Weekly Buzz: Vancouver housing and Alberta commercial sales

Western Canada's top commercial real estate stories, featuring coverage on Metro Vancouver's homeowner and rental housing markets and Prairie investment sales

Western Investor
December 14, 2018



The week’s top stories focus on Vancouver housing market – from rental policy, to mortgage rates, to how current events could affect Vancouver real estate prices. Meanwhile, in Alberta, commercial sales increased overall this quarter, led primarily be strong showings in the Edmonton multi-family and office markets.

Here is Western Investor’s pick of the top commercial real estate stories published this week.


B.C.’s Rental Housing Task Force wants to stop renovictions but rejects vacancy control – Vancouver Courier

The B.C. NDP government’s Rental Housing Task Force has rejected the idea of vacancy control — an idea renters favoured and landlords opposed.

The pair of proposals are among 23 recommendations the task force unveiled at a Dec. 12 press conference in Victoria. Others include strengthening enforcement and increasing penalties for those who violate tenancy laws.

Premier John Horgan formed the three-member task force, led by Vancouver-West End MLA Spencer Chandra Herbert, last spring in order to modernize the province’s tenancy law, which hasn’t been updated in 16 years.

Chandra Herbert called the recommendations “balanced” and said they will make life better for both renters and landlords.

“If implemented, they will give renters more protection from renovictions while giving landlords the security to invest in their homes and ensure the rent gets paid,” he said.

“We’ve recommended significant changes to strengthen enforcement of the law, to strengthen penalties for those who break the law and also real improvements to ensure the law is fair for everybody. Landlords deserve to be paid on time and have their property respected and tenants deserve to know that their home is safe and that they’re safe to live in it for the long-term. Stronger enforcement of the rules is good for everybody.”

Renovictions — a major issue raised by renters, especially in cities such as Vancouver where the vacancy rate is below one per cent — happen when a landlord targets tenants for evictions based on doing major renovations, but then does only minor work before jacking up the rent for the next tenant.

The task force says the RTA should allow renters to maintain tenancy during renovations as long as they are willing to accommodate construction, with evictions only being approved if there’s evidence that reasonable accommodations can’t be made to maintain the tenancy.

“Evictions for renovations should be reserved for the rare instance of serious, major and long-term renovations, such as seismic upgrades, which extend the life of a building considerably where it is impossible to keep tenants in the building due to health and safety risks, or unreasonable to expect a tenancy to continue, due to the extensive length of time a building will be uninhabitable,” the recommendation states.

Chandra Herbert said renters have been forced out of their homes due to renovictions for too long.

“If renters are willing to accommodate renovations in their homes, they should be allowed to stay in their homes,” he said.

[Vancouver Courier]


Huawei executive arrest could impact Vancouver real estate prices: Barron's – Business in Vancouver

Influential business journal suggests that Meng Wanzhou arrest could chill Chinese migration.

Canadian authorities’ arrest of Chinese telecom executive Meng Wanzhou could depress Vancouver home prices, influential business journal Barron’s reported December 10, citing a recent report from Hong Kong-based Smartkarma Insight Provider analyst Charles De Trenck.

The report is significant because Barron’s has a significant global reach among investors. Smartkarma, meanwhile, is a digital platform that offers investment insight into Asian markets.

Huawei CFO Wanzhou’s arrest aroused anger in Chinese government circles because she is not charged with any crime. RCMP officers nabbed Wanzhou at Vancouver International Airport on December 1 while she was on a layover. They were acting at the behest of the U.S. government, whch alleges that Wanzhou misled financial institutions into providing money for corporate dealings that broke U.S. sanctions against Iran.

B.C. Supreme Court judge William Ehrcke on December 11 granted Wanzhou’s release on $10 million bail (including $7 million in cash) on the condition that she wear an electronic ankle bracelet, surrender passports, stay in Vancouver and its suburbs and confine herself to one of her family’s two Vancouver homes between 11 p.m. and 6 a.m.

Those restrictions are better than being placed in detention until extradition hearings end, but they are unlikely to please China, which has threatened “significant” consequences if Wanzhou is not released.

“China property investors and economic migrants flowing into Canada and North America got a loud message this week with the arrest,” De Trenck said, according to Barron’s.

“This is coming when property transactions continue to roll over in the formerly overheated Vancouver property market…. Price data are likely to be a little softer already, with new political drivers not yet reflected.”

Vancouver real estate prices have soared in the past five years, and the Real Estate Board of Greater Vancouver pinned the benchmark price for all homes in the region at $1,042,100 in November. That’s 72.8 per cent more than the benchmark price of $603,000 for all homes in November 2013.

Barron’s explained to its readers that “Vancouver real estate prices have been buoyed by Chinese buyers for 20 years, as it became a favourite destination after Britain handed Hong Kong back to the People’s Republic of China in 1997. Chinese buying surged, and then waned in the past two years as Beijing has tried to limit capital flight and Vancouver imposed a 15 per cent foreign-buyers tax. Recently as the market slowed, Chinese interest in Vancouver homes rose again.”

It then quoted De Trenck as saying that Chinese migrants may “reconsider their overall commitment to a Canada move for the extended family, as well as encouraging potential new China migrants to consider shifting migration patterns to more friendly climates – or perhaps even to consider that rising nationalism requires them to keep closer to home.”

De Trenck’s conclusion is that Canadian “property price corrections in key markets” might gain momentum.

Some former bulls on Vancouver real estate have already turned into bears.

Lululemon founder and billionaire Chip Wilson, for example, had been loading up on Vancouver properties for years.

His own home at 3085 Point Grey Road is the priciest in the province, with an assessed value of more than $78.8 million – up more than 124 per cent in the past five years. Wilson also owns rental-apartment buildings through his Low Tide Properties.

When Business in Vancouver asked Wilson on October 24 whether it is a good time to buy Vancouver real estate, he did not skip a beat before answering, “Absolutely not.”

[Business in Vancouver]


No increase in 2019 for new fixed-rate mortgages: BCREA forecast – Western Investor

With a recent decline in bond yields, lenders have pushed interest rates as high as they will go for a year.

Canadian mortgage consumers may be anxious about mortgage interest rate hikes, but those applying for fixed-rate loans are likely to have a breather for a year, according to a new economic forecast.

In its latest Mortgage Rate Forecast, the B.C. Real Estate Association’s economists are predicting that the average five-year fixed rate being offered by lenders will remain flat in 2019 – even slightly declining, to 3.64 per cent, in the first quarter before going back up to the current 3.74 per cent in Q2.

In their report, BCREA economists Cameron Muir and Brendon Ogmundson wrote that declining government bond yields – which dictate fixed-rate mortgages – combined with impact of the federal mortgage stress test, are the reason for this change in expectations.

The authors wrote, “Declining oil prices, the stronger than expected impact of the B20 mortgage stress test and generally soft economic data in recent weeks have prompted a swift change in market sentiment. Since early November, the 5-year bond yield has dropped close to 50 basis points back to levels last seen in June, prior to two rate hikes by the Bank of Canada.”

The stress test, which applies to all home mortgage applications, requires that borrowers qualify on their income as if they were paying the Bank of Canada posted interest rate, or their agreed contract repayment rate plus two per cent, whichever is the higher. The BCREA observed that even though the Bank of Canada posted rate has only increased by 20 basis points this year, to 5.34 per cent, most lenders have raised their discounted contract rates by more than that amount. The average five-year fixed rate is currently 3.74 per cent, which is up 35 basis points from Q1 2018. That means the average fixed-rate mortgage applicant now has to qualify at 5.74 per cent.

The BCREA said, “It is unclear if borrowers can bear further mortgage rate increases, with growth in mortgage credit already approaching record lows.”

Fixed-rate mortgages make up about 80 per cent of Canadian mortgages – but for variable rate borrowers, it’s a different story. The BCREA is expecting that the Bank of Canada will continue to increase its overnight target rate, from the current 1.75 per cent to 2.5 per cent, over the course of 2019 and 2020, with two jumps in 2019. This will variable-rate mortgages by a similar amount. However, it added a caveat that if the oil shock in Alberta is prolonged, the federal bank may not raise the overnight rate at all until 2020.

[Western Investor]


Alberta investment transaction increase led by large-scale Edmonton sales – Western Investor

Investment sales in both Edmonton and Calgary increased during the third quarter, bolstered by major office and multi-family sales in Edmonton.

Alberta real estate is reaping the benefits of a recovering economy, with both of the province’s major cities posting investment transaction increases during the year’s third quarter.

Large-scale transaction in Edmonton’s office market bolstered year-to-date investment sales 38 per cent over the first three quarters of 2017 and an impressive 86 percent over same period in 2016, according to a new quarterly report by real estate advisory company Altus Group.

“Investment volumes in Edmonton, through 2018, have been boosted by large institutional investors making single purchases bringing overall investment levels past the $1 billion mark for two consecutive quarters,” the report reads.

The office sector posted the most drastic increase, with 16 office transactions valued at $456.4 million recorded in the year’s third quarter – a 165 per cent increase over the same quarter last year. Office sales accounted for 40 per cent of all investment activity in Edmonton, led by the $400-million sale of the Edmonton Tower to Alberta Investment Management Corporation (AIMCo) in July.

Apartment sales totaled 570.3 million so far this year, increasing 35 per cent over the same period last year and 87 per cent over the third quarter of 2017.

Residential and retail sales posted the quarter’s only mild decreases, down 15 per cent and 3 per cent over last year, respectively.

In Calgary, overall investment sales increased 11 per cent year-over-year, supported major sales in the residential and industrial, commercial and institutional (ICI) land sectors. Meanwhile, all remaining asset classes posted declines, with multi-family sales dropping the most (33 per cent) over the course of a year. 

“With an eye to the choppy results of two struggling asset classes, office and apartment, the rise in overall commercial investment from this time last year is a positive note, particularly in the land and industrial markets,” noted Ben Tatterton, manager of Data Solutions at Altus Group.

[Western Investor]

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