Vancouver’s housing market is hot—and it seems poised to stay that way—despite the cooling off of most of the Canadian housing market. Incredible figures from the Real Estate Board of Greater Vancouver shows 50% more sales made in the same month in 2014, the bulk of the demand going to detached single-family homes whose door prices have tripled in the last ten years. Last year, prices for detached single-family homes have reached $1.9M on average, an increase of 173% in 2005. This has made Vancouver real estate the most expensive in Canada, and second only to Hong Kong, Vancouver has become the second most unaffordable city in the world. What is fueling this demand is the influx of wealthy Mainland Chinese buyers. The inflow of foreign capital has turned Vancouver into a true global property market, with some even going so far as to call it “the bedroom community for the world.” Others support this view with estimates that buyers from China bagged one in three homes sold in Vancouver. There’s also the fact that Vancouver real estate agencies and property developers have made a beeline for Beijing and Shanghai to establish a brick-and-mortar presence.
According to a Barclays PLC survey, about 50% of all wealthy people in China are set to immigrate to a First World country within five years. And thanks largely to the federal government’s investor immigrant program; they have received the necessary encouragement to look to Canada, particularly in the province of B.C. In exchange for an $800,000, interest free “loan”, the government offered permanent residency to foreign individuals with a net worth of $1.6M. That program ended in 2014 with roughly 60,000 applicants from Mainland China in backlog—but it is highly likely that the program would be revived in the near future, thus assuring a steady stream of millionaire investors coming to Vancouver. In the past decade, almost 30,000 of China’s millionaire class eventually settled in the city, with more set to join them in the foreseeable future.
While the Chinese make up the bulk of foreign buyers, the second and third biggest market segment come from Iran and the U.S. respectively. For all intents and purposes, this represents a practically unlimited demand for real estate, particularly single-family detached homes. This is a demand that could not be matched by supply. The market is seeing the effects of this disparity in ever-stronger competition between competing buyers, in turn fueling a strong price growth that shows no sign of leveling off. If this growth continues unabated until 2030, projections show that the price for average detached price of properties within Vancouver’s jurisdiction will hit the roof at $4.4M! For some people, especially thousands of people who own single-family detached homes, soaring market prices is akin to being the owner of a winning lottery ticket. Canada’s most expensive housing market is spawning real estate millionaires almost as fast as they can cash in their properties in.
Despite this rosy picture, analysts are seeing storm clouds brewing on the horizon. Troubling figures in a report from the Demographia research firm shows house prices that are ten times the median household income. With only a modest one-figure growth, local wages have remained entirely disproportionate to the real estate market, and the only reason why real estate has remained relatively affordable to Vancouverites is that mortgage rates have been kept low. In a city with 2.5 million people and only so much land to develop, this disparity is making a huge impact. What this means is that Vancouver, among all the major cities in Canada, has the unenviable lot of having the highest household debt as a percentage of annual income, this according to a paper published by University of Toronto professor Alan Walks in 2013. What this further means is that for many younger consumers and first time homebuyers, detached homes are priced out of reach. The pent-up demand will shift to condos and apartments, smaller living spaces that averaged at $465,225 last month in Greater Vancouver. We are seeing a shift towards one-bedroom apartments/condos, and a greater willingness to use public amenities to compensate.