Author Topic: Garth Turner - Real Estate in Canada  (Read 488745 times)

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #450 on: May 05, 2015, 05:08:14 PM »
i would like in some area, it's more like up 15% to 20% YoY.

And no sign of slowing down.


enoch01

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Re: Garth Turner - Real Estate in Canada
« Reply #451 on: May 05, 2015, 05:26:36 PM »
Several weeks ago I closed about half of my put position on The Royal Bank of Canada (took it down to 2% position of current portfolio), only because I couldn't roll it to 2017.  I'll ride the rest of the position into the ground.  If the rest of it does go to zero this adventure will have cost me about 3.5% of current port.  The funny thing is that all the ingredients are there for a bust, it just hasn't happened yet.

Canadian real estate - to the moon!

enoch01

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Re: Garth Turner - Real Estate in Canada
« Reply #452 on: May 05, 2015, 07:10:36 PM »
Several weeks ago I closed about half of my put position on The Royal Bank of Canada (took it down to 2% position of current portfolio), only because I couldn't roll it to 2017.  I'll ride the rest of the position into the ground.  If the rest of it does go to zero this adventure will have cost me about 3.5% of current port.  The funny thing is that all the ingredients are there for a bust, it just hasn't happened yet.

Canadian real estate - to the moon!

No asset goes up at 6-10 times the rate of inflation.

Sure it can, just for some reasonable or unreasonable amount of time.

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #453 on: May 05, 2015, 07:19:36 PM »
Several weeks ago I closed about half of my put position on The Royal Bank of Canada (took it down to 2% position of current portfolio), only because I couldn't roll it to 2017.  I'll ride the rest of the position into the ground.  If the rest of it does go to zero this adventure will have cost me about 3.5% of current port.  The funny thing is that all the ingredients are there for a bust, it just hasn't happened yet.

Canadian real estate - to the moon!

No asset goes up at 6-10 times the rate of inflation.

Sure it can, just for some reasonable or unreasonable amount of time.

Many say it will go up forever, and soft landing just mean it go up slowly to let income catch up.

None of the people I talk to expect house to go down. You have to live in Vancouver and Toronto to believe the atmosphere here.

Phoenix01

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Re: Garth Turner - Real Estate in Canada
« Reply #454 on: May 06, 2015, 10:01:04 AM »
A balloon is always at it's largest just before it pops.

It seems that the balloon will never pop while it is filling, and then all of a sudden, the inevitable happens.

It deflates at an incredibly scary rate compared to the amount of time it takes to fill it.

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #455 on: May 06, 2015, 10:08:07 AM »
It has been a one way bet in Vancouver for 15 years now. It is amazing how long things can run.

Markets can be irrational longer than....


tripleoptician

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Re: Garth Turner - Real Estate in Canada
« Reply #457 on: May 31, 2015, 03:08:46 AM »
I've lived in Vancouver for 5 years now and have been a firm believer in the unbalanced, frothiness of this market the entire time. All typical measures of inaffordability have been shown to be consistently off when comparing the local population's overall income, current debt levels and overall income growth in the recent past.
My wife and I are both doctors and could "afford" to buy, but I could never rationalize the purchase despite home ownership being aggressively pushed on us from all Vancouver locals and our parents who have obviously made money in real estate over this extended bull market, albeit in Winnipeg/Ottawa markets.

In the last few months however, I feel like I've been analyzing the local situation in Vancouver incorrectly.....


 I agree with the majority of the bearish posters on this thread who point to the national indicators such as historic low interest rates coupled with historically high debt levels, combined with a prolonged period starting in late 1990's of purposeful manipulation by CMHC to increase home ownership via longer amoritization periods and lower minimum downpayment requirements. This national trend shows this cannot go on forever based on the macro/microeconomic trends that govern our national/provincial and municipal landscape for Canadians. Eventually either a recession, higher interest rates or lack of consumer/investor confidence in real estate being the golden ticket will lead to either prolonged stagnation or decline in prices in the majority of our National markets. Coming from Manitoba, this is the viewpoint I have held consistently for Winnipeg's market, and felt Vancouver's hot market was explained by its locals unbridled enthusiasm for all things real estate. It truly is more manic than any other area in the country, because everyone knows  multiple "average Joe's" who have made hundreds of thousands in this local market. It perfectly describes everything related to a speculative bubble.

The problem with Vancouver real estate is there is a significant non local market force in the foreign Chinese buyer. I don't believe the rest of the country is affected by this at any similar order of magnitude, although the Toronto market may be somewhat affected. Many posters have alluded to the Chinese foreign buyer influence, but I don't think we have delved deep enough into why this money flows to the Vancouver market, and what factors would potential reverse or diminish its flow. This is the part that has me questioning whether this long term rise will actually decline. I don't want to debate if foreign buyers are truly having an effect - anecdotal and objective evidence is continuing to mount; the only question may be is it the primary driver of recent increases or secondary/tertiary contributer. I've attended some forums with Dr Ley and personally feel the link is clear
http://www.theglobeandmail.com/life/home-and-garden/real-estate/some-wonder-if-its-time-vancouver-acts-to-slow-foreign-buyers/article24341903/

Now these are some commonly held beliefs as to what motivates the Chinese foreign buyer to buy million dollar homes with cash:

1. Taking capital out of China provides a possible call option/exit strategy if an individual's business gets nationalized.

2. Canada has less stringent immigration laws regarding obtaining permanent residency status relative to other Western countries including an "investor" class that eases the application process if the applicant is wealthy. This again gives an individual a call option on leaving China if political unrest or corruption/witchhunts occurs.
 
3. Access to Western educations for their children

4. Environmental concerns for China/Chinese desire for natural beauty of Vancouver

5. It has been very lucrative as an investment over the last several years

6. Canada appears to have the most lax laws on foreign property ownership compared to other Western countries.

7.It also appears we have lax laws on bringing large amounts of currency into our borders relative to other Western countries:

http://www.vancouversun.com/news/Vancouver+airport+tops+country+seizures+undeclared+cash/8043419/story.html

There are likely many other possible motivations and some of the above may be anecdotal or incorrect. I previously believed that regardless of the motivation, once the bubble "pops" in the rest of Canada which will eventually occur, the foreign buyer would immediately be dissuaded from continuing to purchase as price declines would scare them from placing capital into a possible losing investment. I now think this is probably wrong.

The above border cash seizures article references that the supposed amount of capital outflow allowable to a Chinese citizen is $50,000/ year CAD equivalent. To have overall Chinese outflows in the billions/year as referenced in the article, individuals are obviously deciding the risk of keeping their cash in China is riskier than being caught taking larger sums out of the country. The Chinese foreign buyers are not utilizing local mortgages to purchase Vancouver homes. Anecdotal evidence has shown the majority are cash purchases. As noted above, even when CBSA finds undisclosed large amounts of cash at the border, the person pays a fine but keeps all their cash without further investigation. A multi million dollar cash real estate purchase by a Canadian citizen would likely send CRA on an in depth audit, but there is no concern by Canadian authoritities when it is a foreign buyer.
Couple the above with this recent article that suggests Chinese policy will ease limits on foreign capital flow along with a depreciating
CAD relative to the yuan, it appears capital outflows to Canada may see a sustained surge.

http://www.wsj.com/articles/china-to-ease-limits-on-overseas-investments-1432841526

So to summarize, I can see many natural incentives to encourage Chinese citizens to continue to have their capital flow to Western countries and will not be abated by:
1. tougher foreign ownership laws (see Australia and Hong Kong's real estate price growth despite making foreign real estate investment harder),
2. Chinese National policy (has currently been ignored and is set to ease further)
3. Increase in interest rates (purchases are largely cash)
4. Chinese recession - I think this would continue to see higher capital outflows as there is a higher chance of nationalization of private businesses in poor economic times rather than continual economic growth

So if there is potential tidal wave of external capital flow that doesn't necessary act based on fundamentals, does this not mean Vancouver prices potentially have a long term trend to rise even despite the astronomic growth thus far?





gary17

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Re: Garth Turner - Real Estate in Canada
« Reply #458 on: May 31, 2015, 07:44:29 AM »
hi tripleoptician
very interesting analysis...  I share the same view, except you put it down in words better than I could have described it.

i am a taiwanese immigrant and traveled to japan, taiwan, china recently and know of a few wealthy folks who are in the $3M+ markets in West Vancouver.    in Asia, the primary residence is taxed for capital gain -  so in addition to the new wave of immigrants driving up the prices, there are also folks who have moved to Vancouver for 5 ~ 10 years now participating in the market, building spec houses .  So a typical lot in west vancouver is around $2M ~ $3M ; they spend another $2M to build a 6000sf luxury house and flip to a new Chinese immigrant for $7 or $8M , all tax free.   Imagine making $2 - $3M over 2 years tax free -- I am a youngish professional too and could 'afford' an entry-level house, but been watching on the sideline , not knowing when this will end. what i can afford in the $1M neighbourhood are all crappy tare-down houses...  meanwhile I live in a 800sf condo lol

in my recent visit to Beijing, i can really appreciate the state of the pollution...   and i was told over there people do not own their houses; they lease from the government.  the communist party owns everything in China.   

re wiring cash overseas - there are ways for people to get money out. and people are doing this.  even more rapidly these days because the Canadian market is 20% off thanks to the oil plunge. 

i'd add a few more points: vancouver is truly unique (in comparison to other major NA / European cities):
a) it has an establish asian community - 3rd largest in north america ?
b) you can get very decent Chinese food in Vancouver
c) you are 10 hours direct flight from home (vs 15+ going to Toronto / New York)
d) you are in the warmest city in Canada (avg 10 snow days a year with a dry ,  summer)
e) you are protected by the US but not part of US (this means stability)
f) on a relative basis, real estate is still much cheaper than Singapore, Hong Kong, Taipei, Tokyo, Seoul

unlike equities where we like to find ideas before others flock to ; real estate is built on existing infrastructure , community and environment. the  major cities of the world will continue to attract buyers

Gary




« Last Edit: May 31, 2015, 07:48:45 AM by gary17 »

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #459 on: May 31, 2015, 08:40:12 AM »
The only question I have is:
Can you confirm most of the deals are being done in cash. If you have lived in Canada for less than 5 years, you can qualify for a 65% mortgage with no income and no credit. I believe it is called the new immigrant program.

I have seen this with many $10 mil purchases in Vancouver. And I do not expect a person who has bought a house for $ 10 mil to say I have financed it.

I would look a bit deeper than just the anecdotes for evidence.

EDIT: Agree with most of the the stuff you are saying. But, here are my other thoughts:
1) Majority of individuals are doing this with $ 1 mil homes - 65% no questions financing. But, I have also seen that most struggle to get good employment once in Canada - for whatever reason. They are currently managing because the housing values have been increasing. What happens when those values aren't rising and they are still struggling for good jobs?

2) In most cases that I have come across this scenario - the money comes from sale of an apartment in a Chinese city ($1 mil range). Let's say I sell a condo for $ 1 mil CAD (after taxes) in Beijing. Move to Vancouver - put down 35% on a million dollar home and live off the $650,000. But, at some point I will need to get a good paying job when the $650,000 is gone. Today, on a $650,000 mortgage your monthly payments would be around $3,000.

I do believe this could continue until either of the 2 things happen:
1) something causes real estate price in Vancouver to fall scaring buyers away from this arrangement
2) anything that causes large real estate losses in China
« Last Edit: May 31, 2015, 08:53:43 AM by wisdom »