Record $40-million sale of Vancouver condo a sign our housing market is peaking?

A Middle Eastern royal’s purchase in May of the penthouse suite and unit below it at Vancouver’s five-star Fairmont Pacific Rim hotel for $40 million was the most expensive condominium purchase in Canada.

The hotel is in Coal Harbor, a community in Vancouver West, one of Canada’s most expensive home-buying areas. The property is one block north of a street that residents in the 19th century called Blueblood Alley for its wealthy mansion-owners.

“Vancouver has been fuelled tremendously in the last couple of years by high-end wealthy Chinese and Hong Kong buyers,” Malcolm Hasman, the luxury real estate agent who brokered the sale of the Fairmont penthouse unit to the Middle Eastern client, said in a Sept. 16 phone interview. This year probably will be Hasman’s third-highest in sales, after 2012 and 2007, with more than $200 million in luxury real estate sold, he said.

“There’s more money around today than there’s ever been in the high-end market. And where’s it coming in from? The Middle East, China, Asia.”

The oceanfront apartment was also among about 131,324 house and condo transactions in the past three months, up 6.1% from the same period a year earlier and defying the predictions of the Toronto Real Estate Board and the Bank of Montreal that the market is cooling. Analysts and investors including Bank of Nova Scotia and Sun Life Financial Inc. now say it represents the excesses of a market that may be peaking.

“I’m not bullish on Canadian housing,” said Stephen Groff, who helps oversee $7 billion in assets at Cambridge Global Asset Management unit of CI Investments Inc., in a Sept. 13 interview. “It’s just people seeing rates starting to go up and they rush to get the deal done. It isn’t indicative of an improving market.”

The sales pop, driven by wealthy foreign investors and Canadians jumping into the market before expected mortgage rate increases, is at odds with Canada’s sluggish growth. Fuelled by consumers carrying record levels of personal debt and a high unemployment rate, there’s growing concern that the housing decline when it comes will be harder than the “soft landing” predicted by Bank of Canada Governor Stephen Poloz and Scotiabank Chief Executive Officer Richard Waugh.

Purchases of multimillion-dollar luxury properties on the west coast and condo units in Toronto’s 260 towers helped drive debt-to-household income to a record level in the second quarter. Mortgage borrowing rose 1.7% to $1.11 trillion, according to Statistics Canada, and debt such as mortgages and credit cards increased to 163.4% of disposable income, compared with a revised 162.1% in the prior three-month period. That’s among the highest in the world and compares with 91.9% in the U.S., down from a record 112.7% in 2009.

Home buying slowed last year after regulators tightened borrowing qualification standards. It has picked up again as consumers take advantage of historically low mortgage rates.

The government shortened amortizations in July 2012 to 25 years from 30 years as benchmark interest rates continue to be anchored at 1% in the longest pause since the 1950s. The Office of the Superintendent of Financial Institutions also introduced tougher standards for lenders.

The result of the efforts was short-lived. In August last year, home sales slipped 14% across the country led by Vancouver’s 31% dip, according to data from local real estate boards. The total values of August, 2012 purchases was 24% lower than this year’s $8.2 billion.

In comparison, Toronto residential real estate sales last month rose 21% from a year ago, according to the Toronto Real Estate Board, or TREB, and Vancouver existing home sales surged 53%, said that city’s board.

Source: Katia Dmitrieva, Bloomberg News

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