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episode # 80

Big Data Makes Big Profits with Michael Ferreira

Here it is! For Episode 80, Matt and Adam sit down with Michael Ferreira, the managing principal at Urban Analytics, for a chat about some common myths that are perpetuated in the Vancouver real estate market.

This week also marks the first installment of our new segment, “Jon, Seth and the Hoi Polloi,” where Jon Lumer and Seth Rogan hit the streets of Vancouver and chat with regular people about their thoughts on the market.

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Episode Summary


 

About Michael:

Michael used to be a radio DJ but quickly realized, based on the salaries, this wasn’t going to help him get into the real estate market. So, he went back to school for real estate. Michael started in project marketing then found himself attracted to the data side of the industry. He began working with a woman who started Urban Analytics, ended up purchasing the company from her, and grew it from there.

About Urban Analytics:

Urban Analytics is a firm that focuses on the new multi-family homes sector (new condominiums or townhouses being marketed or in the planning process). It operates in Metro Vancouver, and in Calgary and Edmonton. They track information, visit sales centres of projects for markets they’re in, and track new developments in the planning process. The company also tracks the purpose-built apartment rental market in Vancouver and Calgary (and soon will in Edmonton).

On his feeling/frustration with local media coverage about real estate:

It can be frustrating, but Michael doesn’t blame them; there are budget constraints. With very few exceptions, there isn’t enough research being done by journalists. Too often they write based on opinions of various people in the market, not on fact. They need stats or metrics to back up opinions, but they often just quote people with an axe to grind. They may get readers and a following, but they create unnecessary hysteria in the market which is where the frustration grows.

On his Business in Vancouver article, Myth-busting needed in Vancouver’s new condominium market, and its four key myths:

  1. We don’t have enough supply. This makes no sense—it’s like saying if you’re selling out of apples, you should not produce more apples because they’re just going to sell. If people want and need apples, you should grow more apples for them to consume. There has been a tremendous increase in demand, so why constrain supply? Create competition and give people choice. When five or six projects are released over a few months, the urgency leaves the market and buyers have time to compare. Then, prices come down. When only one or two projects come onto the market at once, they sell quickly and prices go up the next time.
  2. Government intervention on the demand side has not been balanced with intervention on the supply side. There was very little consultation about the foreign buyers’ tax. There is a fixation from those who are frustrated with the market. There is not a lot of comfort with the pace of price escalation. Of course, developers and sellers are taking and enjoying their profits, but everyone knows it wasn’t long ago when demand was switched off (in 2008-2009). The pace we have now is not sustainable and there needs to be a correction. Some policies could be introduced, but the foreign buyers’ tax was not the way to go—it’s had very little impact. A speculation tax may have been more effective, as it doesn’t target a specific buying group.
    When a lot of assignment listings come up (e.g. in 2006-2007) and real estate websites target assigners or flippers, this is concerning. Buyers want to buy and realtors are concerned about meeting this need. When there is only a small amount of supply at once and it gets absorbed quickly, there is clearly a greater need.
  3. Foreign buyers [are hurting us]. This has impacted the market for sure, but the foreign capital is coming in search of a safe haven, not just to make a quick buck and flip a property prior to completion. There is a cultural difference in how people around the world invest their money. For many foreign investors in Canada, it’s not about the stock market—it’s the real estate market. And they may be investing for their kids over many decades, not to make a quick return in the short-term.
  4. Perception of developers marketing directly to people offshore. This is most bothersome. Only one or two developers actually do this, but it’s largely because they have sales offices offshore. Realtors will see presale websites and take graphics to attract foreign buyers to the project. When the domestic market is as strong as it is, there is no reason to do this, especially given the expensive cost to reach foreign buyers. Developers’ marketing budgets have shrunk as well.

General advice to understand the market:

There is frustration among buyers who register to look at a project and don’t get to do so. In Calgary, there is time to get a call from a developer to check it out, as intended. But in Vancouver, if you register for a presale you will not necessarily get a call before the project sells out. Michael’s tips:

  1. Know the price point you can afford.
  2. Research where you can afford the type of product you want.
  3. Look for projects coming up in the market (via Facebook, the condo guide, or working with a realtor—see if they have relationships with developers as this can be key, or contact the developer directly, and be persistent!)

On how developers come up with price per square foot:

When they buy a property, developers look at what’s happening in the general area and do a pro-forma statement, which is what it costs to build, what the property cost them, and their desired margin. People have a misconception that developers make a 50-75% profit margin. Many do make high margins in strong markets, but the general goal is 15-20%. The risk involved in these developments is often overlooked: developers buy these properties on a whim that the market will move up and allow them to profit.

Developers are bullish on locations that make sense. The downtown peninsula is a proven market; they are not relying only on local buyers. As Bob Rennie says, “Downtown has become a resort market”—for better or for worse. Many towers in Coal Harbour have been empty since they were purchased; this is nothing new. There are also people downsizing from single family homes and moving into areas like Coal Harbour.

On if he would buy now, what he would buy and where:

It depends what you can afford. For instance, you need about 50% down to break even on a condo in Metrotown. This would not work for him necessarily; it’s risky. You need to look at your investment goals. On the demand side, people see projects selling quickly and prices escalating. For someone with kids who will get into the market soon, you can buy a unit now, rent it out, and your kids can move in later or sell it to buy their own homes. People buy in advance of the equity transfer to their kids. Look at (rapid) transit routes (e.g. Surrey), proven neighbourhoods or those in transition (e.g. Hastings Sunrise), and neighborhoods with good schools.

On the softer market of single family homes:

So much of the market is psychological—even in 2008-2009, the downturn had nothing to do with the market here; people were worried about having a job tomorrow (like in Calgary, where people did lose jobs). It’s now more secure; the energy sector seems to have stabilized and people are back in the market.

Five-wire:

  1. Favorite neighborhood in Vancouver: Mt. Pleasant (independent businesses, real people)
  2. Favorite bar or restaurant: Tavola on Robson near Denman (rustic Italian, family style)
  3. West-side mansion or downtown penthouse: downtown penthouse (he prefers to enjoy the city than maintain a house, and believes in only taking the space you need)
  4. First place he’d take someone from out of town: on a hike, up the North Shore mountains (not the Grouse Grind!)
  5. Calgary or Vancouver, from an investment perspective: Calgary, as there is better value for his current situation (the last three quarters have seen an increase in sales)

To learn more about Michael and Urban Analytics:

www.urbananalytics.ca (download UA Take, their quarterly market overview)

 

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