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episode # 272

British Columbia’s Hottest Real Estate Markets in 60 minutes or Less with Fifth Avenue’s Scott Brown

Do you want a birds-eye view of British Columbia’s various real estate ‘hot spots’ but only have an hour or less? Are you a fan of loaded questions? In either case, we have you covered! CEO & President of Fifth Avenue Real Estate Marketing, Scott Brown, sits down with Adam and Matt for a wide-reaching conversation about real estate in British Columbia during these strange times. Pop in and out of markets as varied as Vancouver and Surrey to Kelowna, Kamloops & Penticton to Vancouver Island. This conversation is chock full of insight across a varied landscape. Strap in – this is a trip you do not want to miss!

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Episode Summary


 

Please tell us about yourself.

I just turned 55 and I’m in my 33rd year in this business. I’ve been involved with Fifth Avenue for 8 years and we have a great team. We were owned by a husband and wife team for many years and they are now advisors. An Ontario company invested in Fifth when we wanted to grow. 

In BC, we’re taking what I like to call a craft beer approach to real estate marketing because each market is so unique. Fifth is focused on suburban, affordable and mid-market housing. Our Kelowna business, Epic, has tripled in size in recent years, running everything from Penticton to Vernon. We’re also doing something on the island and, with our partner Baker, we’ve created a new firm to cover downtown and Vancouver called Baker West. 

What in the world is going on in British Columbia real estate? 

A year ago we said that covid-19 is not going away and we were right about that. We’ve had to adapt and continue to adapt. Consumers now expect much more information and that’s not going to change. They still want our sales centres but they also want everything online. The demand in the spring was led by end-users and they’re still active across BC, but the investors have come back. 

New and resale are both hot, and a lot of that is driven by end-use. Prices have remained fairly stable except in the last 100 days or so. Townhouses went up first and now condos are on the way up. 

What led to the craziness in the market in the last couple of months?

Supply is still an issue. We’re not keeping up with the amount of housing required. And it’s funny how little supply is talked about. Low interest rates are another factor. Housing is driven by finances. We’re also in the early stages of a significant transfer of wealth from one generation to the next – parents are wanting to help their children get into the market. People who can afford it are also buying second homes they plan to move into permanently in the future.

No one is talking about foreign buyers anymore. All of this is happening without the foreign buyer. Foreign buyers were accused of causing all of the issues we saw in 2017 which caused all of the government interventions we saw in 2018. 

So we have genuine housing demand that is unmet by supply, buying conditions that allow people to buy, people with changing housing needs, and a waiting immigration wave that will build up more demand. And it’s not just international migration but provincial migration too. 

This is not just a Metro Vancouver problem. We’re seeing this all across the province and the country.

We just had two new policies announced: an increase in the stress test and vacant homes tax for foreign owners. Do you see those having an impact on the market?

The stress test is interesting. This is the only tool you have to control buying power since we need to keep interest rates low. This is causing a lot of buying to happen before the stress test increases on June 1st.

The foreign buyer tax may be for the future. The government knows they need to cool the real estate market but they won’t address supply. If they want to help consumers see benefits, they need to help developers. That’s how pricing will go down. I’m not a big fan of governments creating supply. They are doing rental and low-income, which is important, but that won’t fix all of the problems. 

There’s been a shift across all the markets. People have to reestablish what a new normal is for pricing. 

On covid recovery

The recovery is being driven from the outside in – the outer markets are recovering faster than downtown Vancouver. People are looking for more space. Another thing people are realizing is that the outer markets – the suburbs, Kelowna, the island – have all the amenities that you need. You don’t have to go to downtown Vancouver for restaurants, shopping, etc. 

The share of market, and where the centre of the market is, is moving towards Burnaby and New West. It’s not downtown Vancouver anymore.

Are other BC markets still dependent on Vancouver? 

Greater Vancouver, the island and the Okanagan still do benefit from an aging population leaving Vancouver and moving there. But they also now benefit from first time buyers realizing they can live and work up there. So it’s feeder markets, organic growth and migration from outside of BC. People aren’t heading straight to Vancouver anymore. 

Province-wide there is a supply issue. Downtown Victoria highrises are going for over $1000/square foot. Bear Mountain is coming back and has become a real neighbourhood. It’s not a resort anymore; it’s a recreational urban community for people to live full time. Out of province migration is a big driver on the island. There’s a lot of multi-family coming to Victoria and Nanaimo, and semi-retirement/seasonal properties up-island are big as well. 

Average prices in downtown Kelowna are over $800/square foot. Kelowna really is a city, not just a recreational spot. There’s going to be a lot of competition in Kelowna this summer and we’ve seen prices increase across all product types. 

There’s something I’m calling the recreational renaissance. From Summerland to Vernon, I’ve never seen more people wanting to buy a second lakefront property. They can live there now or buy now at today’s prices and retire later. Penticton is poised to be next. Summerland and Vernon will swell, with Kamloops and the Kootenays on the way. 

For the Vancouver buyer deciding between Kelowna or the island, it’s deciding whether to take the ferry or the highway. There’s also provincial migration. People from Alberta are coming in and people from Ontario too. There’s not a market in BC that we don’t have to pay attention to. 

Is Penticton the next Kelowna or is it Kamloops?

I think there is a difference between the two. Kamloops will grow as a regional hub and will attract people who need to retire by a major hospital. I think it will be less recreational and more urban and residential. I think Penticton will be a smaller scale but more of a recreational hub. It’s an easy drive to Kelowna for services, though Penticton has their own hospital too. Penticton also has an interesting local craft beer scene. 

Would you invest in Kamloops or Penticton? 

If you can do both, do both. I think it’s a personal decision. The fundamentals are very similar and I think the rents will be too. What product I invest in might be different. In Kamloops, I want to be downtown in the new development, with young professionals or students who want to rent long-term. In Penticton, I could do that too but I’m also not afraid of the nightly rental market, like Airbnb. That would be the big differentiator between Kamloops and Penticton. 

Let’s talk about the suburban markets.

The suburban markets continue to represent more market share. The thing that surprised me the most was price escalation in 2020. The townhome market took off. And now highrise is back. Burnaby is looking as dense as downtown Vancouver. I think Surrey City Centre and Guildford will be the new Metrotown and Brentwood. Those areas are maturing and you’re seeing significant growth.

If Burnaby is the new downtown, New West is the new Coquitlam and Coquitlam is the new Burnaby. You also have new skytrain development driving growth. 

My only concern with the Fraser Valley and suburb market is we’re not building enough larger product, like 1000 square foot condos. Developers are scared of the larger stuff because it doesn’t sell as quickly. Developers need more legal time to get their pre-sales. They’re asking for 12-18 months to hit pre-sale requirements in order to build bigger projects and larger products. 

In the next few years, what are the risks? 

One thing we do is mitigate risks for our developers. The most certainty we know is today. Covid has taught us to expect shorter cycles and more volatility. I think we’ll have more of a roller coaster. You have to be careful so you don’t have to sell when you don’t want to.  

When we start designing a unit mix we ask: What percentage of the target market can afford this much mortgage per month? And we design from there. The stress test will go up; I think we’ll have a heated market until June 1st. The second half of this year won’t cool but it won’t maintain this pace either. I think 2022 will be a more stabilizing year. 

The wild card is immigration. Will that push more people out? 

We need to prepare for volatility. Last year, I told our clients to watch mortgage default rates. If the rates go up, we’re in trouble. This year, I’m watching the stress test. Last time the stress test took away about 18-20% of buying power. What does it do to buying power this time? 

On impacts of migration and covid

I wonder what covid did to assumptions about population growth. Projections for population growth did not consider a pandemic. People in Ontario weren’t moving to Vancouver in 2020. 

We also have an aging population. If you don’t like winter in Manitoba, where are you going to go? Probably the Kootenays. Most people still want to be close to a hospital when they’re in their 70s. 

There’s also an immigration wave coming that has been held back because of covid. That could explain the federal government’s increase in the foreign buyer tax – a preventative measure before immigration comes back. It won’t immediately generate any income. We sold a thousand homes last year and I could count on one hand the number of foreign buyers. 

Let’s talk about downtown and the Lower Mainland. What is happening in Vancouver?

We’re not using the bubble word anymore. But we are talking about sustainability. The first quarter of 2021 was wicked hot. I think we’ll coast at high speed for the second half of the year. 

There are a lot of challenges in downtown Vancouver, both to do with covid and cost. I think downtown will be a luxury market or a rental market, just like New York. But the west side of Vancouver is very interesting, around the Cambie corridor. The townhome market along that corridor is going to go crazy over the next six months. There’s not a lot of tower activity because development is slow in Vancouver. 

The North Shore is under-supplied. But there’s not a lot of canvas left. In Burnaby you have big master plan communities coming. Keep your eye on the Burnaby market. 

The condo market in downtown Vancouver was terrible last year. This year is back closer to normal. But the concrete markets in Burnaby, Coquitlam and Richmond are killing it, giving them market share. 

I’m watching the concrete market, the townhome market and the value in buying a six-storey wood frame near one of those big towers. 

Port Moody is just getting started in their waterfront stuff; I think it will become the West Vancouver or North Vancouver of the tri-cities. 

Find out more and read the Fifth Dimension Report at https://fifthave.ca/ 

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