Jurock’s Real Estate News – Oct.16
Oct.16 to Oct.23, 2014
“There is little success where there is little laughter.” -Andrew Carnegie.
BLACK WEDNESDAY STOCK CRASH
SITE C DAM GIVEN GREEN LIGHT
INSTANT TOWNS RISING IN NORTHERN BC
BUCK THE LOONIE; BUY IN THE U.S. NOW
CANADIANS BUY $563M IN U.S. COMMERCIAL REAL ESTATE – IN JUST SIX MONTHS
SASKATCHEWAN LAND PRICES ARE SOARING
VANCOUVER NEW HIGH-RISE CONDO SALES NEED ASIAN BUYERS AND LOTS OF THEM
I N T E R N A T I O N A L: BLACK WEDNESDAY?
With Toronto down 12% since September 3 and the DOW down over 450 points more today (mid-morning) … there are some tweets out there calling it BLACK WEDNESDAY. (The DOW moved up and down 1200 points today!). Well, dear reader, while it is clearly a stock market investor problem today … it may well become a real estate investor problem tomorrow. Not in the big cities but in the smaller markets. Think about it: If I take a sharp loss in the stock market I won’t feel like buying that holiday property … I will sit on the sidelines.
Why the turbulence? Well, the whole world is aflame! This last month in Greece stocks are down 23%, Italy down 13.8 percent, US down 6% and France down 11%. Now Greek interest rates are soaring by 3 % to 7.8%, Italian rates rose by 1.8% last 2 days. This looks like more trouble ahead. I am sooo happy I am in real estate!
Buck The Loonie; Buy In The US Now
The sudden swoon of the Canadian loonie, which tumbled to around 0.88 cents against the American dollar this week could act as a boon to Canadians buying real estate in the U.S.
BOM Capital Markets, in a report this week, forecasts the loonie going even lower, but says it represents an impetus to get into the U.S. market.
Overall, U.S. house prices have soared 20% in the past two years, but are only about half way back to their peak in 2006. Traditional destinations for Snowbirds remain affordable. Compared to their peaks, prices in Tampa, Florida, are down 34%, Phoenix is down 3o%, Las Vegas off 43%, and Miami down a whopping 52%
“With the American economy and employment gaining strength, home sales should gather some momentum,” said Sal Guatieri, senior economist, BMO Capital Markets.
“We expect prices to rise over time alongside growing family incomes. We also expect the U.S. greenback to rise moderately further against the Canadian dollar, boosting capital gains appreciation for Canadians who purchase U.S. property.”
Major Point: BMO’s Harris Bank has branches across the Sun Belt and often works with Canadians buying in the U.S., which could help explain why BMO recommends U.S investing. However, most investors from Canada found them very hard to deal with and found BETTER sources in the local marketplaces.
Phoenix and Scottsdale
Your faithful servant is off to schuss out opportunities in Arizona … a real estate market report next week. A number of you have asked me to see some property you own or some proeprty that you like to buy. Sorry, like to help, but likely cannot. Phoenix is a 5 million people place and biiiiig! I am spending most of my time in Tempe and Scottsdale.
C A N A D A: Site C Dam Given Green Light
Both the provincial and federal ministries of the environment have approved environmental assessments for the $7.9 billion BC Hydro Site C dam on the Peace River.
Now the citizens and businesses of – as well as our investors – in Fort St. John – just 7 miles from the dam site – and the rest of the province will have to wait through perhaps months of whiney public hearings before the money, the jobs and the power start flowing. But that is the way it is done (or perhaps not done) in B.C., despite the fact that polls found more than half of British Columbians support building the dam.
For starters, the approvals hinge on BC Hydro meeting 77 conditions. These include on-site medical health care; building 50 rental units in Fort St. John, 10 of which must be for low-income residents; and a committee to look at aboriginal culture impacts. Also, $200,000 will be put aside for a community recreation site fund, as well as $20 million to compensate for lost agricultural lands.
Of course, a number of environmental groups, aboriginal organizations and some local farmers are dead set against the dam.
Major Point: I am on record stating that the pipelines will be built. Pipelines need power. I do expect the dam to be built as well. But, don’t hold your breath waiting for Site C to start this year or even next. The dam will be built, but with all the wrangling you have time to scout out the real estate investment opportunities in Fort St. John and Dawson Creek. (Note: A July poll found that 49% of British Columbians supported Site C without preset conditions, and another 30% approved of it with conditions.)
Instant Towns Rising In Northern BC
Gas giant Encana has started work on a mancamp in B.C.’s northeast that could have a bigger population that some towns in the area.
The Sunset Prairie Lodge, about an hour’s drive north of Dawson Creek, will house 2,500 workers for the Montney shale gas fields. Workers could start moving in within the first few months of 2015, Encana says.
However, the growing population of transient workers has also overwhelmed local infrastructure, including hospitals. In addition to construction supplies, camps require food service, medical, security and administrative personnel. The Encana camp needs 36 janitors, for instance. If the camp grows to the expected size, it would have as many or more residents than Chetwynd and Tumbler Ridge, which each have about 2,500 residents.
Jason Pender of Joint Development Group, which is building rental units in Kitimat and other northern communities, is nonplussed by the camps.
“Overall estimated workers for any given LNG project are that about 17-20% of the total workforce will not be on camp. So, the question then is who will provide that kind of housing? “he said.
Pender notes that if Malaysia-based Petronas proceeds with its LNG plant in Prince Rupert, it will need housing for 4,000 or so workers total, and at least 700 to 800 will not be living in camps. (However, Petronas is holding a gun to the chest of the BC Government: Give us further tax breaks by the end of this month or we will pull out!)
Major Point: There are a lot more of these camps across the north: but as we have said before, not all the high-paid workers want to live in camps. We see plenty of northeast opportunities for those investing in rental housing.
Toronto Condo Boom Over?
Construction intentions for new condos in Toronto CRASHED in August, Stats Can data showed earlier this week.
Also the number of “starts,” according to CMHC – to begin construction on tower units, has similarly dropped to a 5 year low.
Is the Toronto Condo boom over. “It certainly looks that way,” said Robert Kavcic, from Bank of Montreal.
Indeed, the number of condo starts in Canada’s biggest city has dropped to 16,500 annualized compared to the peak of 40,000 starts underway in the fall of 2012.
Across the board, the number of new homes being built, from condos to semidetached to detached, is trending lower. “Adding it all up, new starts in Toronto now appear to be running below demographic demand,” or what the market can comfortably handle, according to Kavcic.
Meanwhile, condo sales are 20 per cent higher last month compared to September of 2013, according Toronto’s real estate board.
Emporis GmbH, a German industry noted that Toronto still has about 130 condo towers of various sizes going up around the city and surrounding suburbs the most of any North American city. Those new towers are accommodating 56,000 sold and unsold units, Bank of Montreal estimates.
Finally, notes long time Toronto subscriber Al Dharsee (email@example.com) … buyers of new construction condos taking possession now are running into a softer rental market in Toronto as well as difficulty in finalizing mortgages for investor units.
Major Point: Watch it if you are an investor. The market remains foreigner driven. Make offers or stay on sidelines.
Canadians Buy $563m In US Commercial Real Estate – In Just Six Months
In the first half of this year, purchases of U.S. commercial property by Canadians soared 79% from a year earlier to $5.4 billion, with most of the money from institutional investors, such as pension funds and real estate investment trusts, Avison Young reports.
Private Canadian investors, the smaller players, snapped up $801 million worth of U.S. commercial real estate, most of that suspected to be in multi-family properties.
A big draw is prices. In Lynden, Washington – about four miles from the B.C. border – an acre of zoned and serviced commercial land sells for around $300,000 per acre, according to Dick Vandenberg of Lynden Business Park, or about half the price as in suburban Metro Vancouver.
The other lure is capitalization rates. Typical cap rates in U.S. cities are in the 7.5% range and have increased in the past year.
In Vancouver, as a comparison, average capitalization rates are 5.1%, down from 5.3% in 2013 and typical of Canada-wide averages.
Avison Young said the lower prices in the U.S. will continue to attract more Canadians, but cautioned that Canadian commercial real estate prices could soften if and when interest rates start to rise.
“I expect that pricing of Canadian commercial real estate will start to taper off when we eventually see increases in mortgage interest rates, ” said Avison Young Principal Bob Levine in Vancouver.
“Premium pricing for properties is being obtained today because of near record low mortgage rates. When rates move up, the positive leverage that can be obtained today by buying and financing property will quickly change to the negative side. Such a move will drive some of the purchasers out of the market unless there is a corresponding reduction in commercial real estate prices.”
Saskatchewan Land Prices Are Soaring
Saskatchewan farmland was once about the lowest price land in Canada, but that is changing big time as developers begin to buy up land around Saskatoon and Regina.
We have observed the average price of rural land increase by as much as 150% over the last seven years and land near Saskatoon with highway frontage can now fetch from $10,000 to $20,000 per acre. The City of Saskatoon alone has bought more than 3,700 acres of land for a total value of $44 million. Dream Realty Corp is relatively aggressive in its land acquisitions, amassing more than 2,000 acres for a total of $36 million.
The majority of Dream’s purchases have been for the development of Holmwood, a massive subdivision that, when complete, will accommodate 74,000 people and two million square feet of commercial space. The City of Saskatoon has made the majority of its purchases for future residential subdivisions in the West (Kensington) and the Northeast (Evergreen/Aspen Ridge), and for future industrial developments north of Saskatoon.
Even near Warman, a Saskatoon bedroom community, former farmland is selling for $25,000 per acre, according to Colliers Saskatoon.
Major Point: At JREI we have been recommending the purchase of all farmland particularly in Saskatchewan. Some of our investors have seen 300 to 500% increases.
Vancouver New High-rise Condo Sales Need Asian Buyers And Lots Of Them
By Frank O’Brien
Startling multi-family land prices are creating a “disconnect” in a high-rise condominium market that increasingly must rely on immigrant buyers, according to a Vancouver real estate consultant.
“Without Chinese buyers, there won’t be much local demand to support the Vancouver high-rise market. At the end of September, there were 5,600 unsold high-rise units in new projects and another 1,460 units still to be released in projects now marketing,” said Frank Schliewinsky, president of Strategics.
At current “buildable-per-square-foot” prices, a typical new 750-square-foot condo has to have a baseline price of $112,000 just to cover land costs. On the West Side of Vancouver the same price is closer to $187,000, according to numbers provided in Colliers International’s recent Land Share report.
The report calculated what Metro Vancouver developers are paying for multi-family land based on the allowable floor space ratio (FSR), basically how much residential real estate can be achieved on the land.
As an example, Care Pacific Holdings Ltd. paid $13.9 million this year for a 36,000 square feet (0.8 acre) site on King Edward Avenue in Vancouver’s Kitsilano neighborhood. The site has a 1.75 FSR, equating to a cost of $220 per buildable square foot, before any construction, finishing or marketing of the site is even started. In downtown Vancouver, such prices approach $250 and average more than $150 in East Vancouver.
This level of prices shows a disconnect from the Vancouver economy, warns Schliewinsky, who publishes the Vancouver Condo Report, a long-running industry newsletter.
“The Vancouver high rise condo market is becoming increasingly disconnected from the local economy and from local buyers,” Schliewinsky said
“In the past year, the new high-rise condo market has shifted so much away from its historical basis that it really can’t be considered as a ‘Vancouver’ housing market anymore.”
Over the past 12 months the average asking price for new high-rise condos in Metro Vancouver has increased by 26% and the average price per square foot by 16%, according to Strategics. And, based on what developers are paying for land, future condominium prices appear destined to keep rising.
Yet “[there has been] no big increase in average household income,” Schliewinsky said.
In fact, Vancouver ranks dead last in median incomes for university-educated workers among Canada’s 10 largest cities, according to Statistics Canada. The median income for a Vancouverite with a university bachelor degree is $41,981 compared to a Canadian average of $50,981.
Strategics and MPC Intelligence, which also tracks new condominium developments, report that 27 high-rise projects began marketing in Metro Vancouver this year, with an average price north of $625,000 per unit.
“Based in interviews with sales staff in these projects, 60% are targeting investors and 70% are targeting ‘immigrant’ buyers,” Schliewinsky said.
– Frank O’Brien is an editor with the BIV Media Group, Vancouver.
Please note that we will only place properties here that have a price attached to them. We cannot make a value judgment if we do not have an asking price.
In any case anything that is listed here or on your ‘deal’ section should be vetted by your legal, accounting and realtors advisors . We most likely have not seen it … so you go see it!
Best Mortgage Rates
“Bonds are falling, but will lenders react?” After hitting highs of 1.77% in the middle of September, 5 year bond yields have been on a decline to 1.38% as of close on Oct 15th. Most recently, the 10yr US Treasury bond dropped .34% in one day, the largest plummet since 2009. What does this mean for borrowers?
“Fixed rates are about 98% correlated with bond yields, so there is a possibility that fixed rates could drop,” says Kyle Green of Mortgage Alliance (778-373-5441, firstname.lastname@example.org). “Normally when we see a decline this steep, it means fixed rates will also drop. That said, we saw earlier in the fall that there was no movement from banks upward when bonds went from 1.5% to over 1.75%, so if bonds just hold, there may be little to no action from the banks. We still like variable rates for many of our borrowers but if lenders get below 2.89% again we will see a lot of people trending towards fixed rates again.”
Information provided by Jurock.com