My real estate column in the Vancouver Sun featured property sales in Burnaby, Downtown Vancouver and Coquitlam.

Vancouver Sun May 12th, 2012

201 – 9329 University Crescent, Burnaby

Type: Two-bedroom, Two-bathroom apartment
Size: 844 sq. ft.
B.C. Assessment, 2012: $312,000
Listed for: $338,800
Sold for: $333,500
Sold on: April 8
Days on market: 72
Listing agent: Robert Crowe at RE/ MAX Real Estate Services
Buyer’s agent: Robert Crowe and Terri Welch at RE/MAX Real Estate Services

The big sell: There are many benefits for residents living in SFU’s UniverCity community on Burnaby Mountain. Some of these include immediate proximity to lush, woodland trails – perfect for outdoor exercise – as well as the views, and access to the recreation facilities and amenities that SFU offers. This southeast facing condominium in Harmony was built by Polygon in 2005. It is a four-storey complex that consists of 190 units. The interior of this home contains an open-plan kitchen with eating bar and maple-coloured cabinets, a living/dining area with gas fireplace and sliding glass doors that open to the balcony, and a master bedroom with walk-in closet and ensuite bathroom. The unit is on the quieter side of the complex overlooking the courtyard. The building allows pets and – of particular interest to investors – it also allows rentals.

2609 – 939 Expo Boulevard, Vancouver

Type: One-bedroom, One-bathroom apartment
Size: 506 sq. ft.
B.C. Assessment, 2012: $385,000
Listed for: $385,000
Sold for: $384,500
Sold on: April 9
Days on market: 1
Listing agent: Ann Lok at Sutton Group – West Coast Realty
Buyer’s agent: Chris Tioseco at Sutton Group – West Coast Realty

The big sell: Buyer’s agent Chris Tioseco says there were many reasons why his clients were attracted to this one-bedroom, 26th-floor condominium in Concord Pacific’s Max II tower: 180-degree sweeping cityscape views, nine-foot ceilings, a central downtown location, an attractive Porte-cochere circular driveway, and the building’s comprehensive range of amenities, which include an indoor pool, sauna/ steam room, gym, a theatre that seats 20 people, a party room, and 24/7 concierge. This suite is on the quieter side of the building and includes engineered hardwood floors, a gas stove, a large flexible room that could be used either as an office or a walk-in closet, expansive windows to maximize the views, and a balcony for relaxation and barbecues. The unit comes with one parking stall. The building has been fully rainscreened and rentals and pets are allowed.

311 – 1185 Pacific Street, Coquitlam

Type: One-bedroom, One-bathroom apartment
Size: 903 sq. ft.
B.C. Assessment, 2012: $251,000
Listed for: $275,000
Sold for: $270,000
Sold on: April 7
Days on market: 73
Listing agent: Barb Steczko at Century 21 Showcase Plus
Buyer’s agent: Chris Sheppard at Royal LePage Coronation West

The big sell: The Centreville building lives up to its name, since residents have easy walking access to everything that Coquitlam town centre has to offer: T&T, Douglas College, the Aquatic Centre, the library, city hall and the eventual Evergreen Line which, when complete, will connect Coquitlam to the SkyTrain. At more than 900 square feet, this apartment with one bedroom and a den is larger than many two-bedroom Vancouver units. It has an open living area, a fireplace, laminate flooring, and a balcony. The unit has been repainted and contains a kitchen with plenty of cupboard space, tile backsplash, in-suite laundry, crown mouldings, and nine-foot ceilings. The bedroom has a walk-in closet. The building’s amenities include an exercise room, a clubhouse, a hot tub and a guest suite.

Source: Nicola Way, Vancouver Sun

Realtors say the small boom of sky-high prices for Vancouver Westside houses – one that provoked media around the world to claim with scant proof that mainland Chinese investors were buying up the city – is fizzling out.

Both sales and prices are down at the top end even more markedly than in the rest of the region, which has also seen a general slowdown this spring.

A house on the 3000 block of West 24th Avenue, first listed at near $4.5-million six months ago, sold on April 15 for $3.35-million.

Fresh statistics from the Greater Vancouver Real Estate Board show the number of sales on the Westside is down by nearly 40 per cent for the first four months of the year. Only a third of the nearly 400 homes listed in April have sold – one of the lowest rates in the region.

Realtors say the slowdown appears to have resulted from a combination of tighter lending practices by local banks, which now want proof of income to service large mortgages, more restrictions on how much capital can be taken out of China, and fewer immigrants.

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said Westside realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.

He and other realtors are saying the Westside slowdown is a good thing because the short-lived boom, which prompted local owners to start listing at increasingly inflated prices, was unrealistic and unhealthy.

“I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the Westside doesn’t support those prices,” said Andrew Hasman, who specializes in single-family homes on the Westside.

Prominent condo marketer Bob Rennie said the high-end house prices in Westside Vancouver were so out of line with the rest of the region and country that it was skewing people’s perceptions of real-estate increases, not just in Metro Vancouver, but in all of Canada.

“In 2010, reports were saying real estate went up 8.9 per cent in Canada. But if you took out Vancouver, it only went up 4.3 per cent,” he said.

The spike in Westside house prices over the past two years has provoked intense media coverage – with one Bloomberg News story in late May headlined, Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC – and debate among residents, politicians and commentators both here and abroad.

Much of it was attributed to “mainland Chinese” buyers, although no one had hard overall numbers to support that. Nor could anyone say whether that group might be 100 or 1,000 people, or whether they were truly offshore investors or immigrants.

But that didn’t stop arguments about the need to limit foreign ownership or to tax speculation to prevent the nebulous phenomenon.

A number of realtors said early signs started appearing six months ago that the market was slowing down, but the difference really appeared in early March. There is usually a surge of buying in Vancouver around Chinese New Year, as visitors from China come to see family or friends in the city and often make decisions to buy.

This year, the buying spree after Chinese New Year was much smaller, and house sales have slowed in March and April instead of the typical pattern of accelerating into spring.

Jean Zhang, with Sutton Group, said her clients, who tend to be immigrants looking to settle here permanently, are waiting longer to make offers.

“A few months ago, people were thinking, ‘I have to get in right away,’ ” she said. “Now, they see there are lots of choices. And they are giving lowball bids. They want to have good bargains in this market.”

Source: Frances Bula, Globe and Mail

Existing home sales in Canada’s most expensive city dropped in April, according to the Real Estate Board of Greater Vancouver.

The board described home sale and listing activity as maintaining a “consistent pace” leading to balanced market conditions but its April statistic shows total sales across the Multiple Listing Service in April were 2,799, a 12.3% decline from a year ago. It also represented a 2.6% decline from March 2012.

REBGV said April sales were the lowest for the month in the region since 2001 and 16.9% below the 10-year average for the month of 3.369.

“Although April sales were below what’s typical for the month, we continue to see, with a sales-to-active listing ratio of nearly 17%, a balanced relationship between buyer demand and seller supply in our marketplace,” said Eugen Klein, president of the board.

The board’s so-called benchmark price for all residential properties in Greater Vancouver was up 3.7% in April from a year ago to $683,800. Prices are up 2.8% over the last three months. In the Lower Mainland prices were up 3.4% in April from a year ago to $612,000.

“Recent activity has had a stabilizing effect on home prices at the regional level, although pricing can vary depending on area and property type,” said Mr. Klein said.

Supply has been increasing in the Greater Vancouver area with the total new listings in April up to 6,056, a 3.6% jump from just a month earlier. However, new listings are also only up 3.6% from a year earlier. April new listings were 6.7% above the 10-year average for Greater Vancouver in April.

Overall, the board had 16,538 homes listed for sale on the MLS which is up 8.5% compared to March, 2012 and 16% from a year ago.

Source: Garry Marr, Financial Post

Our bubbly housing market raises questions not only about the wisdom of buying right now, but also about selling.

What if you bought a home many years ago and had the opportunity to lock in a great profit while the market is still buoyant? A Vancouver woman and her husband answered this question recently by selling the family home and signing a one-year lease on a rental.

“We bailed,” said the woman, who asked to be anonymous in this column. We’ll just call her Ms. Bold. She and her husband have been having annual talks about whether to sell since 2008, when the housing market briefly plunged. This year, they agreed it’s time.

“When you look at all the statistics, it just doesn’t make sense,” Ms. Bold said of the Vancouver market. “Who’s kidding who? The cost of living here is so outrageously expensive and incomes are not keeping pace.”

The average price of a home was up about 6.9 per cent a year over the past decade on a national basis, and there are cities like Vancouver and Toronto where gains have been even better. The average price in the greater Vancouver area was $775,693 in the first quarter of the year – a decade ago the average was in the $300,000 range.

After a long rally in housing prices, concern about a correction of some sort is growing. For a majority of people, the idea of selling now to preserve their gain in the housing market will seem crazy. They like their homes, they like the homeowner’s lifestyle and they abhor renting. Let the housing market rise and fall – they plan to own for the duration.

Still, there’s a case to be made for getting your money out of a house now if you’ve done very well over the years. That’s what Ms. Bold and her spouse have been thinking. They’re in their mid-40s, she a professional coach and her husband an entrepreneur. They have two kids, aged 12 and 7. They bought a $275,000 home in 2003 and sold three years later for $375,000. Purchased for $445,000, their most recent North Vancouver home sold in March for over $1-million after attracting three bids from interested buyers. Time on the market: Less than a week.

“Let me put this in perspective – this is a 100-year-old home, 2,400 square feet on a 50-foot lot,” Ms. Bold said of her just-sold home. “We do not even have a bathroom upstairs with our bedroom.”

More than a million for a non-monster home? “That’s nothing,” she said. “This same home on the west side of Vancouver would sell at $1.5-million.”

Then again, the Vancouver housing market looked a little shaky in March. While average prices moved higher, sales fell sharply. Ms. Bold’s sense is that some parts of the city are holding up, but her confidence level in the market is near zero right now.

At first, she and her husband thought about selling in the traditionally strong spring market, and then buying another home during the traditional summer slowdown. Now, they see no rush to buy back in. Instead, they will rent a four-bedroom house for a one-year period in which they’ll look at their options.

One option is to continue renting in Canada, at least for a few years, and buy a house in the United States. Annihilated in a slump that began five years ago, U.S. housing might in fact offer some opportunities for bargain hunters. Back in February, uber-investor Warren Buffett said he would buy “a couple hundred thousand” single family homes if he could find a practical way to do it.

For now, Ms. Bold and her husband are content to enjoy their debt-free status and the extra cash flow that comes from renting. In fact, their monthly rental costs are only a little less than their mortgage payments, which were set at a high level to speed up the repayment process. But they estimate they’ll save thousands by not paying property taxes and home maintenance costs.

It’s not an easy emotional transition to go from owning a home to renting, but there are compensations.

“The part I’m struggling with is the idea of living in a house that doesn’t look and feel the way I want it to,” Ms. Bold said. “My husband just keeps saying, wait until you see our bank account balance. We’re going to be debt-free with a big wad of cash.”

Source: Rob Carrick, Globe and Mail

Concrete condo sales are heating up in Metro Vancouver, but only for the right projects in the right location – near rapid transit.

That’s the word from Jeff Hancock, a senior manager with real estate market firm MPC Intelligence, who said presales of concrete condos in the right location and at the right price point continue to escalate with Asian investors largely driving the market.

“It’s not market-wide,” he said. “It’s more spotty. If you are 10 out of 10, you’ll do well. That means a great location, welldesigned, priced appropriately and definitely [served] by transit. Other projects are having to struggle a bit.”

Hancock said an MPC forecast earlier this year that 8,000 new units in concrete towers would be launched in the first six months of 2012 has been down-graded to about 7,800.

He said about 3,800 new concrete condominiums across 19 projects have started presales since Jan. 1 and that 60 to 65 per cent have been sold, “an impressive metric.”

Hancock cited last month’s sellout of 415 homes at Marine Gateway and the Telus Garden’s 428 condos as examples of strong sales in the sector. Two other condo towers in Burnaby – Silver by Intracorp and The Met by Concord Pacific – also sold extremely well in presales over the past two weeks, he added.

Hancock noted that the market has been driven by Asian investment segments, most for long-term investments but also for family use. “End user groups have also been active, specifically in North Vancouver, New Westminster, Burnaby North and downtown Vancouver.”

He said the resale market for concrete condos has not been as strong as the market for new units, possibly because investors buying a presale unit like the idea of having a year or two to complete the purchase.

Cameron Muir, chief economist for the B.C. Real Estate Association, characterized overall condo sales in Metro Vancouver as “moderate,” with no significant change in activity over last year and little pressure on prices.

He said some areas are under-supplied, while some areas, like Langley and Surrey, have a significant amount of inventory.

“In certain areas, particularly close to downtown, the inventory has been drawn down. And condo projects well located to transit are doing well to date.

“But that’s the exception rather than the rule. We’re still facing headwinds due to the overall economy.”

Source: Brian Morton, Vancouver Sun

Trafalgar, they used to call it. A patch of urban plain between West 16th Avenue and King Edward in Arbutus Ridge on Vancouver’s West Side. Prime real estate in a beautiful city. And ground zero of the investor invasion.

A stroll through Trafalgar begins innocently. Rows of parallel streets. White sidewalks. Green lawns. Blue sky, if you’re lucky. Far enough from downtown, the neighbourhood rests in quiet. Too quiet. You soon notice you’re alone among rows of big-box homes, all peaks and eaves, with ornamental hedges stirring in the wind. It’s like a giant film set for a Hollywood blockbuster about a deadly strain of bacteria. Only the goldfish survived.

According to the Real Estate Board of Greater Vancouver, last year the average price of a detached home on the West Side rose 20.7 per cent to $1.99 million, continuing a trend of yearly spikes.

Several factors contribute to the boom including foreign investment from China. Unlike other precincts around the world, British Columbia has no restrictions on foreign ownership of real estate. Anyone from anywhere can buy on your street and mothball their investment in perpetuity.

Look no further than the Trafalgar area, perhaps the most striking example of investor decay in the city. It’s no longer a community, it’s a commodity. A pocket of land bought and tilled by speculators. Down went the old stucco bungalows, once the neighbourhood’s signature home, up went dozens of “developer specials” — two and three-storey monstrosities that often sit empty, windows shuttered, for months. Sometimes years.

It didn’t used to be this way.

Colin grew up in the neighbourhood, at Trafalgar elementary and Prince of Wales secondary. He remembers streets bustling with life. Kids on bikes. Barbecues and burning leaves. Now a 38-year-old investment adviser, he lives in a rented bungalow not far from his childhood home. While the street names remain the same, the neighbourhood is unrecognizable. “It’s really unbelievable. It’s eerie, I just shake my head.”

Last Friday, Colin took me on a Trafalgar tour. Street after street with many vacant homes. He pointed as we walked. “That’s empty. That one. That one. The whole side of this street almost.”

Colin, not his real name, wishes to remain anonymous, fearing backlash and smears.

You see, as illustrated two weeks ago in the Courier, if you dare note the ethnicity intrinsic to foreign real estate investment in Vancouver, you court charges of bigotry from industry benefactors.

Of course, local realtors and developers have no problem racially profiling potential buyers. For example. Sutton West Coast Realty orchestrates Vancouver home auctions in Shanghai and West Side bus tours for Chinese investors.

Yet Larry Beasley, retired Vancouver city planner and former vice-president of Aquilini Developments, a major industry player, says it’s “racist” to suggest Chinese foreign buyers drive up prices. Politically correct moralizing from Beasley, who also served as “special planning adviser” for royal dictators in the United Arab Emirates, a country that jails homosexuals for being gay.

Back in Trafalgar, bilingual “For Sale” signs in English and Mandarin dot front lawns. During our afternoon stroll, we happened upon a grey, two-storey with white-trimmed peaks. The front door was wide open. A young Asian man appeared in the foyer.

“Yes?”

“Is this an open house?”

“No,” he said, in limited English. “We show to private buyers.”

“How much? What’s the price?”

“Three point eight nine million.”

That’s typical of Trafalgar and other sections of Arbutus Ridge, probably the most overpriced neighbourhood in the city. It’s a market within a market with baffling trends. According to Colin, several Trafalgar homes seem to exist solely for “sale” yet never get occupied. “These three places in a row,” he says, near West 21st and Yew. “No one’s ever lived there but [For Sale] signs go up for a few weeks then go away for few weeks. It just doesn’t make any sense.”

It’s a murky Monopoly game. Thanks to strict regulation in China, Chinese real estate investors look off-shore for capital gains. Our wild open market attracts investors from everywhere, warping the local supply and demand equation, helping push middle class residents out to the suburbs or into crushing debt.

Christy “Families First” Clark, a committed globalist, won’t restrict foreign ownership in B.C.. Mayor Gregor Robertson, who slobbered over Beijing during a 2010 “trade mission” to China, won’t reform the tax code to accommodate the new normal. Which means foreign real estate investors pay the same rate (4.2 per cent) as local homeowners, not the business rate (18 per cent) they should.

Two weeks ago, Eugen Klein, president of the Vancouver Real Estate Board, told the Courier that off-shore buyers account for only three per cent of house sales. Rubbish. Because foreigners often use local addresses (their lawyer’s office, for example) when registering with the provincial land title office, no one knows how many off-shore investors own homes in Vancouver. Yet Klein’s “three per cent” defence raises questions he’d likely rather avoid.

What percentage. Mr. Klein, of foreign investment is acceptable in Vancouver’s real estate market? Ten per cent? Twenty per cent? If 50 per cent of Vancouver was owned by foreigners, would that be OK with you? Where do the interests of your global industry and our city diverge? How deep doth thy zeal for globalization run?

No, they want this conversation to go away. Shut it up before folks get wise. If you’re troubled by dead neighbourhoods shuttered by foreign investment, you’re a racist dog stuck in 1923. Get back to your rented bungalow. You’ll be hearing from us soon.

Source: Mark Hasiuk, Vancouver Courier

Telus has sold out the first condo development it has ever built, before a planned formal launch in mid-April, making it the second large Vancouver project to sell out almost instantly in the past month.

But industry experts say that doesn’t necessarily mean that condo or general real-estate boom times are back.

Instead, they say, it is projects that are close to transit that are winning out.

“Transportation is the new green,” said Tracie McTavish, president of Rennie Marketing, which sold the PCI Marine Gateway project’s 415 units in a public launch mid-March.

That’s why projects like Marine Gateway, a tower that will be part of an office and entertainment complex at the foot of Cambie next to a Canada Line station, and Telus Garden, with 428 units in a 53-storey tower a block from Vancouver’s key downtown intersection, are being gobbled up at a rate not matched elsewhere in the region.

“Some of the more outlying developments aren’t seeing that kind of interest,” said Don Forsgren, president of the Urban Development Institute, which represents large builders in the region. “The single-family suburban house market is pretty flat.”

Also flat are sales in Surrey and the northeast Tri-Cities area and lower-rise wood-frame buildings, said development consultant Bob Ransford.

“It’s all geographic who’s doing well.”

Recent figures from the Real Estate Board of Greater Vancouver compiled by various real-estate analysts indicate higher numbers for unsold inventory than past years at the same time.

Local sellers all say that it’s not foreign investors driving the market for the successful projects, but local investors and people planning to live in the condos themselves.

Ms. Goertz said Telus offered its employees priority in sales at Telus Gardens and 150 of them bought, even though the price discount was a modest one per cent.

The project’s developers, Telus and Westbank Projects, also didn’t allow anyone to buy more than two units.

Mr. Forsgren, whose company Intracorp sold out a tower instantly at Metrotown in May of last year, said the company has to track buyers closely because of requirements from FINTRAC, the agency that monitors money laundering and criminal organizations.

The personal information that had to be submitted for those units showed there were only four offshore buyers.

He said he expects Intracorp’s newest tower, Silver, to get about 50 to 60 per cent investors among the 3,000 buyers lined up for it. That’s similar to what Mr. McTavish said was the ratio for Marine Gateway.

But those investors tend to be local investors, people who are buying something for their children to move into some day and renting it in the meantime, or people who are looking for an investment that’s more stable than the stock market appears to be right now.

Affordability doesn’t seem to be necessarily at the top of the list for buyers, either. Mr. McTavish said that half of the 40 high-end units in Canada House West, at the former Olympic village in Vancouver, have already sold in the first two and a half weeks at “very attractive rates” of more than $1,000 a square foot.

That may push the city of Vancouver, which took over the project from the private developer in late 2010, into putting the other 20 units in Canada House East onto the market.

Source: Frances Bula, Globe and Mail

This Reuters report shows that house prices across Canada are still rising with some notable exceptions, such as Vancouver, where much is being made of the fact that prices dropped in January for the fourth month in a row. Read on, and you’ll see that even with these declines, Vancouver’s prices are still up 7 per cent compared to a year ago.

Here is the article in full:

Canadian home resale prices edged up in January from December after two months of declines as the big Toronto market showed strength but Vancouver continued to falter, the Teranet-National Bank Composite House Price Index showed on yesterday.

The index, which measures price changes for repeat sales of single-family homes, showed overall prices rose just 0.1 per cent in January from December but were up 6.5 per cent from a year earlier. It does not provide actual prices.

Prices increased in seven of 11 metropolitan markets surveyed. Halifax, Nova Scotia, led gains, climbing 0.7 per cent, followed closely by the heavily-weighted Toronto market, which rose 0.6 per cent. Victoria shrugged off three straight monthly declines to edge up 0.4 per cent. Winnipeg, Manitoba, nudged up 0.2 per cent – its 11th monthly gain in the past year.

Western markets accounted for most of the declines, with January prices falling 1.1 per cent in Edmonton. More cooling was seen in the once red-hot Vancouver market, which fell 0.3 per cent to log its fourth consecutive monthly decrease. Calgary slid 0.3 per cent.

The Teranet data was in line with recent Statistics Canada data that showed new home prices edged up 0.1 per cent in January from December, the 10th consecutive monthly increase.

A majority of forecasters surveyed by Reuters in February expected home prices to stall with a mere 0.1 per cent climb this year. They forecast the same increase in 2013.

Canadian policymakers and economists have fretted about rising housing prices as household debt levels have soared. The ratio of debt to personal disposable income hit a record 151.9 per cent last year.

Ten of the 11 markets surveyed by Teranet showed price increases from 12 months earlier. Leading the way was Toronto, up 9.9 per cent, Winnipeg at 9 per cent, Hamilton at 7.9 per cent, and Vancouver, which jumped 7 per cent. Victoria was the only market where prices dropped, falling 0.1 per cent.

Teranet said the latest February data from the Canadian Real Estate Association showed “generally balanced” conditions in major urban markets, although there was increased tightening in Vancouver, Victoria, Toronto, Hamilton, Winnipeg and Halifax.

The index tracks home prices over time for repeat sales, so properties with at least two sales are required in the calculations.

The market has been sustained by ultra-low interest rates since the financial crisis began in 2008, and the Bank of Canada is widely expected to keep its main policy rate at its current 1 per cent target until the third quarter of 2013 as global economic growth remains subdued.

Source: Reuters

Recent conversation around the Kitsilano dinner table turned to – as it almost always seems to do – real estate and the role of foreign buyers in Vancouver.

The older guests decried the runup in prices that makes it almost impossible for their children to buy on the West Side, while the kids (also at the table), looked to their parents as the lender of first resort to help them get into the market.

But what to do about the oft-discussed “foreign buyer” typically tagged as a leading contributor to the pressures that make housing unaffordable? Charge a special tax on offshore buyers, asked one person? Charge a surtax on properties above a certain value, asked another? Or, as this writer chimed in, erhaps we want to introduce the equivalent of a head-tax on foreign investors simply because they’re coming to invest in properties. (Dirty looks all ‘round ensued.)

Or just suck it up?

Land ownership angst Tsur Somerville, associate professor with the UBC Centre for Urban Economics and Real Estate, noted that upward pressure on the price of local properties is a standard problem in desirable places to live – especially places that attract short-term residents, such as vacationers. Just ask the folks in Whistler, the Gulf Islands and other areas. “This is historically our biggest issue in places that are resorts: vacation homes drive up prices,” Somerville said.

The truth is, Canada is a nation of immigrants and each wave of newcomers has raised anxieties and concerns about land ownership. First Nations land claims are one example; restrictions the Islands Trust enforces on land uses in the sensitive Gulf Islands are another. Indeed, the fight for domestic control of land is as fundamental to Canada’s history as the story of settlement. Opposition to absentee landlords drove Prince Edward Island to join Canada in 1873, and provincial law still prevents non-residents from owning “in excess of five acres or having a shore frontage in excess of 165 feet unless he/she first receives permission to do so from the Lieutenant Governor in Council.”

Most of the Prairie provinces, where rights to real property are rooted in homesteading and distrust of bankers, also have restrictions on non-resident ownership of land. Canada isn’t alone in restricting foreign ownership: Iceland, Denmark and Australia, all members of the Organization for Economic Cooperation and Development, limit ownership of real estate to those resident in the country and prohibit renting by foreign owners.

Switzerland, a traditional haven for foreign capital, limits transactions by foreign buyers to a set
amount per year, and cities such as Zurich and Geneva are off-limits.

Poland and Greece have restrictions on land purchases; in Mexico – a popular vacation destination – a local bank holds property in trust for foreign owners. The foreigner has all the privileges and obligations of ownership, but not ownership itself. But globalization, and the international flow of capital that’s followed, has put the issue of foreign ownership on the front burner in many countries. The tide of capital seeking a safe haven following the September 11, 2001, terrorist attacks on New York and Washington, D.C., made countries take a hard look at how much cash they wanted in their jurisdictions and how much ownership they were willing to give away. Concern accelerated only after the real estate boom – and bust – that followed. Iceland has linked control of local assets to national sovereignty.

And even Prime Minister Stephen Harper has begged comparisons by moving to block foreign ownership of strategic assets. Australia recognized the challenges following a loosening of foreign ownership restrictions in late 2008. The following year saw a wave of foreign investment 30% above historical norms. The dramatic shift in a country where first-time homebuyers were already finding some cities unaffordable called for action. A six-month consultation period culminated in changes to Australia’s investment regulations in April 2010. All purchases by temporary residents and foreign non-residents became subject to approval by Australia’s Foreign Investment Review Board; temporary residents are limited to properties for their own use or development sites that would increase the housing stock.

Vacant land must be developed within two years, and foreign owners of residential properties must sell the properties when they leave the country or the government will confiscate and sell them instead. Australia’s introduction of tougher criteria for foreign real estate investment had an immediate effect. Approvals for purchases of residential real estate, typically the primary target of foreign investment applications, dropped from 2,450 to 647 – a 75% decline. Foreign restriction complications.

But could similar measures succeed in Vancouver?

During last fall’s civic election, independent council candidate Sandy Garossino called for restrictions on foreign ownership to address affordability. Affordability was being eroded by the foreign buyers. RBC Economics reported that a standard two-storey home in Vancouver required approximately 95.5% of the average household’s monthly income, while a detached bungalow required 92.5%. (A residence is considered affordable when it requires just 32% of household income.)

Modest declines in recent months have done little to bring home prices within the reach of locals. The bank’s most recent analysis declared, “unaffordability has long been a fact of life in the Vancouver housing market and this will continue to drive local buyers away.” Vancouver is a seller’s market relative to the rest of the country; RBC all but confirms that it’s a nonresident’s buyer’s market.

Garossino – who didn’t respond to a request to comment for this article – suggested that Vancouver address the situation by adopting a model similar to Singapore, where investors are limited to select areas of the city, leaving the rest of town to locals. But other observers are less confident such restrictions would work; they point out that, with no way of determining the extent of foreign investment in the local market, it’s difficult to impose restrictions.

Nicola Way, owner of upscale listings site BestHomesBC.com, said the lack of clear evidence for a foreign buying binge makes it hard to argue for investment restrictions. (See “Seeking paper trails in Asian property buying spree” – BIV issue 1168; March 13-19.)

“Until Canada can produce figures that definitively state the volume of properties bought by non-residents, I can’t see any restrictions placed on foreign ownership,” said Way.

Moreover, housing affordability is more than a function of who is buying properties. Basic land economics are at play, as well as financing regimes. “There are other factors at play when it comes to Canada’s rising house prices, namely consistently low interest rates that have served to underpin housing demand,” she said. “For the City of Vancouver itself, there is also the question of land supply. We are hemmed in by geography, so when supply becomes limited, demand – and therefore prices – increase.”

Somerville goes even further. He noted that without consensus on what a foreign buyer is, it’s tough to target the restrictions. And if the flow of cash can’t be tracked, what gets taxed? “How many people are we actually talking about who are truly non-resident, non-immigrant buyers? How many people are not renting their units out but keeping them vacant?” Somerville asked. “Before we have policies to address a problem, it’d be really good to know how big a problem it actually is.”

Unfortunately, there’s no way of knowing. The statistics being thrown around are nice, but none of them have conclusively answered the question. “We don’t have the mechanisms to be really accurate,” he said. “Realtors telling me that their buyers are from China doesn’t answer it. And certainly where the appraisal chits are sent doesn’t answer it.” While non-resident purchasers could be subject to a different property tax rate, as happens in Florida, Somerville said it would have to be a province-wide measure rather than targeted to a specific city such as Vancouver or a specific part of the city. “You could always do it,” he said, “but if you put in a sub-area then you just spread the issue to other areas.”

And, hinting at his own skepticism, Somerville said developing a different tax structure or other restriction might not even be worth it relative to the scope of the problem. “Fundamentally, I don’t want to restrict the market and develop policies to address a critical problem without knowing what the problem is.”

See the original article here: BIV – Combating uncontrolled offshore ownership.

Source: Peter Mitham, Business in Vancouver

Canadian housing is 10 to 15 percent over-valued, Canada’s second largest bank warned on Friday, as it called for more action to constrain lending growth.

Toronto-Dominion Bank chief economist Craig Alexander said in an analysis that if the overvaluation were unwound rapidly, the market correction would be three times the magnitude of the housing market correction of the early 1990s.

Alexander said it is more likely that there will be a gradual decline in sales and prices over the next several years unless there is a sharp rise in joblessness or interest rates. He warned against complacency, however.

“We need to acknowledge that a significant imbalance has developed and it poses a clear and present danger to Canada’s medium-term economic outlook,” he wrote. “It also suggests that further actions to constrain lending growth may be prudent.”

At greatest risk is Vancouver’s real estate market, a magnet for foreign buyers, along with the Toronto condo market, and the broad housing markets in Quebec City and Montreal, he said.

“Nevertheless, beyond selected cities, it is natural to assume that it will be a shock to all real estate markets when interest rates eventually rise from their prevailing exceedingly low levels,” he said.

Parallel with the real estate valuations is elevated household indebtedness. The ratio of debt to personal disposable income declined in the fourth quarter of 2011 to 150.6 percent from 151.9 percent in the third, but Alexander said this was due to a spike in unincorporated business and farm income that will probably prove to be temporary.

In fact, he forecast that by late 2013 the ratio will reach the 160 percent peak seen in the United States and Britain before their real estate corrections.

Alexander said the Bank of Canada, which has repeatedly voiced concern over housing prices and household debt, is in a bind because if it raises rates while the U.S. Federal Reserve holds rates steady, that would boost the Canadian dollar further and slow growth.

A majority of forecasters polled by Reuters last month predicted that the federal government would tighten mortgage rules this year. Alexander urged authorities to take a gradualist approach in any tightening.

Source: Reuters