Canada's 'housing bubble' deemed close to bursting

[lio45]

Originally Posted by whatnext

This $6.2M Vancouver mansion was sold in 2010: It’s been vacant and rotting for six years

The $6.2-million Point Grey home boasts unobstructed vistas of the North Shore mountains, English Bay and Vancouver’s skyline.

A park sits across a quiet street. The home represents everything a family could aspire to.

But it’s vacant and rotting. Windows are left open and debris sits in the yard. Like a symbol of futility, a June 2015 City of Vancouver “untidy-premises” order remains pinned to the door....

...Current owners Huai Can Ren and Xue Pei Sun bought the 4100-block 8th Avenue West home from Wei Min Zhang in July 2011 for $4.6 million, records show.

The couple’s occupations were both listed as “business person.” Wei Min Zhang had bought the home in July 2010 for $3.35 million. On Wednesday, a neighbour told The Province he hadn’t seen the current owners...

....Huai Can Ren and Xue Pei Sun are also owners of a $3.57-million Arbutus Ridge home in the 2300-block 21st Avenue West, records show. The home also appears to be unoccupied...

http://news.nationalpost.com/news/canada...old-in-2010-today-its-vacant-and-rotting

The windows are open! How inviting

Wouldn't the Point Grey neighborhood be more desirable than the DTES...? Just wait till word gets around!

[lio45]

Originally Posted by big W

Well lets be honest and compare real world examples as this is something that I have looked at.

I currently am looking at buying housing overseas (no corporate, income or property taxes in this country by the way) with units costing approximately $75,000 per suite. I have set up a business overseas in that country so no worries with income taxes, corporate taxes etc. The nice thing is I do not have to provide appliances or utilities etc so what I rent out the units for is right to my pocket or actually my companies pocket. The units I can rent for $450 a month. So in this unit I get $5,400 a year net or a cap rate of 7.2% a decent return as this is net income.

That cap rate isn't even particularly good, though of course it's unusual to be looking at a post-taxes cap rate. So it's comparable to a cap rate of nearly ~10% in a jurisdiction with a ~25% income tax.

No property taxes at all? You pay for every service piecemeal?

[ssiguy]

The property owner of this house doesn't care about the house because he didn't buy the house or even land for that matter as a place to live but he instead managed to launder $3 million in the stroke of a pen.

[big W]

Originally Posted by lio45

That cap rate isn't even particularly good, though of course it's unusual to be looking at a post-taxes cap rate. So it's comparable to a cap rate of nearly ~10% in a jurisdiction with a ~25% income tax.

No property taxes at all? You pay for every service piecemeal?

With regards to the return on investment, what we must consider is what is Net to me as an investor. So that is why I compare things post taxes as the tax structure from one jurisdiction to the other changes. When you look at things that way it actually makes some investments worse or better. In this case it makes investing in Vancouver worse and overseas better. The other thing is to remember that if you had invested overseas 4 years ago and getting the income back now in US$ that return would be even better. Just another thing to consider for all of us.

With regards to the taxes situation and what gets done by whom and how, different country different tax mixture and different responsibilities by government. While there are no property or income taxes, they have a 17% VAT and other consumer taxes that are quite high (car registration fees, gas taxes for example are higher than what we have in Canada) in addition they maintain high customs duties for many items. Good thing though housing is exempt from the VAT. Things that are done by the municipalities in Canada and the US like policing, roads, public transport etc are actually done by the "federal" government (not a federal system so no provincial/ state governments). Garbage clean up is handled by the municipality but they get significantly higher %age of their budgets from the government vs what we have from the provinces. At the end of the day things are done and if you don't really spend money you don't pay taxes.

[esquire]

Originally Posted by ssiguy

The property owner of this house doesn't care about the house because he didn't buy the house or even land for that matter as a place to live but he instead managed to launder $3 million in the stroke of a pen.

You must accept this state of affairs or be racist. There is no in between.

[drew]

Originally Posted by whatnext

This $6.2M Vancouver mansion was sold in 2010: It’s been vacant and rotting for six years

This is what constitutes a "mansion" in Vancouver?

Wow.

[ssiguy]

Originally Posted by esquire

You must accept this state of affairs or be racist. There is no in between.

That's what Christy Clark and real estate developers/agents say. They use it as a convenient excuse to shut the conversation down.

[lio45]

Originally Posted by ssiguy

The property owner of this house doesn't care about the house because he didn't buy the house or even land for that matter as a place to live but he instead managed to launder $3 million in the stroke of a pen.

That is exactly what worries me about the Vancouver market. If at some point in the future this kind of laundering becomes impossible (or even merely harder) to do, either via less lax Canadian laws or more high-tech Chinese systems to track and prevent this flow of money from exiting their country or a combination of both...

...well, then you'd better not have been holding Vancouver property on the day any initiative like that gets announced.

This sword of Damocles is hanging over Vancouver property values and there's no escaping it.

In the meantime, if you're lucky, yes, you can still buy a vacant Point Grey home for $X million and resell it to a Chinese cash buyer the following year for $(X+1) million.

It works... until the day it stops working.

[lio45]

Originally Posted by big W

With regards to the return on investment, what we must consider is what is Net to me as an investor. So that is why I compare things post taxes as the tax structure from one jurisdiction to the other changes. When you look at things that way it actually makes some investments worse or better. In this case it makes investing in Vancouver worse and overseas better. The other thing is to remember that if you had invested overseas 4 years ago and getting the income back now in US$ that return would be even better. Just another thing to consider for all of us.

With regards to the taxes situation and what gets done by whom and how, different country different tax mixture and different responsibilities by government. While there are no property or income taxes, they have a 17% VAT and other consumer taxes that are quite high (car registration fees, gas taxes for example are higher than what we have in Canada) in addition they maintain high customs duties for many items. Good thing though housing is exempt from the VAT. Things that are done by the municipalities in Canada and the US like policing, roads, public transport etc are actually done by the "federal" government (not a federal system so no provincial/ state governments). Garbage clean up is handled by the municipality but they get significantly higher %age of their budgets from the government vs what we have from the provinces. At the end of the day things are done and if you don't really spend money you don't pay taxes.

Interesting! Out of curiosity, may I ask which country this is?

[Berklon]

Interesting article on Real Estate agent scamming:

The real estate technique fuelling Vancouver's housing market

[lio45]

Originally Posted by Berklon

Interesting article on Real Estate agent scamming:

The real estate technique fuelling Vancouver's housing market

I'm 99% sure the Globe & Mail guy made a little mistake in this image below (unless realtors in Vancouver operate differently from every single jurisdiction I'm familiar with).

In the top right portion, the commission doesn't come from Buyer #2 like they say it does, but rather from Buyer #1. And in the bottom left portion, the commission doesn't come from Buyer #3 like they say it does, but from Buyer #2.

Strangely, they don't have it wrong in the top left portion: they aren't saying that the original commission comes from Buyer #1, I think it's pretty clear it comes from the Seller (i.e. taken out of the sale price, not tacked onto it and paid by the Buyer). Which pretty much confirms that I'm right -- the second commission comes from the first re-Seller, and the third commission comes from the second re-Seller.

The bottom right portion also confirms I'm right -- the agent's commissions come from the correct parties in it, contradicting what's stated in the topright and bottomleft portions.

[lio45]

And by the way, I don't see any problem with this.

There's absolutely nothing that prevents the original Seller from waiting until she encounters Buyer #3 directly (through her agent) and refusing Buyer #1's low-ball offer of "only" 2 million for the place (the ironclad proof that it's a low-ball offer is the fact that there are people like Buyer #2 and Buyer #3 out there).

In the Rappaports' example, they ACCEPTED the $5.2 million offer. They should've known their own market better... they could've waited until they got $6.2 million for the place.

If they said yes at $5.2 million, that's their problem.

[casper]

Originally Posted by lio45

And by the way, I don't see any problem with this.

There's absolutely nothing that prevents the original Seller from waiting until she encounters Buyer #3 directly (through her agent) and refusing Buyer #1's low-ball offer of "only" 2 million for the place (the ironclad proof that it's a low-ball offer is the fact that there are people like Buyer #2 and Buyer #3 out there).

In the Rappaports' example, they ACCEPTED the $5.2 million offer. They should've known their own market better... they could've waited until they got $6.2 million for the place.

If they said yes at $5.2 million, that's their problem.

I agree the original seller is obtaining professional advise from his realtor, not the realtor for the first buyer. If the first buyer and his realtor desire to low ball the offer and then flip it they are free to do that.

If this avoids the property transfer tax being that is also good. That is a silly tax that should be abolished. Other provinces don't have it.

[someone123]

Originally Posted by lio45

If they said yes at $5.2 million, that's their problem.

The article isn't super clear but it sounds like the issue is that brokers are insulated from risk during the reassignment period.

In a normal flip, you need to actually purchase the property and resell it. If the price of the property goes down, you lose money. It sounds like, in the reassignment scenario, the broker has a "backup" buyer. In the event of falling prices, the backup buyer will overpay and absorb the loss. In the event of falling prices, the broker pockets some profit. This is a special kind of privileged deal available only to the brokers, not normal house owners. All that being said it does seem like many real estate agents are actual owners of large numbers of these properties. I'm guessing they are highly leveraged and that one day a lot of them will go bankrupt.

Another unfortunate angle to the story is that a lot of people are really ignorant of these incentives. They think that, when they're selling, the agent is an advocate for them getting the highest possible price. But agents really profit on transaction costs. They profit most from doing lots of quick deals. There is enormous information asymmetry in the Vancouver real estate market. You could just say that it's too bad for the ignorant people, but I think people who respond that way don't really get what's going on. The professionals will always have an incentive to obfuscate markets like this in order to gain an information advantage; if permitted they can always needlessly ratchet up complexity to the point where laypeople cannot understand what is going on and are easily taken advantage of. We should consider this regulatory failure.

[lio45]

Originally Posted by someone123

The article isn't super clear but it sounds like the issue is that brokers are insulated from risk during the reassignment period.

6 months seems completely outlandish to me, but the Seller and Buyer are perfectly free to agree on any closing date they want.

Normally, it's a matter of weeks. For example, I'm currently buying something in Florida, and closing is set to be on Feb 23rd, and even then, for this one I find it further away than would be normal.

If I had a whopping six months to close... I could wait, and maybe in six months I'd be able to transfer that offer to someone else for quite a bit more. The market I'm in has been quite steadily rising since we started paying close attention to it in 2011 so it's nearly guaranteed it will be worth more in six months (especially I'm already getting it below what I know it's worth).

The thing is, I would never ever expect a seller to say "yes, of course, I agree to sell this to you at this price, agreed upon today, but in six months" in any market that is likely to be on an upward trajectory (such as Vancouver for the last couple decades).

Of course, I'm not that familiar with owner-occupied single family residential transactions. All I have is multifamily, commercial, land, and some residential too but as investment properties. I have never in all my years ever bought something from owners-occupiers, so I can't guarantee it's not the norm for them to want to give themselves a six-months window to move out.

But if they do just that, well, that's their decision -- in a red hot market like Van it's pretty sure that in six months the place will be worth more than right now. So, they're almost certainly (unless the market deflates in the meantime, which is bound to happen someday but might still be an eternity away, there's no telling) leaving money on the table. It's a conscious decision.

In a normal flip, you need to actually purchase the property and resell it. If the price of the property goes down, you lose money. It sounds like, in the reassignment scenario, the broker has a "backup" buyer. In the event of falling prices, the backup buyer will overpay and absorb the loss. In the event of falling prices, the broker pockets some profit. This is a special kind of privileged deal available only to the brokers, not normal house owners.

People like you and I can do exactly the same thing, it's just that we would also be our own backup buyers.

The realtor takes no risk, but doesn't get much reward either -- unless he's also the backup buyer, but then he shoulders the same risk as you or I would.

Again, I don't see any problem with reassignable offers.

And I'm free (just like you and anyone else) to make pretty good current market prices offers with a closing date one year from now in the market I'm active in at the moment if I wish. If any seller accepted that, it's almost guaranteed that I'd be able to pass that property along to someone else for a nice profit before reaching the closing date.

Actually, come to think of it -- out of curiosity, when making a residential offer that doesn't involve a loan, how seriously do they verify that the buyer has the cash on hand before accepting the offer? 'Cause in my own experience, that step isn't taken very seriously...

I mean, what's to prevent a well-dressed homeless crack addict from the DTES from making a multimillion offer on a Point Grey home, backed by a photoshopped bank statement, and then after it's all signed he passes it on to someone else several months later for the amount of his offer plus an extra million? You don't even need any money!

Sounds like a plan

Edit: I would suppose an earnest money deposit is normally due quickly enough that you can't hope to pass on your contract before then...? But even then, you can still do a deal with only a fraction of the money normally needed.

[whatnext]

Just another one of the sleazy tricks offshore money uses. Look out Toronto, this wave of shadiness is aimed right at you now. I wonder if the Wynne Liberals will be more responsive than the useless Christy Clarke and the BC Liberals in dealing with it.

[ssiguy]

My brother is thinking of selling his place and cashing out.

His house is nothing special but is one a very large lot in a prime neighbourhood across from the water in tony South Surrey.

He thinks he will probably have to get a Mandarin speaking agent as many recent Chinese will not deal with white realtors and he also knows that the person who buys it may not even see it but rather buy it directly from Shanghai so communication in Mandarin is essential.

He's not going to fix it up and he knows that it being a relatively old and small place actually makes it more valuable as it's easier and faster to tear down. Any home on a decent lot and more than 15 years old is an automatic teardown regardless if the place is a 5000 sq foot beauty. The Chinese speculators like new MASSIVE homes with proper feng shui.

[lio45]

Originally Posted by ssiguy

My brother is thinking of selling his place and cashing out.

His house is nothing special but is one a very large lot in a prime neighbourhood across from the water in tony South Surrey.

He thinks he will probably have to get a Mandarin speaking agent as many recent Chinese will not deal with white realtors and he also knows that the person who buys it may not even see it but rather buy it directly from Shanghai so communication in Mandarin is essential.

He's not going to fix it up and he knows that it being a relatively old and small place actually makes it more valuable as it's easier and faster to tear down. Any home on a decent lot and more than 15 years old is an automatic teardown regardless if the place is a 5000 sq foot beauty. The Chinese speculators like new MASSIVE homes with proper feng shui.

Make sure he knows that if he accepts an offer that lets the Buyer have forever to close, he will not be getting the market value of his property at the time of the closing, he will be getting its market value half a year in the past.

(Seems obvious to me, but apparently it isn't to everyone, so maybe it's worth mentioning.)

And yes, from what I've managed to see of the Van market, you absolutely need to pick a Chinese realtor unless you want to shoot yourself in the foot.

[whatnext]

Originally Posted by lio45

...And yes, from what I've managed to see of the Van market, you absolutely need to pick a Chinese realtor unless you want to shoot yourself in the foot.

Not true, and its getting to the point where many non-Chinese don't want to deal with a Chinese realtor.

[ssiguy]

That depends on what you are selling.

No one in Vancouver {unless a recent Chinese immigrant} could come even close to affording the house/property. The idea that a non-Chinese could buy the place is a non-starter.