17 Feb

Housing price increase caused by lack of supply: CMHC report

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Posted by: Frederic Pichette

Housing price increase caused by lack of supply: CMHC report


Toronto and Vancouver’s real estate markets have responded to surging prices and a growing demand for homes with a supply of new housing that is “significantly weaker than other Canadian metropolitan areas.”

The disparity between supply and demand has been largest in the two cities, but “we do not fully know why this is the case,” said the Canadian Mortgage and Housing Corporation, in a report it released Wednesday on escalating house prices in the country’s large metropolitan centres between 2010 and 2016.

Data gaps are keeping CMHC from developing a full picture of why Montreal, Calgary and Edmonton don’t have as big of an inconsistency between supply and demand as Toronto and Vancouver do, but CMHC’s deputy chief economist Aled ab Iorwerth said he has noticed Calgary and Edmonton responding to demand with “horizontal sprawl.”


As for Montreal, he said “they already have a large rental sector, there is perhaps an acceptance of living in denser housing there and they seem to be more ready to convert industrial land into housing.”

Helping housing supply catch up to demand in any of the country’s major cities will involve combating urban sprawl and increasing densification, while dealing with affordability, infrastructure and environmental issues, said CMHC’s report.

It also noted that a lack of supply in Vancouver and Toronto had buyers gravitating towards condos — which were more plentiful and have seen a spike in investor demand — as well as high-end homes. Almost all the growth that CMHC saw in prices came from expensive, single-detached homes.

“While Toronto and Vancouver showed large and persistent increases in prices, there was only modest price growth in Montreal,” the report said. “Home prices in oil-dependent Calgary and Edmonton ended the period slightly higher.”

Between 2010 and 2016, CMHC found house prices jumped by 40 per cent in Toronto, with 40 per cent of that rise attributable to growth in jobs, population, disposable income and previously low mortgage rates.

Those factors contributed to 75 per cent of the 48 per cent increase Vancouver saw in the same time frame.

Understanding major Canadian markets posed a “persistent challenge” for CMHC because of the impact many realtors and economists believe foreign investors are having on the market.

CMHC has previously said 52 per cent of the buyers who purchased a home recently in Toronto or Vancouver believe foreign buyers are having an influence on home prices in those centres.

The latest data from Statistics Canada shows 4.9 per cent of Vancouver residential properties are owned by non-residents and 3.4 per cent of Toronto residential properties are owned by non-residents.

CMHC said, “Even though official data on non-resident owners appears low, it is possible that the perceived impact of their presence could alter expectations of domestic homebuyers on the price they should pay to secure the purchase of a home.”

2 Feb

Chinese millionaires ‘lined up’ to buy Montreal real estate: expert

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Posted by: Frederic Pichette

The biggest reason the city has been overlooked by foreign property investors so far is taxation and regulation, analyst Richard Kurland says.

Record-breaking sales numbers. Bidding wars. A growing number of buyers from China. As a lifelong Vancouverite who left for Montreal two years ago, it all leaves me with a feeling of déjà vu.

In Vancouver, the boom began with bidding wars in tony neighbourhoods with million-dollar mansions, but the impact eventually rippled throughout the metropolitan area.

Today you are lucky to find a million-dollar teardown in Vancouver.

Between 2005 and 2017 in Vancouver, house prices increased more than 173 per cent. In Montreal today, the median price of a detached home on the island is just under half a million dollars. In Vancouver, it’s almost $3 million. Yet the median family income is similar in both cities. In Vancouver, it’s just under $80,000, compared with $77,000 here in Montreal.

But Montreal is not Vancouver, or Toronto, for that matter. Most analysts I spoke to say they don’t believe house prices will climb quite as high here. We are not locked on a finite piece of land like Vancouver is. We don’t have as many high-paying corporate jobs as Toronto does.

And the biggest lid on speculation might be the thing Montrealers hate even more than a seemingly endless winter: bureaucracy.

According to immigration lawyer and policy analyst Richard Kurland, the biggest reason Montreal has been overlooked by foreign property investors so far is taxation and regulation.

While B.C. regulators seemed to turn a blind eye to speculators exploiting the system, Quebec has shown the muscle to crack down on shady dealings through its own provincial tax collection system, Kurland said.

But now governments in B.C. and Ontario are imposing new taxes on foreign buyers and beginning to enforce existing regulations on property ownership to ensure these buyers pay their fair share of taxes. As a result, Montreal is looking more attractive, he said.

“I expect to see Vancouver investments slide sideways, but that money’s got to go somewhere,” said Kurland. “It makes it more logical to consider other destinations like Montreal.”

Kurland, a former Montrealer now based in Vancouver, has advised the federal government on immigration issues since the 1990s. He said it is all but inevitable that Montreal will see increasing interest from Chinese buyers, thanks to an exponential increase in millionaires in China, and a commitment to immigration that all but guarantees a flow of up to 2,000 new millionaires per year arriving in Quebec from overseas.

Under Quebec’s investor program, immigrants with more than $1.6 million in net assets can settle in Quebec if they agree to invest a minimum of $800,000 over a five-year term. Between May 2017 and February 2018, the province planned to accept up to 1,900 applications through this program, with as many as 1,330 to come from China, Hong Kong and Macau.

“The number of millionaires who want to escape Chinese pollution is so big that they are willing to pay big bucks to access Canadian status,” Kurland said. “They are not bad people, and their source of funds is legitimate. They just want a better life for their kids.”

Now that Quebec has tightened up regulations to prevent millionaires from coming here and rapidly trampolining to Vancouver or Toronto, Kurland said the wealthy immigrants who land here are even more likely to invest in high-end residential property.

“It doesn’t matter to them if they pay $1.7 million or $2.3 million for a home,” Kurland said. “Folks from Hong Kong see the prices here as a joke. It’s so much cheaper here.”

According to Kurland, accepting 1,000 millionaires a year into Quebec from China barely makes a dent in the millionaire supply, because there are many, many more families in the queue waiting for their applications to be reviewed.

“There’s a supply of buyers — millionaire buyers — lined up,” Kurland said. “It’s the golden heart of the demand for Montreal property.”

With a limited supply of housing here for those used to millionaire lifestyles, Montrealers can expect the price of luxury real estate will likely go up, Kurland said.

And indeed, the hot streak in Montreal real estate has, by all accounts, been fuelled by sales of luxury homes.

In 2017, on the island of Montreal, 1,338 single-family homes were sold with a list price between $700,000 and $5 million. While overall sales rose eight per cent over the previous year, Centris data reveals that sales spiked by 19 per cent for homes between $500,000 and $700,000 and by 30 per cent in homes listed over $700,000.

Analysts at Statistics Canada, the Canadian Mortgage and Housing Corporation and the Quebec Federation of Real Estate Boards have all been working in recent months to quantify just how many non-resident buyers from other countries are investing in Canadian real estate.

In most Canadian cities, they found the number of transactions involving buyers with a home address in another country is less than one per cent, with a high of almost five per cent in Vancouver, three per cent in Toronto and less than two per cent in Montreal.

The numbers might seem small, but it is a mistake to say the impact is insignificant.