May 132015
 

Not in my Backyard 

I recently read an article about a lower mainland couple who doesn’t like how a neighbouring $2 million house sits empty all the time. The yard is unkempt, there are no cars in the driveway and the lack of human presence is “driving [the couple] slightly bananas.”

Sacré bleu! You mean to tell me that there are people who buy property only for investment purposes? How dare they offer above market price to purchase a house here, so that Canadians can unlock the full value of their real estate. What can we do with cash anyway? Buy a diversified portfolio of liquid assets like stocks and bonds to provide passive income for retirement? No thanks. I’d much rather put all my nest eggs into a single illiquid asset that produces no income, and lies on a major fault zone. 😛 Those pesky foreign investors who don’t even live here think they can just not contribute any waste to our sewage system, and not use the city’s garbage services, but somehow think they still have the right to pay the full brunt of utility tax and property tax. Some nerve! How dare those foreigners help fund our police, fire, and public education system when they don’t even have kids here to overcrowd our classrooms. It’s also unfortunate how quiet their house is all the time. Who would want to live beside quiet neighbours anyway? Not me. :roll:

Sarcasm aside, foreign ownership of real estate is a hot button issue around here. Should non-residents or non-citizens be allowed to purchase Canadian residential property?

There’s actually a petition to restrict foreign investment in Canada’s most expensive real estate market, which I’ve signed and shared on social media. To be frank I don’t believe this petition will bring about any meaningful change, but I think it’s an important discussion for fellow Vancouverites to have. :)

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click on image to sign the petition

There will also be a rally outside the Vancouver Art Gallery on May 24th, to focus on the problem of affordable housing for young people in a city where the average house costs more than $1 million. Feel free to attend and take a stand if you believe in the cause. :)

Foreign Real Estate Ownership

Some believe foreign ownership drives up the cost of housing which makes it less affordable to live in the city. But I think that’s largely a myth. The amount of foreign owned property is just a fraction of the overall market. Foreign investment laws haven’t changed much in Canada over the last decade. However mortgage interest rates have been cut in half over the same period. Raise the interest rate and watch as prices correct overnight.

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Mar 282015
 

According to a Financial Post report the average price of detached homes in Toronto passed the $1 million mark for the first time last month. :) The GTA has experienced a housing bull market for almost 2 decades and there is no sign of it stopping.

I want to congratulate Torontonians for reaching the $1 million milestone. Welcome to the club. :) Meanwhile the average detached home in Vancouver now stands at about $1.4 million. But hey, it’s not a competition. 😉 And extreme cases like the Point Grey mansion that was sold a few months ago for nearly $52 million will skew the average results. Can you imagine the commission real estate agents make around here?

We often hear complaints about how unaffordable housing is in Canada. But there are two sides to each coin. My friend’s parents bought a home for $70,000 over 40 years ago. They have since paid off their mortgage, and their home is now worth over $1 million. 😀 They plan to sell their house soon in order to downsize and will become liquid millionaires. That sounds great to me. The majority of Americans and Canadians are home owners. So financially speaking rising home prices should benefit most of us. :)

Recently a Vancouver house sold for $567,000 over the asking price. It was listed for $1,600,000, but sold at $2,167,000. People are even making jokes about how insane the housing market is. Below is a short video I found of a Vancouver real estate agent talking about his inexperienced clients. It captures the ridiculous nature of the current market around here. 😆

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Feb 092015
 

Canadians are notoriously overweight. 😛 Financially overweight in real estate that is. 😉 When it comes to buying houses we are even more gluttonous than our American pals. The Canadian median household net worth may be one of the highest in the world, but strip away the equities in our homes and many of us would feel financially emasculated. 😐

Foreign ownership, low interest rates, and a growing population in major cities all contribute to our strong real estate market, which many say is in a bubble. But whether properties in Canada are overvalued by 10% or 30% it really doesn’t matter for investors who keep the following points in mind.

  1. Diversification –  Invest in more than one type of asset class
  2. Time – If we have a long term outlook then our risk of losing money is greatly reduced, especially if we combine this knowledge with diversification.

If we’re properly diversified and hold our investment long enough then we’re bound to make money in stocks, real estate, bonds, or any other market. Over 70% of Canadians are real estate investors. Fortunately most of these investors understand the benefits of a long term investment and forced savings. But it’s the first factor, diversification, that many seem to struggle with.

Having one’s net worth tied up in multiple condo units is not the best way to allocate assets. There are other types of properties out there like office space, restaurants, parking lots, etc. that are all available for anyone to purchase and rent out. With the recent lowering of interest rates and the falling Canadian loonie I’ve decided to take another look at real estate. Since I already have a residential property and farmland, I think it would a good idea for me to diversify my real estate portfolio and buy some commercial properties. :)

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Here is what I’m looking for in an investment property:

Type: Industrial – usage would include manufacturing, warehouse, garage, etc
Location: Greater Vancouver Area – includes Burnaby, New West, Richmond, Surrey, and the Tri-Cities
Price range: $250,000 to $500,000
Zoning: I, M, C – Each municipality will have its own naming convention. For example M-1 in Vancouver is a flexible designation for a range of business types like animal clinic, catering, laundry/cleaning, work shop, cold storage plant, etc. And C-2 can be used as a barber shop or beauty salon. These zoning bylaws can be found on the local government’s city website.
Capitalization rate: 4% to 5% – Similar to the ROI (return on investment.) This kind of return would be comparable to a high-yield bond fund, but with less risk. :)

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Jan 052015
 
The Bank of Canada Governor Stephen Poloz stated last month that this country’s housing market could be overvalued by as much as 30%. This may very well be true, but it’s nothing to be alarmed about. 😉 In fact I would be really surprised if our real estate market was not overpriced given what’s going on in the rest of the economy. Toronto’s real estate has increased almost every single year for the last 19 years, except in 2009.
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A large part for the seemingly illogical run-up in real estate prices in Canada, the U.S., England, Australia, and parts of Asia over the last 2 decades, can be rationally explained by TINA, which is an acronym for There is No Alternative, a term first made popular by Margaret Thatcher. It’s the same reason North American stock markets reached all time highs at the end of 2014. :) The Canadian Stock market is currently overpriced by more than 20% according to historical averages. The S&P 500 stock market index in the United States currently has a P/E ratio of 20. That’s 25% more overvalued than the historical average P/E ratio of around 16.

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Jan 022015
 

To understand why the Canadian housing market is performing so well we have to look at where the demand is coming from. According to the Canada Mortgage and Housing Corporation, one person households are “expected to show the fastest pace of growth, making it the single biggest type of household by the 2020s.” As the population ages more senior women are becoming widowed. More young women are also delaying marriage and opting to buy smaller homes. As a result, the CMHC says that females today are over-represented in the singles condo market.

In 2011 Canadian women already represented 65% of all condo owners who are single. If we look at the statistics for people who are 55 and older, that number rises to 76%.

Back in 1971 couples with children made up 50% of all households in Canada, while only 13% of homes were occupied by unattached individuals like myself. But today couples with children households have shrunken down to 29%, and singles now represent 28% of all households. Gee willikers! 😯 How the times have changed.

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In the hot Canadian condo market, particularly in Vancouver and Toronto, the one-bedroom units are what’s selling today. “This is a very important force: more single people living by themselves, mainly women,” CIBC deputy chief economist Benjamin Tal says.

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