THIS WEEK IN JUROCK'S REAL ESTATE INSIDER:
BOB RENNIE EXPLAINS 20% THEORY
A NEW MONEY HUB?
FOR DEVELOPERS, IT IS ALL ABOUT THE DIRT
METRO LAND WORTH MORE THAN WHAT IS ON IT
WHERE CHINESE ARE BUYING IN THE U.S.A
WINDSOR THE MOST AFFORDABLE CITY?
NO CONTEST WITH WATERFRONT HOUSES FOR $164K
TORONTO'S NEW CONDO MARKET REMAINS WHITE-HOT
PWC'S PICK OF TOP CANADIAN CITIES FOR 2015
I N T E R N A T I O N A L: QUESTIONS, QUESTIONS
Several questions this week regarding Japan's major bet on re-kindling inflation (and Europe) and the US (apparently) announcing that it will stop its QE stimulation. I am updating the Hotline Friday Nov. 7 and discuss this and other issues. See you there? Don't remember the number to call? It is on your password protected website.
A New Money Hub?
We speculated a few months ago, that it may be likely that Canada would become a trading HUB for the Chinese yuan currency. Well, this week Ottawa and Beijing announced that they have struck a deal that will see Canada designated as just such a trading hub. What does it mean? It could mean lowering the cost of doing business for Canadian companies seeking Chinese markets. The hub, a financial centre sanctioned by China to clear and settle transactions in the Chinese currency, would likely be based in Toronto.
Major Point: What does it have to do with real estate? Well, it will bring Canada closer and closer into the awareness of Chinese businessmen. It bodes well for all major Canadian cities.
Where Chinese Are Buying In The USA
We did a piece on this before 2 months ago ... But Chinese investors are increasingly in the know when it comes time to select the next best real estate market. It was Li Ka-shing, for instance, who bought the North Shore of False Creek. So a look at where China's top investors are buying in the USA right now is telling for Canadian investors. The report, published by Cushman & Wakefield, shows that, between 2008 and 2014, institutional Chinese real estate investors in the U.S. have focused on New York, with $6.7 billion invested.
The other American states making the list are California ($1.6 billion), Illinois ($362 million), Texas ($305 million), Maryland ($150 million), New Jersey ($140 million), Arizona ($133 million), Florida ($95 million), Washington state ($44 million) and Delaware ($42 million).
Major Point: While Canadian traditional haunts have long been California, Florida and Arizona, Canadian investors should perhaps follow the in-the-know Chinese investors in embracing other hot spots in the U.S. market. Our bet is on Texas as the next big thing. More details on Hotline.
C A N A D A: Bob Rennie Explains 20% Theory At Housing Outlook Conference
Metro Vancouver housing is not expensive, only one-fifth of it is, uber real estate agent Bob Rennie told Canada Mortgage and Housing Corp.'s Housing Outlook Conference in Vancouver this week.
Rennie chided the media for beating on how unaffordable the Vancouver market is, but he compared it to a car lot with two $300,000 Ferraris and eight $30,000 Toyotas. The average price, he said is $84,000, but eight of the buyers will get a car for $30,000.
City of Vancouver homes average in the million-dollar range, with condominiums north of $440,000. But, Rennie said, for the remaining 80% of Metro buyers, the average detached house is around $670,000 and the average condominium is $316,000.
Rennie added there is no fear of a condo glut forming in the Metro market, despite more than 9,600 units heading for completion by 2015. Sales, he said, are solid in new condo projects from Vancouver East to the Fraser Valley.
According to CMHC analyst Robyn Adamache, "more than 80% of the new condos under construction in Vancouver are already sold." There is an 11-month supply of new and unsold condos on the Metro market, she said, down from 20-month inventory a year ago.
With 39,000 immigrants expected to arrive in Vancouver every year for the foreseeable future, Rennie said housing starts are tracking close to demand.
Condominium prices are also holding remarkably steady, with an average price increase of less than 3% in the past two years, Adamache added, while the average detached house price has increased 6% since 2014.
Major Point: CMHC forecasts that housing sales in the region will dip slightly to 32,350 units in 2015, down from 32,800 this year, and average overall home price will rise 1.2% to $821,000. (More next week)
The Numbers, The Numbers - Vancouver
3,057 sales in October 2014 represents a 14.9 per cent increase compared to the 2,661 sales in October 2013. Also, October sales were 16.6 per cent above the 10-year sales average for October.
The total number of properties currently listed for sale on the MLS system in Metro Vancouver is 13,851, a 9.2 per cent decline compared to October 2013.
The MLS Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $637,000. This represents a six per cent increase compared to October 2013.
The benchmark price for detached properties increased 7.9 per cent from October 2013 to $995,100.
The benchmark price of an apartment property increased four per cent from October 2013 to $380,200.
The benchmark price of an attached unit increased 4.7 per cent between October 2013 and 2014 to $479,500.
% 2011 VS 2014
Major Point: The average price while up 5% over last year is down from $838,300 reached in September this year. Noting Bob Rennie's comments above as well as Benchmark prices ... overall a fine month sales up, listings down - prices higher. Even compared to 2011 we are higher ... steady as she goes.
For Developers, It Is All About The Dirt
Land is not only leading the sales curve in Metro Vancouver, it is also setting price levels that put most built real estate to shame.
We have highlighted some of the startling prices: $1500 per square foot for a lot on West Hastings Street; $12 million for a half-acre on Cambie Street among them. In fact, land sales - at $546 million - accounted for almost half of the total value of commercial real estate sales in the second quarter of this year, based on transactions through the Land Title and Survey Authority in the Lower Mainland. Just the five biggest multi-family land sales in Metro Vancouver since January were worth more than all the commercial real estate property sold in all of B.C. (!!!)
Since it takes roughly an acre of land to support a high-rise condominium development, which is the main reason developers are looking for land in the Metro region, it can require buying five or six adjoining houses to assemble enough raw land.
So, when the developer looking for land assembly comes knocking on your door don't be surprised if he or she doesn't care about your new hardwood floors or the two-tone granite kitchen.
Notes commercial realtor Brandon Harding, with NAI Commercial Multifamily and Land Development Division, "In land assemblies it is common for the property owners to argue that their property is worth more because of its location within the assembly, they have the most updated building, or they have the biggest plot of dirt and deserve a higher price per square foot for the land. While these may be true, they are mute points. The only value is in the land and all the land is exactly the same in the eyes of a developer."
So how can you maximize the value of your land? Unfortunately, that has largely already been decided by its location. In the Lower Mainland, proximity to rapid transit stations is the key to price leverage, not because everyone loves transit, but because that is where municipalities are boosting density. It is happening in Vancouver, Richmond, Burnaby and more recently in Coquitlam though the Evergreen Line will not arrive for two more years.
It is not uncommon to see floor-space-ratios (FSR) of 4 for transit sites. This means that your 6,000-square-foot building lot can aspire to 24,000 square feet of high-rise condo space that can sell for $600 per square foot. But the gamble is that the developer often doesn't know for sure what the FSR will be until the assembled land is rezoned. The developer also doesn't know, in Vancouver at least and increasingly in other municipalities, what the city hall will demand in fees for the land lift (the increase in value after rezoning). In Vancouver it is 75% of the lift, to give an idea.
Harding notes that landholders will often hold out during a land assembly in an effort to get the maximum price. Not always wise, he said. "Developers have a very tight budget, with every dollar meticulously calculated and accounted for. If the numbers do not work because you are holding out for an above market price, than they will move on to another project."
Major Point: With higher density about the only option Metro Vancouver municipalities have of increasing the population - and the tax base - you could still pick an unassuming house in a promising land assembly area and wait for the developers to show up. If you are, rent the house in the meantime and keep improvements to a minimum. Remember, it is all about the dirt.
Again: Dirt Is Worth More Than Property Above It
Land accounted for nearly half the value of all commercial property sales in the Lower Mainland through the second quarter of this year, according to the Real Estate Board of Greater Vancouver (REBGV).
Land sales tallied $546 million, while total commercial sales reached $1.1 billion in the three-month period, the Board states in its Commercial Edge survey, which tracks transactions through the Land Title and Survey Authority.
Over the first two quarters of 2014, there were 887 commercial real estate sales in the region, a 4.5% increase from the same period in 2013. Ok, Land sales were ok ... what about other IVCI properties?
In the second quarter the total dollar value of commercial sales in the region posted the lowest quarterly dollar value since the first quarter of 2013.
There were 429 commercial real estate sales in the Lower Mainland in the second quarter of 2014, according to Commercial Edge. This is a 7.3% decline compared to the 463 sales recorded in the second quarter of 2013, a 20.6% decline from the second quarter of 2012, and a 15.7% drop from the same period in 2011.
There were 157 land sales registered in the second quarter, up 15.4% from second quarter of 2013. The dollar value of land sales was up 4% from the second quarter of last year.
Major Point: Of interest to note is that sales of office and retail property in the second quarter fell 10.4% compared to the second quarter of last year, while sales of industrial property were down 27.5% compared to year earlier. Sales of multi-family properties were unchanged, but the dollar volume dipped 28.4% from last year, to $204 million in the second quarter.
Spotlight: Windsor Is Canada's Most Affordable City: No Contest
WITH WATERFRONT HOUSES FOR $164K
Windsor, Ontario is just across the river from the biggest civic bankruptcy in U.S. history: Detroit. The location may underline why Canada's most southern city has the most affordable housing in the country.
Such a reminder of disaster in view every day - there are thousands of vacant and unsellable houses in Detroit - could make Windsor property owners reluctant to raise their asking prices. Then there is the fact that rivers and lakes surround Windsor, which equates into perhaps the least expensive waterfront in the country.
In a peek this week, we found Windsor area lakefront houses for $189,900 (old 2 bedroom rancher MLS No. 1409794; and another lakefront rancher (MLS 1409795) for $164,800) and many more in the $200s range. You could likely sell your house in Burnaby or Airdrie and buy three waterfront houses in and around Windsor and retire. Waterfront condos in Windsor proper sell for less than $90,000. Some a lot less. (!)
Desjardins (www.desjardins.com) did a recent survey and found that Windsor houses are actually 12% more affordable now than historically - and it is not because incomes are rising. The city, the study found had the most affordable homes in the country.
At the other end of the spectrum is Vancouver, with prices 15.7% less affordable than has been the case historically.
Affordability isn't just about prices; homeowners' incomes are also a factor. For that reason, there are some surprising cities in the unaffordable list. Sherbrooke, Quebec has cheap housing but relative to earnings, it's the second-least affordable market in Canada.
But some markets are really strong.
"Despite lower affordability in Canada, property sales remain surprisingly strong, particularly in Vancouver, Calgary and Toronto, where sales have climbed 18%, 13.7% and 4.7% respectively since the beginning of the year," Desjardins reported.
Major Point: Of the 18 cities Desjardins surveyed, 10 were actually more affordable than they are historically. In our Landrush and Outlook conference we made the point of the Canada's new 2 markets: The very rich and everyone else. Well, the report shows that it's a sign that, despite record prices and low interest rates, Canada's housing markets are fracturing into rich and poor areas.
Toronto's New Condo Market Remains White-Hot
This is from George Carras of RealNet:
Greater Toronto's new-home market appears to be firing on all cylinders, according to third quarter sales results for 2014 released this week by RealNet Canada Inc..
In the first nine months of this, buyers purchased 30,143 new homes across the GTA. It represents a 54% increase over the same period in 2013, for a total of approximately $18 billion in market activity.
There were 13,174 new low-rise homes (detached, semi-detached, townhouse) supplied to the market in the first nine months of 2014, and the market responded with 13,733 sales, totaling $10 billion.
Demand for low-rise homes continues to outpace the industry's ability to provide supply, largely due to the restrictions and limitations that have come as a result of the province's intensification policies.
The Low Rise Price Index has continued to climb through the year. The index set a new record high of $689,611 as of Sept. 30 - with the price difference between a low-rise and a high-rise new home continuing to widen.
Strong demand wasn't limited just to the low-rise sector, however; it was also seen in new high-rise homes (apartment condominium, loft and stacked townhomes). There were 13,951 new high-rise homes supplied to the market in the first three quarters of 2014, only slightly more than the low-rise supply.
But sales of new high-rise homes totaled 16,410 units, the third strongest year-to-date sales o in the last decade.
Sales of new high-rise homes totaled $8 billion and outpaced supply by 18%. The RealNet High Rise Price Index of $450,014 (as of Sept. 30) increased 4% from 2013.
As of Sept. 30, there were 52,777 new high-rise condominium units under construction across the GTA, in 211 projects that were 86% pre-sold.
The level of construction activity has declined by about 20% from its peak of 66,126 units in July 2013.
The previous annual record was set in 2013, with 16,668 new high-rise units completed. During the first nine months of 2014, GTA builders have already completed 19,722 condo units.
- George Carras is the president of RealNet Canada Inc.
PWC's Pick Of Top Canadian Cities For 2015
Pricewaterhouse Cooper (PWC) and the Urban Land Institute set up a show in Vancouver this Wednesday (after our deadline) to present their annual Emerging Trends in Real Estate. The outlook for 2015 is based on interviews with real estate and financial professionals and a highlight is always the "markets to watch."
We got our hands on pre-conference copy of the report. In Canada, the five cities to watch are not much of a surprise: In order they are: Calgary; Edmonton; Toronto; Vancouver; and Ottawa.
Major Point: PWC notes that Calgary and Edmonton are resource power-houses with high in-migration; Toronto is the leading financial centre with a robust housing and retail markets; Ottawa has a new multi-billion transit line going in; and Vancouver? Well Vancouver is a "hedge city" for the "world's superrich. A place to park their money."
Information provided by Jurock.com