The first speaker, Carol Frketich, provided an update on economic conditions in BC. Frketich stated that BC (Vancouver especially) continues to be a top destination for immigrants. In 2010 and 2011 however, BC suffered a net negative migration believed by CMHC to be caused by the high cost of living in BC and employment opportunities in other provinces. Frketich went on to explain that CMHC predicts a general easing of business lending conditions and an interest rate hike in late 2012 or early 2013.

Subsequent speakers provided a market update on BC real estate and spoke about the high cost of real estate in Vancouver. One of the more interesting points discussed was the difference between the average rental payment and mortgage payment in several Canadian cities. In Calgary, the average mortgage payment is $310.00 higher than the average rent. In Ontario, that number is $438.00 and in Vancouver, a mortgage payment is $778.00 higher on average. Other parts of the real estate section discussed topics such as condominium supply, housing starts and other key statistics.

In closing, John Lynch of CMHC provided an update on products offered by the CMHC and also announced that they are working on a new system to identify the origin of investors in BC real estate. The old system of identifying investor origin by the mailing address on the BC Assessment is flawed in that it likely does not take many foreign investors into account.

To find out more about CMHC’s variety of multi-unit insurance products and new energy efficiency focused products you can click on the link below.

www.cmhc.ca/multi-unit

InstaFund Financial (Commercial) would like to thank the CMHC for hosting a both informative and engaging luncheon.

1. Firstly, the development fits within the Mount Pleasant Community Plan and the specific site was identified for a high density development.
2. Secondly, locating higher density developments near transit hubs reduces the need for vehicles within the city.
3. Lastly, the community amenity contributions provided by Rize Alliance will greatly benefit the Mount Pleasant Neighborhood.

Notwithstanding their rezoning approval, City Council has required architectural changes to make the building design consistent with the character of the Mount Pleasant neighborhood.

InstaFund (Financial) Commercial would like to congratulate Rize Alliance on receiving the rezoning approval and commend the City of Vancouver for increasing density along transit corridors and providing diverse housing options to the residents of Vancouver.

• 19,200 federal public sector jobs to be cut over three years.
• Age of eligibility for Old Age Security will rise from 65 to 67 starting in 2023
• Public servants to pay more into pensions under a 50/50 formula
• Retirement age for federal public servants will rise from 60 to 65
• CBC Funding to be cut by 10% over three years

Additionally, there were several other important elements included in this year’s budget, including:

• No significant tax changes for individuals
• The penny will be discontinued in fall 2012
• Governor General will begin paying income taxes as of 2013
• A First Nations education act and $275 million to build and renovate schools on reserves.
• Duty-free cross-border shopping limits rise this summer to $200 for 24-hour trips and $800 for trips of 48 hours or more.

For further information on the 2012 – 2013 Federal budget, please click here.

Although some articles make note of the high cost of prime retail space in Vancouver, the recent retail turnover is more likely the result of changing retail models. Considering first the more obvious example of HMV, the rise of digital media consumption has greatly reduced the need for brick and mortar outlets carrying thousands titles (as HMV did). As many other entertainment companies have realized (Blockbuster is another recent example), it simply no longer makes sense to operate large-scale retail locations when customers are shopping online and buying digital products.

Conversely, in the case of Sears Canada, while the products it offers are still relevant, the company has failed to adapt to a changing competitive landscape. Traditionally, Sears has competed with department stores such as The Bay and Eaton’s, but today, low-priced entities such as Target and Walmart have eroded Sears’ sales. Recognizing this competition, The Bay’s new president, Bonnie Brooks has rebranded the company into a semi-prestigious, high end retailer, with much success. Failure to reestablish its own place in the market has led to Sears’ recent cost cutting measures. In early February, Sears reduced prices on over 5,000 items, in what appears to be an attempt to compete with companies like Target and Walmart. With Walmart’s fifty plus years of cost-cutting business experience, Sears’ has a lot to learn.

While the short term story may be filling the massive amount of vacant space, the long term tale is really about the threat of innovation in business. Even with over a century of retail experience, transforming from a mail order catalog to the largest US retailer in the 1980’s, Sears suddenly finds itself struggling amidst a changing business model.

For a better understanding of the upcoming Evergreen enabled transformation, one only needs to drive up North Road, Austin Avenue or Como Lake Avenue to see the projects already underway. The City of Coquitlam has developed the Southwest Neighborhood Community Plan (Click here for the land use map) to guide future development along the Evergreen Line. Of note are two high density “Transit Village” areas that will be developed around the Lougheed Town Center Station and the Burquitlam Station (Clark Road at Como Lake Avenue). With some older developments already in place around Lougheed Town Center, the most dramatic changes will occur around the Burquitlam Station, which is presently home to three dated strip malls, low-rise apartments and some single family homes. The Neighborhood Plan also allows for medium density residential housing and commercial space along the length of North Road.

The Evergreen Line is scheduled to be operational in 2016, allowing for four years of development to occur along its route. This project has and will undoubtedly change the residential and commercial development path of communities along its corridor.

In British Columbia, residential construction and private investment in sizable commercial projects are moderately increasing construction activity. The moderate increase in construction activity correlates with moderate cost escalations of 1-2% in 2012. These moderate increases stand in stark contrast to the years leading up to the subprime financial crisis. Between 2005 and 2007, year-over-year cost escalations could be seen in the 5-10% range. In terms of project budgeting and mortgage underwriting, yearly cost escalations of say 10% can result in drastic budget overruns if project delays occur. With moderate escalations predicted for the coming years, lenders and developers alike will certainly appreciate some budget stability moving forward.  

To read the full BTY Report, including a breakdown of major provincial projects and a comparison of construction costs for various project categories, click here.  

Despite transaction costs amounting to up to 15% of the purchase price and a capital gains tax, the writer notes that compared to the US, British investors can at least still see capital gains when investing in Canada. The article also names the relatively short flight from the UK to Canada’s east coast as a plus for UK investors.   Furthermore, Canada’s plentiful space, rugged coastline and many leisure activities round out the atheistic reasons for investment.

There are several factors attracting investors to Canada, and more specifically, Vancouver’s multi-family real estate market. Although increased renting has resulted in a multi-family bright spot in the U.S. real estate market, many investors (save those looking for a cheap vacation spot) are still skittish of U.S. housing. Therefore, investors searching for strong cash flowing assets are looking to Canada’s relatively stable real estate market. In Vancouver, the multi-family market benefits from several unique dynamics. Firstly, a continuing flow of immigrants helps to sustain rental demand. Secondly, post-secondary and language education for international students is big business in Vancouver, resulting in further demand for rental apartments. Thirdly, with recent price spikes in housing, an increasing number of young adults are delaying buying a house and are continuing to rent. Each factor serves to lower vacancy and stabilize Vancouver’s multi-family rental market, attracting a variety of investors. Lastly, according to PWC, even if job growth declines and home buying cools, apartments should be a safe haven. When people have less, they rent.

For further insight on trends in the North American real estate market, click here to read PricewaterhouseCoopers’ Emerging Trends in Real Estate 2012.

 Please Click Here to see the full article.

In yesterday’s write up, Amar explains the key elements of the Euro plan, which includes a 50% voluntary write down on Greek debt held by banks (ECB, Euro Governments and the IMF are exempt). The need for the write down to be voluntary is driven by the desire to prevent the triggering of credit default swap payments, which would result in the destination of losses being unknown. Another feature of the plan requires the European banks to raise an additional €106 Billion of capital in aggregate by the summer of 2012. Lastly, the plan involves the leverage of €1 Trillion by the European Financial Stability Facility (EFSF) to ward off speculation related to the solvency of Ireland, Portugal, Spain and Italy.

Although the plan has been met with mixed responses from economists, it does show the willingness of European leaders to work together in an attempt to solve the two year old debt crisis. The current measures are anticipated to bring the Greek debt to GDP ratio down to 120% by 2020, compared to the 170% projected for 2012. As mentioned above, equities markets reacted positively yesterday, and bond markets continued a selloff, driving yields upward.  

In B.C., the greatest risk of liquefaction is on the Fraser River delta in the cities of Richmond and Delta. When the Big One hits, it is widely predicted that these areas could be largely destabilized if not destroyed given their silt-rich geology and high ground water levels. Considering the large amount of residential, commercial and industrial real estate in Richmond and Delta, it is interesting to hypothesize what would happen to surrounding real estate markets if say (as in Christchurch) 60% of buildings on the Fraser River delta were destroyed or damaged beyond repair. Furthermore, liquefaction could destabilize land on the delta for a decade or longer, making rebuilding impossible.

If the above scenario were to come to fruition, surrounding residential, commercial and industrial real estate markets would experience a rapid increase in demand as businesses and people relocate. In this scenario, the advantage would be to those who own properties in nearby, yet more physically stable areas, as demand and therefore prices move upward. Although real estate markets may not be a first thought after a devastating earthquake, it is an interesting consideration.   

While a complete overview of individual markets requires far more discussion than this post allows, some interesting industry trends were discussed. Nationwide, PKF Consultants noted a disconnect between the forces of supply and demand and the resulting RevPAR and ADR numbers. Although delays in hospitality development projects limited room supply and increased demand (occupancy) for existing lodging was noted in most markets, RevPAR and ADR still remained flat when an increase would normally be expected. In noting this anomaly, presenters at the forum cautioned that an individual statistic (like increased occupancy) does not necessarily reflect overall industry conditions and other statistics should be considered. 

Focusing on Vancouver, the forum noted several factors contributing to a forecasted 6.1% year over year decrease in ADR in metro Vancouver. This 2011 decrease is explained in large by the 2010 spike in demand (and thus ADR) associated with hosting the Winter Olympic Games,  and partially by the less than ideal weather in summer 2011, which decreased demand. The combination of these exacerbating abnormalities has resulted in an dramatic year over year decline in ADR in metro Vancouver. That being said, these conditions were unique to Vancouver and do not necessarily represent larger industry trends. The City of Richmond was also discussed with enthusiasm, as several developers have proposed large mixed-use developments near the Vancouver Airport.

Moving forward, the PKF Consulting Outlook Forum provided a positive nationwide industry outlook in the years to come. While RevPAR and ADR numbers are forecasted to improve modestly in 2012, the forum maintained that industry growth would truly rebound in the years 2013 to 2016.

Factors, including a stable economy and banking system inspiring investors, historic low interest rates, a lack of available quality commercial real estate and strong demand, are driving prices up and yields down. That being said, vendors, in Vancouver especially, are reluctant to sell as similar risk and return investments are hard to find. Those willing to sell, however, will find “buyers of all types working to meet their pricing expectations.”

See below for the full article:

http://www.canadianrealestatemagazine.ca/news/item/775-after-record-high-2010-british-columbia%E2%80%99s-commercial-real-estate-sales-sink-back-42

Hard to believe this statistic: "Nearly 11 million properties, roughly 22.5% of all U.S. homes, are worth less than the underlying mortgage"

http://www.housingwire.com/2011/09/13/more-than-22-of-mortgages-still-underwater?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+housingwire%2FuOVI+%28HousingWire%29

It has been 3 years since the "sub-prime crisis" and there is no real sign of economic recovery south of the border.

Based on this statisctic, it's going to a few more years before any kind of recovery in the US housing market.