Scotiabank joins growing list of those issuing Real Estate bubble warnings

Well another day and it seems another senior mainstream finance wizard is shouting out warnings of impending doom in the overblown real estate market in our country.

Did all the bear bloggers somehow get outed as bank economists this month?

The latest is Scotiabank CEO Brian Porter who says the Toronto and Vancouver housing markets will have to correct at some point.

"Trees don't grow to the sky and markets will correct at some stage here,'' Porter told analysts Tuesday.

This comes on the heels of Bank of Montreal’s chief economist, Douglas Porter, stating,"Let’s drop the pretense. The Toronto housing market — and the many cities surrounding it — are in a housing bubble” and Sun Life’s Chief Investment Officer Sadiq Adatia who said,"eventually we are going to see this market kind of stop and then come off a cliff, the longer we stay in this run-up, the bigger the downturn is going to be.”

You really can't get much more specific that this for advice on where things are going.

Of course, if you want confirmation that everything's okay and you should 'buy, buy, buy' we turn to the real estate industry and Mark Renzoni, president of global commercial real estate giant CBRE.

Renzoni had just wrapped up a speech at the CBRE's annual Canadian Market Outlook attended by about 1,400 brokers, developers and landlords at the Toronto Convention Centre. Afterwards he gave an interview to the Toronto Star in which he did his Renzoni best Alfred E. Neuman impression and advised us:

Bubble. What bubble? 

Toronto's soaring home prices are in line with the reality of other world cities such as New York, Hong Kong and London, says Mark Renzoni, president of global commercial real estate giant CBRE .

"The market is fairly balanced. It's not being driven by foreign capital. It's being driven by Canadians, moving up, buying for the first time," he told the Star, following a speech at CBRE's annual market forecast event. 

"There's great jobs, there's a sense of optimism, there's confidence in the job market and interest rates are low," said Renzoni, who suggested that concerns about foreign speculation in the Toronto housing market are overblown.

So there you have it. And c'mon... let's face it. Those banking types, they're all closet wearing, tin foil hat sportin' doomers. Right?

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A little more about that 'supply' argument...

As you will recall, in our last post we shared with you the above meme which we found in our in-box.

While it strikes a chord with your faithful scribes here at the Rainforest Roundtable, we do note a slight error in it.  The census data show 26K vacant housing units in Vancouver, not 26% of all housing.

But still... 26,000 is a lot.

The data comes from the 2016 Census which tells us that Vancouver saw a 15% increase in empty and non-resident units.

A "non resident" home is defined as either empty or occupied by a foreign or temporary resident. But most often, the units are empty. Of all the homes in the region that fall into the category, 87% are unoccupied, according to an Urban Futures report.

What agitates the locals is that a large part of the empty-home problem is speculative buying. Particularly speculative buying from foreign money - primarily Chinese money.

In Vancouver's downtown, the Coal Harbour neighbourhood is 22.2% empty or non-resident occupied, and the census tract east of it is 18.2%.

But other, less obvious Vancouver neighbourhoods also show signs of emptiness. Here is a chart showing the impact:

We have been bombarded in the last year with two major themes: the need to increase supply and increasing zoning density - particularly along transit routes.

Now if you know the Village on the Edge of the Rainforest, you are aware of Cambie Street.  Running north/south down the west side of the city, it is a very upper end part of the city.  Vancouver's latest subway, the Canada Line, was constructed underneath Cambie Street and links the Vancouver Airport with the downtown core.

Let's take a look at the south end of that area on this map, it is circled in blue here:

You will note that it has one of the highest percentage of unoccupied areas in the city, particularly the southernmost end.

Drive down Cambie Street today and you will notice oodles of for sale signs as sellers attempt to entice buyers looking to assemble parcels of land. Selling for $3-4 million per house, this is not a cheap prospect.  But once assembled, and rezoned, the financial jackpot is well worth the investment of buying up a block of houses.

Driving this, of course, is the off shore marketing of these properties to foreign speculative money (more on that in a future post).

And nothing epitomizes this speculative frenzy like the deepest red section at the bottom of the map:

This chunk of area is home to the Marine Gateway project constructed around the first Vancouver Canada Line Station as you enter coming from Richmond.  Marine Gateway was highly touted as a showcase solution to Vancouver's housing affordability crisis. Lower end units sold in the $350,000 range and were highly marketed as the new, urban solution for young buyers centred around the transit density development bandwagon.

Problem is that the 2016 Census shows that the Marine Gateway neighbourhood has a 24% non-resident rate (as does Joyce-Collingwood, another subway based urban-oriented transit hub). More significantly there are 609 empty or non-resident units in Marine Gateway Station development.

As noted in the Globe and Mail newspaper,

For many, empty or under-used homes are tangible proof of the commodification, or financialization, of housing. There are those who will argue that an increased supply is necessary to subdue the market, to remove the pressure of scarcity. However, housing markets in what Mr. Yan calls "hedge cities," such as Vancouver, are fuelled by an unprecedented wealth coming from outside. Without addressing the speculative nature of the market, how much effect will supply have?

Marine Gateway stands as a monument to... and proof that... creating extra supply will have no effect at all in dealing with scarcity.

Simply looking at the contrast pictures of downtown Vancouver at the top of this post is visual proof that increasing supply did nothing to resolve affordability by addressing scarcity.

The reality is that the 'supply' argument is a political wedge to leverage municipal politicians into rezoning neighbourhoods so developers can destroy single family homes in favour of condo stock to fuel and profit from the foreign speculative demand.

People are fed up with the pandering currently going on to an industry that only serves to destroy our community. The 'supply' argument is a red herring.  Following the money proves this point.

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About that 'Supply' Argument...

About the Development Community's 'Supply' argument that is bombarding Vancouver real estate news this past week... the meme says it all.

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Vancouver Real Estate Housing Bubble Daily Review Videos

Just in case you haven't seen them yet, this Youtuber posts daily videos offering a quick review of news and items from Twitter. Range from 3-7 mins and seems like a neat summary of the news. You can find him on Twitter @VanRE_Week_Rev

Above is video for February 22 and below are February 23rd and 24th.

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Two significant Vancouver court cases regarding Chinese money in Vancouver Real Estate

In case you missed them, there were two interesting articles written today by Ian Young, Vancouver correspondent for the South China Morning Post.

The first, in his "The Hongcouver" column (they say only Nixon could go to China... and only an Asian could get away with that title in today's PC world), headlines "A Vancouver firm offers clients 'new identities'. It's customers have included Chinese criminals"

It's news sure to add to Vancouver's reputation as a centre for laundering illegal money through our bubblicious Real Estate market.

Apparently a Vancouver firm, Amicus International Consulting, will provide clients “new legal identities” via new citizenships, passports and "plausible cover stories?"

One of Amicus' customers, which Young profiles, is Kuang Wan Fang. Writes Young:

Kuang’s husband, Xu Chaofan, and Yu’s husband, Xu Guojun, were involved in a massive scam to defraud their employer, the Bank of China, that lasted from 1991 until their arrest in the US in 2004. Together with a third BOC manager, they made off with at least US$485 million. They fled to the US via Vancouver, acquired US citizenship and laundered their cash through Canadian and Hong Kong banks, Macau and Las Vegas casinos, and the Vancouver and Toronto property markets. 

According to the US indictment that would lead to all being convicted, the fraudsters used the stolen cash to buy at least three Richmond mansions, on Udy Road and Mang Road, that are now valued at about C$9.5 million. 

According to Amicus, it helped get Kuang and Yu transferred into Spanish custody on September 23 and September 11, 2011, respectively; the US Federal Bureau of Prisons confirms that they did indeed leave US custody on those dates, although their destination is not listed. 

Kuang’s movements between 2011 and 2015 are unclear. In the meantime, the BC Supreme Court ruled on April 16, 2015, that Kuang should repay BOC the entire stolen sum, now valued at C$670 million, which the RCMP said had been hidden and dispersed among 14 relatives, many living in the Vancouver area, according to The Province newspaper’s account of the case.

$670 million? One assumes more than a couple of $5 million + homes on Vancouver's west side were acquired with that tidy sum.

Giggidy.

Young follows that up with a second article, "In landmark ruling, Vancouver homebuyer is ordered to repay millions to China’s Citic Bank" in which we are told about Chinese mainlander Yan Shibiao.

It seems China’s Citic Bank has won a landmark judgment in a Canadian court against Yan Shibiao and has ordered him to repay the bank RMB50 million (US$7.3 million), plus interest, that the bank says was spent in part on real estate in Vancouver.

The fact that a mainland Chinese bank has won a judgement in a Canadian court is causing a massive stir on local Chinese online internet chat boards.

China has been working with Canada for years to finalise a deal on the return of ill-gotten assets seized from those suspected of economic crimes. The agreement was originally announced in July 2013 and has not yet been ratified.

But this case marks a turning point. It's rare for Chinese banks to use Canadian courts to pursue those who have left the country and it sends a chilling message to Chinese nationals in Canada on visitor's visa's (which was Yan's situation).

Vancouver lawyer Christine Duhaime, an anti-money-laundering expert who represents Citic and originally petitioned the BC court on the bank’s behalf last year, said the case “shows China and their banks that [Canadian asset] recovery is possible in the civil context”.

“There are so many more cases with similar facts of foreign nationals from China who owe vast amounts of debt in unpaid loans that are parked in other countries, that I suspect the floodgates will open to pursuing recovery of those debts. Much of that money is in Canada,” said Duhaime in an interview.

We wonder what west side realtor Tom Gradecak's thoughts might be on these developments?

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Asian Cash Losing Its Cachet? A Vancouver Realtor offers comfort to Reuters American readers

On a day when all the local attention is focused on the release of the BC Provincial Budget, let's turn our attention to a small news item that probably slipped under your radar today.

NASDAQ.com posted an article by Reuters news service titled "Chinese investors find their cash is losing its cachet".

Apparently China's tightening capital controls are beginning to be felt in North America as Chinese firms struggle to close deals owing to lack of FX. As a result,  overseas direct investment is dropping sharply.  North American sellers want Chinese buyers to provide proof of funds and such deal scrutiny is hurting investor confidence.

According to Reuters:

"Chinese investors have been highly sought after the world over. Now, their cash is losing its cachet. China's increasing efforts to prevent capital from leaving the country are eroding the confidence of domestic and foreign investors about getting deals done inside and outside of the world's second-biggest economy. Chinese bidders had become ubiquitous in deals in the past two years and were welcomed, said Severin Brizay, head of Europe, the Middle East and Africa mergers and acquisitions for the investment bank UBS. 'Clients were asking if it would be possible to make sure they are involved. Now, we are seeing the reverse: some clients are asking if we can do it without Chinese bidders because of the domestic challenges they face,' he said.

Those at the heart of brokering investment deals with Chinese investors say that many Chinese firms are unable to close deals because they can not secure official permission to transfer yuan into foreign exchange.

This, of course, follows a series of capital control measures China implemented late last year to tighten restrictions on capital outflows and rein in what officials have called "irrational" outbound investment.

The Institute of International Finance estimated capital outflows surged to a record $725 billion last year and it expects even higher outflows this year. The yuan fell more than 6.5% last year against the US dollar, its steepest decline since 1994, prompting the central bank to spend hundreds of billions of dollars in reserves to prevent the slide from turning into a slump.

The most interesting of the facts presented are that Overseas Direct Investment (ODI) by Chinese in December fell almost 40% from a year earlier to $8.41 billion, the lowest monthly level in 2016.

In January, overseas property purchases by Chinese corporations plunged. In one case, a Chinese investor was unable to get permission from authorities to exchange yuan into $30 million to close a U.S. deal, a consultant involved in the project said. The planned $100 million investment in a U.S. residential property portfolio fell through.

"Sellers nowadays will request certain proof," said Jeffrey Sun, a Shanghai-based partner at the legal practice of Orrick, Herrington and Sutcliffe. "From the sellers' side, the worry is justified."

Reuters goes on to outline how fund managers that help Chinese investment abroad are "freaking out" and are searching for creative ways to circumvent capital control regulations.

But perhaps the best part of the article is the ending, which turns to the Village on the Edge of the Rainforest for reassurance and I'm sure will warm the hearts of all local real estate agents... and infuriate many frustrated with government complacency:

"Chinese conglomerate HNA Group announced about $20 billion in outbound deals last year. Thomson Reuters data shows it raised at least $17.05 billion in loans abroad in 2016. Overall, China's outbound investment hit a record last year but could have been much higher, said the Rhodium Group, a consultancy that tracks direct investment from China. It said a record 30 deals worth $74 billion and involving Chinese companies were cancelled in the United States and Europe in 2016.

"Right now everybody is thoroughly freaked out by capital controls," Daniel Rosen, a Rhodium partner and adjunct professor at Columbia University, said. Still, on Vancouver's upscale West Side, a neighborhood popular with foreign buyers where the price of homes runs in the millions of dollars, realtor Tom Gradecak was less worried about Chinese demand. In the past, Chinese investors have tended to find ways around capital controls, he said. "It won't take them long," he said. "The people that really want to come here, I don't think it's going to stop them."

Of course Gradecak would say that. Krusty just gutted the Foreign Buyers Tax to help make that happen, didn't she?

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So how come we haven't heard much about the Chinese New Year home buying spree this year?

So it's mid February and usually the real estate cartel is barfing out stories about how Chinese have come over to our shores on home buying trips for their kids.

It's become an annual tradition to hear this crap.  Here's just a couple of twitter posts from 2015/2014 to illustrate (click image to enlarge):

And with Premier Krusty gutting the Foreign Buyers Tax at the end of January (presumably it's news of this glorious move that's in those little red envelopes above), expectations soared that Cam Good's yellow helicopter might once again fly over the Lower Mainland.

In fact the Real Estate TV Network (RETV)... err... Global BC announced the wet coast's annual heralds of spring just three weeks ago...

Said Global BC:

"Vancouver’s slow-churning real estate market might see a slight uptick next week due to an influx of Chinese New Year vacationers. 

The Chinese national holiday – celebrated widely in Vancouver and around the globe – begins Friday night with a week-long holiday. Many take the time off as an opportunity to travel abroad. Last year, six million Chinese left the country for vacation.

Juwai.com, a China-based website for international real estate, says a quarter of Chinese consumers surveyed plan to travel internationally during Chinese New Year, with 42 per cent of those saying they plan to shop for property while away. In total, just under 11 per cent of all people surveyed said they’ll spend the holiday property hunting. 

The website also surveyed 163 realtors in Canada and found 17 per cent of international agents and 16 per cent of Canadian agents had been contacted by buyers who plan to visit during Chinese New Year. 

“We also see Vancouver getting a steady stream of Chinese visitors seeking a ‘lung cleansing’ holiday,” Charles Pittar, CEO of Juwai.com, said. “Canada is a top-five country for these trips. Other top lung-cleansing spots are Japan, Thailand, Australia and Switzerland. One-half billion Chinese were affected by hazardous smog this winter. They come to Vancouver for clean air, among other things.”

So how has the 'lung cleansing' gone so far this year?

Not that we have heard it on RETV Global BC, but reports are that Chinese New Year Sales of Vancouver Real Estate Are Down 78%.

Now besides debilitating Cam Good, an 80% drop in sales is nothing short of devestating. But the  drop in single family home sales - the bread and butter of the foreign Asian market - is even more spectacular. As the above article notes, "Sales of detached homes had the largest drop during this Chinese New Year vs the years prior. Just 119 sales were logged this year, an 87.28% decline from last year."

Yikes. And it's not just the detached market. Chinese New Year Condo sales are reported to be down 72% and townhouse sales down 78%.

Rumour amongst some agents is that pressure is being applied to the BC Liberals to cut what remains of the Foreign Buyers Tax, currently sitting at 15%, to something much lower.

We will see what happens next.

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Wed Post #2: The Vinyl Cafe is closed. RIP Stuart McLean

If you ever browse the radio dial and have come across the CBC, you have invariably heard Stuart McLean and the Vinyl Cafe.

The Vinyl Cafe is an hour-long radio variety show hosted by Stuart that is broadcast on the Canadian Broadcasting Corporation's radio service and is syndicated to approximately 80 U.S. public radio stations through Public Radio International. The program is also available as a podcast, although the podcasts are usually just McLean's stories for studio episodes because of copyright restrictions on recorded music. CBC Radio also currently airs a weekday afternoon program, under the title Vinyl Cafe Stories, which consists of two previously recorded Dave and Morley stories per episode.

The show features essays, fiction and music; while frequently humorous, the weekly programs are also often wistfully nostalgic. The live episodes often begin with Stuart reciting a complimentary description of the venue's community about its character and history. The show also endeavours to introduce listeners to new Canadian musical talent, through playing recordings in studio episodes and performances in the live audience ones.

A major feature of many of McLean's shows are the "Dave and Morley Stories", which feature a fictional Toronto family. The name "Vinyl Cafe" refers both to the show's musical content and the fictional record shop owned by McLean's character Dave. This aspect of the show is priceless and if you ever get a chance to listen to "Christmas At The Turlington's", you'll never let a Christmas season pass without it being part of your holiday ritual.

The Vinyl Cafe stopped touring and producing new episodes following McLean's diagnosis with melanoma in November 2015. On December 13, 2016 McLean announced he required a second round of treatment, meaning further delay in producing new episodes, and that repeats of past shows would stop airing on CBC Radio One effective January 2017 to "make room for others to share their work on the radio."

Moments ago CBC announced that Stuart McLean has passed away. A truly iconic voice of Canadiana has been silenced and will be missed.

RIP Stuart. You brought joy, humour and the occasional life reflection to the airways.  Thank you.

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Wed Post #1: Is Horgan as incompetent as Adrian Dix?

A few years back we criticized the BCNDP: before the election for choosing a Dix - a candidate the electorate would have difficulty voting for; and after the election for choosing Horgan - a candidate who we've suggested wasn't the right person for the job if the BCNDP wants to form the next government.

We see little today to alter that impression.

As you will recall our current Premier, Krusty, adeptly remade the BC Liberals after the resignation of Gordon Campbell and leveraged the built in weaknesses that Dix brought to the table as the BCNDP candidate in the last election (his inherent ties to the corrupt Glen Clark government) and swept to a victory almost no one saw coming on election night. A victory on par for shock value that Donald Trump recently executed over Hillary Clinton.

Four years later, Krusty had seemly failed to heed the lessons of the Gordon Campbell implosion and - until last summer - looked destined for a loss in the upcoming May Provincial elections.

In early 2016 the BC Liberals were being hammered by the BCNDP's David Eby.

Eby is a relative newcomer and a bit of a rising star. He first shot to prominence when he was elected the BCNDP MLA for Vancouver-Point Grey in the 2013 provincial election shocker. In an upset victory for the ages, victory was tempered for Krusty by the fact Eby actually defeated her in Clark's own affluent west side Vancouver riding by 1,063 votes.

Krusty was forced to get into the house through an Okanagan by-election months later.

Since then, as housing critic, Eby has masterfully leveraged the havoc that massive worldwide excess credit is wreaking on the Lower Mainland.

This is no small accomplishment considering it's the policies of the Bank of Canada, CMHC and federal government that are to blame, not the BC Provincial Government.

But inaction by Krusty to do what she could to mitigate the damage was creating a rising tide of public resentment. Eby acurrately painted the BC Liberals as being in bed with their Real Estate Development cronies and tied that connection into exacerbating the Vancouver situation.

It struck a chord with the public and Eby was making massive inroads into the BC Libs political support.

Some even wondered if Eby's performance was Leader worthy.

Krusty responded - big time. In a move that astonished even this humble scribe, the BC Liberals imposed a 15% Foreign Buyers tax. Krusty read the mood of the people and moved with lightening speed to enact a significant policy change.

It was roundly cheered by many - both as significant and potentially effective.

By mid September, 2016 the BC Liberals were able to ride the benefits of both a runaway housing market and their attempts to contain it. They announced that, "the B.C. government had raked in $2.2 billion in revenue from the property transfer tax and the new 15-per-cent tax on foreign buyers of Metro Vancouver homes."

That’s a billion dollars more than the government had projected.

As the National Post noted, "That enormous windfall caused Liberal MLAs to break out into a spontaneous conga line through the legislature. Finance Minister Mike de Jong was forecasting a surplus of $1.94 billion, up from an earlier projection of $264 million. He then announced that $500 million from the property tax would fund a housing affordability program and another $400 million would go into the B.C. prosperity fund “as a legacy for future generations,” he said. And this, for the cherry on top: The surplus allowed the government to scrap a planned four-per-cent increase in medical service plan premiums. It wasn’t as tasty a treat as an announcement to revamp or scrap the loathsome MSP entirely would have been. But it did make the medicine go down more easily."

Krusty had neutered the BCNDP criticisms and turned the tide heading into the May 2017 Provincial election.

But in the last three weeks there has been an astonishing about face in the BC Liberal position. Faced with a total collapse in real estate sales (luxury sales down 91% and Vancouver home sales plunged 40%) Krusty has been under enormous pressure to undo the steps she took last September.

Finally she cracked, backtracked and bowed to the pressures of the Real Estate Developers - to the major donors to BC Lib political coffers.

So where is David Eby as this happens? He has been all but invisible.

And now as Toronto housing market starts replicating the excesses seen in Vancouver, the Bank of Montreal publicly declares that Toronto's housing market in a bubble.

And what is a bubble as per BMO economist Douglas Porter?;

“It’s when prices become dangerously detached from economic fundamentals and start rising strongly simply because people believe they will keep rising strongly, encouraging more buying."

That's a definition that describes Vancouver to a tee.

So here you have Canada's major banks finally calling the situation for what it is. And in the midst of it all, Krusty and the BC Liberals are throwing gasoline on a raging fire by gutting the 15% Foreign Buyers tax and introducing the new 'first time homebuyers' giveaway. And it appears to be directly linked to threats by BC Real Estate Developers to yank political donations.

Why isn't David Eby front and center holding the BC Liberal's feet to the fire over this?

You have to wonder if there is a backstory within the BCNDP here.

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The gutting of the Foreign Buyer's Tax - might it be Krusty's Achilles Heel?

In our last post we outlined how the our intrepid Premier, Krusty Clark, and the BC Liberals appear to had bowed to pressure from the Real Estate Development community and gutted the 15% Foreign Buyers tax implemented last summer.

Muckraker extraordinaire Bob Mackin advises sources tell him bigwig Developers threatened to withhold huge political donations to the BC Liberals unless they guttered that tax.

Krusty and Co. caved and not only undid the immensely popular move that addressed an out of control real estate market, but they also threw short term fuel on the housing bonfire by introducing a first time home buyers plan that gives young kids the necessary downpayment to get into the housing market. The introduction of this latest moral hazard into the housing mix is just the panacea the condo developers needed to boost a sagging real estate market in clear correction mode.

Combined with the gutting of the 15% Foreign Buyers tax, it will be interesting to see the results at the end of the month.

Just how significantly are the FB tax changes

Another growing name in muckraking media hall of fame is Ian Young, who writes for the South China Morning Post.  In a regular column titled "the Hongcouver" (a title which would have gotten any caucasian crucified by the PC crowd), Young outlines Vancouver’s foreign buyer tax and the work-permit loophole ‘you could drive Highway 99 through’

Young outlines how the rationale for the BC Liberal governments plan to offer exemptions to the tax is sound "assuming that the goal of the tax is to improve affordability by preventing foreign capital further skewing a market that had become detached from local incomes (and is not, say, a pre-election political tactic)."

The theory is that people who live and earn locally should not be unfairly punished.

But when you look at the changes, even the simple minded can see the real intentions of the changes.  As Young writes, "offering foreign-buyer-tax exemptions to work permit holders was a 'Swiss cheese' proposal. “The term ‘work permit’ is too vague to implement the intention (as) foreign-funded buyers pursue permits primarily to escape the tax. There’s a risk that new grads, backed by foreign funds and/or acting as proxies, will dive in."

With less than 100 days to the Provincial election, the BC Liberals are in full campaign mode.  Desperate to preserve political donations, they pragmatically axed the popular move they made last summer by responding to overwhelming public demand to deal with the massive amount of cash (created by the unprecedented excess credit being created in China) sloshing around the world.

But in doing so, the BC Liberals may have created a weakness in their election machine which the politically adept should be exploiting like they were the rebel alliance attacking the Death Star.

The link between the changes and Real Estate Development slush fund money slaps you in the face.  Public anger has not abated from the damaging effects all this malinvestment is having on our communities.

The only saving grace for the BC Liberals may be the inept BCNDP and the mainstream media.

Rather than fully focus on the link, the spotlight has been on a pointless harangue about false allegations of BCNDP computer hacking by the BC Liberals.

No one cares.

And in the process the real scandal that should inflame the voting public is being shoved to the back pages.

It is exactly these types of scandals which ultimately brought down the BC Socreds and Bill Vander Zalm, Glen Clark's NDP, and lead to the resignation of Gordon Campbell.

But BCNDP political ineptitude appears to reign supreme. Horgan has failed to capitalize.

The Vancouver Sun is showing signs of following up, but Krusty is deftly promoting the entry level buyer angle and is successfully throwing up teflon on the silly computer hacking story.

We'd be willing to suggest that throwing the R/E Industry the 'first time homebuyers' bone would have been sufficient to address donation slippage. Gutting the Foreign Buyers Tax and the apparent linkage to massive R/E Developer political donations is their achilles heel.

Will the BCNDP exploit this explosive connection?

The gutting of the Foreign Buyers tax is THE fulcrum that could swing the 2017 election.  

So far the Opposition has failed to capitalize on it.

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Cynicism? Krusty says, "Stand aside Moonbeam and hold my beer!"

Yesterday we made note of the cynical populist political shift of our beloved Village Mayor Gregor 'Moonbeam' Robertson as he responded to the 2016 Census Data revelation that there were twice as many 'unoccupied' homes in Vancouver as the City's survey had found in mid 2016.

Said Moonbeam, “Seeing data that shows there may be even more underutilized homes than BC Hydro suggests gives us more reason to aggressively move on the empty homes tax, and other measures that will help bring homes back within reach to residents in all corners of the city."

Giggidy.

Course, such exhortations are a little hard to swallow given his mid year pronouncement that he was against any suggestion of a housing tax targeting non-residents.

But is that real cynicism? Enter the BC Liberal's shouting "hold my beer!"

In July 2016 the BC Liberal's weren't afraid to support a housing tax targeting non-residents. In a surprising move, our beloved Premier Krusty Clark boldly declared a 15% tax targeting foreign buyers and implemented it without much warning.

Now everyone and their dog in the real estate industry (except this dog, of course) was feeding the public the line that foreign buyers were such a small portion of the market that all the fuss about them was a non-issue.

We all knew it was bullshit, but you have to wonder if the BC Liberals thought the tax would be a simple vote-getter without fully appreciating the reality of the situation.

Because the tax had an immediate impact.  A massive immediate impact.

By the end of January 2017, real estate sales in the Village on the Edge of the Rainforest fell off a cliff. Luxury sales were down 91% and Vancouver home sales plunged 40%. The market was cratering.

Did we mention a provincial election is less than 100 days away?

It didn't escape the attention of muckraking reporter extraordinaire Bob Mackin. Bob put his ear to the ground and heard that wealthy developer donors were letting it be known to Krusty, Shrimp de Jong et al that political donations would dry up if they didn't address this catastrophe.

Such news was highly disconcerting to the BC Liberal accountants.

And just who are these $100K+ donors from Feb 2016 that Mackin refers to?

In a recent article, Mackin outlines how the BC real estate development community funnels massive amounts of cash to the BC Libs.

Chronicling one fund-raising extravaganza in February 2016, Makin noted:

The Feb. 26, 2016 haul was thanks primarily to eight individuals and entities that kicked-in a whopping $1.1 million:

• $200,000 x 2=$400,000: John Redekop Construction and his cousin Peter Wall’s 2300 Kingsway Residences. 

• $100,000 x 7=$700,000: Peter Redekop, Peter Wall’s PWO Investments and Wall nephew Bruno’s BJW Investment; Townline Homes owner Rick Ilich; Rossano De Cotiis’s RPMG Holdings; Berts Electric; and Seaspan ULC.

Those high rollers are no stranger to writing big cheques to the BC Liberals. Six months before the last election, some of them also injected six-figures into the BC Liberal kitty.

Peter Redekop — whose donations since 2005 now stand unofficially at $609,800 — gave $150,000 on Nov. 8, 2012. His brother John Redekop ponied up the same amount on the same day as a similar windfall from other real estate and construction concerns. 

Also contributing to the party’s Nov. 8, 2012 haul of $833,728 were: Rob Macdonald ($101,200); Intertech Construction Managers/ITC Management/ITC Services ($75,000); Townline Homes ($55,000); Holborn Developments/TA Management and Dayhu Investments ($50,000 each) and Francesco Aquilini ($23,375). The Sheraton Vancouver Wall Centre Hotel donated $4,700. 

Peter Wall and Bruno Wall each gave $150,000 on Nov. 23, 2012, when the Liberals counted another $829,780 in donations. Along with the $300,000 from the Walls came $40,000 from Hassan Khosroshawhi and $20,000 from Colin Bosa.

So it comes as no great surprise (albeit highly disappointing) that with the threat of having the taps turned off on this massive amount of cash that the BC Liberals blinked.

Thus, on Jan. 29, Krusty suddenly announced during Chinese New Year that the BC government would be amending its tax on foreigners buying property in Metro Vancouver. Clark says the levy will be lifted for "those who have a work permit and pay taxes in B.C., in order to encourage more people to come to the province."

The slight change to the Foreign Buyers tax was promoted as a minor adjustment to make the tax fairer so British Columbia can continue to attract the best and brightest to BC.

But given Mackin's revelations about the behind the scenes threats of withholding political donations as the province counts down to what could be another extremely close Provincial Election, it's hard to see the move as anything but selling out to the development community.

Next we will outline just how significantly the BC Liberals have gutted the tax.

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Mayor Moonbeam Responds To Empty Home Census Data

As outrage grows that there could be as many as 25,502 empty homes in the city, according to the 2016 Canada Census, Vancouver Mayor Gregor Robertson appears to have come out swinging to defend the denizen's of the Village on the Edge of the Rainforest.

“In a housing crisis, it’s unacceptable for so much housing to be treated as a commodity,” said Robertson in a statement. “Housing is for homes first, and as investments second.”

Umm... err...? We'll come back to that.

As you know by now, the 2016 Canada Census released data yesterday which counted 309,418 private dwellings in Vancouver in 2016 – but only 283,916 of those were occupied by usual residents. By comparison, the 2011 census counted 286,742 private dwellings in Vancouver, with only 264,573 of those occupied by usual residents – a difference of 22,169.

That's a stunning increase at a time that the real estate developers are clamouring for increased density to deal with the housing crisis (or as we call it the malinvestment in real estate as a commodity creating a 'housing bubble').

Now “occupied by usual residents” refers to a home where people live permanently. The 25,502 not included in that number were occupied by people who usually live outside Canada on the day of the census or were totally unoccupied.

Adding to the kerfuffle is the fact that last year Gregor's own staff had used BC Hydro data to conclude there are only 10,800 year-round empty homes in Vancouver.

So what did Mayor Moonbeam have to say about this, ummm, contradiction?

“Seeing data that shows there may be even more underutilized homes than BC Hydro suggests gives us more reason to aggressively move on the empty homes tax, and other measures that will help bring homes back within reach to residents in all corners of the city,” he said.

Ah yes, the empty homes tax.  Now... is this the same Mayor Robertson who, back in July 2016, took this position?

Says Robertson today, “the City won’t sit on the sidelines. Vancouver will continue to do all it can to maintain and protect affordable homes, and pursue all tools available to ensure the best use of all our housing.”

All that it can? Spoken like a true populist politician.

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Census Stats showing little or no population growth - and a massive variation in COV empty home data

So the 2016 Census data was released today and created quite the bit of commotion on Twitter this morning.

While most municipalities in the region are showing moderate population growth, certain areas are showing no growth whatsoever.  West Vancouver is the fastest shrinking city in the Lower Mainland.

West Van’s population fell 2.1 per cent in 2016. The City of North Vancouver and District of North Vancouver grew by 0.6 per cent and 0.3 per cent respectively, well below the average growth rate in Greater Vancouver, which was 1.6 per cent. 

Vancouver's west side is stagnant as is Richmond's.

Now all of this data is curious because the narrative has been that everyone is moving here and that is what is driving our housing prices through the roof. But BC doesn't crack the list of the top 3 provinces for population growth (Alberta 18%, Saskatchewan 6.3%, and Manitobia 5.8%).

More significantly Census data estimate over 25,500 unoccupied homes in Vancouver... a number DOUBLE the City of Vancouver estimate.

Look for the real estate cartel to immediately start it's media spin to defend it's push for higher density and rezoning.  We'll see if that's the big theme in the coming days.

Meanwhile, check out this humorous Craigslist post for west side Vancouver accommodation...

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Vancouver Housing Bubble Month in Review video

A few days ago we shared a new weekly video on youtube that showcases weekly news and tweets from Twitter on the Vancouver Real Estate bubble. 

They've put out a 'month review' video as well. Their handle on twitter is @VanRE_Week_Rev

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January 2017 Real Estate Stats are out, will Chinese New Year resuscitate the market?

The Real Estate Board of Greater Vancouver (REBGV) announced the January results at the end of last week and you can read their official press release here.

So, officially, home sales crashed 40% last month on a year over year and were down a dramatic 11% from what is normally one of the slowest months of the year.

Yikes.

Only 444 detached houses sold. That's an almost 60% drop from January 2016. Meanwhile new listings are up 7% and total listings are up 14%.

Normally this is where Real Estate agents rush in and say, "no worries. February is Chinese New Year... which means lots of wealthy foreign buyers."

But here's where it gets sticky. The number houses sold worth upwards of $3 million+ has plunged 79% lower. And there's a current supply of almost four years on hand based on current sales numbers. In houses valued over $5 million there’s a five-year supply. Worse, 91% of all the sales in January were for less than asking.

Whether you blame it on the BC Government's Foreign Buyers Tax or not, the reality is that the number of foreign buyer's looking for Vancouver’s luxury real estate has declined dramatically. According to the most recent numbers from B.C. Ministry of Finance, sales of homes over $3 million declined by a whopping 91% from the July peak. Only 8 luxury properties were bought by foreign buyers in November. Curiously November is the last data point that was published. The MoF seems to have skipped reporting for December which suggests it was even worse than November.

Meanwhile realtor Ross Kay advises that the Average Purchase Price of Vancouver real estate plunged a dramatic 19.2% last month and that over 84% of all homes listed for sale failed to sell. 

One of the things that drew many wealthy Foreign Chinese buyers to Vancouver was it worldwide reputation for being a housing casino with almost guaranteed gains the last few years.  Even if they wanted to catch a falling knife by buying right now, you can be sure any offers are going to be cut throat low.

High expectations are riding on the BC Provincial Government's softening stance to the Foreign Buyers Tax.

We will see next month if it's enough to turn things around.

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Thur Feb 2nd Post #2: Vancouver Housing Bubble Week In Review

From the email bag, a new weekly video on youtube that seems to showcase weekly news and tweets from Twitter on the Vancouver Real Estate bubble. Their handle on twitter is @VanRE_Week_Rev

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Thur Feb 2nd Post #1: BMO returns to offering cash back to first time home buyers

In the next day or so we will start to see the monthly real estate stats for January 2017 released. Early word is that they are ugly. Real ugly.

Part of that has to do with the brutal frankenumber HPI the industry uses. Critics have denounced the formula as a method to hide any collapse from the public... or at least hide it for a while.  Eventually any long term slide will become very evident and the chatter is that time has come.

Bearing the brunt of the blame has been the 15% Foreign Buyers tax implemented by the government of BC last September. This is now compounded by the recent capital controls announced by the People's Bank of China (PBoC).

With reports that high end developers are panicking and have threatened withholding political donations to the BC Liberal Party (crucial with an election looming in May),  the BC government had announced that starting Jan 16 a program was launched to oan first-time homebuyers some of the cash they need to afford their down payment.

The program provides a government-backed loan of up to $37,500, or five per cent, of the purchase price of a home for qualified buyers. The goal is to match part of a person's down payment to help them afford to buy their first home, as long as they already qualify for a mortgage under federal rules and the home is worth less than $750,000.

This attempt to shovel incentive money to first time buyers is being roundly denounced from all quarters nationwide.

And now we learn banks in BC are climbing back on the free money bandwagon.

Last week the Bank of Montreal (BMO) announced they are chasing first-time home buyers with a cash back mortgage promo. First-time home buyers taking out insured mortgages with terms of at least four years are eligible for $500 cash on mortgages of less than $250,000, and $1,000 on larger loans. Once the mortgage is booked, the cash is credited to the customer’s BMO chequing account.

In a statement, BMO called its new offer a “timely” companion to a new interest-free loan program British Columbia’s provincial government launched to help new buyers cobble together down payments amid soaring housing prices. The federal government recently expanded stress tests aimed at ensuring a home buyer could still afford a mortgage at higher rates, making it harder for some prospective buyers to qualify.

“While the provincial government’s offer is exclusive to B.C., our hope is to support all Canadians who come to us for this important milestone and investment,” said Michael Bonner, BMO’s senior vice-president and regional head for British Columbia and Yukon.

Of course sceptics might say it has less to do with 'supporting' Canadians and more to do with the fact that BMO has acknowledged that its residential mortgage portfolio in Canada, which totalled $103.6-billion in Canada as of Oct. 31, 2016, trails when compared with some key competitors.

Canada’s mortgage market is showing signs of slowing growth. Interest rates have risen from rock-bottom lows, consumers are heavily indebted, the federal government has introduced stricter rules on new mortgages in an effort to cool overheating prices in Toronto and Vancouver, the PBoC is implementing capital controls and the 15% Foreign Buyers tax was working far better than everyone imagined.

Now, it appears, there are massive efforts to plug the exact holes the changes were designed to create.

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Wed Feb 1st Post #2: Did you know the Housing Bubble in North America was deliberately created by the Feds?

Since we are returning, we thought we'd throw up a few posts reviewing how we got to where we are with our Canadian Housing Bubble.

With all the intense press attention on our housing bubble over the last year or so, China has become the scapegoat for all our housing woes.  And while the world is awash in Chinese money today, it's important to acknowledge the home grown roots of our problem.

And to understand that... it's crucial to recall how the CMHC was specifically instructed by the Harper Conservatives to create our housing bubble.

"Say what?", you exclaim!

It's true.  What is even more astonishing is that the United States also deliberately created their housing bubble too.

Both nation's predicaments were deliberately crafted.

After the dot com crash of 1999 and the 2001 terrorist attacks, America had a choice of entering a painful recession (which critics say was desperately needed to correct the imbalance of excessive monetary stimulus in the 1990s) or politicians could kick the can down the road and artificially inflate the economy.

Economist Paul Krugman, writing in the New York Times on August 2, 2002,  identified the problem:

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. 

This was a prewar-style recession, a morning after brought on by irrational exuberance. 

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Yes... you read that correctly. To offset a morbid economy, leading economists were recommending that the US Government and the US Federal Reserve create a housing bubble so that consumers could use that 'sense of wealth' to drive the economy with consumer spending.

The creation of a housing bubble was a deliberate economic stimulus move.

And Canada followed America's lead on this.

In America, from 2002-2008, President George W. Bush almost singlehandedly, through cheap rates, lax regulation, government housing subsidies, presidential boosterism and financial engineering, managed to get the home ownership rate to 70%.

Following the lead of Republicans in the US, the Canadian Government saw the success of this plan and began pumping the Ownership Society as well. Gifts, incentives and inducements were showered on home buyers and the result was demand swelled, prices popped and a bubble was born.

The main vehicle for these inducements was the CMHC, or the Canadian Mortgage and Housing Corporation. Founded after World War II to provide housing for returning soldiers, the CMHC's role has grown dramatically in the following 70 years.  A Crown corporation owned by the Government of Canada, it's main function today is  providing insurance for residential mortgage loans to Canadian home buyers. (Note: This insurance isn't for the Canadian who buys a home, rather it protects mortgage lenders against mortgage defaults by home buyers on mortgages with less than 20% down)

Here's how CMHC and mortgages in Canada evolved in the 2000s:

• Prior to 1999 you needed 10% for a mortgage and that mortgage had a maximum amortization of 25 years.  CMHC also had limits on how much you could buy with their insurance.
• Just after 1999 CMHC lowered the down payment to 5% with price limits on how much they would insure depending on the area. Amortizations were still 25 years. There would be no price limit on what they would insure if 10% or more was put down.
• By Sept. 2003 CMHC allowed 5% down on 25 yr amortizations but they removed all price ceiling limitations. Now any mortgage would be insured regardless of the value of home purchased. 
• In March 2004 CMHC began allowing Flex-Down products which permitted the 5% down to be borrowed and 1.5% closing costs to be borrowed (essentially zero down, but 95% insured).
• In March 2006 you had  0% down, 30 yr amortizations. This became 0% down, 35 yr amortizations later in the year.  Interest only payments were allowed for 10 years.
• In November 2006 CMHC began allowing 0% down, 40 yr amortizations along with interest only payments for 10 years. 
• Canadian banks ramped this up by allowing up to 7% cash back offers is you would take on a mortgage with them.  You could basically get paid if you bought a house.
• Not only were the rules surrounding the granting of money loosened, but CMHC's cap for granting mortgages grew from $100 Billion in 2006 to almost $600 Billion by 2014.

Right there, in all those details, is where all the money originated to fund our housing bubble.

Conservative Prime Minister Stephen Harper's government altered mortgage and tax rules to the point we had the zero down, forty year mortgage. They allowed Canadians to raid RRSP's for down payments. They created the Home Reno Tax Credit. They gave us the first-time buyer's closing cost gift and they instituted the infamous 'emergency interest rate' which has kept interest rates artificially low since 2009 - an astonishing 8 years! 

Harper's Conservatives gave us more pro-real estate initiatives than Canadians had seen in the last quarter-century.

But wait... there's more!

The most astonishing element, in addition to of all this, was something that has been effectively buried. Something that, now that the mainstream Canadian media have finally turned their attention to the chaos being created by all this malinvestment in Real Estate, are completely unaware of.

Back in 2009 we profiled series of excellent articles put out by Murray Dobbin. One of them, Dobbin's 2009 article titled 'Why Canada's Housing Bubble Will Burst', garnered significant interest in the blogosphere. In that article he stated:

• In an effort to prop up the real estate market in 2008 (when affordability nosedived), the Harper government directed the CMHC to approve as many high-risk borrowers as possible and to keep credit flowing. CMHC described these risky loans as "high ratio homeowner units approved to address less-served markets and/or to serve specific government priorities." The approval rate for these risky loans went from 33 per cent in 2007 to 42 per cent in 2008. By mid-2007, average equity as a share of home value was down to six per cent -- from 48 per cent in 2003. At the peak of the U.S. housing bubble, just before it burst, house prices were five times the average American income; in Canada today that ratio is 7.4:1 -- almost 50 per cent higher.

That's a stunning statement. He's saying the Harper Government specifically directed the CMHC to approve risky loans in an attempt to keep the economy afloat and blow the Housing Bubble even bigger.

Shortly after the article was written, this blog contacted Dobbin and asked him about the source for this comment.

Dobbin stated he got the reference from a CMHC report which was freely available on the CMHC website.  

Your dutiful scribes from this blog checked out the document and read it personally.  Unfortunately we did not download a copy (and if anyone out there did, we would love to know).

Dobbin's statement was confirmed, CMHC stated in that document that they had been directed by the government to approve as many high-risk borrowers as possible.

A few months later, when a curious reader asked us about the source for this quote, we went to the CMHC site to forward the link to the report.  It was then we noticed the report had been removed.   When we asked Dobbin about it, he also noted (with surprise) that the report was gone from the CMHC website.  Dobbin also had failed to download a copy.

Dobbin columns had obviously struck a nerve and CMHC were directed to remove the document from their website.

Curiously Wikipedia incorporated Dobbin's information into it's database about the CMHC.

Don't bother to look for it now, tho. Curiously, when we went to reference the site for our original post on this several years ago we discovered that the Wiki CMHC page had undergone a significant sanitization.

Gone was the notation about CMHC being directed by the Conservative Government to change policy to approve more high risk borrowers.  Also removed were all the statistics about the ballooning level of CMHC backed mortgages.

In it's place are bland descriptions of CMHC functions. 

At the top of the page is this warning bar (click on image to enlarge):

If anyone is interested what the Wiki page used to say, you can still find it at a website called 'the full wiki'. It contains the old information that the Wiki page used to hold. 

In Slide #7 it states: "In 2008, Canadian home prices started to dip as affordability become the worst on record in many cities. CMHC publicly admitted that it was ordered to approve as many high risk borrowers as possible to prop up the housing marked and keep credit flowing."

That is a stunning acknowledgement.

When the American housing bubble popped in 2008, the Conservatives bet heavily they could shield our boom from the 2008 financial crisis. What they did to add fuel to a powder keg which has now grown insanely large as other Central Banks (US Fed and Peoples Bank of China) have flooded the world with Quantitative Easing and excess credit.

But make no mistake. The foundation of this massive bubble started at home - with the manipulation of CMHC policies.

(Below are the screen shots of the original Wiki site on CMHC before it was sanitized)

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