There is no credible scenario – whether inflationary, deflationary, or price stability, apart from selling to a greater fool – where buying Vancouver RE will give competitive returns to an investor.

You have the evidence of the world’s biggest economy the other side of Zero Avenue. What more could anyone want?

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That was my context. The long-term total return of an asset class is positively correlated to its risk, because the more uncertain the returns, the more return rational investors will want.

Vancouver RE is no more risky today than it ever was. It’s just ridiculously overpriced. That’s something else entirely.

If anyone thinks I’m being pedantic, would you say it’s “risky” to jump out of an airplane without a parachute? No, it’s suicidal. Just like buying Vancouver RE at today’s prices is financial suicide. Risk means undertaking an action with an uncertain outcome, not one with a virtual certainty of a negative outcome.

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Risk also refers to ‘capital risk’, not just an interuption of earnings. Capital risk can account for any potential exposure to loss from currency fluctuation, opportunity cost and direct loss through malfeasance etc etc.

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VANCOUVER (NEWS1130) – The man who led an earlier fight against Vancouver’s leaky condos has a warning for owners of recently built condos: Just because it was built after the year 2000, doesn’t mean it’s free of the problem. James Balderson with the Coalition of Leaky Condo Owners says they’ve started to get reports from homeowners in condos built after 2000.

In many cases, balconies are needing to replaced, among other projects…but the existing warranties are running out. Balderson says the current leaky condo warning period that ranges between 1982 to 1999 isn’t realistic. “I think the real warning period is for condos converted or built after 1970 to the present day. We’re hearing reports about the warranties that are supposed to be looking after everything, and disputes are arising regarding the performance of the warranty companies who look after the problem.”

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Risk means different things to different people in different contexts. No one likes a pedant.

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http://www.bnn.ca/news/10115.html

“But the risk posed by household balance sheets has grown, the Bank of Canada. The level of debt to income reached a record in the fourth quarter as real net worth dropped 6.7 percent from the same period a year ago, the central bank said.

While stressing that the possibility of a mass bankruptcy is remote, the ability of Canadians to repay their bank loans has replaced frozen credit markets as the main fear factor among policy makers, the report said.

“There has been a further deterioration in the financial position of the Canadian household sector as a result of the continued turmoil in financial markets, the deepening global recession, and worsening labour market conditions,” the report said. “Nonetheless, in aggregate, the financial situation of Canadian households remains reasonably healthy.”

Canadians’ household debt is about 140 percent of disposable income, compared with about 150 percent in Britain and almost 170 percent in the United States. The level is about 90 percent among the countries that use the euro.”

Yet, the cost to borrow remains… cheap.

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I know several people like this who got sucked into the market in the last few months b/c of the low rates. Crazy.

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You are not using the term “risk” correctly. Risk means uncertainty of earnings. The earnings from Vancouver RE, i.e. its rental value, are no more uncertain than they ever were. RE is far less risky than stocks (because corporate earnings are far more volatile than rents) which is why RE has historically returned much less than stocks.

Or to put it another way, risk means uncertainty in evaluating the fundamental value of an asset, which is the present value of what an asset will return to you if you never sell it. Fundamental value for RE is not hard to evaluate. It’s just that the market price for Vancouver RE today is way above fundamental value, to which the market price must eventually revert.

Vancouver RE is not a risky investment right now. It’s just a very bad investment.

If you buy Vancouver RE right now, you are going to lose money, big time, absent a greater fool who is willing to lose even more money. That’s not a risk, that’s a certainty.

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Your mom’s basement is not South America.

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It’s somebody’s money. Have any deposits at the bank? Where do you think those deposits end up?

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And yet the magical land of Vancouver is never gonna drop, mind you it is the ‘best place on earth’.
drop baby drop

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Not only have the fundamentals not changed, but those freaky low rates have sucked in a whole new batch of greater fools that wont be around to affect future demand.

To think that the most overpriced real estate on the continent together with the worst global financial crisis most of us will ever see can be solved with a mere 15% correction is ludicrous.

Sure, some prequalified borrowers could send the market into one final frenzy in an effort to beat the clock, but that would only make the perfect storm a little more perfect.

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Only 2-5-10 I know as much as you do about this topic.

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The warranty periods are as follows:
2 Year – Labour & Materials – including HVAC, plumbing, electrical etc. (within this period a 12 and 15 month warranty are also defined).
5 Year – Water penetration (building envelope), some warranties extend this to 10 years.
10 Year – Structural, only on new buildings not renos.

On new developments the owners report all deficiencies to the developer and literally sign off on the repairs once satisfied with the repair. To me, this is a fair arrangement. When the developer fails, that’s when the warranty comes in.

After the 2 year L&M expires, it’s all on the warranty and people should be thankful. I’ve seen some pretty significant repairs happen within this period. I’m talking $100,000’s to repair a building envelope, that would’ve been passed onto the owners through an assessment. You can’t tell me this doesn’t protect the owners, I’ve seen it in action. I’ve also been part of some huge leaky condo litigation so… I’ve seen what happens without a warranty, it’s ugly and extremely costly and onerous on the owners. It may not be perfect, but it does protect owners from some pretty significant costs down the road.

Similar to a vehicle warranty if you start changing parts or taking your vehicle to a shady tree mechanic vs. the dealership where you bought it (while under warranty), your warranty is void.

A warranty is in place to ensure that things remain the same and functioning as they should. It’s not a maintenance contract, contrary to popular belief. That responsibility remains with the owner of the property, as it should.

That being said, due diligence is always required but rarely undertaken. Research the developer/builder/warranty before you buy.

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