Kelowna is becoming a desirable alternative to the Lower Mainland for Asian investors looking to avoid the foreign buyer tax and cash in on higher capitalization rates, according to a new market report.
Kelowna has seen an increase in Asian buyers investing in commercial property, wineries and golf courses, over the past 18 months, HM Commercial Group of Macdonald Realty Kelowna found.
“Very low cap rates and in the Lower Mainland, compounded by the 15 per cent residential tax for foreign nationals, is driving Asian investment and development into Kelowna and the Okanagan Valley,” states the HM Commercial report.
The report lists four recent, major transactions involving foreign buyers, including the former Monaco multi-family site, sold for 6.5 million, and the Lake Okanagan Resort sale, a 300-acre property purchased for over $10 million. Asian investors also purchased 25 per cent of the 172 suites sold at the unveiling of Cambridge House Kelowna, a condominium development in the city’s downtown.
Kelowna is currently experiencing compression on capitalization rates as Asian buyers begin to outbid local ones, however, Kelowna’s capitalization rates are still much higher than that of Vancouver. Capitalization rates represent the amount of income a property generates as compared to how much it cost to purchase the property – the higher the rate, the higher the return.
“We expect to see Canadian investors moving their money elsewhere in the country as they continue to be outbid [in Vancouver,]” says the report. “With our lifestyle, affordability, the rapidly growing tech (now employing 7,600 people), wine, medical services and education sectors, Kelowna is a natural place to land.”
In addition to foreign investment, the report notes an influx of Vancouverites taking advantage of the lower-cost housing options available in Kelowna. The average home price in Kelowna as of August 2016 was $582,400, compared to $1,561,000 in Vancouver, causing some people to sell their property in the Lower Mainland and move to Kelowna.
Further indicative of Kelowna’s burgeoning commercial real estate market is an overall decrease in office, industrial, retail and rental property vacancy rates from 2014 to 2015, as well as longer lease terms for tenants, averaging between five to ten years, up from the historical average of three to five years. HM Commercial considers this a “sure sign of market confidence.”