IN THIS WEEK’S FACTS BY EMAIL:
- QUESTIONS, QUESTIONS
- PRICE-PER-BUILDABLE SHOWS PROFIT EDGE IN SUBURBS
- PREDICTING DETACHED HOUSE PRICES IN METRO VANCOUVER – Realtor claims “technical charting” works, but it ignores the black swans
- TIEN SHER’S NEW SURREY PUSH TO TURN WHALLEY INTO YALETOWN
- 12% RENTAL RETURNS GUARANTEED FOR FOREIGN BUYERS
- EYEBROW RAISER
Q: Ontario’s new rental rules (last week’s FBE) are ridiculous. Who would want to be a landlord?
A: Yes, but what do you think is in store for us in BC with the new Government?
Q: Two subscribers felt that the proposed ‘user pay’ mobility system is good ad disagree with me on my ‘tax grab’ story.
A: Thanks for sharing. You make good points. I still don’t like it. And yes, I don’t like the carbon tax either … so there.
Q: David Rosenberg predicts a collapse in the stock market. Do you agree?
A: I am not a stock market forecaster, but I read him as well. As to the collapse: Well, he is – yes and no. He makes the ‘bear’ case that in his opinion: We are not growing the economy at 2.5 percent. It’s actually 1.5 percent. Housing starts are down for 5 months in a row, auto sales down 5 months in a row, restaurant spending down 4 months in a row. Further, the bond market’s 10 year rate is down to 2.16 per cent and consumer confidence is down overall. He adds that the US FED is now forecasting only 1.5 percent growth in the 3rd quarter and company earnings (S&P) shrank 7% this year. All over – in his view – the economy is below performing expectations. Ergo his warning: markets are too high – valuations are extreme. However his company Gluskin Scheff is buying Japan and Europe and he thinks oil is a buying opportunity (like last year). So, not a collapse forecast, but rather a shift in allocation.
Q: You have been saying for years that ‘we live in the world’s most unreported inflation’. Yesterday I saw a report on CTV that food inflation is reported wrongly by Stats Canada and is in fact 5 times higher than is being reported!
A: I am not surprised. Anyone that goes shopping sees massive inflation in prices – food, housing, rents, gas, parking, all government services, taxes …all of which are not part of the official ‘2% inflation target’.
• International •
12% Rental Returns Guaranteed For Foreign Buyers
China’s currency controls have cut off some of the money flowing into foreign real estate from mainland China, but Vancouver condo developers are apparently now targeting new buyers in Hong Kong and Taiwan. The reason is that these two regions are not affected by China’s currency restrictions and use a currency that trades freely. Residents there have access to all foreign markets, be it for real estate, stocks or any other investment. So, sources say and have the photos to prove it, Vancouver developers are offering guaranteed rental returns of 12% annually to Hong Kong and Taiwan investors who buy pre-sale condos in Vancouver.
And they are not shy about it: Concord Pacific advertises such an offer on the side of buses in Hong Kong. The deal offers Hong Kong buyers a guaranteed 12% rental yield on two developments: Park Avenue West in Surrey and the Omega on the Park in Toronto.
Major Point: It is perfectly legal to sell Canadian condos into foreign markets, but we wonder if it is a signal of a potential softening in the local condo market? In a strong domestic market, developers should not have to offer incentives to foreign buyers to move product. Also according to the Urban Development Institute, sales of new concrete condominiums in Q1-2017 totaled 1,844. This is down 48% compared to the same quarter last year and down 17% versus Q1-2015. The UDI says the sales slide is due to a lack of inventory, but we are now starting to wonder.
• Canada •
Calgary now has more vacant office space than all the office space in downtown Vancouver. Estimates are that 10 million square feet of Calgary office space, much of it new, is empty as the vacancy rate nudges 30% after three years of rapid office construction. In addition, two new towers, with nearly 2 million square feet of space are expected to complete in downtown Calgary by next year.
• British Columbia •
Price-Per-Buildable Shows Profit Edge In Suburbs
The increase in per-square-foot selling prices of pre-sale condos this year in suburban Metro Vancouver has been a boon to developers who have found that space they bought for less than $100 per buildable-square-foot can be sold for five or six times that as a condo or townhouse space. It is quite remarkable what consumers are willing to pay now for strata projects in the suburbs. It also opens some interesting avenues for investors in pre-sale condos and land assemblies.
The following are the per-buildable-square foot prices low-rise wood frame condo projects in various suburbs as of April 1. These prices reflect the cost of the raw land, plus the expected allowable floor-space-ratio for the site. Bear in mind that new low-rise condominium pre-sale prices in all these municipalities are now at or north of $500 per square foot.
Tri-Cities: Coquitlam: $80 to $130; Port Coquitlam, $105 to $120; Port Moody, $80-$130.
Burnaby: Edmonds: $100-$120; Brentwood, $120-$140; Metrotown $200-$240; Lougheed/Burquitlam, $120-$140
New Westminster: $80-$110.
Surrey: City Centre, $25-60; Newton, $20-45; Cloverdale, $15-$45; South Surrey, $30-$60.
Major Point: As a developer, look to New Westminster, Port Moody and Central Surrey, because of both the lower land prices and SkyTrain service. If you are trying to assemble lots for higher-density development, targets are Newton in Surrey; central New Westminster and central Port Moody.
Predicting Detached House Prices In Metro Vancouver
We were recently handed a missive penned by Vancouver real estate agent Dane Eitel of Sutton West Coast Realty (daneeitel.com) who claims that the technical charting that is used in equity markets to time buy and sells can also work to accurately predict the low (time to buy) and high (time to sell) Metro Vancouver detached housing market.
His thesis is that by using historical patterns back to 1977, it is possible to predict with a 1% accuracy the low and high points of future house prices.
Eitel says his charts show that house prices increase to a point that is no longer sustainable for that period of time. Once the high is established, the middle and lows settle into place. Over the course of months (or years) a trading range is created with a high, middle and low end of the trading range. Once the trading range is established at every level, the chart begins to expand upwards. Thus the prices escalate to all time new highs until the market once again feels the prices have peaked. A new trading range then begins. “Knowing this process is repeated, a prudent investor can look to exploit these repetitious factors.” What does it tell him now? “As for the present market condition I believe the trading range is already established, top being $1,830,000 middle $1,650,000 and the lows $1,470,000 I believe the average price will decline towards the middle price point near term (6 months).”
Sounds very interesting, but it has one flaw: it fails to factor in black swan events. For example, the technical charts when applied to 2016 (with a high in January and a bottom at the end of August) do apparently predict what happened, but this may have had more to do with the introduction of the foreign buyer tax – plus mortgage approval changes – on August 2 in Metro Vancouver than a reflection of historical averages. Also, no one knows when the high or low point is until it has passed, so it is easy to look at history to find the peaks and lows but much more difficult at the current time.
Major Point: Our advice is to be very cautious at this time and not to attempt to buy low and sell high. Our advice is to be invested until the governments of the world stop printing money. (Which may happen sooner than you think and may be that ‘black swan’ that no one expects.) But, if they keep printing then Metro Vancouver and all the world’s major cities house prices will be higher again five or 10 years from now.
Tien Sher’s New Surrey Push To Turn Whalley Into Yaletown
Developer Charon Sethi of Tien Sher Group has rallied Surrey’s Whalley community in a push for his latest condominium developments and we think it is one to watch.
After two years of delays trying to get Surrey Council rezoning approval for two towers and a low-rise projects on a 4.3-acre Whalley site, Sethi called a rally at the local Legion branch on June 6. He packed the place, drawing about 278 people to hear his pitch for a development of 1,900 homes about a seven-minute walk to SkyTrain.
Sethi, of course, has been a pioneer in the on-going transformation of Whalley into a vision of a walkable, livable Yaletown type community. It is not there yet but it is getting there. Tien Sher has been building condominium projects in Whalley since 2005, among them his three Quattro developments, the micro-suite Balance, and Venue. All five are sold out and Venue is currently under construction.
At the heart of the new project is the notorious and now closed Flamingo Hotel bar which once housed the last stripper club in the Fraser Valley. There are still low-income residents in the Flamingo rooms, and Sethi said he is working to keep them in place for as long as possible.
At the Legion meeting, Sethi explained his vision to create a traffic-free “walkable” street wending its way through his new development. “We are proposing to the city that this should be an arts and culture promenade. You have jugglers, you have performers. We can animate that street level and create a lot of activity for the area,” he told the Legion crowd. It could also convince Surrey Council to move forward on his rezoning application.
Major Point: We are telling Sethi’s story to not only applaud what he is trying to do, but to put investors on notice to keep an eye on Whalley – now known officially as Surrey City Centre – because it will eventually be the downtown of the largest municipality in B.C. Our pre-sale investors have done very well with Sethi’s sold-out latest projects and investors should be ready to get in early when he starts marketing his new condo towers.
As a longtime analyst and forecaster I shake my head. I believe in hard asset inflation, I believe in Vancouver … but these numbers in Coquitlam? 567 Clarke and Como by Marcon Development at $802 psf average are wild. Located right across from the Burquitlam Skytrain station. This is a 49 storey building so the high-priced units on the upper levels will bring the average up. All the units are spoken for I believe. Also, a $700 sq. foot high-rise price is rumored to being achieved in Surrey.
Edmonton: Brand new turn-key 2 bedroom 2 bathroom + media room California split investment condo. Price: $229,105 + GST. Investor friendly with NO Property Transfer Tax, No Foreign Buyers Tax, No Empty Home Tax and no rent controls. ONLY $247/SF compared to Burnaby at an avg. of $671/SF, Surrey at $397, New Westminster at $500/SF, Abbotsford at $260/SF, or Kelowna at $325/SF. Cash Flow positive after ALL operating optional rental management and Finance expenses. Estimated Yr. 1 ROI is 34%.
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