Investors looking to purchase or develop rental housing in Metro Vancouver can look forward to an attractive return despite slowing sales, according to a recent year-end market review.
The Goodman Report released its 2016 Greater Vancouver Rental Apartment Review this month and found owners are in for a favourable year, with a regional vacancy rate below one per cent that’s only expected to continue to drop.
“Vacancies in most communities have declined, significant rent increases are a sure bet on turnover, immigration remains strong [and] interest rates should maintain their low levels for the foreseeable future,” the report states.
The total dollar value of apartment transactions in Vancouver totaled $894 million in 2016, up 40 per cent from the previous year. In the suburbs, the total dollar value decreased from $939 million in 2015 to $588 million in 2016. As with previous years, Burnaby continued to lead the pack outside of Vancouver, with 30 building sales. Within Vancouver, the Eastside saw the most transactions with 24 properties trading hands in 2016. In total, 174 multi-family properties were sold in the Greater Vancouver region, versus 181 in 2015. Ninety-eight of the 174 properties were located in Vancouver.
Transactions are expected to level off moving into 2017, though tight supply and rising rents will keep prices for rental stock quite high, says Mark Goodman, principal at The Goodman Report of HQ Commercial.
“2015 and 2016 were banner years in terms of transaction volume. For 2017, we anticipate a more traditional year in terms of number of sales. Goodman anticipates levels in the 110-150 range,” Goodman said.
The average per-suite value in the Metro Vancouver region increased 52 per cent over 2015, placing the average rental unit at $377,000, up from $248,000.
The foreign buyer tax seemed to impact the velocity of sales, despite most multi-family purchases going to local buyers. The report notes that the second half of 2016 only saw 50 transactions, less than half the amount of transactions made in the first half, before the tax came into play.
“The 2016 year was full of intervention at all levels of government for the real estate market– municipal, provincial and federal,” Goodman said. “We are hopeful that politicians will allow the market to run its course in 2017 as the hype and scrutiny has subsided, especially on the residential market side of the equation. In terms of investment, 2017 started off with stable and serious demand from investors. Should supply remain tight, we anticipate pricing to remain at current levels. “
The Goodman Report has sold four properties worth a combined total of $180 million so far this January. Although 50 new purpose-built buildings in Vancouver are either proposed, approved or under construction for 2017, the Goodman Report anticipates demand to continue to overtake available supply. For this reason, “the Goodman Report expects local landlords to remain insulated from any apparent decline in tenant demand or softening of rents,” the report states.
However, the multi-family market is not impervious to turbulence.
“There are always risks associated with investment property purchases – even with a relatively ‘safe’ asset class such as multi-family apartment buildings. Interest rate increases, tougher government regulations, lending criteria changes, etcetera, can all hamper return prospects.”