Why Vancouver’s house price increases show no signs of stopping

Wednesday, April 8th, 2015

From Albertan black gold to globetrotting wealth to lucky heirs, big money is flocking to Vancouver real estate and fuelling huge price increases that show no sign of stopping, according to the CEO of Sotheby’s Canada.

“You’re not only going to be competing with other wealthy Canadians, you’re going to be competing with wealthy people all over the world,” Ross McCredie told Business in Vancouver.

Sotheby’s Canada, which specializes in high-end real estate, released its annual luxury homebuyer report today. The report breaks out high-end real estate buyers into three generations: baby boomers, Generation X and Generation Y.

The report characterizes baby boomers as sitting on a large amount of collective wealth because they have benefited from inheritances from their parents and, especially in Vancouver, have seen their homes greatly appreciate in value over the past 25 years.

Eighty per cent of high-net-worth Canadians are over 55, and that generation now represents 30% of Canada’s population, according to Statistics Canada figures quoted in Sotheby’s report.

In turn, boomers are now helping their Gen Y children — the report defines this group as 15-35 — buy real estate. A Genworth Canada survey of first time homebuyers released April 7 found that in Vancouver, 40% had help from their parents, compared to 25% throughout Canada.

Meanwhile, Generation X (34 to 54) has largely had to fend for itself. McCredie called this cohort “generation screwed.” The high-end buyers in this group tend to be double-income professional couples, but they have been priced out of Kitsilano, Dunbar or Point Grey. They’re increasingly looking at homes in East Vancouver, where detached homes are now commonly priced well over the $1 million mark.

“In Vancouver a lot of families are taking up in East Vancouver, where 10 years ago that wouldn’t have been where they wanted to live,” McCredie said.

Wealth from outside the province’s borders continues to be attracted to Metro Vancouver, a trend McCredie said shows no sign of slowing.

That wealth is coming from other parts of Canada, in particular, from Alberta, as well as from abroad.

According to McCredie, wealthy Albertans have been attracted to Vancouver’s Coal Harbour neighbourhood, as well as Vancouver Island and Kelowna, and treat those properties as vacation homes. So it’s no surprise to him that Coal Harbour has a relatively high number of vacant condos (at 23.5%, the highest vacancy rate in the City of Vancouver, according to a 2013 analysis done by Bing Thom Architects planner Andy Yan).

“A lot of people bought in Coal Harbour because they only want to spend eight or 10 weeks of the year here and a lot of them are from Calgary or Edmonton and Toronto,” McCredie said.

“They’re not working or living here. They love Vancouver and they want to spend a good chunk of time here.”

The high-end real estate markets in Vancouver, Toronto and Montreal are all “heavily influenced” by international buyers, according to the report. Buyers from China dominate in Vancouver, from China, Russia and the Middle East in Toronto, and from the Middle East, China, Europe (especially France) in Montreal.

International students from wealthy families are also playing a role in Vancouver’s real estate market, McCredie said.

A common pattern is for the students’ parents to buy a high-end condo or even a large detached house in a wealthy neighbourhood such as Shaughnessy, with plans for the entire family to move to Vancouver in the future.

McCredie said the discontinuation of Canada’s investor immigrant program has had little impact on foreign real estate purchases in Vancouver.

That program required individuals with a minimum net worth of $1.6 million to loan Canada $800,000; it attracted 36,973 immigrants to British Columbia, two-thirds of whom came from mainland China. The program has since been changed to allow only 50 applicants a year.

The change has not deterred the flow of foreign money into Vancouver real estate because many investors are not interested in immigrating to Canada, McCredie said.

“A lot of these guys are very wealthy and they don’t want to pay Canadian taxes,” McCredie said.

Foreign money will continue to flow to Vancouver because the region has developed infrastructure and expertise to help wealthy people buy property. The recently launched official Chinese currency hub will make transactions even more convenient, McCredie said.

“The U.S. right now is a really difficult place to immigrate to or even buy a property in, whereas Canada has been much more welcoming,” McCredie said, adding that HSBC Canada, which is headquartered in Vancouver, is particularly well set-up to handle transactions from foreign buyers.

“Post 9-11, so much gets looked into in banking relationships [in the United States]. It takes a little longer to get your money from China into a Los Angeles bank.”

That means prices, especially for detached homes, which are limited in supply, will continue to rise. A recent Vancouver Savings Credit Union report predicted that by 2030, the average home price in Metro Vancouver will exceed $2.1 million.

Meanwhile, average incomes in Metro Vancouver continue to lag behind those of other major Canadian cities. Over the next three years, the City of Vancouver plans to spend $125 million from its capital budget on efforts to house both low- and middle-income people, as rising rents and tight housing supply squeeze residents.

While some observers have called for policy makers to take a look at reigning in foreign investment through higher taxes or restrictions, McCredie balked at that suggestion.

“If the government came out and prevented foreign buyers from buying real estate, it would have a huge impact in our market,” he said.

“And you would see a correction.”

Source: Jen St. Denis at Business in Vancouver with files from Frank O’Brien

See which is the top US city for Canadian homebuyers

Wednesday, April 30th, 2014

Las Vegas, Detroit and Los Angeles are the top three city targets for Canadian home hunters, with Florida dominating the rest of the 2013 list of online searches on the realtor.com website

The United States city in most demand from Canadian homebuyers is Las Vegas, Nevada, according to Realtor.com website data.

In 2013, Canadians carried out more online searches for the property in the international gambling city than anywhere else, states the newly-published research from the National Association of Realtors (NAR).

The second most popular destination was Detroit, Michigan, and third was Los Angeles, California, the City Search Index (CSI) shows.

The other cities ranked among the top 8, in order of preference, are Fort Lauderdale, Miami, and Orlando, in Florida, along with Chicago, Illinois, and Naples, Florida.

The figures largely mirror the NAR’s March 2013 2013 Profile of International Home Buying Activity report, which showed the top five destinations were Las Vegas, Fort Lauderdale, Orlando, Detroit, and Naples.

The index is based on a count of actual house searches by potential buyers throughout the year as measured by traffic on Realtor.com, NAR’s official property listing website.

* Air Canada has just introduced a new daily flights, starting today (Monday 28 April) from Vancouver, British Columbia, to Las Vegas. The Air Canada rouge branded flight is one of five new routes announced from Vancouver International Airport (YVR).

Air Canada is also flying to Los Angeles, California, four times daily from 1 May, Anchorage, Alaska, daily from 16 May, San Francisco, California, four times daily from 1 July and Phoenix, Arizona, daily from 17 December.

Craig Richmond, President & CEO, Vancouver Airport Authority, says, “With Air Canada rouge now touching down in Vancouver, travellers will have more selection to our popular US destinations – including the addition of their service to Phoenix.”

Source: Adrian Bishop, Editor, OPP Connect

Canada-U.S. house price gap hits a record high

Monday, April 28th, 2014

For many years, the Canadian and U.S. housing markets tracked each other fairly closely, but that hasn’t been the case since the U.S. housing bubble burst in the middle years of the last decade.

According to an analysis from BMO chief economist Doug Porter, the difference between the two housing markets has never been greater, with average resale prices in Canada now 66 per cent higher than resale prices in the U.S.

The strength of Canadian home prices has surprised even optimistic observers. The latest data from the country’s real estate boards indicates resale prices (not including new builds) jumped six per cent in the past year, and the average price of an existing home in Canada has now pushed past $400,000.

That compares to an average price of around $250,000 in the U.S.

Comparisons like this are never as telling as they seem, because of differences in how average prices are measured, and because average prices say little about which way a housing market is headed.

And then of course there is the fluctuating exchange rate, but Porter notes that even after adjusting the numbers for exchange rate changes, Canada’s housing market is still about 50 per cent more expensive than the U.S.

“The main takeaway is that, contrary to all expectations, the Canadian housing market has just kept on rolling in 2014 even as the U.S. housing market has paused for breath (after a steep climb out of the dungeon),” Porter wrote in a client note last week.

But will it keep on rolling? The seemingly endless debate continues between those forecasting a Canadian housing bubble burst and those saying the market is healthy.

Yet with recent weakness in housing starts and building permits, some economists — such as BMO’s Sal Guatieri — have started to warn that a housing market correction could cause a recession.

Guatieri noted in a report earlier this month that Canada has become more reliant on real estate-related jobs than it has been in the past, making the economy more vulnerable to a correction.

But overall, the bank sees the odds of a serious housing market bust-out as being low.

All the same, a significant number of international investors have gone bearish on Canada’s housing market, predicting double-digit price collapses. Pimco, the trillion-dollar hedge fund run by billionaire Bill Gross, recently predicted a 30-per-cent collapse in house prices in Canada over the next few years, starting this year.

If Pimco’s prediction were right on the money, and nothing changed in the U.S. market, Canadian average resale prices would still be about a third higher in Canada than in the U.S. — even after the price crash.

Source: Daniel Tencer, Huffington Post Canada

If you own real estate in the US, be aware of the tax rules when it comes to selling

Monday, April 7th, 2014

Many, especially those who are retired snowbirds, also spend a good part of the year in the U.S. It is important to understand what the tax implications are when you own or sell your U.S. property.

One issue that needs to be addressed is whether your tax status changes for purposes of the Internal Revenue Code by virtue of your time spent in the U.S. More specifically, are you still considered to be a “non-resident alien” for U.S. tax purposes or have you become a “resident alien” for U.S. tax purposes because you stayed in the U.S. too long?

In the eyes of the Internal Revenue Service (IRS), if you spend less than 31 days in the U.S. during the current year, you are considered to be a non-resident alien.

On the other hand, you will be considered to be a U.S. resident for tax purposes if you meet the “substantial presence test.”

If you spend 183 days or more in the U.S. during the current year, you are considered a resident alien.

If you spend between 31 and 183 days in the U.S. during the current year, you will need to determine the number of days you spend in the U.S. during a three-year period (the current and two previous years) using what is often referred to as the 183-day test.

The 183-day test is calculated by adding the sum of (1) all of the days of physical presence in the United States in the current year, (2) one-third of the days of physical presence in the first preceding year, and (3) one-sixth of the days of physical presence in the second preceding year. If the total exceeds 182 days, then the substantial presence test has been met, and the individual will be treated as a U.S. resident.

If under this test you are considered a resident alien, you can still be treated as a non-resident alien if:

You spend less than 183 days in the U.S. in the current calendar year; you maintain your tax home in Canada during the year; and you have a closer connection to Canada than to the U.S.

The significance of the distinction between resident aliens and non-resident aliens is that:

1. Resident aliens are taxed in the U.S. on income from all sources worldwide, while non-resident aliens are generally taxed in the U.S. on income only from U.S. sources.

2. Resident aliens have to file a U.S. tax return to report worldwide income if their annual gross income exceeds certain U.S. dollar amounts.

Canadian residents who at any time during the year own foreign investment property (called specified foreign property) costing more than $100,000 are required to file the Form 1135 Foreign Income Verification Statement.

Specified foreign property includes real estate situated outside Canada, but does not include personal-use property, that is, any property used mainly for personal use and enjoyment.

Therefore, if you own a condominium in Florida that costs over $100,000, but which is utilized purely for personal use and enjoyment, you would not need to report the condominium on a Form T1135.

However, if the condominium is utilized for personal use for four months of the year and is rented out for 8 months of the year for profit, the property is considered to be an income-earning investment property not held primarily for personal use and enjoyment.

As a result, you are required to report the property on a Form 1135.

When a non-resident alien sells their U.S. real estate, the resulting gain or loss is required to be reported to the IRS by filing Form 1040NR.

The purchaser is required to withhold 10 per cent of the gross sale price if the sale price exceeds US$300,000. Withholding is not required where the purchaser acquires the property for use as a residence and the sale price is US$300,000 or less.

The tax normally required to be withheld on a disposition can be reduced or eliminated if you obtain a withholding certificate from the IRS. The IRS will issue the withholding certificate if the amount required to be withheld would be more than the maximum tax liability.

Therefore, if you expect the tax liability on the sale of your U.S. property to be less than 10 per cent of the gross sale price, you should request the withholding certificate and file it before the closing date of the sale. The certificate, if granted, will specify the amount of tax to be withheld instead of the full 10 per cent.

On the Canadian side, a taxable capital gain may also result from the sale of the U.S. property.
A foreign tax credit is generally available with respect to related U.S. tax paid to eliminate double taxation.

It may also be possible to claim the principal residence exemption for all or part of the gain on the sale. However, careful consideration should be made here, because if there is no Canadian tax payable, the U.S. tax paid will not receive a tax credit in Canada.

Remember also that the gain or loss arising from foreign currency fluctuations between the time the property was purchased and its sale will be factored into the computation of the Canadian gain or loss.

Source: Murray Becotte, chartered accountant and CFP working as an investment advisor with TD Waterhouse in Thunder Bay, ON

Friday fun: Sleep with the fishes with this amazing aquarium bed!

Friday, March 28th, 2014

Love this! We’re always on the lookout for great new design ideas. They don’t get much better than this …

Forget a waterbed, the Aquarium Headboard by Las Vegas-based Acrylic Tank Manufacturing is where it’s at. This customized aquarium can hold up to 650-gallons of water and is the perfect way to upgrade your existing bedroom.

The massive aquarium is completely custom made to give your bedroom a one of a kind aquatic look, and can probably double as a swimming pool if you feel like swimming with your pets. Price? US$11,500.

For further information, check out Acrylic Tank Manufacturing.

Source: thisiswhyimbroke.com and complexmag.ca

Want a piece of history? Walt Disney’s US$90-million estate is up for sale!

Friday, March 21st, 2014

A mega-mansion built on the former estate of Walt Disney has hit the market for a mind-numbing US$90 million. The Carolwood Estate rests on four acres in Beverly Hills and includes the tunnel Walt Disney built for his steam engine train.

Built in 2001 and owned by investor Gabriel Brener, the residence is located in the affluent neighbourhood of Beverly Glen in Los Angeles. And even in an area where the median house price is around $1.4 million, this property stands out in a big way.

First of all, it sits on the 3.7-acre estate that was the site of Walt Disney’s last home, which was dismantled in part because of an asbestos problem. The home built in its place is a whopping 35,000 square feet, with eight bedrooms and 17 bathrooms.

According to the listing, the mansion features a wine cellar, a custom movie room, three bars, a library, a gym and two safe rooms. On the home’s carefully manicured grounds, you’ll find a pool with a pool house, a tennis court, and a putting green.

Jay Harris and Mauricio Umansky of The Agency have the listing.

Source: Harris Effron, AOL Real Estate

Dubai to Vancouver in 1.5 hours? The super rich may use space travel to expand property portfolios

Tuesday, March 4th, 2014

The world’s wealthiest may look at expanding their real estate portfolio as they may use sub-orbital space travel to reduce travel time, believes Knight Frank.

More than 70 wealthy individuals, with a combined wealth of over $200 billion, are investing in space research projects, which includes asteroid mining to sub-orbital space travel, the global real estate consultancy said ahead of the March 5 release of its Wealth Report 2014.

“By travelling outside the Earth’s atmosphere, gravitational forces will allow spacecraft to travel at over 4,000 miles per hour, so breakfast in Mayfair could easily be followed by lunch overlooking Sydney Opera House,” says Knight Frank’s Head of Research Liam Bailey.

The consultancy believes that space travel will have impact on global luxury property markets, with ultra high net worth individuals (UHNWIs) will grow their luxury property portfolio.

Though the Wealth Report’s Global Cities Survey confirms, London currently wins over New York as a global wealth hub because it is more convenient for African, Middle Eastern, Russian and European UHNWIs.

But this convenience premium could be noticeably reduced if Richard Branson’s Virgin Galactic succeeds in making his vision for sub-orbital travel a reality.

Transcontinental travel – London to Sydney – a distance of 10,553 miles will be completed in 2.2 hours from the current 21 hours. Dubai to Vancouver, a distance of 7285 miles that currently takes a flight time of 14.5 hours, will be cut short to just 1.5 hours, says Knight Frank.

Talking to The Wealth Report, entrepreneur Richard Branson said: “New commercial space will be one of the most exciting investment sectors in the next 20 years, driven by the initial successes of companies like Virgin Galactic.

“There is already some good evidence that the leading players are receiving high levels of interest from the mainstream investment community and attracting valuations that reflect confidence in future growth and opportunity.”

In 2013, Virgin Galactic spokesperson told Emirates 24|7 that it expects thousands will take the suborbital spaceflight from Abu Dhabi.

“If approved, Virgin Galactic intends for the UAE spaceport to be the first international commercial spaceport, contingent on US regulatory approvals. The UAE spaceport will be a very desirable destination attracting people from all over the world to experience the unique view of earth from above the UAE,” a spokesperson said.

Currently, over 600 people from more than 50 countries have placed reservations. Celebs including Angelina Jolie, Brad Pitt and Ashton Kutcher are among those said to have bought $200,000 tickets.

Ticket price will play a critical role in defining the impact on real estate.

“If this is a technology for billionaires only, then property market disruption might be limited to a wider choice of global lunch options. But if the price drops to allow the merely very wealthy to access sub-orbital flights, then every assumption about current property prices will have to be reconsidered,” Bailey said.

Knight Frank has rated Dubai among the most sought after real estate destination in the world. In 2013, over 140 foreign nationalities, which includes Americans, Canadians and Europeans, invested Dh116 billion in the Dubai real estate market.

Source: Parag Deulgaonkar, Emirates 24/7 News

Millionaires see real estate as top investment for 2014

Tuesday, February 11th, 2014

U.S. millionaires see real estate as the top alternative-asset class to own this year, according to Morgan Stanley.

About 77 percent of investors with at least $1 million in assets own real estate, according to a survey released today by the New York-based investment bank’s wealth-management unit. Direct ownership of residential and commercial properties was the No. 1 alternative-investment pick for 2014, with a third of millionaires surveyed saying they plan to buy this year. Twenty-three percent said they expect to invest in real estate investment trusts, the second-most popular choice.

Wealthy investors are turning to a rebounding real estate market as fixed-income yields remain historically low and equities surge. U.S. commercial-property values rose 8 percent in the 12 months ended Jan. 31, and have jumped 71 percent since hitting their post-recession bottom in 2009, research firm Green Street Advisors Inc. reported today. The S&P/Case-Shiller index of home prices in 20 cities is up 24 percent from its 2012 low.

“After a year where the Standard & Poor’s Index rose 30 percent, some millionaires are moving money out of traditional, long-term strategies and turning toward alternatives such as real estate and private equity,” said Gary Kaminsky, a vice chairman at Morgan Stanley Wealth Management in New York. “Sophisticated, high-net-worth investors are much more concerned about losses.”

Wealthy investors see stocks getting expensive and interest rates staying stable or even declining over the next couple of years, Kaminsky said in an interview at a conference for Tiger 21 investors last week in Scottsdale, Arizona. That’s why they are looking more closely at alternatives including real estate for returns and income, he said.

Source: Margaret Collins and David M. Levitt, Bloomberg

Is it still a good time to buy US property?

Monday, January 27th, 2014

Canadians still looking to buy a vacation property in the United States have to look harder for deals today and saving money on exchange rates is more enticing than ever. Recovering prices and a weaker loonie have eaten into bargains south of the border.

The Canadian dollar touched its lowest level in six years against the greenback Thursday, adding some new urgency to buying U.S. property while making the people who bought at the bottom of the market look mighty smart.

In the past year, the dollar has lost 12%, an easy 12% gain for Canadians who bought U.S. property.

With the perfect storm of strong currency, low prices and better access to credit, in part due to the still lofty value of our Canadian homes, we have gotten used to some pretty great deals south of the border.

The purchasing power of Canadians had made us the No. 1 foreign buyer of U.S. residential property for the 12 months ending, March 2013. Canadians accounted for 23% of the US$68.2-billion of foreign purchases, according to the Washington-based National Association of Realtors.

The question now is whether the chance to buy cheap U.S. property has come and gone. New data released from the Washington-based national association shows the median price of existing homes was up 9.9% in December on a year-over-year basis, up from the 9% year-over-year pace in November.

And inventory levels finally seem to be shrinking as the U.S. homes available for sale hit 1.86 million units in December, a 9.3% drop from a year ago and the lowest absolute inventory since January 2013.

During the 2006 bubble peak, the U.S. national median price of an existing home reached $230,400. The median price was back up to $197,100 in 2013 but real estate is inherently local and the recovery has been greater in some markets than in others.

“Canadians like Florida, Arizona and to a degree California,” said Toronto-Dominion Bank deputy chief economist Beata Caranci, noting Florida is probably the top destination for Canadians and its price increases have not been as pronounced. “The fundamentals are still there in terms of attracting Canadians.”

While the dollar doesn’t look strong compared to where it was a few months ago, looking at it in historical context, it’s fall is not that dramatic.

“It’s still a good market in terms of affordability, it’s just eroding year by year and month by month,” said Ms. Caranci.

There’s no question buying a U.S. property has been top of mind to some of his clients, says David Kaufman, chief executive of Westcourt Capital Corp. which advises high net worth investors.

“It can be a good hedging strategy, and it’s a natural hedge. Many high net worth Canadians spend significant amounts of time in the U.S.,” says Mr. Kaufman. “If you’re going to spend 20% of your time and dollars in the U.S. every winter, you might as well.”

U.S. vacation homes are still mostly a luxury for many people. Unless you’re getting a lot of use out of the property, it’s likely cheaper to rent.

Source: Garry Marr, Financial Post

How to win a real estate bidding war

Monday, August 19th, 2013

In today’s housing market, running into competition is par for the course – and the weakest bids won’t survive.

Luckily for less well-heeled house hunters, there’s more that goes into winning a bidding war than throwing money at your opponents until they buckle.

“If you are serious about buying, it becomes a bit of a part time job,” says Zillow.com real estate expert Brendon DeSimone. “This is your home and your only investment.”

We asked DeSimone to clue consumers into how they can make their bids stand out.

1. Don’t wait for the open house. DeSimone is quick to advise clients to see as many houses as possible on weekends — whether or not they’re invited. ”With the Internet, information moves so quickly. [Sellers] could do a private showing Wednesday [days before a scheduled open house]” he says. “If it looks good online, go see it.”

2. Don’t be intimidated by higher bidders. Investors and average joes alike are flocking to snatch up deals on homes. Don’t let them psych you out, DeSimone says. “Don’t spend too much energy trying to figure out what’s really going on with the other offers. If you love the property, keep moving forward, but at your own pace. Make the offer you’re comfortable with, and only when you’re comfortable making it.”

3. Pick a broker who’s local and well-known. That’s because 80% of business is done by just 20% of brokers. The more respected they are within the community, the better shot they have at wooing listing agents. ”My clients (win) because the listing agent knows me,” DeSimone says. “In a competitive situation, working with a known broker will make the listing agent feel better and boost your chances, especially if two offers are close.”

4. Get in the listing agent’s good books. Why? Because the listing agent is the only person who meets all the parties involved in a sale. ”Though the seller ultimately decides and signs a contract, the listing agent has a giant say in who gets the property in a competitive situation,” DeSimone says. “If you make a good impression with the listing agent, you are in much better shape. Acting like a jerk to the agent tells the sellers to work with another offer.”

5. Line up an appraisal even before making an offer.
“One thing I once did was to have the bank try to get an appraiser lined up and on their calendar before an offer was made,” DeSimone says. “That way, the buyer could tell the seller that the appraisal would happen within x days of signing a contract. If you tell the seller two or three weeks, your offer looks weaker.”

6. Look for the ugliest house on a great block. It may sound counterintuitive, but you’re better off looking at a fixer-upper than going for the McMansion next door. Chances are competition won’t be as fierce. ”You can always improve the property and therefore increase its value,” says DeSimone. “And because it’s on a great block, improvements you make to the home will be practically guaranteed to give you a top return on your investment.”

7. Know your neighbours — and what their homes are worth. Getting to know the neighbourhood you’re hoping to call home one day goes far beyond scoping out local schools and seeing who prowls the streets at night. ”When you are ready to seriously write offers and compete, you should know what is going on with the local neighbourhood market,” DeSimone says. “Follow what has recently sold, what was competitive and what was not.”

8. Hire an inspector within two days of submitting your offer.
“Order the inspection before you write the offer. It doesn’t necessarily have to be two days but your offer should show the seller that you are prepared to move quickly,” DeSimone says. ”If you wait two weeks and then the inspector finds something and you walk away, the seller is left out to dry. The seller wants to know this is out of the way quickly.”

9. Sweeten your bid with cash. More often than not, most homebuyers simply can’t afford to plop down $180,000 in cash on a new home. But when it comes to sweetening your bid, offering to pay at least the deposit in cash could push you over the edge. ”The more you offer, the better,” DeSimone says.

Source: Mandi Woodruff, Business Insider


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