(VANCOUVER) The median price of detached houses in Vancouver rose to C$873,500 (S$1.1 million) in the third quarter, up 8.8 per cent year on year, Canada’s Royal LePage House Survey said on Tuesday.

Despite a 10 per cent drop in sales over the same period in 2009, prices for standard two-storey homes in Vancouver were up 8 per cent on average to C$977,250, while those for condominiums increased 10.2 per cent to as much as C$491,000.

James Wong, a local realtor, told Xinhua that sales had been noticeably down in Vancouver for the last three to four months, dropping about 25 to 30 per cent by his estimate, but prices had not come down and in some cases even risen slightly.

He said while prices of detached houses were ‘surprisingly’ holding still, condominiums were faced with pricing pressure. With several new condo developments in the suburb city of Richmond in southern Vancouver, supply may have exceeded market demand.

‘For town homes and detached homes, the interest (from buyers) is still holding. But with condos in Richmond, for those below five years old, there is a seven-month supply. A six-month supply is balanced. Pricing pressure will start to build when there is more than a six-month supply,’ said Mr Wong.

Another factor perhaps responsible for the slow sales was the introduction of the Harmonized Sales Tax in British Columbia in July.

The tax combined the 7 per cent provincial sales tax and the 5 per cent federal goods and services tax into a single 12 per cent tax.

The tax lifted prices of new homes over C$400,000 by 7 per cent and thus brought up the costs of older homes, which were previously exempt too, said Mr Wong.

Statistics show East Vancouver experienced the biggest gains as condos rose 20.2 per cent in the third quarter to C$429,000, while standard two-storey homes rose 15.9 per cent to C$729,000. Detached bungalows were up 10 per cent to C$649,000.

Homes on Vancouver’s west side, the most expensive area in the country, were up 8 per cent to an average of C$1,350,000.

West Vancouver, not to be confused with Vancouver’s west side, saw condos increase 9.5 per cent year on year to C$460,000, while detached bungalows rose 9.1 per cent to C$960,000.

Mr Wong said with banks currently offering a fixed five-year mortgage at about 3.6 per cent, the combination of cheap money and a healthy demand from immigration – Canada accepts about 260,000 newcomers each year – would only make the market ‘a little softer’ next year, but ‘not that drastic’.

‘One of the major factors is that all governments are printing money. When there is a lot of money circulating around, you only push up asset prices. So real estate is one of the very important components of assets where people invest their money.

‘All the loose money may eventually end up in the real estate market. But the US is a different story. They have a big mess to clean up there,’ said Mr Wong. — Xinhua

Source: Business Times, 21 Oct 2010

City’s downtown area experiencing a boom and buying frenzy, brokers say

(MONTREAL) When Patrice Groleau began selling a proposed condo development this spring, he thought it would take about a year to sell all 100 units – even though the site is in Montreal’s historic old city and the project will have all the latest amenities.
Half the apartments sold in the first month on the market.

‘The last few years have been mostly good for real estate, but this year has been phenomenal,’ said the 33-year-old broker, who works for McGill Immobilier. ‘Some of the buyers are from elsewhere but 95 per cent are local young professionals. A lot of them will buy several units or whole blocks of apartments.’

Real estate markets in many cities around the world are still in the doldrums, but in Montreal, Canada’s second largest city, with 1.9 million residents, the downtown area is experiencing a boom and buying frenzy last seen more than a generation ago. Brokers say that new listings in desirable central neighbourhoods can receive multiple offers within hours of going up for sale.

Since 2003, when the present rush began, 5,500 to 7,000 new condo units have been hitting the market each year. Many of these homes are downtown in new mid-rise developments.

According to the Montreal Real Estate Board, the median price of downtown condos has risen about 9 per cent over the period, to C$210,000 (S$285,500). While some downtown addresses can command as much as C$1,000 a square foot, in May the average price per square foot in the central city was about C$350.

‘A lot of the new units downtown are for people in the suburbs looking to downsize, but you also get about 8 per cent of sales going to foreigners,’ said Rene Lepine, president of Groupe Lepine, one of the largest developers of downtown residential housing in the city. ‘I haven’t seen this kind of activity in the city centre since the 1970s, when we had the Olympics.’

Montreal’s real estate board reported that prices were up 8 per cent in the first quarter from a year earlier, with sales up 54 per cent.

While there is disagreement over whether such growth is sustainable, demand is being driven by historically low interest rates, with a five-year fixed-rate mortgage going for about 3.8 per cent.

In an attempt to pop what many fear is an expanding housing bubble, the Bank of Canada in April began requiring purchasers to put down 20 per cent on investment properties. Brokers, however, say such rules are easily skirted with interim financing.

And in the two years since the global economic downturn, Canada’s big-five banking oligopoly has continued granting loans for real estate.

But, like in the US, these banks seldom hold on to the mortgages, instead passing them on to a government entity called the Canada Mortgage and Housing Corp, which insures buyers against defaults.

Since 2005, the agency’s liabilities have grown to around C$400 billion from about C$80 billion. But many of the new homes insured by this national agency are the tiny studios and one-bedroom units like those in Montreal’s downtown towers.

That easy financing helped turn Montreal’s real estate scene into something of a Sleeping Beauty story. For decades the city had a lot of real estate for sale, partly because of the departure of several hundred thousand English-speaking residents from 1976 to 1978 because they feared Quebec might become an independent French-speaking country.

Afterwards, prices rose slowly, and then took off in recent years.

‘I’m not one of those annoying people who say that Montreal is the best city,’ said Ariane Truong, 30, a Montreal native who spent several years in London working as an architect.

‘But there’s this intangible, aesthetic quality here these days and when you’re in other cities, you notice that quality is missing.’

Two years ago Mrs Truong returned to her hometown, paying about C$350,000 for a refurbished 950-square-foot one-bedroom condo in the old city.

The building incorporates part of the stone fortifications built from 1717 to 1738 to protect Montreal from native Indians and English attackers.

Until recently, many residents had spurned the area as a tourist magnet.

These days, the tourists still are ever-present, but the old warehouses have been converted into apartments with ground-floor cafes and restaurants. A mix of young professional residents has returned to live and work.

A small but important part of the market is composed of foreign clients who buy into the city for its particular rhythm.

Diane Urbain, 28, a transplant from Paris, is typical of the group. She and her husband spent about C$520,000 on a 1,600-square-foot cottage in the Plateau, a large neighbourhood of row houses known for its public squares and cafes.

The French consulate says about 100,000 French citizens are living in Montreal.

‘When I first arrived here as a student, I thought I’d never leave Paris,’ Mrs Urbain said ‘But I’ve come to love the way of life of this city.’ She talked about the nearby parks where her children play and about biking to work. Velo Quebec, a cycling advocacy group, says that nearly 20 per cent of downtown residents use bicycles as a primary means of transport.

Yet the French are not the only people who choose Montreal.

This year, almost all the units in one new high-end condo tower downtown were sold to Lebanese. The developer marketed heavily in Beirut, and many purchases were made as investments or as homes for children attending universities in Montreal. — IHT

Source: Business Times, 15 Jun 2010

Marie-Yvonne Paint, a real estate agent in Montreal, has the kind of problem most of her counterparts in the United States can only dream about.

‘We have a shortage of inventory right now,’ said Ms Paint, who focuses on the exclusive and expensive municipality of Westmount. ‘It’s very annoying. We have buyers ready to buy and not much to show.’

Her experience is not an isolated example. Like most of the world, Canada’s real estate market slumped during the recession. But now, instead of worrying about the recovery of the real estate market, some Canadians are concerned about the prospect of a price bubble.

The Canadian Real Estate Association reported that the average price of existing homes rose 19.6 per cent in January compared with January 2009, the latest in a string of substantial gains dating back through last autumn. By contrast, the average price of existing homes rose 2.6 per cent in the US in the same period, according to the National Association of Realtors.

Such drastic percentage gains are not just a reflection of the market’s earlier depths. In some Canadian cities, particularly Toronto and Vancouver, prices appear to be heading towards record levels.

‘It’s no surprise the housing market responded to low interest rates,’ said Craig Alexander, the deputy chief economist of the Toronto-Dominion Bank. ‘The real question is what’s going to happen in the next year. It can’t continue at the current pace, otherwise a bubble will form.’

Canadian homebuyers, of course, are not unique in having access to low-interest mortgages. But Mr Alexander and others attribute the Canadian market’s revival to a series of measures that ensured that the recession in Canada did not turn into a real estate disaster.

Perhaps chief among them is the country’s retail banking system, which is effectively an oligopoly dominated by five national banks, including Toronto-Dominion.

Most of the time, that arrangement is less than popular among Canadians, who think that a lack of competition leads to, among various things, low interest rates on savings and high service fees.

Public resentment has repeatedly caused politicians to block mergers between the banks. But in the lead-up to the credit crisis, the closed-shop nature of banking in Canada proved to be the government’s, and the economy’s, best friend.

Mindful of government oversight, Canadian banks by and large avoided the structured-debt products that imperilled many of their American counterparts. They also maintained comparatively tight controls on mortgage lending to consumers. When zero per cent downpayments on mortgages were widely available in the US, Canadians were typically required to put down at least 10 per cent. American-style amortisation periods stretching beyond 25 years were also relatively unknown in Canada.

‘In Canada, standards got nowhere near as low,’ said Timothy D Hockey, chief executive of TD Canada Trust, Toronto-Dominion’s Canadian retail banking operation. ‘When the crisis came upon us, the standards didn’t have to change.’

One result of that, said Phil Soper, president and CEO of Brookfield Real Estate Services of Toronto, is that the slump in housing starts and existing home prices was delayed by about a year in Canada until late 2008. Then, when interest among buyers began to return last year, Canada’s still-healthy banks were able to provide mortgages, and housing prices were not depressed by a glut of defaulted properties in forced sales.

Source: Business Times, 23 Mar 2010

Blame falls squarely on Bank of Canada governor’s promise on borrowing rates to prop up the economy

Bank of Canada governor Mark Carney’s pledge to freeze record-low borrowing costs through June may be raising the chances of a bubble in home prices even as it helps the economy recover from its first recession in 17 years.

Sales of existing houses rose 74 per cent in October from the January low, with prices up 21 per cent from a year ago , partly because of Mr Carney’s promise – the only date-specific commitment from a Group of 20 central banker. To prevent the economy from overheating, Mr Carney will raise his benchmark rate by 125 basis points to 1.5 per cent in 2010, while Federal Reserve Chairman Ben S Bernanke will keep his key rate at 0.25 per cent, said Stephen Gallagher, chief U.S economist in New York at Paris-based Societe Generale SA.

‘The worry has got to be that you might be getting a housing bubble out of this,’ said David Laidler, a former visiting economist and special adviser at the Bank of Canada and now a fellow at the C D Howe Institute, a Toronto research group. Mr Laidler is a member of the institute’s Monetary Policy Council, which studies central-bank decisions and said in a Dec 3 statement that a ‘possible unintended effect’ of Carney’s commitment is ‘the buoyancy of mortgage lending, particularly variable-rate mortgages, and the housing market.’ For now, analysts at Toronto investment banks Scotia Capital and RBC Capital Markets are recommending that investors buy shares of companies such as Home Capital Group Inc, even after the Toronto-based mortgage lender has gained 168 per cent to C$42.05 (S$55.45) since its 2009 low on Feb 11.

‘The challenge right now is getting the economy going and dealing with any potential bubbles down the road,’ said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc in Toronto, which manages about C$4 billion.

Mr Carney’s situation reflects the conundrum faced by policy makers who must weigh the trade-off between stimulating their economies now with ultra-low rates and dealing later with the fallout from unintended consequences.

‘It is time to break the daisy chain of asset and credit bubbles and the global imbalances they spawn,’ Morgan Stanley Asia Chairman Stephen Roach told a conference in Vancouver on Dec 1. ‘If we fail, there may not be another chance.’ Mr Carney, 44, has made it clear that stimulus is his priority. Only if the outlook for inflation shifts would the bank break its promise, he has said.

‘Rates are exceptionally low, they are exceptionally low for a purpose and we have given pretty clear guidance on how long we expect they will have to remain at these levels in order to achieve the inflation target,’ Carney told reporters on Oct 22.

The bank projects the consumer price index, which rose at a 0.1 per cent annual pace in October, will reach the target of 2 per cent by the second half of 2011.

The central bank hasn’t talked much about house prices, ‘to the bafflement of international investors,’ said Eric Lascelles, chief economist and rates strategist with TD Securities Inc in Toronto. The bank’s next opportunity comes today in an interest-rate announcement scheduled for 9 am New York time.

‘It makes perfect sense that there is a good appetite for the housing market,’ Mr Lascelles said. What isn’t clear is ‘whether this is a bubble in the making or simply a recovery from earlier softness.’ The New York-based Trump Organization, founded by real- estate developer Donald Trump, is building a 60-storey Trump International Hotel & Tower in downtown Toronto. The residential condominiums sell for at least C$2 million.

Canada will be ‘one of the first markets’ that ‘we’ll look at in the upswing,’ said Donald Trump Jr, 31, executive vice president of development and acquisitions.

‘Once In a Lifetime’ Canadians are jumping at ‘what they perceive as a once-in- a-lifetime opportunity,’ said Peter Gilgan, 58, founder and chief executive officer of Oakville, Ontario-based Mattamy Homes Ltd., Canada’s biggest homebuilder.

The average five-year mortgage rate was 5.59 per cent last week. In May it was 5.25 per cent, the lowest since 1951 according to Bank of Canada figures.

Sales of existing homes will rise to 492,300 in 2010, up 7 per cent from 460,200 this year, according to the Canadian Real Estate Association, an Ottawa trade group – the second-highest total on record after 520,747 in 2007.

The booming housing market partly reflects the strength of Canada’s financial system, which was named the soundest in the world for two consecutive years by the Geneva-based World Economic Forum.

No banks collapsed or sought a bailout during the biggest global credit crunch since the Great Depression. In the US, the Treasury Department’s Troubled Asset Relief Program provided a total of about US$205 billion in capital injections to banks, according to the department’s most recent report on Nov. 25.

Lending practices at Canadian banks have been more conservative than those of US financial institutions, said Ivan Wahl, chairman and chief executive officer of mortgage provider Xceed Mortgage Corp. Subprime loans accounted for 5 per cent at the peak of Canada’s market in the summer of 2007. Even in that segment, default rates are about 3 per cent compared with 30 percent in the US, he said.

‘We’ve never had the traumatic problems,’ said Mr Wahl, whose Toronto-based company targets customers who have trouble getting mortgages with the largest banks. ‘We have one of the most constructive, positive and stable real-estate markets in the world.’

Canada’s economy shrank for three quarters starting at the end of 2008, one period less than in the US. Canada’s unemployment rate was 8.5 per cent last month compared with 10 perc ent in the US. The 1.5 percentage-point gap was just under October’s 1.6 point difference, which was the widest since at least 1976.

The state of the housing market reflects ‘an element of pent-up demand’, Mr Carney told reporters on Nov 19. ‘Rates are exceptionally low, affordability has improved in part because of the low level of interest rates and part because of some former price adjustments, and we are seeing a housing-price response.’ His view is shared by Peter Aceto, chief executive of Toronto-based ING Direct Canada, a unit of financial-services company ING Groep NV in Amsterdam, that has 1.6 million customers including 125,000 mortgage clients and C$33 billion in assets. ‘I don’t believe that there’s a bubble,’ he said. ‘Most stories I hear are just typical Canadians trying to buy their first home or move up.’ Mr Aceto said he is seeing some unusual signs, particularly in the Toronto market, where houses are getting as many as five offers at a time and prospective buyers are trying to woo sellers with personal notes or gifts.

‘When Canadians are waiving conditions and paying 10 per cent more than asking for a home, it does give you some pause,’ he said.

If policy makers are concerned about a possible bubble, they might look to tools other than interest rates to cool the market, said Brian Johnston, 51, president of Monarch Corp. in Toronto, the Canadian division of London-based Taylor Wimpey Plc, the UK’s largest homebuilder by market value.

‘They might encourage lenders to be a little more circumspect in their mortgage qualifications; they may look at the amortization periods on mortgages,’ he said. ‘I don’t think they can control housing through fiddling with interest rates.’ Last year, the Department of Finance said Canada Mortgage and Housing Corp. would limit amortisations to 35 years and 95 per cent of the loan value. The government’s housing agency had offered mortgage insurance on loans worth as much as 100 per cent of the home value and amortisation periods of as many as 40 years since 2006.

The strong market will help companies such as Brookfield Real Estate Services Fund, said Rossa O’Reilly, a financial analyst at CIBC World Markets in Toronto. O’Reilly raised his rating on Brookfield, which has about 14,500 brokers and agents under brands such as Royal LePage, to sector outperform in July, and in November raised the share target price to C$12.50. It closed at C$11.48 on Dec 4.

The fund is a subsidiary of Brookfield Asset Management Inc, which, along with Simon Property Group Inc, has purchased part of General Growth Properties Inc’s bank debt and bonds and may make bids for all or part of General Growth, the Wall Street Journal reported last week, citing people familiar with the matter it didn’t identify by name.

Other industries will also benefit, notably appliance and furnishing manufacturers and retailers including Boucherville, Quebec-based Rona Inc, Mr O’Reilly said. Shares of Canada’s largest home-improvement chain have returned 22 per cent this year, lagging a 31 per cent return for Canada’s benchmark stock index.

Paul Lai, 55, and a dozen other real- estate agents camped out for 10 days along Toronto’s Bloor Street in late November for the chance to buy a home that won’t be completed for four years.

‘Where else is the world do you have agents lining up overnight to buy a condominium?’ said Mr Lai, with Tradeworld Realty Inc, a firm that has a sales staff of more than 200. He was bidding for a client on a condo costing as much as C$500,000. ‘We’re making history here,’ he said.

Source: Business Times, 8 Dec 2009