Wednesday, October 5, 2011

Blame the HST

On Monday we posted that the big news for real estate watchers in the Village on the Edge of the Rainforest was that not one single detached new home had sold in the month of September on the west side of the City of Vancouver.

This is significant because the west side is an area that has been considered the hottest real estate market in all of Canada.

One of the rationals being offered to defend this 'temporary aberration' is the decision of BC voters to rescind the Harmonized Sales Tax (HST) in a referendum last month.

The HST was to replace the old PST (provincial sales tax) and the federal GST.  But the new tax would tax items not taxed under the PST/GST arrangement. Specifically it would tax newly constructed real estate that sold for over $500,000, which in Vancouver is just about everything.

The HST has been voted out, but it will be over a year before the Province switches back to the old PST/GST tax structure.  Are we to believe that construction and buying has all but stopped as buyers wait for the levy to disappear more than a year from now?

Above is a story by Global TV which is making that very claim.
  • "Squamish developer Douglas Day says home buyers want to wait until the HST is completely scraped to avoid paying the extra tax... Right now home buyers pay HST on newly constructed homes until the Province unwinds the controverisal tax and goes back to the former PST/HST system. Developers say that's causing home buyers to sit on the wallets right now and wait."
Now the Global TV story focuses on lower end new homes which would be marketed to local incomes. But defenders are offering this rational for the west side of the City of Vancouver, where tear downs are going for $2 million and larger houses are going for twice that.

Over and over we have been told that the west side of Vancouver is an exception to the rule, an area that has been skewing Lower Mainland statistics because rich Asian money is buying up property there. Local incomes aren't supposed to be coming into play because, as a world class city, the west side is attracting a new reality - a buyer for whom money isn't an option.

So if this influx of foreign money is creating a new paradigm of values, what gives with September's stunning lack of sales?

Are we now to believe that someone laying down $4 million for a house will really be dissuade from buying over the next 18 months because they really care about a few hundred thousand more in tax?

Is foreign money really establishing a new paradigm in Vancouver, or (as Garth Turner has suggested) is the new paradigm of foreign money on the west side nothing more than realtor-created, media-infused, jingoistic marketing crap?

Rationalizations for last month's results abound. Curiously no one locally, except the blogosphere, is suggesting the bubble may be ready to pop.

Speaking of realtor-created, media-infused, jingoistic marketing crap, take a look at this realtor's site for an example of the hype which reinforces the notion that the Vancouver market is being driven by wealthy Chinese buying up real estate here.

Some of the content is re-printed below:

  • Continually ranked and voted as the “Most Livable City in the World,” Vancouver, BC is still relatively inexpensive compared to other top global cities.

    Vancouver has seen a decade of real estate price appreciation and new developments. The price of multi-million dollar estates, state-of-the-art Downtown Luxury Penthouses, and Waterfront Dream Homes have risen dramatically in the past 10 years. Some people call it a real estate bubble; I like to call it sustainable demand for arguably the best city in the world.

    The Chinese influence on Vancouver real estate has been a huge factor in the substantial home values increases since the turn of the new millennium. However, in the past 6-8 months the number of Chinese home buyers coming from mainland China and Hong Kong has intensified and boosted some home prices by up to 50% in the past 2 years, with their focus being on Richmond, Vancouver’s West Side, and now West Vancouver.

    Vancouver West Side is a very prestigious part of Vancouver with excellent schools and safe neighborhoods. It has also been the hottest Real Estate in Vancouver over the past several years, driven by offshore Chinese buyers and investors. Since August 2009, Chinese Real Estate Companies have been arranging tours of Chinese Buyers coming to Vancouver for a few days that often resulted in them buying multiple properties with cash offers. The average detached home price in Vancouver’s West Side is $1,698,925, up 46% from the January 2009 figure of $1,165,007. There have been many cases of homes in communities such as Point Grey, Kitsilano, Dunbar, and Shaughnessy listing and selling within days for $300,000 or 25% over asking price in some multiple offer scenarios.

    Chinese buyer interest in the Vancouver real estate market will continue to be driven by Canada and British Columbia’s strong benefits. Investors know that Canada’s stable banking system makes a US type over-lending disaster improbable. British Columbia’s rich natural resources are creating wealth and securing long-term interest in BC. Our safe and desirable multi-cultural lifestyle, superb educational system from Elementary to University and the fresh mild climate make Vancouver one of the most sought after and highly demanded global cities worldwide.
Asian savious aside, the fact remains, there were zero (0) sales of new, detached homes on the west side of Vancouver in the month of September.

There is more happening here than just the HST.

Lower Mainland September Statistics

Fellow blogger fish has posted stats for September over on his blog Vancouver RE and then some.

Of note, in Greater Vancouver sales rank as the third lowest in the month of September over the last 10 years. Months of inventory sits at 7.2.

In the Fraser Valley this is the third month in a row based where lower sales have combined with a higher influx of new listings. Months of inventory sits at 8.7.

In Victoria months of inventory has climbed to 10.8.

And on the Sushine Coast, months of inventory is a stunning 17.5.

Of course prices have not begun to fall yet.  With rising inventory, how long before the Real Estate industry starts to beat the drums that this is a 'buyers market' and that you need to support the market by buying now.

But if prices are still well above what local incomes can support, what can entry level buyers do?

Hmmm... perhaps it's time for yet another example of realtor-created, media-infused, jingoistic marketing crap.


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  1. Have been dropping in and reading every day or so W. Always enjoy your posts. ...

  2. That realtor's "Chinese buyer" hype is straight boilerplate text that we could read anywhere. They trot out all the same tired arguements we've read a hundred times before.

  3. Economy on the Edge of a Nervous Breakdown

    To be clear, this chain of events has not unfolded — yet. But there’s mounting evidence that it could, that the fabric of China’s investment-led growth is starting to fray and unravel. In Shanghai, primary market property sales for Sept. 1-18 were down more than 50% year-on-year (contrasted with the all-time high inventories I mentioned earlier).

    and this

    “We have become a BMW town!” wrote one shocked villager on a local internet forum. “In our county, there are now 800 BMWs and 600 Mercedes, 500 Audis, 50 Porsches, 30 Jaguars, one Ferrari, one Lamborghini and one Maserati,” he added.

    A forest of cranes had also sprung up around the village, constructing large apartment blocks which advertised themselves with pictures of English butlers and sumptuous, chandelier–lit dining rooms.

    Then suddenly, in early September, the whole thing came crashing to the ground:

    But there was little demand in the end for the huge apartment blocks, which today stand empty and half–finished. And when the borrowers started defaulting on King Claw’s loans, the pyramid collapsed. Around 1,700 villagers have complained to the police, some having lost their entire life savings. Two villagers were killed in a mysterious car crash after trying to reclaim their money from one of the loan sharks.

    butlers? This is going to be ugly............

  4. "Squamish developer Douglas Day" this guy is deluding himself if he thinks removal of the HST will save his business. He would be finished either way. I mean, who is buying that type of luxury housing in Squamish now? No one.