of growing Chinese ownership a fantasy

And while it’s true that Mainland Chinese buyers are moving large sums of money and placing it into Vancouver real estate, increasingly into commercial real estate, they are not yet a majority. As the French economist, Thomas Piketty, writes: “It is important to stress that the current prevalent fears of growing Chinese ownership are a pure fantasy. The wealthy countries are, in fact, much wealthier than they sometimes think. The total real estate and financial assets, net of debt, owned by European households today amount to some 70 trillion euros. By comparison, the total assets of the various Chinese sovereign wealth funds, plus reserves of the Bank of China, represent around 3 trillion euros.”

According to Piketty, people in France believe rich foreign buyers are responsible for the skyrocketing price of Paris real estate. However, the reality is that 97 percent of today’s very high real estate prices are due to the fact that there are enough French buyers residing in France who are prosperous enough to pay such large amounts for property.

It’s a similar story in Canada, particularly in Vancouver. The common sentiment, widely reflected in the media, is that Chinese investors are driving up prices, when in reality there are many wealthy local investors who are playing the same game. In fact, a remarkably low percentage of Vancouver real estate is purchased by Asian investors. By most accounts, less than 8%.

Vancouver’s appeal

The interest in owning Vancouver real estate has been appealing for quite some time. However, never so much as now. Aside from our moderate climate, stunning natural beauty and reputation as safe haven, other factors that have driven real estate values include the influence of the Port Metro, the fourth largest export/import terminal in North America and the largest in Canada, and Vancouver’s reputation for innovative design and development. It is no wonder then that what is typically viewed as an illiquid asset has become, in fact, very liquid in the context of Vancouver. And it is hard to see this dynamic changing, nor pricing for real estate becoming any less expensive in the future.

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Timberrr…Vancouver Real Estate Selling For Less Than Purchase Price

 

 

615 E 6TH STREET, North Vancouver, BC - Exterior
NOVEMBER 14, 2016 17 COMMENTS

Vancouver real estate often gets hailed for excellent returns, but this one has us scratching our head. Three single family detached homes have listed for less than the owners paid for them. The kicker? They were all purchased less than 8 months ago. Is this the beginning of the end for Vancouver’s market or are we just insanely good at finding deals? Check out the listings and you can decide.

15 GLYNDE AVENUE, BURNABY, BRITISH COLUMBIA, V5B 3J3

15 GLYNDE AVENUE, BURNABY, BRITISH COLUMBIA, V5B 3J3 - Exterior

Taking a trip to the suburbs of Vancouver, there’s 15 Glynde Avenue in Burnaby, BC. The home is currently listed with New Coast Realty for $1,350,000. Located in the West Capitol Hill neighbourhood, the 2 bedroom, one bath home is 1623 sqft., and boasts of both city and mountain views. The place was built in 1950, and to be honest isn’t priced too far off from comps in the area.

The Loss

The current listing price is $50,000 less than it sold for in just April of 2016. Yeah, that sucks for the current owner…until you realize that they’re on the hook for commission too. At 5%, they’re looking at another $67,500. That’s an estimated loss of $117,500, excluding additional costs of closing and assuming someone pays sticker. Hefty price to pay for just over a half year of ownership.

2871 ST. CHRISTOPHERS RD, NORTH VANCOUVER, V7K 2B8

 

2871 St. Christophers Road North Vancouver, BC - Exterior

2871 ST. Christophers Rd is a 4 bedroom, 2 bathroom home in the Lynn Valley area of North Vancouver. It’s currently listed with Ralph Maglieri for $1,448,900, and is “in need of renovation”. The home is 1881 sqft, and on a 9,400 sqft corner lot. Fairly normal for this neck of the woods recently, but not exactly what you think of when you think “$1.5 million” anywhere outside of Vancouver.

The Loss

It was last purchased in June 2016 according to property records, just 5 months ago. While it’s listed only $1,100 under the previous purchase price, the seller is likely on the hook for another $72,445 in commission at 5%. That brings the total loss to at least $73,545, just over the median household income in BC.

615 E 6th Street, North Vancouver, BC V7L 1R4

615 E 6TH STREET, North Vancouver, BC - Exterior

615 E 6th Street is in the Queensbury area of North Vancouver. Currently listed for $1,599,000 with Jimmy Nam, the 1771 sqft. property boasts of “moderate downtown views” that will become “panoramic” if you add a second story to the bungalow. The home was built in 1958, and has 3 bedrooms, 2 bedrooms, and comes on a “level lot”.

The Loss

This place wasn’t just purchased once this year, but twice – once in February, and another time in June. The purchase price in June 2016 was $1,645,000, which is $46,000 over the current list price. There’s also the $79,950 in commission at 5%, bringing the potential loss to *drumroll* $125,950.

Deal Or Crash?

Benchmark prices can sometimes skew lower due to the distribution of prices, and aren’t the best indicator of market direction. This however isn’t benchmark prices being skewed. These are the same homes that were purchased just a few months prior, that owners are selling at a lower price. It’s not a smoking gun indicator of a crash, but it’s not exactly the booming market of yester-year.

So what do you think? Are these three properties deals that should be snatched up, or is this actually the beginning of the end for Vancouver real estate? Leave your comments below.

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