Facts By Email

IN THIS WEEK’S FACTS BY EMAIL:

  • CALGARY COMMERCIAL REAL ESTATE PICKS UP PACE – But sales of apartment buidings fall by 72% IN Q1
  • AUCTIONS TEST DEPTH OF ALBERTA REC MARKET
  • SPECIAL REPORT: CHINESE BUYERS:
    • 5 OF 22 [ALLEGED] CHINA FUGITIVES LIVING IN BC
    • UOOLU: GET USED TO HEARING ABOUT IT – Wealthy hip Chinese buy overseas property with new app
    • GOOD SCHOOLS KEY LURE FOR CHINESE BUYERS
  • FRASER VALLEY REALTORS WARNED ON TRANSFERS
  • SHORTING REITS? BE SELECTIVE
  • Commercial REITs see pay off in residential plays
  • NOT AN OIL GUY, BUT IT DOESN’T LOOK GOOD – OPEC production cut met with rise in U.S. shale surge
  • CONDO ASSIGNMENTS FLOOD VANCOUVER CRAIGSLIST – Most prices much higher than they were at release

 

• International •

Next week a more detailed report on my travels through some of Europe’s largest and smallest cities.

There are clearly worldwide common denominators in ALL major cities (where money flees to).

There are also clear signs of a changing world driven by Millennials, a return to the cities, more bicycles.

No belief in Governments having solution and polarization of opinions. Gone is free respectful exchange, replaced by: If you do not agree with me you must be an idiot. On both sides.

Major Point: Arrrrrgh

 

Special Report: Chinese Buyers

  • FIVE OF 22 [ALLEGED] CHINA FUGITIVES LIVING IN BC
  • UOOLU: GET USED TO HEARING ABOUT IT – Wealthy hip Chinese buy overseas property with new app
  • SKEWED DATA CLAIMS GOOD SCHOOLS KEY LURE FOR CHINESE BUYERS

FIVE OF 22 [ALLEGED] CHINA FUGITIVES LIVING IN B.C.

We are not privy to China’s court systems and we don’t know if fugitives that the China police are tracking are really guilty of anything, but it is rather interesting to know that 5 of the 22 on China’s most wanted list are living in British Columbia, according to China’s Central Commission for Discipline Inspection posted online this month.

They include five graft suspects in Canada – all of them in British Columbia. Ten are living in the United States, four in New Zealand, and one each in Sydney, Australia, London, UK, and the Caribbean nation of St Kitts and Nevis.

The B.C.-based suspects include alleged embezzler Xiao Bin, 55, whose address is listed in Richmond; alleged fraudster Li Wenge, 48 in Richmond; alleged credit fraudster Wang Qingwei, 45, of, Chilliwack; and He Jian, 51, a housing developer turned alleged embezzler now said to be living on Dover Road, Nanaimo.

The fifth is Cheng Muyang, 47, a wealthy Vancouver real estate developer now known as Michael Ching Mo Yeung. Vancouver. Ching, is currently seeking refugee status in Canada and denies the Chinese charges against him, according to the South China Morning Post. NOTE: Ching was the only one of the five alleged suspects in B.C. who would talk to the press.

UOOLU: GET USED TO HEARING ABOUT IT

Wealthy, hip Chinese buy overseas property with new app

According to reports, the new app to watch for in real estate circles is UOOLU. Invented in Beijing two years ago, the app is meant for wealthy Chinese millennials looking to buying foreign real estate. Can it also be used to help circumvent current Chinese currency controls?
A growing number of Chinese millennials are apparently looking to buy property abroad. It is seen as a hedge against a depreciating yuan and desire to find foreign homes for their children to live in when they study abroad. In the past year, home prices in major Chinese cities have soared to more than 30 times household income, according to Juwai.com, a China-based portal that lists foreign property for sale.

Uoolu said about 80% of its monthly active users are between the ages of 20 and 39, and that 20,000 customers have bought or are in the process of purchasing overseas property. Juwai.com, estimates that roughly 30% to 40% of its buyers are millennials.

Alan Wang, a 19-year-old college student in Toronto who comes from Shenzhen, told the Washington Post that he opened a bank account in Canada for education expenses. Now it is useful for buying property, too. He and his family are thinking about purchasing a home for about $1 million this summer. To do so, he will have relatives send money to his bank account, he said.

Uoolu helps buyers open bank accounts in other countries and apply for mortgages there. Users pay a deposit to reserve the right to purchase a home. The money is sent directly from a buyer’s bank account to the overseas developer—Uoolu says it doesn’t handle the cross-border transaction within the mobile app.

Major Point: Last week we looked at Bitcoins and this week it is Uoolu; both evidence that, if people really want to move money and buy real estate there is little any government can do to stop them in today’s high-tech, highly mobile global environment. 

 

Skewed Data Claims Good Schools Key Lure For Chinese Buyers

According to March survey by Juwai.com of China and Sotheby’s International Realty Canada, good schools – not potential profits – is the No. 1 reason why China buyers are purchasing a home in Canada.

But if you look at their data, most of the Canadian homes could be viewed as an investment play.

The study is based on a survey of China residents who viewed Canadian real estate listings online through Juwai.com in 2016.

It found that housing needed for educational purposes was the most cited reason why 44% of Chinese users were looking at properties in Vancouver, followed by 41% in Toronto and 9% in Calgary.

The second most common motivator was buying a home for their own use, which could mean the home would be used as a second or third property. Sixty-two per cent of those looking for homes in Calgary cited this was their main reason, followed by 37% for Toronto, and 25% for Vancouver.

Investment was the top reason listed by 27% who were the shopping in Vancouver and Toronto, and 21% in Calgary.

Brad Henderson, president at Sotheby’s International Realty Canada, said the data showed most Chinese property searches were for Canadian homes priced below $655,050.

Major Point: So, in Vancouver, 44% of China buyers are drawn by educational needs (such as buying a condo for a student child) but 52% were buying either for “own use” which could be a rental, or as pure investment deal.

 

• Canada •

Calgary Commercial Real Estate Picks Up Pace

But sales of apartment buildings fall by 72% in QI

While Calgary’s residential real estate is starting to regain some luster, its commercial real estate is setting ALSO some record numbers with sales volume and deals hitting the highest level for a first quarter in nine years. Commercial sale values in Calgary hit $1 billon in the first three months of 2017. The sales volume was up 69% from the same period in 2016 and the number of deals increased by 32%, reports Altus Group.

Perhaps surprisingly in a sector with a near 30% vacancy rate – highest in Canada – Calgary’s office market led the commercial surge.

In all, 14 office buildings sold in Q1 for $481 million: this is a huge increase from Q1 2016 when the office transaction volume was a mere $7.4 million. However, the increase is mostly due to one deal: a 12-building portfolio purchased by Slate Asset Management. In Q1, office sales volume represented 40% of the entire commercial volume.

Industrial real estate made up 21% with $215 million in 37 transactions: this is double the action in Q1 2016. Retail real estate posted 19 sales worth $80 million, up 37% from a year earlier.

The rental apartment market nosedived, however. In Q1, just nine sales were recorded worth a total of $30 million. This was unchanged from Q4 2016 but 72% from Q1 2016.

Sales of residential land also stalled, representing 10% of the commercial sales volume in Q1.

Meanwhile in the MLS residential sector, sales of detached houses through the first four months of this year are up 14.8% from the same period in 2016, and the average detached house price is up 4.2% to $581,593. The MLS detached inventory is down 25% to 2,172  houses. (Remember though: we are up from a very low bottom last year.)

Calgary condo apartment sales from January to April were up 17.7% from a year before, to 974, while the average price for a condo apartment is down less than 1% to $295,702, based on data from the Calgary Region Real Estate Board. As of the end of April, there were 1,471 condos listed for sale in Calgary, up 2.2% from a year ago.

Major Point: Calgary’s detached housing market is coming back stronger than any other residential sector. The sales-to-listing ratio topped 62% in April, which signals a weak seller’s market. The typical detached listing is on the market for 32 days before it sells, down from 40 days a year ago. The condo market is seeing a sales-to-listing ratio of 40%, still a buyer’s market, and it is taking an average of 54 days from listing to sale day.

Maybe the big boys that bought their Calgary commercial deals last  year (we reported them all) … knew something!?

 

Note: Auctions Test Depth Of Alberta Rec Market

A number of large real estate properties in Alberta are going to auction over the next two months, which should test investor appetite in the province.

Ritchie Bros. auctions (www.rbauction.com) include 24 lakeview building lots on Buffalo Lake – about halfway between Calgary and Edmonton and close to Red Deer – in the serviced Buffalo View Estates subdivision. The auction is held June 14 in Edmonton. “Every lot will be sold to the highest bidder, regardless of the price,” Ritchie states. (Note the quarter-acre lots are currently assessed at around $145,000 to $210,000.)

On June 23 in Peace River, Ritchie will auction the 942-acre Paradise North resort that includes an 18-hole golf course, two executive-style houses, a swimming pool complex, and a 75-unit camping site. Online bids are accepted.

A 16-unit motel in Lethbridge – which has one of Alberta’s strongest municipal economies – goes under the hammer July 20 in Lethbridge, as does a four-unit retail strip mall.

Major Point: We like auctions, especially when there is no minimum bid price (no reserve bid), and these should give an indication of where recreational real estate values are settling in the Alberta market. Yes, you can bid online. Set yourself up on their website.

 

Shorting REITs? Be Selective

Commercial REITs see pay off in residential plays

There is a lot of buzz these days about shorting Real Estate Investment Trusts, which we think may be an overreaction to the debacle at Home Capital Corp. which narrowly missed insolvency last month. (Home Capital is under investigation by the Ontario Securities Commission and recently borrowed $2 billion to stay afloat).

Now some analysts are shorting the entire REITs sector, citing slumping real estate income analytics and the spectre of higher lending rates.

We don’t back the bears on this: there are some good companies in the REIT sector and careful investors should do well in the sector this year. First of all, we don’t believe the Bank of Canada is going to raise its lending rate this year. Second, much of the real estate market outside of Alberta is doing very well.

Here are some REITs to keep or put in your portfolio. Some of these we like because they are nimble and smart, others because they are potential acquisition or merger targets.

Our top pick is RioCan REIT:

Trading around $25.47, up 0.2% on the year, RioCan is a big commercial real estate investor that has recently moved into high-density residential in mixed-use projects in the Toronto area.

Small cap REITs see as takeover targets include Chartwell Retirement Residences (there is a lot of M&A action in the retirement housing sector right now) Killam Apartment REIT; Pure Multi-family REIT (which is doing fine focusing on the U.S. rental market)  and Canadian Apartment Properties REIT (CAPREIT).

Major Point: The latter is especially interesting. CAPREIT owns 42,322 residential rental suites and 31 manufactured home communities with 6,451 pads and has a strong presence in Vancouver and southern Ontario. CAPREIT is big enough ($4 billion cap) to attract a major pension fund suitor and small enough to be flexible in the residential arena. Remember, we are not stock advisors…You place your bets, you make de money, but you also NEED to do the research … and you can lose also.

 

Not An Oil Guy, But It Doesn’t Look Good

OPEC production cut met with rise in U.S. shale surge

All eyes in the oil sector were on Vienna this week as OPEC members met to discuss potential cutbacks in production, which would boost the price of oil above its current US$50 per barrel range. Well, not much happened.

The Organization of the Petroleum Exporting Countries extended oil production cuts through March 2018, led by Saudi Arabia and Russia. But the cuts amounted to 900,000 barrels a day. This raised the oil price briefly, but that was enough to convince U.S. shale producers to announce an increase in production that matches the OPEC cuts.

We think the OPEC meeting was more to stop an oil price collapse than to raise prices. The world is awash in oil today and demand is falling: blame it on electric cars, renewable fuels or a sluggish global economy, oil demand is not what it was just two or three years ago. It is cheap and fast to produce oil from shale drilling – which is what the U.S. is doing. If oil prices start to increase, the drillers get buy, especially under the current U.S. administration.

Benchmark crude has fallen below US$50 a barrel in recent weeks, closing Thursday at $49.66. Industry forecasts are for 2017 to average US$51 a barrel, rising to US$55 in 2018 under the rosiest prediction. This is not enough to spark an Alberta recovery.

Major Point: I am not an oil guy, but all this does not bode well for real estate in oil producing provinces / segments.

 

• British Columbia •

Condo Assignments Flood Vancouver Craigslist

Most prices higher than they were at release

The number of condo assignments being offered in Craigslist Vancouver has doubled in the past two months: we counted 98 this Thursday, including those from private sellers and realtors, some of who had multiple assignments for sale in the same project.

The Vancouver pre-sale condo market is booming as is the resale condo market, where 44% of the sales in April sold for more than the listing price.

But if you are buying assignments you must be confident that prices will keep moving up because most are being offered at much higher values than the original release price. Look close and you see many are pushing on $900 per square foot or higher.

We compared some assignment listings this week with their pre-sale prices. All of them are in sold-out buildings that complete this year or in 2018.

Here are three examples:

  • The Voda at False Creek. This 16-storey project by Concert Properties sold out last year and completes next summer. When it was pre-selling, a 464-square-foot condo was priced at $359,000.  An assignment for this unit is offered today at $599,900.
  • The Heatley at Strathcona Park by Wall Financial. This is Vancouver’s first mixed strata industrial and residential tower. It is located on East Hastings Street. Pre-sale prices last year for a 2-bedroom, 760-square-foot unit were $395,400. Assignments are offered this week at $749,000 for the same-size unit.
  • Lougheed Heights Tower by Bosa, on the Coquitlam-Burnaby border. When pre-sales started in Feb. 2016., a 549-square-foot, one-bedroom was priced at $279,900. Assignment sales have a similar unit offered at $468,800.

There are many other examples of 20% to 30% markups across Metro Vancouver, from downtown Vancouver to Central Surrey.

Major Point: Assignment sales could be a great investment in the right project, and it seems that the mid-priced developments are seeing the highest asking price hikes. Assignments of luxury units – such as at Vancouver House and Burrard Place – are tracking close to pre-sale values. There is no foreign tax on assignment sale flips, and pre-sale contract sales are not subject to B.C.’s rules on assignments that came in a year ago. Have fun out there, but buy wisely. But note: When you buy an assignment, make sure you deal with the developer too, get the assignment approved, get the transfer fee paid and pay your money up on closing!

 

Fraser Valley Realtors Warned On Transfers

Last week Fraser Valley real estate brokers received a strongly worded warning of a money laundering strategy their offshore investor clients may attempt.

The Fraser Valley Real Estate Board (FVREB) sent a memo on May 18 to its members. It reads:

“It has come to our attention that overseas clients may be asking realtors to allow money to be transferred to their personal accounts so that the Realtors can arrange a bank draft to give to the sellers/developers for their purchase,” the notice reads. “It’s important everyone understands that this violates federal income tax laws, FINTRAC [anti-money laundering]and terrorism] laws and the Real Estate Services Act. It is extremely important to ensure that any exchange of funds is legitimate, legal and ethical before members agree to participate.”

Major Point: Where there is smoke, there is often fire, but the Board said it was being “proactive” and had not actually seen such illegal actions. The penalty for a real estate being caught laundering money is potential $250,000 fine.

 

Hot Property

A brand new townhouse in Chilliwack for $395,000 plus GST. It is located right by the university and just off the highway. It is the show suite and has all of the upgrades and will be ready for a November 15th completion. 3 bedrooms,2.5 bath, approx. 1,750 square feet, minutes from shops and amenities. Part of a 3 phase project but this phase is sold out and future phases may cost a minimum of $11k more. Market rent for this townhouse could be $2,200 – very solid with lots of demand.

I am in London this week. Travelled through Europe for a glorious month, but back next week.

Cheers,

Ozzie

 

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