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Vancouver’s proposed affordable ownership program

Oleg Articles, For Buyers, News, Opinion
Vancouver skyline / new affordability program
JENNIFER GAUTHIER/METRO

Earlier this week City of Vancouver announced that it plans to create new affordability program for local residents. The purpose of the program is to address unaffordability issues in Vancouver BC. Specifically, Vancouver’s residents not being able to afford to purchase their first home due to rapid increase in the real estate prices.

If you feel skeptical about such program, you’re not alone. However, there are similar programs already in place in Calgary, Toronto and United Kingdom.

Don’t get too excited about the program just yet. To implement this program the city needs to secure permission from the province to change the Vancouver Charter. The Charter doesn’t necessarily prevent city from having a shared homeownership program. But the council is sticking with the motto – “better safe than sorry”.

How would the program work?

Details aren’t finalized, but the program would involve the city purchasing about 20 per cent of a units in a new development so the buyer – who would be subject to numerous restrictions – wouldn’t have as high of a down payment or mortgage payments. If the value of the property goes up upon sale of one of the unit in the “affordability program” City of Vancouver would receive it’s share of profits. If there are any remaining profits, these would be shared with the homeowner. It’s a win-win situation.

Who would qualify for the program?

  • Must be a resident of the city for a minimum of five years
  • Must be a permanent resident or citizen
  • Must never have owned property before (first time buyer)
  • Must be employed in Vancouver
  • Earn less than $67,540 per year for one-bedroom units (as a household)
  • Earn less than $96,170 per year for two and three bedroom units for people with children (as a household)
  • Must complete a home buyer education course

How many units will be available in the program?

The city aims to create 300 affordable units within the next 3 years. At least half the the available units will have two to three bedrooms. City officials said they might create a lottery system to see who gets to buy in. There are estimated 30,000 qualified households in Vancouver at the moment.

In my opinion it is fantastic the City of Vancouver is creating such programs. It is no secret that there are a lot of people that can’t afford to purchase their first condo in the city. With such programs we boost economy and help first time buyers. That’s why I love Canada, more specifically Vancouver! Where else will you find government care so much about people’s well being (outside of Toronto, Calgary and United Kingdom lol)?

The truth about “shadow flipping” in Vancouver

Oleg Articles, News, Opinion

 

“Shadow flipping” is the new term thrown around quiet a bit in the last two weeks. Turn on the news or go online and all you see are evil realtors taking advantage of the public, earning 10 commission on each sale and directly causing global warming.

Let’s make sense of all of this.

What is “shadow flipping”?

It’s a controversial “sales technique” used to sell the assignment of the Contract of Purchase and Sale before the completion date. Real estate agent would collect real estate commission for each assignment of the contract.

For example:

Buyer#1 “buys” a house for $2 million. Before the sale completes (all money is paid) the contract is sold to the buyer#2 for $2.3 million. The buyer#1 who sold the contract makes $300,000 (minus the real estate commissions). The original seller is left with $2 million (minus the real estate commission and expenses). And the real estate agent collects real estate commission 2 times; once for the sale of the property to the buyer#1 and once for the sale of the contact to the buyer#2.

 

 

Most news articles use similar examples, but in their examples the contract is sold (assigned) twice and the real estate agent collects 3 real estate commissions. In my opinion these examples are ridiculous. Hypothetically speaking it is possible to assign (sell) the contract unlimited number of times but selling (assigning) the same contract twice is very very rare. These examples are used to scare the public and reinforce the message, but only make things more confusing. Nevertheless, shadow flipping is wrong and scary without ridiculous examples.

Some real estate agents and savvy investors found a way to abuse the “assignment clause” in the Contract of Purchase and Sale.  In some cases the original seller doesn’t get a full value for their property. In some cases the buyer of an assignment overpays for the property. Most of the time someone in the transaction is taken advantage of. As real estate agents we have a fiduciary duty to work in our clients best interest, however we still have to follow the code of ethics. We can not put our own interest before the interest of parties involved in the transaction and the general public.

“Shadow flipping” is not a new concept. In fact a lot of “get rich quick from real estate” schemes depend on this strategy. You’ve seen the infomercials. It has been around for a long time. “Shadow flipping” is not limited to British Columbia either. Most of Canada and the US have the “assignment clause” in their Contacts of Purchase and Sale. It’s actually a beneficial clause if used right.

It is very sad to see some of my real estate colleagues participate in such shady schemes. It shines a negative light on the industry as a whole. It is not fair that a few dishonest realtors bring negative publicity to everyone. These cases should definitely  be investigated.  These responsible need to be brought to justice.

Real estate industry as a whole does not support unethical behaviour of a few.

 

$7-million mansion in Vancouver is now a tear down

Oleg Articles, News, Opinion

I was reading the news today and came across this article: The $6-million Vancouver mansion, complete with indoor pool and media centre, that’s just another tear down

Basically, Vancouver home owner has filed an application for a demolition permit for his luxury multi-million-dollar home located in Vancouver’s upscale Shaughnessy neighbourhood. The home has 7,200 square feet of living space, indoor swimming pool and a media centre. According to BC Assessments the property is worth $7.44 million today. It was purchased back in 2013 for just over $6 million.

The owner is technically not doing anything wrong. So why did this matter get so much media attention?

Vancouver is a known “green city” and tearing down a perfectly good home seems like a waste of resources. The house is not even 20 years old.

Vancouver council woman Adriane Carr plans to voice her disapproval over the application. “It’s just criminal that it should be torn down,” Carr told CTV Vancouver. “It’s an expensive home, it’s a big home, and the fact that it could be torn down and replaced, it goes against everything the city is trying to do to be the greenest city.”

We can understand both points of view. On one hand it doesn’t make sense to “waste” resources, but on the other hand private individuals can do what they want with their money. Forbidding someone to build a new home because their “old” one is a “perfectly good home” is the same as forbidding someone to buy a new television because their old one is a perfectly good television.  It is up to all of us as people to control our resources consumption.

As long as the new proposed house complies with all city by-laws and regulations, I don’t see any problem for the owner to obtain the demolition and development permits for his/her project.

$2.4 million 86-year-old Point Grey house. Is it worth it?

Oleg Articles, News, Opinion, Statistics

Last week an 86-year-old “rundown” house was listed for sale. The 4453 W 14th Street house has 2,000 square feet of living space and is located in Point Grey neighbourhood in Vancouver Westside. What’s so special about this property? The price tag of $2,398,000!

This property instantly received a lot of media attention and community outrage. Some online polls even popped up asking people  how much they would pay for this house? “Less than $500,000” is the most popular answer, followed by “you couldn’t pay me to live here” in a second place.

The house is sitting on “standard” Vancouver 33 by 122 plot. 2014 assessment value came in at $1,759,800 almost all of the value is in the land. The house is walking distance to Lord Byng Secondary and Queen Elizabeth Elementary.

So why does it have such a high listing price? 

Clearly, the house itself has little to no value. It’s the land in this prestigious Vancouver neighbourhood that dictates the listing price. 33×122 plot (also know as the Vancouver Special) is not very big. You can build almost 3,000 square foot home with a garage on it.

So is it worth $2.4 million price tag? 

In my opinion it is not. Some real estate professionals will disagree with me on this one. That’s totally fine.

There are many ways to calculate the value of the property. I based my evaluation on compatible currently active properties  on the market as well as the recently sold comparable properties. Also, I looked at the investment value of building a new home in the neighbourhood.

If I were to base my evaluation only on similar properties in the neighbourhood and their selling prices, the price tag of $2.4 million dollars would make sense. If I were a listing agent I would price it at a similar price point. There are a few examples of houses around the same age with the same lot sizes selling for $2.3-$2.4 million dollars in the Point Grey neighbourhood. Which leads me to believe that this house will sell for the asking price or maybe even for more than the asking price.

So why do I say it is not worth the price tag of $2.4 million? 

This house needs to be torn-down and a new house should be build in its place. In the current market, new houses in the neighbourhood (with 33X122 lots) are selling for around $3.1-$3.3 million. It will cost around $650,000-$700,000 to build the new house. If you account for taxes and extra expenses associated with the buying, building and selling process, this house does not make for a very good investment.

I think the buyer of this property is going to be an investor. He or she will justify paying the premium price by betting on future appreciation of the neighbourhood, which is completely fine. More and more real estate developers in Vancouver bet on the future appreciation as land prices in Greater Vancouver continue to rise.

This property could be a good investment if market continues to go up over the next 12 months at the same rate. Any experienced developer will tell you that the investment property has to make sense at the current market value. And NOT solely depend on the future appreciation.

Here is a graph of the real estate prices of detached (resell) houses in Point Grey neighbourhood over the last 5 years.

DISCLAIMER: This article represent my opinion only.  Do your own independent research before making any real estate related decisions.

Vancouver developer offers to sell condos with 0% downpayment

Oleg Articles, For Buyers, News
Image from: http://www.townline.ca/
Image from: http://www.townline.ca/

A local developer Townline Homes has made some headlines in the last couple of weeks. This Vancouver development company wants to sell condos in their new development – The Strand, in Port Moody with a 0% downpayment.  This proposal has been already accepted by BC Housing. However, Canadian Mortgage and Housing Corporation (CMHC) has not approved the proposal yet.

How does the program work? 

The price of the condos will be discounted for a minimum of 8% (as recognized by CMHC). This discount will act as a downpayment. The buyer then mortgages the entire remaining amount. This program will require no vendor take back mortgage or a second mortgage. You will have to own the property for a minimum of 2 years before selling to keep 100% of the profits (including the developer discount).

Who can qualify for the program? 

This program was designed for lower income families who can not afford the cash downpayment required for most purchases. In order to qualify for the program you must be making under $65,000 (as a household) for a one bedroom condo, and under $92,000 (as a household) for a one bedroom plus a den condo.  This regulation is put in place to prevent wealthy investors taking advantage of the program.

ST-I
1 bedroom + den + workstation floor plan

Why was this program proposed? 

The program is proposed to help lower income families get into the real estate market. It is a noble cause. Although, the developer might have another reason – PR! It makes them look good and brings a lot of attention to the development. It is worth mentioning that only a small percentage of units in the development are dedicated to the affordability program. The rest of the development is sold as usual.

It’s a win-win situation for the development company. If CMHC approves their proposal, it makes them look awesome. Selling these affordable units will be very easy. If CMHC does not approve their proposal, the developer still comes up on top. Hey, at least they tried to do something.

But lets dismiss this program as a PR stunt; it is a great initiative. It will help some young people get into the real estate market. It is a true win-win situation. The buyers get to buy a brand new condo with 0% downpayment and the developer gets some pretty good exposure.

In my opinion we will see more affordability programs like this one in the upcoming years.

Will the new mortgage regulations effect Vancouver real estate market? [OPINION]

Oleg Articles, For Buyers, For Sellers, News, Opinion

 

Quick recap: New Canadian mortgage regulations will now require a minimum down payment of 10% for properties priced over $500,000 (but under $1,000,000).  The new regulations apply to all Canadian mortgages insured by the government. See full article here: link to the article.

The new down payment rules have gotten a lot of people talking. Many experts believe that these changes will have a significant effect on the real estate markets all around Canada.

I am here to offer my opinion on the subject. Keep in mind, it’s my personal opinion based on my experience and should be viewed as such.  I am an expert Metro Vancouver REALTOR®, and can only comment on the local market.

I don’t think that new mortgage regulations will have any significant effect on the Greater Vancouver real estate market.

It is true that a lot of Vancouver properties are priced over $500,000. It is also true that more properties will be reaching that price mark in the near future. In my estimate 90% of all one bedroom condos in downtown Vancouver will cost over $500,000 within the next 5 years.

So why do I say that this rules change will have no significant effect on the local real estate market? In my experience most people buying properties over $500,000 have at least 20-25% down payments. Let me explain…

  • Usually, the buyers of five hundred thousand dollar properties are upsizing from smaller cheaper condos or townhouses. They have gained some equity in their starter home and are ready to move into something larger and more expensive. More often than not, “upsizers” have enough equity in their home for at least 15-20% down payment for the new house.
  • Most first time home buyers will not qualify for a $475,000 mortgage with a 5% down payment. The first time buyers who buy condos or houses over $500,000 have their families help with a portion or the entire amount of a down payment. Most of the time these down payments are well over 10% mark (closer to 20-25%).
  • International buyers and new-comers to Canada will rarely qualify for a mortgage in Canada. And if they do, it’s usually for a special “new-comers to Canada” program. Most of these programs require a minimum of 35% down payment.
  • Of course there are exceptions. Some people will be effected by the change. Young professionals trying to buy their first house or a condo. Families who want to get their starter home. And migrants from other Canadian provinces starting their lives in Vancouver.

From my experience the percentage of the Vancouver buyers that will be effected by this change is very small. This small percentage will not have a substantial impact on the overall Vancouver real estate market.

In my opinion, there will be no real estate crash and no major changes to the market activity in Vancouver. Business as usual! The best advice I can give to someone who is looking to buy their first home or a condo – start saving your money for a down payment today and buy it as soon as you can. The prices are not likely to go down.

 

DISCLAIMER: I am not a licensed mortgage broker. This article expresses my personal opinion only! Do your own independent research before making any real estate decisions.

New 2016 Canadian Mortgage Regulations [EXPLAINED]

Oleg Articles, For Buyers, News

Mortgage-home-loan

There was a lot of fuss about the new mortgage regulations back in December of 2015. A lot of people seemed to worry over the new rules. So what happened and what are the new Canadian mortgage regulations?

On December 11, 2015, the Canadian Department of Finance, the Office of the Superintendent of Financial Institutions (OSFI) and the Canada Mortgage Housing Corporation (CMHC) announced the forthcoming changes to existing federal rules for government-backed mortgage insurance, capital requirements for residential mortgages. In short government agencies decided to change some mortgage rules.

All properties priced over $500,000 (but under $1,000,000) will now require a minimum of 10% down payment. Before this change the minimum down payment was set at 5%. Starting February 2016, when you buy a property for $500,000 you will need to have a down payment of at least $50,000 (10%) instead of $25,000 (5%).

Buyers of properties under $500,000 can still get away with a minimum down payments of only five percent.

The change has occurred to decrease the risk associated with high ratio government insured mortgages. This was a predictable change as federal government has made several changes to the Canadian mortgage regulations since 2008.

News of the new Canadian mortgage regulations has made some people very upset. New rules will force a lot of Canadians save up twice as much money for the down payment.

 

DISCLAIMER: I am not a licensed mortgage broker. This article is for informational purpose only. Consult with your licensed mortgage broker or financial institution before making any decisions.

Property Assessments grew by 16% in 2016

Oleg Articles, News, Opinion, Statistics

02

Within the next few days owners of more than 500,000 residences in Greater Vancouver will be receiving their 2016 Annual BC Property Assessments in the mail. These assessments will reflect property values as July 1, 2015.

What are property assessments and why are they important? Well, property assessments is an estimated value of your house or a condo by a government agency – BC Assessments. Based on this calculated value the annual property taxes are paid. The higher the BC Assessments value is, the higher annual property taxes are.

There is another important function BC Assessments serve – determining property’s value. Often times when the listing agent tries to determine a listing price of a property he or she will take BC Assessments value into the consideration (not always as each agent has a different way of determining a listing price).  Other times potential buyers will look to BC Assessments or Tax value and try to determine a fair price for a property (that seems not to apply to a current real estate market).

What can owners expect to see this year in their property BC Assessments? Based on the released BC Assessment for this year an increase of 15-20 percent will be typical for a single-family homes in Vancouver, North Vancouver, West Vancouver, Burnaby, Tri-Cities, New Westminster and Squamish (See chart below of a complete breakdown). Don’t be surprised if your home BC Assessments value comes with an increase of 25%.

Overall, Greater Vancouver’s region total assessments increased from $546.7 billion in 2015 to $636.2 billion in 2016. A total increase of about 16% in one year. Almost $8.3 billion of that increase is due to new construction, subdivision and reasoning of properties. Take a drive down Cambie Street and you can witness rezoning of properties working at its finest.

All of this is good news for homeowners who are planning to sell their properties in a near future. However, many homeowners who were not planning to sell this year might be forced to do so because of the high property taxes. At least their properties have gone up in value.

If you are a property owner and need more information or have additional questions you can visit www.bcassessment.ca website for all of that.

Here is an example table showing some of the increases for single-family homes and residential strata units for sample Greater Vancouver communities.

BC Assessments Data for 2016
Image: BC Assessment

What do you think about the increase of BC Assessments? Leave your comments below.

New suggested “real estate speculation tax” in Vancouver [OPINION]

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New suggested “real estate speculation tax” in Vancouver [OPINION]

 

You might have heard about the new suggested “real estate speculation tax” in Vancouver BC. Here is how it all started. Greater Vancouver has a very strong real estate market. Prices are steadily going up by 5-10 per-cent every year.  More in the recent years. People have always complained that Vancouver real estate prices are too high. Lately the complaints have been getting louder and louder as most of Metro Vancouver has shifted into sellers market.

Our mayor, Gregor Robinson, thought it would be a good idea to suggest a new “speculation real estate tax” to help drive the real estate prices down. Here is how the tax would work. If you buy a property and sell it within 1 or 2 years (exact details weren’t made clear) another 1-3% real estate speculation tax will apply. Sounds pretty good? According to Mr. Robinson this tax would keep all these evil developers in their place and somehow drive the real estate prices down. Again the details weren’t clear.

My opinion is that this tax is absolutely unnecessary and would work opposite of it’s original intent. Here is why: Vancouver real estate market is already one of the highest taxed in the world. We have: property transfer taxes (don’t get me started on these), annual property taxes and GST for new properties, we don’t need another tax layer.

Adding another tax layer to already very heavily taxed real estate market will only make the prices of real estate go up. One thing we learned from capitalistic system is that the extra cost gets passed down to the consumer, most of the time. In other words buyers will be the ones paying for additional real estate taxes.  Speculation tax would drive the real estate prices in Vancouver up not down.

Luckily premier Christy Clark has shut down the suggestion of this ridiculous tax.  For above state reasons and the fact the most people living in British Columbia own a property. Can you imagine how angry the home owners would get if this tax would actually be introduced?

In my opinion Gregor Robinson was not really intending to introduce this tax but rather was paying political games. Showing people that he’s the “good guy” and that he’s “doing something” to bring the real estate prices down.

What do you think?

Again, in this article I am simply expressing my opinion and not supporting or disapproving of any political figures. I stay out of politics and do what I do best – sell properties.

June 2015 Real Estate Update

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June 2015 Real Estate Update

Metro Vancouver home sales set record pace in June

The REBGV reports that residential property sales in Metro Vancouver* reached 4,375 on the Multiple Listing Service® (MLS®) in June 2015. This represents a 28.4 per cent increase compared to the 3,406 sales recorded in June 2014, and an increase of 7.9 per cent compared to the 4,056 sales in May 2015.

Last month’s sales were 29.1 per cent above the 10-year sales average for the month. It’s the fourth straight month with over 4,000 sales, which is a first in the REBGV’s history. The previous highest number of residential home sales was 4,434, recorded in May 2005.

“Demand in our detached home market continues to drive activity across Metro Vancouver,” Darcy McLeod, REBGV president said. “There were more detached home sales in the region last month than we’ve seen during the month of June in more than 10 years.”

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $694,000. This represents a 10.3 per cent increase compared to June 2014.

“Housing market activity comes in cycles; we’re in an up cycle right now that looks similar to the mid-2000s,” McLeod said. “It would be easy to point to one factor that’s causing this cycle, but the truth is that it’s a number of different factors.

“Conditions today are being driven by low interest rates, a declining supply of detached homes, a growing population, a provincial economy that’s outperforming the rest of Canada, pent-up demand from previous years and, perhaps most importantly, the fact that we live in a highly desirable region,” McLeod said.

New listings for detached, attached and apartment properties in Metro Vancouver totalled 5,803 in June. This represents an 8.7 per cent increase compared to the 5,339 new listings reported in June 2014.

“We’re seeing a steady stream of new listings entering the market, but the overall number of homes for sale is not keeping up with buyer demand,” McLeod said.

The total number of properties currently listed for sale on the region’s MLS® is 12,181, a 23.9 per cent decline compared to June 2014 and a 1.3 per cent decline compared to May 2015. This is the lowest active listing total for June since 2006.

The sales-to-active-listings ratio in June was 35.9 per cent. This is the highest that this ratio has been in Metro Vancouver since June 2006. A seller’s market typically occurs when this ratio exceeds 20 per cent for a sustained period of time.

“The competition in today’s market means that buyers have less time to make decisions,” McLeod said. “Given this, it’s important to work with your REALTOR® to gain insight into the local market, to get quick access to new MLS® listings, to develop a buying strategy that meets your needs and risk appetite, and to receive other services and protections that come from having professional representation.”

Sales of detached properties in June 2015 reached 1,920, an increase of 31.3 per cent from the 1,462 detached sales recorded in June 2014, and a 74.2 per cent increase from the 1,102 units sold in June 2013. The benchmark price for a detached property in Metro Vancouver increased 14.8 per cent from June 2014 to $1,123,900.

Sales of apartment properties reached 1,774 in June 2015, an increase of 35.6 per cent compared to the 1,308 sales in June 2014, and an increase of 66.1 per cent compared to the 1,068 sales in June 2013. The benchmark price of an apartment property increased 5.3 per cent from June 2014 to $400,200.

Attached property sales in June 2015 totalled 681, an increase of 7.1 per cent compared to the 636 sales in June 2014, and a 44.3 per cent increase from the 472 attached properties sold in June 2013. The benchmark price of an attached unit increased 7.1 per cent between June 2014 and 2015 to $506,900.

See full report here: June 2015 Stats Package

Note: this article has been sourced from the Real Estate Board of Greater Vancouver.