Limits to foreign ownership
Someone over at the Vancouver Courier is of the opinion that foreign buyers have driven up the cost of real estate in Vancouver.
Of course, capitalism requires competition, and free market principles should drive our housing market. But we no longer control that market. And despite growing evidence of market dysfunction, Premier Christy Clark, who could stiffen provincial regulation, and Mayor Gregor Robertson, who could increase taxes on foreign property owners, cede our land to foreign buyers.
Not so in Australia.
In recent years, Australian cities have experienced Vancouver-style real estate booms, with housing prices soaring from Sydney to Melbourne. Like here, buyers from China help drive Australia’s speculative real estate market. Faced with mounting public pressure, in 2010 the Kevin Rudd government introduced strict regulation aimed at foreign ownership. Under the new rules, the Foreign Investment Review Board (FIRB) screens foreigners (including temporary residents and students) to determine their land purchase eligibility. Foreigners can’t buy existing properties and must build on vacant land within two years of purchase or face government-ordered sale. Scofflaws face capital gains confiscation. Finally, before foreign homeowners leave Australia, they must sell. No more overseas landlords Down Under.
Full article here. Is it time for BC to start looking at regulating home ownership and foreign buying?
This post was submitted by Spork.
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January 19th, 2012 at 11:19 am
@WFT?: …Two million Canadian households would be in trouble if rates went up only 2 points…
And 85% of those live between Comosun St. and 176 St. God I love this place!
January 19th, 2012 at 7:17 am
@patriotz: Totally agree that it really isn't just about whether or not we've saved equivalent.
I started looking at the housing market in 2002, when our first child was born. We weren't in any position to buy – I was just out of school and there were loans, we'd just had a baby, and we were starting RESP investment – but I thought I'd start learning about the market, start a down payment savings plan, etc. Already it was pretty clear that we would take a "lifestyle hit" to buy, but there were some places that I knew with concerted saving for downpayment, we could reach. In 2003, I started asking other people their experiences. I was raised by a single parent in a rental, so I wanted some sense of what ownership might be like.
First person I talked to was someone looking to sell his SFH and downsize to a condo. He was going to buy first, and then sell – had enough money to do so and wanted to be "good and lazy" about moving: but he kept seeing price wars and lack of inspection in the condos he was looking at, and it irritated him. He said he wasn't going to buy a house like it was grab-and-go at a Boxing Day Sale and that he'd wait until the market cooled down and his home inspector had a chance to get in there and look around. He's still living in his SFH, because he doesn't like being pushed.
In 2005, we had enough of a downpayment to start thinking about buying. I know if we'd bought then and cashed out, we'd be ahead – and from the alternate universe where there could be a permanent bear run, or even just a mild cooling of the market, we'd be behind forever. My investments and my family's income have certainly not tripled since 2005.
Even still, I don't really care.
There's location and space on our side – we would only have been able to buy a suburban condo in 2005 – and in the meantime, life's been pretty good and our commutes have been reasonable. Plus, we had our second child, and we wouldn't have if we were both needing full time work. In very sentimental terms, my second child was worth it, as was the fact that I could take the time. Plus, I've had a career shift. I've had that luxury.
But the truth is that I also don't like being pushed around. I'm stubborn. I didn't buy because I'm of the same mind as that first person I spoke to: I buy nothing on a pressure sale – not phone contracts, not extended warranty plans, and *especially* not a place to live. Since 2005, it's looked like a Roman orgy in Real Estate… Only those Romans enjoyed vomiting and beheadings and that's not really my sort of party.
January 19th, 2012 at 4:48 am
@WFT?: From that article:
January 19th, 2012 at 4:38 am
so you are way too ahead by running all the way to ottawa? the public sector needs quite a bit of arm-chair economists.
January 19th, 2012 at 4:30 am
@jesse:
"Hopefully over that time they will have saved above what they would have by owning."
Someone who bought in 2005 would have paid way more in expenses than rental value at least until 2009. That is money thrown away.
That means that someone who didn't buy in 2005 does not have to wait for the return of 2005 prices to break even with someone who bought then.
Before someone chimes in "that's only if they invested the difference", not it's not, it's up to the consumer to decide when and how to spend their money. Someone who spends less for the same accommodation is ahead on that criterion alone.
January 19th, 2012 at 4:30 am
Two million Canadian households would be in trouble if rates went up only 2 points.
http://www.theglobeandmail.com/report-on-business…
January 19th, 2012 at 4:25 am
@emmi:
Do you understand what marginal buyer means? Market prices are determined by the buyers who are least willing and able to pay, not the ones who are most willing and able. The richest buyer on the block does not determine the market price, the poorest buyer does.
January 19th, 2012 at 4:11 am
@Best place on meth: "Better to rent and wait."
A family who made that call in 2005 will likely have waited about a decade for real prices to retrench. Hopefully over that time they will have saved above what they would have by owning.
January 19th, 2012 at 3:56 am
@jesse:
>>>A shift of 10% lower sales and 10% higher inventory (say) would see some retrenchment of prices in these areas; in my view we could see something approaching sanity within about 5-6 years with such conditions. In terms of housing busts that’s not an unreasonable time scale, though for many families waiting that long puts their children half way through grade school.<<<
If they buy a $500K house now and it falls by $50K per year then they're not doing their children any favours by losing patience and jumping in.
Better to rent and wait.
January 19th, 2012 at 3:51 am
@patriotz: “If the market were driven by foreign buying, only foreigners would be buying. As you say, the amount of money and effort spent to market to locals speaks for itself.”
Not so. The banks don't do valuations based on rent, they do them based on comps. Access to leverage and credit is determined by how much the last HAM spent on the house down the street. Even if only 1/5 of the sales were HAM, the taps on the bank vault still open wider for all and sundry.
In cali it was often pump and dump schemes by realtors selling to one another that set the comps. Same results. It opens the taps at the banks based on a transient situation. When the comp setter vanishes so do the comps and then the music has stopped.
January 19th, 2012 at 3:22 am
And another MSM article pointing to the danger of Real Estate!
Our love affair with home ownership might be doomed
January 19th, 2012 at 3:15 am
Uh oh, Scotiabank is selling its Bay St. tower
http://www.theglobeandmail.com/globe-investor/sco…
Last time banks did that was just before another bubble burst:
"Royal Bank of Canada (RY-T52.990.541.03%) sold its head office and portfolio of more than 30 buildings in the late 1990s. In 2000, Canadian Imperial Bank of Commerce (CM-T76.341.111.48%) sold its Commerce Court complex of four buildings, including a tower right across the street from Scotia Plaza, for $618-million. That’s the current record for a single sale of an office complex in Canada."
January 19th, 2012 at 3:14 am
@130 jesse: Fraser Valley benchmark prices have risen as 'nutzoid' as the rest, 240% from 2000 values in a decade. Quick Google result:
http://www.fvreb.bc.ca/statistics/Package%2020111…
Perspectives may have morphed since the days when all BC was on fire and 3/4 mill was asking for a 700 sq. ft. leaning old timer with granite counter tops in Revelstoke but there's little value gained in downplaying the situation in the Lower Mainland. In any long term historical sense, it's still toon town.
January 19th, 2012 at 2:50 am
@Makaya:
"Let’s just say that there has been more than one driver behind this bubble…
- immigration (genuine and not so genuine)"
Immigration (or domestic migration) does not and cannot cause bubbles. If the demand for shelter grows faster than supply you will see increasing real rents (we haven't even seen that in Vancouver, rather real rents have been declining). But prices out of proportion to rents (i.e. a bubble) are a result solely of buyers willing and able to pay such prices.
Now immigration may lead to misconceptions which result in people paying inflated prices, but that doesn't make it a functional cause.
January 19th, 2012 at 2:17 am
@DEFAULT NAMEe:
"Patience serves as a protection against wrongs as clothes do against cold. For if you put on more clothes as the cold increases, it will have no power to hurt you. So in like manner you must grow in patience when you meet with great wrongs, and they will then be powerless to vex your mind."
Leonardo da Vinci (1452 – 1519)
January 19th, 2012 at 2:17 am
@Makaya: The other thing I should note is that the aggregate numbers hide that not all parts of REBGV have been doing as well as the areas most concentrated on by this and other blogs. That is, while foreign capital flows were almost assuredly positive into neighbourhoods like Van West, West Van, Richmond, and potentially Burnaby and North Van in the first half of 2011, other regions were not doing so well. Fraser Valley, while not crashing, has been struggling since 2009. This is the so-called "bifurcation" mohican has highlighted before.
Prices in Vancouver and surrounds are certainly high but I don't think the market has gone from "nutzoid" to "ludicrous" in many areas; it's just been in a holding pattern. A shift of 10% lower sales and 10% higher inventory (say) would see some retrenchment of prices in these areas; in my view we could see something approaching sanity within about 5-6 years with such conditions. In terms of housing busts that's not an unreasonable time scale, though for many families waiting that long puts their children half way through grade school.
As for the near-burbs and Vancouver proper, something more dramatic would be necessary.
January 19th, 2012 at 2:15 am
Rob Carrick on Facebook put up a crazy graph of Canadian real estate. Realtors trying to talk down the obvious concern….pretty funny
http://www.facebook.com/robcarrickfinance
January 19th, 2012 at 2:07 am
@Makaya: Agree, it's too early to make a call (like CBC with "calling" elections) of another severe housing market recession.
In 2008 weakness first appeared in March and really became evident in June/July that things weren't all peachy. That said, 2010 exhibited all the signs of 2008 for the first 5 months of the year but sales recovered in the second half of the year and we all know about 2011's craziness in the first few months (especially March).
See here: http://housing-analysis.blogspot.com/2012/01/grea…
Look how closely 2008 and 2010 inventory and sales tracked each other through the first few months, only for 2010 to get another jolt of energy from July onward.
One thing I can say is that, so far, 2012 is different, and not in a good way if you want higher prices.
January 19th, 2012 at 2:02 am
@crashcow: 30-yr us treasury bond yield
January 19th, 2012 at 2:00 am
222 years of interest rates!
http://www.ritholtz.com/blog/wp-content/uploads/2…
January 19th, 2012 at 1:45 am
I've had two friends buy their first homes in the past two weeks (Vancouver-born WASPS), both their first purchases, both SFHs on the East Side, both with at least $200K in inherited money, and both of whom are aware of the bubble potential but are so desperate to own their own detached property. Both paid in the $700-$800K range for houses that probably require a shitload of work.
I'm 38 and make $100K/yr (2 kids wife not working) and could probably over-leverage myself, spend the next 5 years on reno's, cut my lviing space in half by having to get basement suite tenants… but we're still content (just barely) to sit on the sidelines like we have been since 2007. But the persistence of this f#@!ing bubble is really starting to get to me.
January 19th, 2012 at 1:32 am
@WFT?: "Isn’t it bursting now? What does a bursting bubble look like in the early stages?"
I would love to believe so, but it's still a bit early to call it a burst (remember 2008/2009). I guess by the end of the summer, we'll have a better idea whether the early signs of weakness we're witnessing now are the "beginning of the end" of this bubble or just "noise". We'll see.
January 19th, 2012 at 1:24 am
@patriotz: "If the market were driven by foreign buying, only foreigners would be buying. As you say, the amount of money and effort spent to market to locals speaks for itself."
Let's just say that there has been more than one driver behind this bubble. In addition to the main factors (CMHC and dirt cheap money), I would say (in order of importance):
- local craziness (i.e. local speculation as per Vreaa's definition)
- immigration (genuine and not so genuine)
- foreign speculation
January 19th, 2012 at 1:24 am
@Makaya:
"nasty for pretty much everybody once it bursts."
Isn't it bursting now? What does a bursting bubble look like in the early stages? I wonder if anyone konws. Can we compare the dramatic data we are now seeing to the bursting of the bubble in other markets?
If someone has th day off today, perhaps they can put together a statistical picture of a bubble starting to burst.
January 19th, 2012 at 1:15 am
@Patiently Waiting: "Anyhow, this crap has gone on far too long. If we are “different” or if the bubble burst, it doesn’t matter now, this city is ruined for years…decades really."
Sad but true. This bubble has been damaging for most people, and will be nasty for pretty much everybody once it bursts.
January 19th, 2012 at 1:10 am
West Van realtor makes some compelling arguments for elderly homeowners to downsize and turn equity into cash:
"People try to convince their friends and neighbours they're moving for lifestyle reasons. They want to be able to close the door and go travelling, that sort of thing. But the fact is they're house-poor – they have no cash, and they need the capital from their house."
Usually they get it – most reinvest only about 70 per cent of the selling price in a new place to live. With seven-figure values common in West Vancouver, the 30-per-cent remainder adds up to a lot of cash.
Read more: http://www.vancouversun.com/business/savings+Home…
He also points out how elderly get isolated in SFH and live in neighbourhoods that lack the vibrancy you get from young families.
January 19th, 2012 at 12:34 am
Vancouver can evaporate 7 mil, not very fast but eventially it will turn into smoke. Especially when everybody understand RE here doesn't worth asking price and there is no jobs and no world class city entertainment.
HAM and everybody RE addicted will suffer in so many ways…
Master, Master, where's the dreams that I've been after?
Master, Master, you promised only lies
Laughter, laughter, all I hear or see is laughter
Laughter, laughter, laughing at my cries
January 19th, 2012 at 12:07 am
@MadasHell: 'Each escaped official stole, on average, $7 million
Read more: http://www.time.com/time/world/article/0,8599,207…
January 18th, 2012 at 11:48 pm
House ‘A’ and House ‘B’
Each of these houses is not like the other:
http://wp.me/pcq1o-3za
January 18th, 2012 at 11:15 pm
@Patiently Waiting:
If the market were driven by foreign buying, only foreigners would be buying. As you say, the amount of money and effort spent to market to locals speaks for itself.
January 18th, 2012 at 10:48 pm
If this market was driven by foreign demand, than why all the local hype?
In what other city would the media send reporters to cover some slimeball and a bunch of realtards flying around in a helicopter and call it "news"?
Anyhow, this crap has gone on far too long. If we are "different" or if the bubble burst, it doesn't matter now, this city is ruined for years…decades really.
January 18th, 2012 at 10:14 pm
@fixie guy: If you want an idea of who's around, break out the thermal camera on a day like today's.
January 18th, 2012 at 9:54 pm
106 N Says: "Vancouver certainly has more Chinese speaking (and Chinese looking) people buying houses than other Canadian cities…"
Only per-capita, and slightly at that. In absolute numbers more settle in the Toronto area by far. Ironically, I was driving through Markham recently just after dusk on a Sunday and was surprised to see how few SFH's at the north end of the newest 'Chinatown' we lit. Block after block was dark. That's not typical of homes in the Toronto core.
January 18th, 2012 at 9:46 pm
77 patriotz Says: "So talking about “foreign money” is essentially a waste of time…"
It makes about as much sense as saying it's all the same because the money is printed in the same mint. If the fed is using immigration quotas to sustain operating expenses – I posted a back-of-napkin calculation here before suggesting the yearly intake from the Investor program alone approached the Canadian federal deficit – and bolster GDP, and not doing due diligence on the source of incoming wealth, that's a world away from the 'same money' earned from the internal generation of goods and services. In that respect it doesn't significantly matter in the short term if the source immigrates here to retire or remains abroad.
Foreign earned money is foreign money, citizen or not, and far from a waste of time.
January 18th, 2012 at 8:42 pm
@Makaya: There was high immigration 100 years ago too; it's harder to have a property bubble with a declining population.
Stories from prairie towns of that era were equally as speculative.
January 18th, 2012 at 7:37 pm
@Makaya:
"So does that mean that Vancouverites are dumber (or greedier) that the other Canadians?"
Of course that's what it means. Or as Robert Shiller put it more politely, "Vancouver is the most bubbly city in the world".
Sorry if this comes off sounding rude or arrogant, but get some exposure to the rest of Canada (or the US today) and you'll see clearly what a bunch of greedy fools the city is.
January 18th, 2012 at 2:32 pm
@Anonymous: ….r is PM now, and there is no such thing as a dollar too dirty for him. …
Is it any wonder the Liberals want to legalize pot – so nuts like you can join the party.
January 18th, 2012 at 2:05 pm
it's just meant that Makaya is dumber than the rest of the world.
January 18th, 2012 at 1:46 pm
@Makaya: And from the same article, this great lesson from the past. Maybe that's what awaiting us again, History repeats itself, unfortunately:
January 18th, 2012 at 1:42 pm
@Makaya:
Vancouver certainly has more Chinese speaking (and Chinese looking) people buying houses than other Canadian cities, and that makes it easier for people to attribute sales to Canadian residents as (foreign). It's also true that quite a few houses are being bought with money from China. But that does not mean that prices are being driven up by these purchases.
Consider the price of hotel rooms in Vancouver. They fluctuate with demand, and some hotel rooms here are no doubt occupied by people from China. In fact, it's a reasonable guess that more hotel rooms are occupied by Chinese nationals in Vancouver than any other Canadian city. But no one says the Chinese are driving up the prices of hotel rooms in Vancouver.
January 18th, 2012 at 1:42 pm
@DEFAULT NAME: "Maybe you have not been paying attention but the whole of Canada is in a bubble."
Yes, but not every places have been as insane as Vancouver… In Montreal, Halifax, etc. you can still "afford" a place with an average income.
January 18th, 2012 at 1:40 pm
@Anonymous:
It was (is) easy to create HAM hype with so many local Chinese driving leased cars and hardly speaking English. Perception is a miracle.
January 18th, 2012 at 1:38 pm
@Patiently Waiting: "Vancouver has more real estate hype than anywhere. As has been often mentioned here, real estate is a huge part of this city’s economy. Probably more than anywhere else in Canada. In that sense, we are different."
I agree with you. I read that article today: Land of Destiny: a history of Vancouver Real Estate. It's funny how, 100 years ago, the behaviors, trends, patterns were exactly the same as today.
It's a very good read. Speculation in Vancouver RE has always been a combination of local craziness and foreign investor. Nothing new today. We all know about the craziness of the locals, we just want to refuse to admit that there is a foreign component to it…
January 18th, 2012 at 1:35 pm
@Makaya: "So does that mean that Vancouverites are dumber (or greedier) that the other Canadians?"
Maybe you have not been paying attention but the whole of Canada is in a bubble.
January 18th, 2012 at 1:20 pm
@DEFAULT NAME: "Every real estate marketer in every city tries the foreign buyer, running out of land, priced out forever stuff. Just not everyone falls for it." So does that mean that Vancouverites are dumber (or greedier) that the other Canadians?