“What’s going on?” Not only a provocative question posed by soul icon Marvin Gaye, but also the title of Michael Ferreira’s State of the Union address at the recent UDI breakfast series. And, in the last quarter of 2019, what better time to reflect not only on what’s going on in the market but what’s to come. This week, Principals Michael Ferreira & Jon Bennest from Urban Analytics join Adam & Matt for a far-reaching discussion on the current market, the areas that suffered most in the market down-turn, where presales are set to rebound quickly, and predictions for the 2020 Vancouver real estate market. That’s right – You heard it through the grapevine! This jam-packed, soulful hour will leave even the most seasoned investors thinking “Let’s Get It On!” Also, sexual healing.
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
Michael Ferreira – Principal, Urban Analytics
Jon Bennest – Principal, Urban Analytics
Tell us about yourselves
M: I’ve been in the business for over 25 years, the majority of that with Urban Analytics. I love this industry and there’s no better place than in Vancouver. There’s never a dull moment!
J: I’ve been in the industry for 15 years, starting at Polygon Homes. I joined Mike in 2010 at Urban Analytics. It was a consulting-based company back then and transitioned into our subscription based model.
What is Urban Analytics?
M: We monitor the new multi-family home market in Metro Vancouver. Any sales activity with condos or townhomes is tracked. We put that information into a web-based platform that we sell subscriptions to. We are the only firm monitoring purpose-built rentals in Western Canada.
From consulting to subscription based
J: We started to see a shift in what our clients were looking for. There’s a strong demand for having access to that information – it would be like a realtor not being able to access MLS. People want information and they want it now. We want them to have as much information as possible at their fingertips. We’re the MLS for the new home market.
How does the Liberal minority government impact the Vancouver real estate market?
M: I don’t think it will have any immediate impact. I think with a minority government it will be harder to get controversial policies passed. In the short term, I don’t think we’ll see much impact. It’s a little unfortunate for the Alberta markets. But I think it will be flat conditions there.
You gave a UDI address entitled, “What’s Going On?” So, what is going on?
M: There was a lot to talk about in the market during my one hour presentation. Two years ago when the market was very strong, I noted these would be our headwinds. Last year, I said there were storm clouds ahead. This year, I went with a poop emoji and a storm emoji.
We looked at the various government policies that have been introduced and how that has been impacting the market over the last few years. Some of those policies have added a lot to the cost of a home for both developers and consumers.
We looked at the rental market. There’s still massive demand but not enough rental property being built, which I think will lead to massive spikes in rent rates over the next few years. And lastly, we looked at the condo market and the status of the multi-family market. In 3-4 years because of the lack of new launches we’re seeing now, we will be in a supply crunch.
Are we in a good place? Where are we at?
M: I think we could be in a much better place. A lot of the policies have made it more difficult to get projects built and make them viable. Constructions costs are stable, development costs are going up and that makes it challenging to get projects off the ground.
So it’s more challenging from the development side. What about sales on new construction?
J: It’s been an interesting market over the last decade as we’ve tracked new home sales. Over that time we saw north of the Fraser outperform Fraser Valley in terms of sales and units being higher priced.
We’re now seeing a reversal in sales where higher priced options are not attracting as many buyers and we’re seeing more sales in suburban locations like Surrey and Abbotsford. It’s still end users who are driving our market here. A lot of the taxation policies negatively impact the luxury end of the market and foreign buyers, which we see more north of the Fraser. So we’re not seeing as much activity there and demand is moving south of the Fraser.
So the area south of the Fraser is driving the recovery?
J: Correct. I think it’s based on taxation policies. Luxury foreign buyers are not incentivized to buy in downtown Vancouver. That buyer isn’t there anymore.
Is there also a lot of investment in those south of the Fraser markets too?
M: Investors will move around the region but some won’t go to the Fraser Valley. But some are starting to look into deals. We hear that there’s a lot of money on the sidelines because no one wants to buy before the market hits bottom. But it’s hard to time your purchases. By the time the bottom is apparent, it’s too late to get the good deals.
September 2019 was up 47% over September 2018 so we can see the light at the end of the tunnel. If things are selling in Surrey and areas like that, what does that mean for construction and housing in Vancouver?
M: That’s the question. Developers are starting to ask questions about moving. But right now everyone is still busy. Everyone is still building the projects that were sold a few years ago. The more forward looking construction firms will be looking ahead and knowing that if nothing launched this year, they’ll be out of work soon.
RDMA rules say you only have nine months to get your building permit after filing your disclosure statement. This was not a problem when the market was hot but now it is. To hit your pre-sales on a 400-unit building within that nine months is challenging.
We see rent per square foot being higher in Coquitlam than in East Van. Are renters also moving farther out?
J: The purpose-built rentals in East Vancouver are smaller and wood-frame construction, often built by non-branded developers. So the amenities and quality aren’t as high as you’d see in a concrete building by a branded developer. So that helps to explain the lower rental rates in East Van and higher rental rates in places like Coquitlam.
Burnaby doesn’t have a lot of purpose-built rental. There are some in Brentwood, Lougheed and Metrotown and those will be concrete buildings with great amenities.
The Burquitlam area with the new Skytrain really increased the ability to ask for high rent in that area. We’re seeing rental increases in locations with access to the Skytrain. Once you’re on the Skytrain line, you can offer a smaller unit mix with junior one bedroom/studio units. Those micro units are harder to do in areas without transit. The Skytrain is driving the lower unit sizes and higher rent prices per square foot.
The trend is renters wanting those amenities. Young renters want a convenient location to live with amenities and transportation. They want to do as much as possible within their living environment. We’re seeing things like dance studios, fitness areas, lounges, restaurant areas, etc. Renters want all of that in one building.
M: The other factor between the differing rent prices is as projects launch, we see rents jump up. In East Van, we haven’t seen a lot added to the market recently. As well, initial rents are now being set higher since landlords can only increase their rent by the cost of inflation. That rule was supposed to make things more affordable but it’s actually pushing up prices for new rentals.
Where are we headed with rental rates?
J: The job market continues to improve and we have a lack of purchasing, so that means a higher demand for rentals. We’re not seeing an increase in supply in the next few years for rental housing, so we see the market going up significantly, especially downtown. Don’t be surprised to see significant increases in rent in downtown Vancouver in the next 3-5 years as more tech jobs and offices open in Vancouver. Workers coming here will want to live close to where they work and will not be buying in the first few years. That could change if we build more but we’re not seeing that.
M: There is 4 million square feet of office space under construction in downtown right now. 60% of that office space is leased and 70% of that is new users, meaning new workers coming into the market. That puts a lot of pressure on the rental market.
People suggest that the new rentals are too expensive. But it’s expensive because it has to be, given all of the costs the developers have for building, including the GST. But those buildings fill up. The newer, more expensive projects are relieving pressure on older, less expensive stock as people move up. We currently have 6300 rental units in contemplation going through the planning process. Andre Pavlov, an economics professor at SFU, said we need 7000 new units just to reach 3% vacancy. And we don’t even have that many being proposed right now, which shows how far we have to go.
Workers who come in may be considered foreign buyers and would have to pay that tax, which is another incentive for them to rent and increase demand in the rental market.
Projections on where rental rates will go
M: Right now we’re pushing $4.50 per foot downtown and it could go up to $5.50/6.00 per foot. At some point, the pressure could convince some people to buy.
Which areas have suffered the most during our downturn?
M: Cambie corridor. Anything that relied on luxury housing took a hit. But we haven’t seen launches there for a while. Closer to the core is suffering more than in the suburbs.
North Van seems to have weathered the storm well
M: North Van has never been a strong market for Asian buyers and investors. Since that wasn’t a big part of the buyer group, the market hasn’t suffered as much. Local end-user markets have weathered the storm the best.
What’s the future for the market of new construction and sales?
J: We’ll probably see a lot of developers bring product to market where they had bought the land 3-5 years ago. They can afford to bring prices down since the land was cheaper and still make a profit. And there will be a lot of excitement around that.
The challenge is developers who only bought the land 1-3 years ago. They will have to test the market with their pricing or reevaluate going forward.
M: The general mood is an uptick in sales. That money that has been sitting on the sidelines will eventually enter the market. There may be some opportunities with the projects that are completing now and other investors will look for future opportunities. The mood has generally improved from 2018. We’re starting to see increases in sales compared to last year at this time. Prices have come down and there’s a good selection for investors.
Any upcoming events that will impact the market?
M: Now that the election is over, I don’t think so. There’s always uncertainty around an election so unless a provincial election is called, I don’t really see anything.
What areas are you excited about?
J: I’m excited about everything! Downtown, Burnaby, Brentwood. Nanaimo Street is going to be transformed with new developments there. Uber and Lyft could change the game here; I want to see how that changes lifestyles. I’m excited about the new head offices coming in, like Lululemon, the new hospital, new Skytrains and improvements to transit. Anyone with real estate in those areas will benefit.
M: I’m excited about Surrey City Centre. Anything in a transit oriented location is exciting. With the university and employment in tech jobs, it’s looking promising. It’s taken a long time but it’s looking a lot better. The Skytrain going out to Langley will transform that area and that route. I’m excited about the city of North Van; the Shipyards area is amazing.
If you had $1 million to invest would you go north or south of the Fraser? Buy now or nine months from now?
M: Now I would buy south of the Fraser. But my preference because I live north of the Fraser would be to go north to keep the investment closer. When people ask when is the best time to buy, I say now is the best time in the last 5-6 years. Now you have time to make a decision and look at quality selection. There’s opportunity in both new home and resale.
J: Vancouver. Surrey is great but if you have a million dollars, it will work out no matter where you put it. And I would buy nine months from now.
Do you see any further softening on prices?
M: The luxury market could soften more since we haven’t seen a launch there in a while. Any area that hasn’t had a launch for a while could be softened.
Is there a property type you’re excited about?
J: Residential is what I know. Office industrial is hot right now but I stick to residential because it’s what I know. People always need to live somewhere.
If you’re looking for capital appreciation, the best opportunity is to buy luxury as that market has been cooling. A single family house will give you the best deal right now. That’s where you’re seeing the lower prices and where you should see a big swing over the next 10 years. For cash flow return, smaller units in a great location where rent is higher per square foot and your maintenance costs are fixed – that’s where you’ll see the best return on your cash.
M: Really expensive real estate has been made more affordable for people who can afford really expensive real estate. I agree with Jon. It depends what your goal is. For capital appreciation, you have to look at what offers the best value right now. I would still be looking at under $3 million to avoid the taxes. But to rent out, a one bedroom (or one and den or studio) will always give you the best return.
Favourite neighbourhood: M: Lower Lonsdale, J: Kitsilano and Ladner
Favourite bar or restaurant: M: Tavola, J: Bob Likes Thai Food
First place you bring someone from out of town: M: Stanley Park, J: Sea Wall
Piece of advice you would give your 18 year old self: Both – Invest in real estate as early as you can!
Something you have purchased for under $500 that has had a positive impact on your life: M: 2nd Monitor for computer – 3 screens including my laptop, J: Vitamix Blender
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