VREG Blog

When our first ‘before’ picture was taken, in 2002, the Remand Centre round the corner from the Main Street courthouse was just closing. Designed by Richard Henriquez in the late 1970s and completed in 1983, the building was taken out of commission as it became unnecessary to hold enough prisoners on remand to warrant the cost of running the building. In 2008 the bottom floors were converted to the Community Court, but the upper floors and their massive concrete pods remained unused. A $21m makeover later, designed by Henriquez Partners, the building is now a 96 unit low cost and non-market housing project managed for B C Housing by the Bloom Group. Before images: 2002 and 2012; After images 2015.

Here’s one of the thirteen non-market housing projects funded by BC Housing on land provided by the City of Vancouver. It’s big – 147 rooms – and managed by the Raincity Housing and Support Society. It’s named after Lorna Budzey who died in 2000, a resident of Raincity’s first shelter. The building is designed by Neale Staniszkis Doll Adams Architects and is 10 storeys high. The site was previously the home of the Drake Hotel, a small (24 room) hotel dating back to 1912, and bought by the City of Vancouver in 2007 at the same time the Province started buying SRO Hotels. The City carried out a basic renovation of the property to allow it to be used as temporary rooms for tenants whose building was being given a more significant upgrade that meant they had to move out for a while. The hotel’s neon sign, dating back to 1950, is in the Museum of Vancouver’s neon collection. Before image, 2008; after image, 2015

The MNP Tower (the accountancy tenant who were first to sign up were given the naming rights by the developer, Oxford Properties) was squeezed into a small site between the iconic Marine Building and the Guinness Tower (both also co-owned by Oxford). Initial designs were by Vancouver-based MCP, but after rejection by the Urban Design Panel a new architect, US based Kohn Pederson Fox were brought on board and they generated the gently curving dark blue-grey tower that has just been completed. The base of the building incorporates the façade of the University Club, abandoned for many years (except for movie shoots), which was designed by Thompson, Berwick & Pratt in 1929 when it was known as the Quadra Club. Before images: 2011; after images 2015  

The Averages powered up in September per Larry’s numbers. Not altogether unexpected. While not as strong as August, September this year was a lot stronger than 2012. Was this the last of the pre-approvals going through? Certainly there seemed to be a division later in the month with lower sales/list showing up. We have also had some big sales. As I documented earlier in the month, there were two $7 Million + sales in West Van alone (and a slew of $4-5 M sales). One was to a local buyer and one to a HAM from what I can ascertain. These numbers certainly baffle me. To spend $7 M on a house, requires a net worth at least twice that, and at a tax rate of even 30%, that’s over $20 Million of earnings! How many people have that sort of income? Then I remembered that some banks were paying their senior executives over $10 M every year as was Telus. MOI ends the month at over 7 for SFH and 6 for Apartments. The bubble is not restricted to residential BTW. I spoke with a  commercial realtor a few days ago and he said there is so much money in this town looking for a home, that yields on smaller, good retail and office packages have reached silly low levels. The money is local professionals looking for diversification, Eastern retired money and of course hot offshore money. “If there is a tenant turn-over, the lost rent and expenses associated with tenant inducements and costs can bring the yield down to zero for that year. They just want a low yield in a tangible asset that can keep up with inflation. Of course if there is a serious recession in our city, there will be a LOT of unhappy landlords”. He explained that is one reason for the high turn-over of tenants in particularly retail businesses. “The rents are just too high”. For example it is cheaper for a landlord to leave a unit empty until it finally rents, even to a weaker tenant , and lose the few % return while he/she waits RATHER than lower the rent much.  If you lower the rent say 10%, that could drop the value of your property significantly in this bloated market, where every dollar of return is accounted for in the price. Whence go we? The pre-approvals must be done. The market now sinks or swims on it’s own. I suspect the HPI will still come in lower for September (it will if compiled fairly by the REBGV IMHO). We should know soon if this is the case. As for the blog, I will be going fallow for a couple of weeks. I have a few matters to attend to and hope to be done near mid-month. If all goes well, I will return with commentary and the numbers at that time. May throw stuff in the comments from time to time. Have a great October.

This conversation was over heard on the GG Gondola by a friend. Not by me, but by a friend who is reliable and does not exaggerate. Lady. “I am 53 and thought I was going to retire when I was 60, but I just took out a second mortgage to help my son buy an apartment. That just buries me in debt again”. Friend: ” I am even older and thought I would be free of debt by now, but my mortgage hasn’t been paid out, and I haven’t been able to clear my credit card debt before another holiday comes along”. Male friend: ” I recently went into my bank to get an higher limit on my credit card for a month, and the   bank employee kept trying to sell me on getting a $25,000 line of credit. “Just sign here and $25,000 will be deposited into your account”.  I had to fight her off. They then discussed how the banks almost forced debt on people. “Quite the difference from a few years ago, when you had to prove you could replay them. Now they don’t care if you are nearly broke with debt. “Just get more debt to pay off the old debt.” Then another occupant of the gondola spoke up and said he worked for CIBC and that they had quotas of credit cards and personal debt to meet, and if they don’t there was pressure from Managers to get there, that’s why they kept pushing customers to get into more debt. That is were we have got to. The banks have become drug pushers. Except the drug is debt. We are supposed to hope the addict will quit using themselves. And if you can’t get your drug from the banks, there are dozens of fringe outfits willing to give you money..’If you have equity in your home’. Which just drains whatever equity you have managed to build up in your home. This can only end badly.

The US Fed blinked. Actually it did’t blink, it closed it’s eyes and assumed the fetal position. After talking tough about backing off on buying the US Government debt (the definition of ponzi btw), it stood pat and said..”we will..we will…keep buying! forget what we said earlier this year”. Actually it worked out ok for me, as my poor preferred shares which had been beaten into mush caught a bid. However it did bring interest rates down a notch now that everyone sees the Fed for the blow-hard-but-do-nothing that it is. The Canadian bond market which is tied by it’s apron strings to the US one also got a bounce and rates dropped. Now how about September? What are we looking at. Well so far it looks to em like we are going to get some weakness in the HPI and averages for the month. I see mid range homes (would be super upper end anywhere else) $1.2-$1.6 M selling for a 4-8 % below asking. Of course the asking prices are pretty crazy, made up numbers , but that didn’t deter the delusional buyers before. I have said before that if September didn’t show some weakness that I would probably suspend or close this blog but it looks like you may have to put up with me a bit longer. 

Assuming you are waiting to buy or have decided not to, then you have a nice pile of cash building up. What are you doing with it in this forced low rate era? None of the Central banks (UK, Canada, Euro), despite talking tough about soaring consumer debt have had the balls to increase rates. We are STILL sitting with rates at emergency levels and below inflation. So what options do we have for our money? Well a few and none are that enticing. There is the GIC. Rates are pretty low at the moment. The banks still haven’t budged much from the 1.0-1.4% for a one year fixed. You can get a little more by bargaining with your advisor. This has always irked me BTW. Why not just post better rates for everyone. Our banks, like our telecom carriers either need competition or serious regulating. I just picked up 1.8% for a one year at ING direct which is owned by Scotia now. I got this from a brokerage account and was better than their posted rate. Other institutions with lower credit ratings offer up to 2%for a one year and 3% for a five year fixed. The CDIC will insure up to $100,000 if the GIC is under 5 years. Either way you slice it, it isn’t a big chunk of money. After taxes, it is below inflation. It used to be that a one year GIC matched inflation after tax and a two year beat it. Not now that the Central banks are trying to force us to speculate (and then complain when we do) So what else is there? Bonds. You can buy bonds via any brokerage account. The rates are not much better than GIC rates at present for high credit companies and Government of Canada bonds are even lower. You can tweek things by buying stripped bonds which have a lower tax rate (capital gains instead of interest taxation). You can google this if interested. Preferred shares. These are shares that behave like bonds. They come in several flavours, some pay a steady % until maturity, others reset the rate depending on the Bank of Canada rate or rates for a ten year bond, others maybe convertible into the shares of the issuer. They pay higher rates as they are considered ‘long bonds’. However as they are shares too, they are taxed better than bonds and so a 5% yield in preferreds would be the same as getting almost 7% in a bond if you pay tax at the highest rate. Here is a good site which explains and tracks them. Though he also writes of other stuff in his commentary which I usually skip over. Garth Turner used to be a big proponent of them on his site Greater Fool. They have done very well for the last few years and then got slaughtered recently as rates have been rising. He has not mentioned them recently 🙂 Then there is the stock market. You can buy stocks directly, or mutual funds or index funds etc. Bank shares have done very well as they have been in the sweat spot. They have borrowed short (from all the people having one year GICs or getting near zero interest in their savings account) and lending out several % higher to mortgage borrowers. Even though rates are low, the spread between the short end and then long end of the rates curve has been widening and therefore the banks have been making even more money than before. The best thing is that they have been doing this risk-free. Anyone with high leverage or poor credit risk they passed off to that garbage can of risk – the tax-payer back CHMC. A scandal IMVHO. However this circus is slowly coming to an end, as outsiders from the World Bank to Investment houses to independent economists have told our Government how poorly risk is managed at the CMHC, they seem to be finally getting the message. The stock market was a good place to be for the last four years, especially the US market. But I am too leery to put new money unless there is a good correction. Rising rates are usually bad for the earnings of companies That’s about it. Can’t think of many more options. What are you doing out there?

Larry as usual provides the numbers. Detached MOI = 6.9 Attached =  5.6 Condo = 6.1 These MOI are in the ‘balanced’ range. However they are a LOT lower than last August. Is this demand pulled in because of the interest rate and CMHC changes or is the Bull back? Some higher sales have skewed the numbers. Lots of local and HAM big buys in August in the Multimillion range have pulled the numbers up. Is HAM buying drying up? Not yet. There are some signs that emerging markets are under some financial stress with the Fed TALK (only talk so far) of pulling back on ponzi monetary policy. However the Chinese PMI number has come in above expectations and that may bring more hot money to our shores. As I have said recently, we SHOULD have seen the top with everything stacked against RE. However there could be some new dynamic that I have not taken into account which will ignite further buying and if so, then it is time to move on. We will know very soon if this is the case.

I found this on Vancouver Condo info, hat tip China bust, it is a legal action brought by investors who purchased units at the Olympic Village and who now want their contracts  rescinded . They are suing the City of Vancouver. Here is the list of investors named in the law suit: ok J. Choi, Il Ho Ahn and Ra Young Choi,Yen Hai Doan, Tian Gao, Thomas Gisby,Jung Gu Han and Hyun Joo Han,Jung Kyoo Han and Sung Sub Han,In Cheol Jang and Sunkyu Choi,Heebo Kang and Soon Bin Kang,Mi Hyang Jin and Yung Jun Kwon,Mohamad Lafta, Hak Hyung Lee, Flora Kwangah Lee,Sang Wook Kwang and Hyun Jung Lee,Kyoung Won Lee and Nam Won Park,Gordon Mah, Wendy Milligan,Sook Ja Oh and Mu Hong Oh,Young Ock Park and Yi Yong Pan,Young Mi Seo, Shermar Holdings Ltd.,Susana Yim and Hardy Yim,Sook Ja Yoon and Eul Byong Yoon Here is the case, and from what I can understand, the first question is whether the City of Vancouver can be deemed to be the developer of the project. I definitely do not know or even understand the legal intricacies.  But I am an over-taxed Vancouver resident worrying about cuts to other City-funded services or a Provincial bail-out. I am also a student of the speculative frenzy in this city, where Billions of Dollars of real estate are bought and flipped or bought and left empty. A few things come to mind: 1) The names are apparently mostly Korean. I don’t know whether they are resident in Canada or not. They could be German or Mongolian, but the fact that one ethnic group has so many unhappy buyers, makes one wonder if the project was aggressively marketed to this group by a realtor. 2) Are they end users who have some concern about construction or are they speculators who are upset about the drop in value. ie were they speculating. The GetLegal blog linked thinks they are investors who bought at the top and are now regretting their decision and trying to get out of their obligations. Certainly there have been a lot of condo projects built in this city which have been late or have had issues. When the market is flying no one seems too bothered, but once it falters the law suits start flying, like Sangrila and now OV. 3) How much more is this going to cost us? What we do know is that when lawyers have the Government as a client, ie the taxpayer, the fees are exorbitant. Let us not forget the defence that we paid for in the Dave Basi and Bobby Virk case which cost us $6 Million, before they pled guilty.  To add insult to injury Judge Robert Bauman who IMVHO is a very misguided Judge, refused to allow the tax-payer’s watchdog, the Auditor General, to audit the Legal bills to see how come they were sooo high. Apparently the rights of two individuals who have already pled guilty trumps the ability of the Auditor General to do his job and point out waste and corruption. What message does that give the legal profession? If you can get a clerk in Victoria to sign off on your billing, you are audit free!!! I cannot believe what a carte blanche Bauman has given his fellow lawyers! Once again I say PPP do not work. If the project is profitable, the Private keeps it, and if it doesn’t the Public owns it. The financial sharks make sure they write the deals so that is how it works out. The other side of the table are well-meaning but naive councillors and city officials who are no match for the sharks. We are witnessing the result now. Of course the councillors are mostly gone and the officials still get their bonuses and pensions and us suckers get to pick up the tab.

Off topic. Have you heard the ads by the telecom giants, Bell, Rogers and Telus. They have some average employee who tells you that if the Government lets Verizon in to Canada then this unfortunate soul will lose their job and they and their family will be cast out to the wolves. Funny how they pick lower ranking employees, not someone from the executive suite. How about the CEO of Telus doing the ad and saying…” I made $11 Million last year and $10 Million the year before and if Verizon comes in, I may lose my bonus”. Or the Rogers CEO saying..”Next year I get a $18.5 Million retirement package and um…well good luck with that Verizon things”. In fact the three CEO’s earned $23 Big ones between the three of them. Enough to run a medium sized hospital or two High schools. That is our society folks. These companies who have shamelessly outsourced call and technical centres outside of Canada, are now waving the flag and asking for protection from that big hairy American company. We could be more sympathetic if you weren’t such greedy ba$tard$!!  My cousin who has ATT comes up here from the US and uses his phone without a second thought to call the US or anywhere worldwide for one fixed rate.  Whereas we make sure we have every button turned off to airplane mode or free wifi only to make sure we never inadvertently down-load a text or e-mail in Calgary, never mind the US. Last year I went to Europe and somehow my phone set itself free and downloaded two banal text messages and one e-mail. I heard the ping and my heart sank. Sure enough, when we went back home the bill from Fido (Roger’s pooch to make us feel like we have choice) was over $50! Welcome Verizon, who BTW can only have up to 10% of the market anyway! AND CEOs of Rogers, Telus and Bell, if you are so worried about your employees distribute some of your huge payments to them and let us have SOME choice as consumers.

President Obama, arguably to the left of PM Harper, has decided to phase out Fannie Mae and Freddie Mac, their own two versions of our CMHC which insure mortgages. Our own dithering fools in Ottawa were anti-CMHC except when it suited them. And it did in 2008/9. Even as they watched the US equivalents pull hundreds of Billions out of tax-payers pockets, they cynically doubled our own CMHC, loaded it up with a weak board (IN MY OPINION) and allowed it to have poor risk management and operate opaquely (in the opinion of Nomura and IMF and other non-Major-bank economists).  Now hopefully they will do the right thing before this monster endangers our financial future further…and wind it down! BTW- there was a great BNN interview with Ian Lee, an Academic who has been sounding the alarm on CMHC liability which he calls gargantuan! Says the banks are using CMHC! Try this link. Click on the second video ‘CMHC to take stream out of housing market’. All bulls and bears should listen to this interview

“In the ruin of all collapsed booms is to be found the work of men who bought property at prices they knew perfectly well were fictitious, but who were willing to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit.”   – Chicago Tribune, April 1890 Look at the date it was written! This comes from the weekly post of one of my favourite commentators, John Hussman. You can read it here. He is talking about the stock market but outlines how one bubble bursting leads to the next one inflating and the foolish actions of Central bankers who think they know better.