[lafard]

Vancouver's a strange beast. The Chinese do drive the local market, but they're also not a permanent force. When the Hong Kong handover went peacefully, and then shortly after that the Asian Market crisis, the Lower Mainland's house prices corrected by 25% virtually overnight. The same will happen again if another economic bubble goes. In this case it's the Chinese themselves, who are an order of magnitude larger than the speculative bubble that killed the market in '97.

Prices have always been about 60% higher there than Toronto; at least for the last 30 years, and this is still true today. This is a function of a lack of land to sprawl out as much as anything else.

I'm from there myself and I go home all the time. The local market is still 80%domestic, and that market has been dead since May. Many of these fancy new houses and condos sit empty as appreciation alone pays for their maintenance costs; no need for a tenant that would just dirty up the place. The phantom inventory is absolutely insane; Millenium waters is just the most prominent example, being the annual boondoggle the media latched onto. Locals are using appreciation from one condo to finance a second. Rents are not much higher than Toronto's yet price to buy is twice as much, these investors are losing a thousand bucks a month or more and only making it up by appreciation. This is all in a city where incomes are really not all that high.

Friends, I say this as someone that lived in Vancouver and area for the first 22 years of my life: Vancouver is the biggest real estate bubble this country has ever seen.

 

[interested]

It is exactly this type of rationale as referenced by Lafard and ILuvTO that scares me, a conservative investor so much.
People using escalation in real estate to drive prices up even more as the Global article suggests. At some point, I don't know when,one has to assume the greater fool theory will finally come to fruition and the housing in China come crashing down.
That is all well and good if some greedy speculators lose their shirts. So be it.
The problem is that logic would dictate that some of Vancouver will be carried with it. A good thing frankly if the locals have literally deserted the market as suggested by Lafard in May 2010 because it is simply totally unaffordable.
My concern since I invest and live in Toronto is that we will not be spared this either, though presumably not hit to the same degree as our market is a little more diversly driven, incomes are higher, and we have not had the price appreciation of Vancouver or China.
That said, this is clearly a bubble but as the commentator said, knowing this rationally does not mean it won't continue for months or even years to come. Eventually, all bubbles pop and when they do there will be the usual camps of the "those who said I told you so" and the others who say you can't predict it and you were wrong for so many years.
Anyhow, unfortunately, this seems to be the way of the world
The take home message: People taking on investment real estate should plan for at least something of a correction in their decisions. No one can predict every event or timing but prudent investors can make some rational decisions.
The rest are just gamblers/speculators.
For home purchase end users, they have to ask themselves if they can live with a devalued home bearing in mind this is not purely an investment and if so, they can then make the appropriate decision to their own situation.

 

[interested]

From todays National post.

http://www.nationalpost.com/City+mass+construction/4148920/story.html

I realize they are quoting people with vested interests. However, it is interesting to me that there is not as much product coming on this year so if that is the case, maybe prices will hold (as those with vested interests are saying). I thought we were to get more product however so is it coming in 2012 and 2013?

the other thing that worries me is they quote 40% and even up to 60% investors and that because of rent controls, builders don't build apartments any more. Well if condos are the defacto apartment supply, and it is not worthwhile for developers to build, are we the investors not accepting too low a return and therefore the market rents should go up (which they can't because of income constraints of the renters) or should not the condo market be hitting a ceiling. They still seem to suggest $500-$600/sq.ft. in the core (but again I understand they have an interest in saying that). They elude in the article to suggest though not actually saying it that with the decreased supply prices presumably will go up if demand continues. I have even seen estimates that the market is now close to 100% investor driven.

I am not sure I follow how getting the 5 star hotels will make TO so cosmopolitan that people will buy mid and entry level condos from abroad here but maybe I am missing the point.

Comments anyone. Sorry, could not get the article to copy for me. Not sure why it won't.

 

[interested]

Another article for food for thought. I believe without looking up that there was a supply of 15000 condos on resale. If 20000 were sold last year and there is less new product this year, if everything keeps the same, the supply of resale condos should drift downwards, thereby putting a floor on price drops? Not sure this follows.

From the National Post today.

http://www.nationalpost.com/condo+units+sold/4148930/story.html

 

[CN Tower]

New Theory

Just as Whistler. Aspen, St. Barts, St. Tropez are millionaire/billionaire hot spot retreats, so shall Vancouver & Toronto become millionaire/billionaire 'safe haven' retreats for the burgeoning class of wealthy Chinese and Asians. We will break away from the metrics of rental income to price and instead move towards the notion of a stable environment to park wealth, free from government force or manipulation. In this complex era of geopolitical and financial instability perhaps resource rich Canada is the new Switzerland for the 21st Century and Vancouver & Toronto are the gatekeepers.

Comments?

 

[interested]

I think that is a possible explanation but this is a big stretch.
If you are right talking mainly about Toronto, then I guess the high end condos will continue to sell and the gap between luxury and mid/entry level range will expand.
Switzerland is a bastian for all of Europe. Canada does not have the Swiss secrecy laws nor a Banking system that is anywhere near as opaque so I can't believe that anywhere in Canada will be looked at as a place to put money for reasons that people use Switzerland. I am not suggesting that all the money in Switzerland is problematic but certainly a good portion is there held from around the world for this very reason.

Previously, Hong Kong enjoyed status for mainland China. I would think that Vancouver would make sense to the weathy Chinese and other Asians. Of course, Australia would make just as much sense as Canada and I believe would be closer or as close geographically. But then, they have had a real estate boom that makes Canada's pale by comparison (except for Vancouver).

So going back to Toronto, it does not have the climate of Whistler, Aspen, St. Barts or St. Tropez, so I don't think one can draw conclusions from those comparisons. I would say only that if the wealthy Chinese and other foreigners are in Canada to do business or have an out from their respective countries, given the economic meltdown in the US and the relative stability of the Canadian economy and banks (and I know we can argue that point yet again as to how stable they really are), perhaps Toronto can act as an alternative to New York as a gateway to the US at still a fraction fo the cost of New York. It is however, not New York and I don't think ever will be or certainly won't be for the forseeable future.

 

[cdr108]

Just as Whistler. Aspen, St. Barts, St. Tropez are millionaire/billionaire hot spot retreats, so shall Vancouver & Toronto become millionaire/billionaire 'safe haven' retreats for the burgeoning class of wealthy Chinese and Asians. We will break away from the metrics of rental income to price and instead move towards the notion of a stable environment to park wealth, free from government force or manipulation. In this complex era of geopolitical and financial instability perhaps resource rich Canada is the new Switzerland for the 21st Century and Vancouver & Toronto are the gatekeepers.

Comments?

ok, you can end the sarcasm

 

[lafard]

Vancouver is a second, possibly third tier world city with limited local economic development (there's a reason I moved to Toronto), very high costs of living, and a not particularly pleasant climate.

If you're an international investor looking for a certain lifestyle, why would you pick Vancouver over Seattle or Portland, or Toronto over Chicago? Costwise, it makes no sense, especially when the American versions have much lower house prices and stronger local economies? The "safe haven" argument is empty, particularly if/when our own local property values begin trending down. For all the problems the US has, it's still the favoured destination.

Foreign investment is just another way to claim 'it's different this time'.

 

[interested]

CN Tower, were you being sarcastic.
If so you got me, but I thought there was possibly some seriousness in at least some of what you wrote.

 

[ILuvTO]

Once the bubble pops in China it will impact foreign markets (namely Canada) where these same people have also invested. That's when our bubble will pop. It's not a case of if, but more of when.

 

[CN Tower]

CN Tower, were you being sarcastic.
If so you got me, but I thought there was possibly some seriousness in at least some of what you wrote.

More incredulous than sarcastic.

I don't believe this trend is sustainable or healthy but I do think it partially explains the market today. Foreign capital is avoiding USA altogether because of the fear that their currency will continue to be devalued. Switzerland may be a place to hide money but a bank account is not an inflation hedge.

Canada, and Toronto specifically with its outrageous volume of mass construction (good title) offers a relatively unique place to park capital and hedge any inflationary forces that many investors fear.

Just a theory, not one I would seek to capitalize on with my own precious equity dollars but perhaps with Brad's Lamb's investors wallets I would consider it.

The irony of course is that if Lamb (not to pick on him but he does have a way of intruding into the local real estate media annoyingly) was sincerely so long on the future of the Toronto condo market he would not be developing product or selling it- he would be buying it.

Beware a wolf in sheep's (or lamb's) clothing.

 

[Eug]

Here is another video from Global National along the same lines as the CBC video, except this one is talking about the bubble in China. This is very scary. They say that Chinese are buyig property in China and not even renting them out. They are just leaving them empty. They view it as a safer type of "savings account", and a better investment than the stock market. It's no wonder so many are parking their money here in the same fashion.

Yes, this is indeed quite concerning. But it should be noted that a part of that is due to cultural differences. In China,as soon as someone lives in a unit, the value drops.

However, in Vancouver, the units are not kept empty. They're rented out.

Vancouver is a second, possibly third tier world city with limited local economic development (there's a reason I moved to Toronto), very high costs of living, and a not particularly pleasant climate.

If you're an international investor looking for a certain lifestyle, why would you pick Vancouver over Seattle or Portland, or Toronto over Chicago? Costwise, it makes no sense, especially when the American versions have much lower house prices and stronger local economies? The "safe haven" argument is empty, particularly if/when our own local property values begin trending down. For all the problems the US has, it's still the favoured destination.

Foreign investment is just another way to claim 'it's different this time'.

I don't think you quite understand. Traditionally, Canada has been MUCH friendlier to Chinese ex-pats than the US of A. That alone makes Vancouver much more desirable to a Chinese national than Seattle. Plus Vancouver has a reputation in Asia as being a nicer city, and more Chinese-friendly city. All you have to do is ask them. Which is their first choice? Seattle vs. Vancouver? Vancouver wins every time.

As for Portland? You've got to be kidding me. Most people haven't even heard of Portland.

Toronto also wins over Chicago in the eyes of many. Chicago still has a reputation as a dangerous city, and to be honest, I would agree when compared to Toronto. Furthermore, Chicago simply doesn't have the Chinese community that Toronto has. That not only is evidence of its preferred status historically, but also will encourage new Chinese immigrants to Toronto.

This is not to say that Vancouver isn't a bubble, and Toronto couldn't see a pull back either. I'm just saying that surprising as it may seem to some, both Vancouver and Toronto are highly preferred cities in North America.

The irony of course is that if Lamb (not to pick on him but he does have a way of intruding into the local real estate media annoyingly) was sincerely so long on the future of the Toronto condo market he would not be developing product or selling it- he would be buying it.

While I don't think much of Lamb's rants either most times, I don't think your statement makes much sense. He's already making money out the wazoo doing what he's doing. If it ain't broke, don't fix it.

 

[asiancolossus]

Just as Whistler. Aspen, St. Barts, St. Tropez are millionaire/billionaire hot spot retreats, so shall Vancouver & Toronto become millionaire/billionaire 'safe haven' retreats for the burgeoning class of wealthy Chinese and Asians. We will break away from the metrics of rental income to price and instead move towards the notion of a stable environment to park wealth, free from government force or manipulation. In this complex era of geopolitical and financial instability perhaps resource rich Canada is the new Switzerland for the 21st Century and Vancouver & Toronto are the gatekeepers.

Comments?

I only wish I was one of those burgeoning class of wealthy Chinese and Asians! I'm just a workin' bloke making it day to day!!!

 

[cdr108]

The irony of course is that if Lamb (not to pick on him but he does have a way of intruding into the local real estate media annoyingly) was sincerely so long on the future of the Toronto condo market he would not be developing product or selling it- he would be buying it.

Beware a wolf in sheep's (or lamb's) clothing.

you too see the faliacy of developers promoting the purchase of real estate,
when what they do is buy the land (which has value), construct a condo tower 50X gross developable land area ...
then charge the buyer as if one was actually getting the full land area associated with the square footage of the condo (ie. getting 500 SF of land with the 500 SF condo)

 

[interested]

Actually, in the core more likely the land costs for most condos are running $50-60/sq.ft. of buildable area/condo.
So for a 500 sq.ft. condo, there is probably $25-30,000 of land cost. Probably at least another $250/buildable foot. So the cost of a 500 sq.ft. condo without the amenity costs, financing, etc. is at least $150K. Developers probably aim for 25% profit I am guessing. They have been blessed with an escalating market making them excess profit with entry points of around $250K. Then the common areas would have to be split over the units. Still, at $500-600/sq.ft., let alone $700-1000/sq.ft., there is money to be made. That said, it takes deep pockets and there is an average 4-5 year from start to finish for a project and the developer/developers investors/banks do take risks projecting out in the future. It has been very kind to them the past 15 years. Just ask the developers what they thought from 1989 to 1995 however.