The Housing Bubble

A report from the Toronto Star in Canada. “When it comes to Toronto real estate, there are roughly two kinds of people: those who own a home in the city and fear (or vehemently doubt) that a crash is upon us, and those who don’t own a home in the city and pray with all their might that a crash is upon us. Those who did pull themselves up with little help made big sacrifices and big, complex, plans, along the way. For example, Sarah Larbi, a 33-year-old Toronto native who owns six houses with her common-law partner — one in Oakville, where the couple lives, and five in Brantford, which she rents out for $1,300 to $1,500 a month. She has been saving aggressively for several years to amass what is essentially a suburban empire.”

“Even though Larbi is presumably the last person to shy away from big risks, she isn’t willing to take an investment risk on Toronto real estate. ‘If I buy a house (in Toronto) and it’s a million dollars, let’s say, then you’ve got to make $10,000 a month (in rent) or something insane in order to make any money at the end,’ she says. ‘For me it doesn’t make sense because I’d have to do high, high management, like Airbnb, to even break even.Larbi’s advice? If you have an appetite for risk, consider investing in a property outside Toronto, where prices are cheaper, ‘and maybe you’ll be able to use the equity to buy something (in Toronto) later.’”

From Metro News. “Between 15,000 and 28,000 homes in Toronto sit empty amid the housing crisis, according to a new staff report exploring the possibility of a vacant-homes tax. City staff tried to determine the number of units held purely as investments. They arrived at their figure by looking at Toronto Hydro data on addresses where electricity and water hadn’t been used in a year. A City of Vancouver study using similar methods pegged the number of empty homes there at 10,800.”

“Cherise Burda, executive director of the Ryerson City Building Institute, is encouraged Toronto has taken this first step toward a tax that would incentivize people to rent out vacant homes. However, she believes the real number of empty units is much larger, as the new report doesn’t take into account places where hydro isn’t even hooked up. ‘We need to be building housing for our population, not for speculation,’ she said.”

From Better Dwelling. “Toronto real estate had a sudden surge last year, and we’re finally starting to get a better picture of what happened. New statistics released by the Toronto Real Estate Board (TREB) once again confirm everyone didn’t just wake up to a shortage of land overnight. Instead it appears that speculators saw a gold rush, adding pressure to prices that sent emotional buyers into a bidding frenzy.”

“A surprising number of properties in the city of Toronto have been bought and sold in less than a year. In 2016, TREB said it was ‘less than 5%’ but stopped short of giving a number. In just the first five months of 2017 however, it accounted for 7% of transactions. TREB called this ‘a very small share,’ but to give it context it’s about twice as large as Toronto’s luxury market. Also probably worth noting here that Toronto’s luxury market is considered one of the hottest in the world. In case you didn’t catch that, 7% of the properties that were sold *this year* were bought less than 12 months ago – right around when prices started taking off.”

“Sure, some might be informal landlords, but the cap rates don’t make economic sense. If you’re not familiar with the term, that means home prices in Toronto can’t be made up with rental income in an efficient way. Most purchases return around 2% in rental income, which means you’ll lose money on a mortgage annually. Meanwhile listings are soaring, as people try to exit. Toronto needs to continue building to prevent an actual housing crisis in the future, but if you still think land became scarce in Toronto overnight, good luck with that.”

The Globe and Mail. “Celebrations are still breaking out in houses and condos around the Toronto area as sellers stare down a real estate market decline that has extended from May into June. But while some clinch a deal at the price they were hoping for, less fortunate sellers have been hit severely by the shift in market dynamics. In Durham Region, east of Toronto, agent Shawn Lackie of Coldwell Banker-R.M.R Real Estate, says the overheated market of the early spring raised the expectations of sellers to unrealistic heights. ‘What it really did was throw a whole lot of gas on the fire for sellers – thinking they were going to cash in because this is their lottery.’”

“But listings suddenly surged after Ontario introduced policies in April aimed at cooling the housing market. Mr. Lackie recalls that listings had been trickling out and suddenly there were 138 new listings in one day. The following day there were another 85 by midafternoon. ‘Now, buyers have eight, 10, 14 different houses to look at.’”

“He’s also seen a lot of stress heaped on owners who signed a firm deal for another property, then delayed putting their existing home on the market in the hope of getting an even higher price later in the spring. This year, the strategy backfired for some. ‘It’s dangerous as hell, but people were running ahead and doing it,’ he says. ‘If you buy and sell in the same market, you’re going to be affected by all of the same factors. But they got cute. They’re the ones who have been bitten.’”

The Saskatoon Star Phoenix. “The pace of residential construction in Saskatoon fell off sharply in the first five months of the year, driven downward by a collapse in the number of new multi-family buildings under development, according to new data from the country’s mortgage insurer, the Canada Mortgage and Housing Corp. The city’s apartment market is a different story. Vacancy rates remain well above the historic high of 10.3 per cent reported by the CMHC last November. Experts have said up to 18 per cent of the city’s apartments could be empty.”

The Financial Post. “Naheed Nenshi was first elected mayor of Calgary in 2010 when the iconic Bow tower was rising to re-top the city’s skyline, new companies were opening their doors, established ones were expanding and luxury retailers were setting up shop. Office vacancy in the city’s bustling core was so tight, ‘You couldn’t get space downtown for love or money,’ Nenshi recalled.”

“To fill the gap, skyscrapers were rapidly built — 10 million square feet between 2007 and 2016 — all underpinned by confidence in the future of Alberta’s oilsands and a business-friendly climate. But the expansion of Calgary’s commercial core, home to Canada’s second-largest concentration of head offices after Toronto, came to an abrupt halt when oil prices collapsed in late 2014. The fallout worsened as new governments muscled in with policies to accelerate the transition to green energy.”

“Massive layoffs, bankruptcies, consolidation and an efficiency drive at the oil and gas survivors reduced the downtown workforce by 40,000. Put another way, one in four Calgary office workers — and their workspaces — were no longer needed. Both Barclay Street Real Estate and Avison Young put the vacancy rate at 24 per cent, but it’s closer to 30 per cent for older buildings and projected to rise to 27 per cent later this year and remain high in 2018.”

“It’s estimated there is 13 to 14 million square feet of vacant space within Calgary’s striking cluster of glass towers. That’s equivalent to all the office space in downtown Vancouver. Many skyscrapers have completely empty floors. In others, just a handful of people occupy space where hundreds used to toil. ‘We went from essentially zero to almost 30 per cent (vacancy) in about 18 months,’ Nenshi said. ‘I love roller coasters, but this is too much.’”

From CTV News Vancouver. “B.C.’s anti-gang task force has arrested nine people following a year-long investigation into illegal gaming houses, money laundering, loan sharking and kidnapping. The Combined Forces Special Enforcement Unit said the criminal network behind the various operations has national and international ties, including to mainland China.”

“The probe was launched in May 2016 and ultimately led police to six different homes, which turned up ‘arge amounts of cash and bank drafts, drug paraphernalia, suitcases, cellphones, computers and other related material,’ the CFSEU said in a news release.”

From The Province. “Li Zhao, who is accused of murdering Chinese businessman Gang Yuan, has filed a claim in B.C. Supreme Court seeking a one-third share of the Yuan estate’s profits from the sale of 47 Saskatchewan farm properties. Zhao claims he and Yuan were in a joint-venture to develop Saskatchewan farmland, according to documents filed with the court last month.”

“A deal planned by Yuan’s company to sell the properties in Saskatchewan was near completion, Zhao’s claim states, when Yuan was found shot and cut into 100 pieces in his West Vancouver mansion on May 2, 2015. Zhao, 56, has pleaded not guilty to the second-degree murder of Yuan, 42.”

“In his criminal trial, a judge ruled this week that Zhao’s confession to West Vancouver police is admissible. The court heard that Zhao told police he and Yuan were in business together in an agricultural company and were having legal problems with the company. Zhao told police that following an argument with Yuan, who lived in his British Properties home with Zhao and Zhao’s wife, he fatally shot the victim and cut up his corpse with a saw.”

“While Zhao’s criminal trial continues, a number of civil claims are underway in B.C. courts, as Yuan’s relatives in China and Vancouver battle over his Canadian assets, including Saskatchewan farms and luxury properties in Vancouver, estimated to be worth about $50 million in 2015. In addition to his Canadian fortune, Yuan had mining interests in China. And according to a 2015 court verdict in southwestern China, Yuan was linked to a government corruption and bribery scandal that led to a 19-year jail term for an official named Yunye Lin.”