Property & Mortgages

Up, Up and Away! – Vancouver fast becoming one of world’s most expensive cities to live

Prices of luxury homes soar 20.4% in 12 months

If you want to live in the greater Vancouver area, you better have some coins. And lots of them!

That is especially true if you want to own your home. Vancouver, Canada, is one of the most expensive – and becoming increasingly more expensive – cities in the world when it comes to housing prices. In fact, the city continues to outpace all other cities when it comes to rising prices for luxury homes. Prices of prime luxury homes in Vancouver soared 20.4 percent between September 2014 and September 2015. Sydney, Australia, was a distant second with a 14-percent increase in prime real estate prices, indicated London-based real estate consultants Knight Frank. Shanghai, China, was third at 11 percent, while Jakarta and Melbourne rounded out the top five at approximately 9 percent.

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Values of homes in Vancouver rose 0.6 percent from September to October 2015, and by a massive 9.8 percent year on year. “The 12-month composite price increase, the largest since May 2012 … was driven by only four markets (Toronto, Hamilton, Vancouver and Victoria), where home resale market conditions are known to be rather tight,” Marc Pinsonneault, a senior economist with National Bank, was quoted as saying in national media on November 12.

That trend will continue for at least another six months, suggests Pei Huang, a real estate agent with Re/Max Metro Realty in Vancouver. He is among the many industry insiders who suggest various factors – from low supply of high-end homes to wealthy foreigners looking for a place to park their money – are contributing to the soaring property prices throughout the lower mainland of British Columbia. Cameron Muir, chief economist with British Columbia Real Estate Association, has been quoted as saying the combination of high demand and low supply for single-family homes – not the prices of luxury homes – is the cause of the price spikes. (In fact, the number of homes listed for sale dropped 32 percent in the past year.)

Huang agrees. He says there is not enough supply to meet demand. That has resulted in multiple offers – and sometimes bidding wars – for properties. Very few good-quality homes have been listed in recent months, making it hard for buyers to find homes that will suit their needs. “The buyers are competing. It is very common (for buyers to offer) 15-20 percent higher than the asking price,” Huang says. “The demand is higher than what is in the market. This situation will last until, I believe, next summer. I don’t see it changing.”

Excess demand isn’t necessarily bad, nor is it necessarily good, but it is a stage in the cycle of a free-enterprise system. “It is a free market. You cannot say which is good and which is bad. It’s all about demand and supply. When demand exceeds supply, the prices go up. When supply exceeds demand, the prices go down,” Huang says. “Anyone who can figure out the turning point is a genius. I don’t think anyone is able to do that.”

Is there a bubble reaching a bursting point in Vancouver’s residential real estate market? “I wouldn’t say there is a bubble,” Huang says. “For the past 10 years … I have seen Vancouver’s real estate market as always strong.” People from around the world are moving to Canada, which is one of the world’s largest countries by land, yet one of the smallest by number of people, and generally the immigrants are heading to either Toronto (the largest city) or Vancouver (the third largest). “That’s why the demand (for housing) is strong. And we only have so many properties to offer,” Huang says.

Although Vancouver tops the list of price increases in global cities’ luxury housing markets, indicating the trend that Vancouver is climbing the list of the most expensive cities in which to live, it appears to be a few years away from entering the top 10 most expensive cities. Vancouver does not make Knight Frank’s top-10 list for 2015, and the city sits at 119 on the Mercer 2015 Cost of Living Survey.

On Knight Frank’s top-10 list (in order) are: Monaco, Hong Kong (where $1 million will buy 20 square meters of property), London (where luxury apartments start at 8.5 million British pounds [about US $12.7 million]), New York, Singapore, Geneva, Sydney, Shanghai, Paris and Los Angeles. While there is some overlap, there are a couple of surprises on the Mercer list. Luanda, Angola (where a two-bedroom apartment costs about $6,800 to rent, which compares with roughly $1,800 in Vancouver), tops the list. N’Djamena, Chad, is ranked 10th. Second through eighth are: Hong Kong, Zurich, Singapore, Geneva, Shanghai, Beijing, Seoul, and Bern. Tokyo is ranked 11th, London is 12th, New York is 16th, and Lagos, Nigeria, is 20th.

In greater Vancouver, sales of homes valued at $4 million or higher increased 71 percent in the first six months of the year, notes a report by Sotheby’s International Realty. Another report, by Re/Max (an international realty company), sales of homes valued at $3 million or more soared 79 percent during the same period. But to keep the situation in perspective, Muir has noted fewer than two percent of home sales in greater Vancouver involved $3 million or more, while approximately 80 percent of home sales were for less than $1 million.

Huang says those sales are a combination of speculators making investments and people buying family homes. “Investors are always buying good properties for profit. Wealthy people are coming into Vancouver, and moving into Vancouver from other parts of Canada,” Huang adds. “That also means wealthy people are targeting higher-priced properties for decent living arrangements, such as good communities and the better schools.”

Huang notes the west side of Vancouver is a prime area, and a lure to wealthy domestic and international purchasers, many of whom are investors looking for a place to park their money. He says detached, single-family homes in the area, which includes the well-to-do Point Grey area, range from $1.6 million to $50 million, depending on such factors and location, the view and the size of the home and lot. (The average price of a detached, single-family home in the area rose 20 percent, to nearly $3 million, a record, in the past year.) A mansion in Point Grey sold for $51.8 million in December 2014. Wealthy Chinese businessman Chen Mailin purchased the 25,000-square-foot mansion on 1.09 hectares.

Depending on location and the age and condition of the building, a one-bedroom apartment in the greater Vancouver area (including downtown and the suburbs) can range from $120,000 to $1.5 million, Huang says. Luxury apartments, such as penthouses, cost substantially more. Prices tend to be lower in the suburbs. For example, the average cost of a two-story duplex in North Burnaby is $950,000, while the average price of a similar home in South Burnaby is $850,000. Huang says South Burnaby is a less-desirable location because it is more commercial, with fewer schools and many warehouses and large businesses, while North Burnaby is more residential and the location of the main campuses of Simon Fraser University and the British Columbia Institute of Technology.

Property prices in North Burnaby rose 24 percent on average in the past year. Similar spikes have been recorded in East Vancouver (23 percent), Richmond (23 percent) and Tsawwassen (26 percent).

David Eby, an opposition member of British Columbia’s legislature, and who represents the riding that is home to Vancouver’s upscale Point Grey area, in recent weeks has called on the provincial government to closely monitor the situation. Specifically, he has urged the government to begin collecting data on real estate buyers.

A report by Andy Yan, a senior urban planner with the City of Vancouver and a researcher with Bing Thom Architects, indicates Chinese make up most – nearly two-thirds – of the wealthy foreigners who are buying luxury homes in Vancouver. The report, released earlier this month, indicated Chinese paid a combined $520 million to buy approximately 66 percent of the 172 luxury homes – including nearly 88 percent of the homes valued at $5 million or greater – sold in Vancouver between August 2014 and February 2015.

Premier Christy Clark has stated in the past that foreigners account for less than five percent of real estate transactions. She has also rejected calls from various sources, including Vancouver Mayor Gregor Robertson, to impose a “speculation tax” on people who flip houses. Clark has also rejected calls to both levy a “luxury tax” and raise the property-transfer tax.

“It’s a free market. I don’t think Canada or any of the provincial governments will do anything … to reduce the reputation of Canada,” Huang says. “The wealthy foreign buyers are targeting certain kinds of properties … the multimillion-dollar properties on the west side. For the past 15 or 20 years, you can see from the price changes (on line charts) … the wave has always been larger on the west side and flat as it moves into the east.”

Concern has also been expressed by various sources that wealthy foreigners, especially from China, have been pushing up property prices and driving locals to other areas – including less-desirable areas – of the greater Vancouver area to buy homes. Critics suggest this migration of locals to the suburbs is resulting in the lack of affordable housing in the greater Vancouver area.

“This is a worldwide problem. It happens in every city in every major area. The central location is always occupied by the wealthy, rather than lower-income families,” Huang says. “Don’t just focus on Vancouver … Wealthier people are buying higher-priced properties … You shouldn’t say that’s a concern.”

Prices, he says, will lower at some point, but that doesn’t mean the market will crash and prices will plummet. “The demand will still be there … The Vancouver market is very different from anywhere else,” he says. “Investors in the Vancouver market have their goals. They are millionaires or billionaires, and they have their investment goals … They put their money down and they want (x amount of) profit.” They sell their properties, take their profits and move on to other property investments after they have reached their goals, he adds.

Few investors have been afraid of the real estate sector since the global financial crisis – which erupted in 2008 as a result of sub-prime lending (in the United States) and investors’ speculation on those mortgages – ended a couple of years ago, Huang says. Why? Real estate, he adds, is tangible. Investors like to see their purchases, not simply an abstract concept outlined on paper, as that helps them realize the value of their acquisition.

Also, Huang says, investors are looking for acquisitions that are more conservative so they can better protect their money. Many other sectors, such as oil and gold, are no longer as dynamic as the real estate sector. The prices of oil and gold have tumbled in recent months, while global property prices have continued to rise, Huang notes. Investors need dependable investment channels to place their money if they are to make more money, and the real estate market, especially a strong real estate market, fits the bill.

Even though increases in the prices of luxury homes in Vancouver are outpacing all other cities in the world, that does not mean there is a lack of affordable housing for lower- and middle-income families. For example, one property developer advertised a two-bedroom condominium (in Langley, a separate city but essentially a suburb of Vancouver) for $263,900 in the November 6-8 edition of Vancouver Metro. With a five percent down payment, the monthly mortgage is $1,090. The monthly rent ranges from $1,000-1,500 for a comparable apartment in the area. In Surrey (a separate city to the south of Vancouver, but again essentially a suburb), the developer of a commercial-residential complex is selling 1-3 bedroom units (between 563-1,404 square feet) starting around $250,000. The top units sell for just under $800,000. In North Delta, den, one- and two-bedroom condos are selling for as low as $189,900 in a new residential complex.

Municipal governments through the greater Vancouver area are encouraging property developers to construct strata properties instead of single-family properties. That, Huang says, is a realistic solution. “Every major city around the world is building strata (condo) properties.”

Huang notes it is a good, cost-effective option for young urbanites to build equity, especially if they have family willing to help with financing. After living in a smaller, less-expensive home for a few years, they can sell the property and use the profit to upgrade to a larger, more expensive home, including detached family homes. “That is a solution,” he says. “There are still many popular working-class properties in the area, around $1 million … There are still many (properties) on the market for local people.”

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