Facts By Email #12 – Prices Are Rising Everywhere

IN THIS WEEK’S FACTS BY EMAIL:

• MULTIPLE OFFFERS ARE BACK – ARRGH!
• B.C.’S FIRST-TIME BUYER INCENTIVE – NOVICES ARE FINDING AND BUYING HOMES WITH AN AVERAGE OF $9,720 DOWN
• CCA: DON’T THINK CHANGE ISN’T COMING – Hints and concerns from the 2017 federal budget
• METRO’S APARTMENT BUILDING MARKET STUMBLES – Sales slip in a market priced to perfection
• “YIMBY” SHOUT-OUT REACHES VANCOUVER – San Francisco activists protest for more density
• NEW YMCA COMING TO SURREY CITY CENTRE

Questions, Questions

Q: The (capital gain) taxation of home offices was not in the budget. So, we are safe?

A: Well, it is true, it was not mentioned. But all the government has to do is to enforce existing legislation. See, our piece below. READ ALSO THE RELEVANT WEBSITES ON OUR WEBSITE and go to the link of Cheryl Gallant’s website in which she quotes the Minister as saying “Home offices are an ‘exception to the exception”.

 • International •

Prices Are Rising Everywhere

At our LANDRUSH conferences I have expressed the strong personal view that regardless of any possible deflation in commodities (an economic issue) that there is a massive inflation in hard assets. Indeed. We see huge price inflation in everything that you and I buy – but because we do not include it in our ‘core’ and ‘headline’ inflation calculation – price increases in food, houses, all government services, rent – etc., etc. – our government can report 2% inflation. Yet we see daily massive inflation in hard assets everywhere. And … it is not only a Canadian phenomenon!

House prices are surging across Europe and China, and there’s vibrant price growth in Canada, New Zealand and parts of North Asia, according to the Global Property Guide’s latest annual report. In fact, says the report, during 2016, house prices rose in 32 countries, and declines in only 13 countries. Big surprise? Biggest price increase in the world? China. Biggest in Europe? Iceland!

China remains the best performer in the global house price survey: China was the world’s strongest housing market in 2016, After a lackluster performance the previous year, Hong Kong also rose strongly. Last week, China actually and coincidently reported that 72 of Tier I and Tier II cities saw rising house prices. So, like elsewhere, smaller centres do not necessarily participate (worldwide). Which again supports my view that it is the huge amount of cash swirling around in the hands of the very rich that looks for safety.

Overall the report called Europe – super-vibrant! House price rises continue unabated. Two of the three strongest housing markets are in Europe, with rising house prices in no less than 18 of the 23 European.

• Iceland is now the strongest housing market in Europe
• Romania‘s average apartment price rose by 11.01% during 2016
• Ireland‘s house prices continue to rise, fueled by robust economic growth. Residential property prices rose 8.15% during 2016
• Estonia Average apartment prices in Tallinn continue their long upward march, rising by 7.36%
• Germany ‘s housing market remains buoyant. The price index for apartments rose by 7.00% during 2016, after rising 7.62% in 2015.

Somewhat weaker European housing markets included Portugal with house prices rising by 3.88% in 2016, Istanbul, Turkey (3.4%), the UK (3.28%), France (1.31%), Finland (0.39%), Spain (0.1%), and Greece (0.03%).  Montenegro was the weakest housing market with Russia remaining depressed, amidst a struggling economy. Residential property prices plunged by 9.27% in 2016, a little better than last year’s decline of 15.35%.

House prices in Canada‘s eleven major cities surged by 10.66% during 2016, despite repeated market-cooling measures. This was the biggest annual increase since 2006.

USA House prices continue to rise in all 20 major U.S. cities, according to the Case-Shiller index, with Seattle registering the biggest inflation-adjusted increase of 8.53% in 2016, followed by Portland (7.81%), Denver (6.7%), Tampa (6.16%), Dallas (5.9%), Miami (4.65%), Boston (4.18%), Detroit (4.14%), and Atlanta (4.08%).

Major Point: Our two recommendations in the USA for 2017 were Seattle and Portland … ahem!

 • Canada •

Multiple Offers Are Back … Arrrgh!

I made a speech to the great HOMELIFE company rally last Thursday at Northview. HOMELIFE features highly successful long term realtors and they were telling me that from one end of the Valley to the other … multiple offers are back. We mused in our FBF from two weeks ago, that a spring market was forming and it sure is.

Single Family homes are still not selling as strong but prices are firming. Condos and townhouses are downright HOT! It will be interesting to study the month end numbers this week. Realtors from Coquitlam, Maple Ridge and elsewhere also report a stronger condo market…

Major Point: Well, see the ‘worldwide piece’ above. The world is burning with cash, Cash that earns less than 1% and often nothing! That money is looking for a safe place, some return and it finds … REAL ESTATE!

CCA: Don’t Think Change Isn’t Coming

Hints and concerns about the 2017 federal budget. Many breathed a sigh of relief this week because of what was not in 2017 Federal Budget, namely no change to the capital gains allowance. But it may be premature to think the CCA on residential property will not change or that the CCA will be increased from its current 50% of value.

Remember, there is a federal budget every year.

There are some clues that the CCA will be more strictly enforced in the future, which could mean problems for home owners who have income-generating rentals on their detached housing lots.

The first clue is that, in 2016 for the first time, everyone has to report if they have sold a house on their CRA tax return.

The second is that the federal budget earmarked hundreds of millions of dollars to both CMHC and Statistics Canada to increase data-gathering in the residential real estate market. ($40 million to StatsCan is meant to draw data from provincial-territorial land registries, property assessment programs and administrative records to create a nationwide database of all residential properties in Canada, and provide up-to-date data on purchases and sales.)

The third clue is that prices of Canadian private residence have increased so much, so fast that going after CCA on any income-producing part of it means a lot of money for the government. The final clue is Ottawa is running a near $30 billion deficit and badly needs the cash (such as for the extra $11 billion for social housing programs).

So, let’s say you are a Vancouver or North Vancouver house owner who legally adds both a basement rental suite and a laneway house to their $2 million lot. This could mean that more than 50% of the sale value of the property (since the rentals can’t be stratified) would now be subject to CCA, and that is if there is no increase in the CCA rate.

NOTE: The legislation is really already there. It becomes just a matter of how much it is enforced. This is the latest from CRA: Disposition of a property where only part of it qualifies as a principal residence:

2.37 In some cases, only a portion of a property that is disposed of for a gain will qualify as a principal residence (see ¶2.32 – 2.35). If such qualifying portion of the property is designated as the taxpayer’s principal residence, it will be necessary to calculate the gain on such portion separately from the gain on the remaining portion of the property which does not qualify as the taxpayer’s principal residence. This is because the gain otherwise determined on the portion of the property designated as the principal residence may be reduced or eliminated by the principal residence exemption, whereas the gain on the remaining portion of the property results in a taxable capital gain.

Current accounting rules (see last week’s website links) are – that – if there is only very small of space involved it is not taxed. However, it is also clear that the current rules require that portion of a principal residence used for income is already subject to capital gains (though at a low amount). My fear is that because of the above reasons, there will come a crackdown on rental or business use of a principal residence and later an increase on the capital gains tax.

Major Point: Income-producing property has always been subject to CCA, but enforcement on home offices and rentals in principal residences have not been rigidly enforced. They now likely will be: for some house owners a decision may have to be made whether having a home office – even a rental suite is really worth it. 

 • British Columbia •

B.C.’s First-time Buyer Incentive – Novices Are Finding And Buying Homes With An Average Of $9,720 Down

We requested and received the numbers this week for the BC first-time home buyer incentive for its first two months. As you know, the B.C. Home Owner Mortgage and Equity Partnership provides an interest-free, no-payment, five-year second mortgage to those buying their first home.

The program starting taking applications on January 16. And it is apparently doing just what the government said it would, according to data from the B.C. Ministry Responsible for Housing.

From January 16 to March 21, a total of 998 applications had been received, 256 applications approved and 567 applications pre-approved, for a total value of approximately $4 million in provincial loans. This means of the nearly 1,000 applicants, 823 were approved. And the applicants are neatly divided: almost exactly half were from the Lower Mainland and the other half from the rest of the province: 150 applicants were from the City of Vancouver, 113 from Surrey, 59 in Burnaby, 86 in Victoria, 44 in Kelowna and 25 to 30 in Nanaimo, Prince George and Kamloops, the other large cities in the province.

The steady and wide take-up during the first two months is on pace to fully subscribe the program’s $703 million budget within its three-year mandate. It is expected to help 42,000 buyers.

What is surprising is that the average second mortgage for the 823 approved loans so far works out to $4,860 for half of the down payment, which means buyers are putting down a total of less than $10,000. Real estate agents and mortgages brokers across B.C. confirmed that the vast majority of the buyers using the program are putting down the minimum of 5% (which means they put up 2.5% of their own money) in line with the government’s stated aim to help those buyers who most needed it. Most are buying a strata unit, usually a one-bedroom condo.

The down payments seem low but if you look hard you can find condo apartments even in Metro Vancouver for less than $200,0000. (There are at least a dozen condos listed at $200,000 or less this week in New Westminster, where two-dozen buyers are approved under the incentive program). There are many more in smaller B.C. centres (including 26 in Kelowna and at least 28 in Nanaimo priced below $200,000).

We were skeptical of this program when it was introduced – we thought it may put some first-time buyers in over their heads and we don’t like that the home can’t be rented out for five years – but it appears to be working and welcome because of the federal mortgage restrictions that have been keeping many first-timers out of the housing market.

We don’t think the incentive will drive condo prices higher, because it represents such a small fraction of the overall resale strata market (developers say they are not seeing it much in the pre-sale sector).

Still, for some Metro Vancouver buyers it has already paid off: average condominium prices have increased from 3% to 4% since the incentive program was introduced.

Major Point: If you are a first-time buyer, take advantage of this program: five-years with no interest and no payments is a good deal, especially as it appears that strata prices will keep increasing. The incentive allows maximum leverage for very little cash. You can lock in a $500,000 condominium for as little as $12,500 if you can swing both the second and first mortgage.

Metro’s Apartment Building Market Stumbles

Sales slip in a market priced to perfection

The record-shattering sales volume of Metro Vancouver apartment building market is starting to fade, though prices remain startlingly high. In the last half of 2016, 51 buildings sold compared to 89 in the first half of the year and down from 99 in the last half of 2015. But the average price-per deal in the second half of last year was $6.4 million, compared to $4.5 million in the first half of 2016.

Although overall supply diminished as the total number of sales decreased by nearly 20% from 2015, significant demand was still evident as price-per-unit values for every sub-market in Metro Vancouver increased by 6% to 35%, with an average increase of 26% for Metro Vancouver, according to a survey from Colliers International’s Vancouver office.

The Tri-Cities sub-market witnessed the largest increase in per-unit value, which is likely due to the sale of a brand new purpose-built rental building in Port Coquitlam. Values of North Vancouver apartment buildings have also grown exponentially, as per-unit values have increased by 24% since 2015 and over 50% since 2014.

In total, 64% of the apartment rental building sales in 2016 were in Vancouver, where the average price per door was $405,108, up 19% from a year earlier, and the average cap rate had dropped to 2.6%.

Capitalization rates have continued to compress across the region. The largest decreases were in Burnaby (to 2.48%) New Westminster, Tri-Cities, Richmond and Delta, Colliers noted.

PER-DOOR PRICES, METRO VANCOUVER MF RENTALS 

Source: Colliers International, Vancouver, ApartmentSource report  

“Yimby” Shout Out Reaches Vancouver

San Francisco activists protest for more density

If you want to catch a lively speech by someone who is protesting and even suing cities to develop more housing – a yes in my backyard activist – you should catch the RED talks March 30, from 5:30 p.m. at the Vancouver Playhouse. Sonja Trauss, a former math teacher who lives in San Francisco, founded the San Francisco Bay Area Renters Federation in 2014 to bring together the supporters of dense, tall, fast building planning. Trauss began by writing letters in support of every potential housing project that went before the San Francisco Planning Commission, and having a few friends sign them. This led to appearances at public hearings on developments, speaking in support of the developers (the reverse of what happens in Vancouver). Her group has even sued suburban cities who failed to deliver on their housing development schedules. Trauss rents but she says every type of housing is needed in San Francisco, which like Vancouver has a low rental vacancy rate and soaring home prices. “It is all about supply,” she said.

Other speakers at the Real Estate and Development (RED) talks include Nick Buettner, who details places that have the greatest life expectancy and where more people reach age 100 than anywhere else in the world; and Paul Kershaw, the Founder of the Generation Squeeze campaign, and a University of BC professor.

New YMCA Coming To Surrey City Centre

A new 60,000-square-foot YMCA will be built in the City Centre neigbourhood of Surrey, joining the Kwantlen Polytechnic campus and Simon Fraser University in the fast-developing heart of the fastest-growing municipality in B.C. Already approved by the City, the facility will have an aquatics centre with two pools, a fitness centre, a gym, multipurpose rooms and a family development section when it opens in 2020 or early in 2021.

Major Point: The Y is another feature for the City Centre, which also boasts some of the lowest condominium prices, both new and resale, in Metro Vancouver.

HOT PROPERTY

Maple Ridge, 4978 sq. ft. home, 4 bedrooms & 5.5 bathrooms, 3 cars garage & 2 carports, spacious workshop, 1 acre property, Greenbelt. Monthly revenue $1650. Price: $1,290,000 (below assessed value).

(As we have stated many times, you are welcome to send in your ‘best deal’. There are no fees from us, nor any guarantees that your deal will be featured here or even is a good deal. It is up to you to study, evaluate and negotiate. Look up our disclaimer under the Hot Property section on your website. Interested parties – go to your website and get in contact directly with the owners/realtors or write to max@jurock.com)

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