speculation

I was asked to contribute this month to the Vancouver Observer about what we should do about speculation in Real Estate in Vancouver. here it is
http://www.vancouverobserver.com/blogs/realestate/2012/01/09/speculating-vancouvers-flippin-real-estate-market

Divide and Conquer

It all started innocently enough. We had a family of five and our house was effectively a 3 bedroom home and we get heaps of visitors- as I have most of my family and friends living abroad. So a kid sleeping on the couch became tedious. We needed more space
. Our cottage of 1300 sq ft sits on a huge 14,000 sq ft lot. We could add on. We hired a popular designer who dealt with bespoke developement- meaning tailored to meet individual needs. Off we went.
Rather than being constrained with a budget, we told him "design what we need and want and we will do it when we have the funds to do so". Current zoning stipulated that if we wanted 4 bedrooms upstairs than the main floor had to increase and go out into the yard as a terrace effect- you could not have a 2 or 3 story box. This also meant that the basement had to go out into the yard considerably to accommodate the larger living area above. We briefly looked at a bridge type structure as we didnt need a big basement but the engineering of that would take most of building budget!
So, as the design was gorgeous and totally maximized the view and had everything we wanted we put it through permits. $30,000 in design , permits and engineering were paid and the plans were ready to pick up and start.
The night sweats started.
Irritability set in, and neither my husband nor I picked up the permits. No one wanted to discuss the elephant in the room.
Finally one night I said " I dont need a huge home,I dont think we can afford to build this, I dont want a massive basement, and I dont want to clean that many bathrooms!!"
My husband agreed.
We looked at the plan, there was very little yard left as the building had to go so far out on ground level. The beautiful granite wall was about 2 feet in the wrong place and would have to come down and we were staring at a 2500 sq ft basement- almost 2 times what we were living in now- of unfinished space!.
We realised we loved that granite wall, we loved the big yard and all we needed was a couple bedrooms.
So we started with the pool and built that. That way as we cleaned up the rest we had somewhere to go and relax at the end of the day. Then we looked at our existing rec room and simply divided the space up. New appliances, fancy faucetts and fresh paint, and we had a house  we could live in.

The rooms are adequate, not large. But this means the kids tend to come and do their work on the dining room table and discuss stuff with us. It also means we have to all decide what we want to watch on TV and negotiate because the 2 TV's are in public places. The hallway connecting the kids rooms is extra wide with a couch recessed in on one side and flat screen on the other-so it can be an emergency rec room if we have friends over and our son wants to play WII with police siren soundtracks. We dont have a lot of parties in the winter but we have a neighborhood full of families over in the summer. The 20 by 40 pool brings them all over! and we set up an outdoor BBQ and dining area so many stay for dinner after sunset.
In the winter we get invited to those families that came over in the summer. It works. This is how I became so convinced that we can live smaller. As a Real Estate agent I knew all about maximizing the property and thats what everyone has been programmed into thinking. As a mother I knew smaller more intimate spaces keep our kids closer and part of the family. I have seen kids that have a whole recroom to themselves with TV, computer  and  sometimes even a drink fridge - they dont surface till they are hungry. Its not the kind of family I wanted.
 I hope that soon we will allow 2 small homes to be built on some of these lots that now allow for only 1 6000 sq ft house. Maybe more people can experience this freedom.... and togetherness.

If i had $100,000.

We used to be able to sing..." if i had a million dollars....i'd be rich!"

Not so anymore. The Financial Post ran a story on a couple who were worth  $ 2.5 million  ( net worth) but when they looked at the numbers they couldnt retire early or cut back work to travel. The reason being the investments that made them worth 2.5 generated cash flow that they lived on. Sell the investment and although they realize a windfall- that would be burned through quickly with no income coming in and needing a place to live.
The problem was if your house is worth so much and you sell it- Where do you live? Well I have long been a fan and supporter of Smallworks Laneway housing. Some of you may have met me on the laneway tours. One thing I often heard is" I cant afford  to build one yet".Well , now they have come up with a wonderful DIY solution.

The Smallworks Builder - a starter model that you finish yourself.

If you or members of your circle have construction skills or contacts in the building trades, The Smallworks Builder is the perfect DIY project: an award-winning Smallworks-designed laneway house delivered with the essentials in place – building permit, site preparation, underground services, insulated foundation and slab, walls, doors, windows and roof. The rest – electrical wiring, plumbing and finishing – is up to you.

The starting price of The Smallworks Builder is $100,000. Smallworks performs all the heavy lifting: excavating, pouring the concrete, erecting the building, and cutting through the red tape.( yes even dealing witjh City Hall!)  Delivery – from permit to lock-up – takes only 4 to 6 weeks.

Great savings can be achieved when you have the opportunity to complete the house yourself. It also allows you to transform Smallwork’s well-crafted house into a finished home you can be proud of, on your own terms and your own budget.

So the couple that wanted to travel? they could build their home, rent out the main house and travel on the surplus....

If you have the money ,or if you have the equity- Smallworks can put you in the direction to get your financing at  100% of the laneway cost, and build the whole house to the point you walk in with groceries. But if you would rather finish it yourself overtime this is a great option to get started.
Disclosure- I have worked in sales for Smallworks in the past. Feel free to call me if you have any questions.
 

Vancouvers money pyramid

I have been increasingly concerned with the escalating property values in very select neighborhoods.West Vancouver in particular.
 Difficult since my bread and butter comes from selling and reselling of Real estate, but my allegiance lies with the liveability, sustainablity of our neighborhood- our city. I am here for the long haul. So any fleeting financial gain in commission is wholly offset by the deterioration of what works in a neighborhood.
The current situation I find alarming.
We are pawns in very global game of chess where people with big money are coming in and buying up our property and then telling other people what a great spot this is to invest, they in turn are then selling that great property for hugely inflated prices to the next person and on it goes. The province is laughing as it reaps in the PTT over and over. But our citys , that are bearing the brunt of this localized issue are not getting any piece of the pie. It will be the City ( or in West vans case the District..) that has to deal with closed shops and bistros since many of these homes are not even lived in. Perhaps a mom and child move in, but not a whole household of contributing citizens.
here are a few examples, and this is just todays sampling.

800 block Pyrford. tax assessed at $1.982,000
sold in August 2011 for $3.288,000
Listed now at $4.180,000

1400 blk Nelson tax assessed at $1.200,000
sold in March 2010 for $1.200,000
listed  now at $2.199,000

1400 blk of Sandhust tax value$ 2.088,000
sold July 2011 for $2.088,000
listed $2.998,000

1800 blk  Queens tax assessed $1.551,000
sold May 1st 2011$ 1.728
listed now $2.398

and the best one
3100 Blk Thompson Cr
tax assessed $4.143,000
sold in 2009 for $4.142,000
listed now for $7.5 million

maybe everyone is just cashing out. maybe everyone wants to downsize. But if this keeps up where will you downsize to? When a starter home is now 1.8 million we have some serious problems. Who will live here that works here? Our nurses and firemen and teachers, and restaurantuers dont make this kind of money.Soon they will have to charge $10 for a coffee! If employees move to the suburbs,with soaring gas prices soon the commute will cost too much and we will find ourselves with a lovely area that can"t  find people to work here. Most people tend to want to live close to where they work.
It goes back to us needing a supply of smaller housing. Not more $8 million mansions on our mountains, but more small little cottages where families can start and single young people can live and enjoy our community too. This doesnt solve the problem, but perhaps it can mitigate one of its symptoms.
I am glad laneway housing and coach houses are at the forefront of this civic campaign. We have the ability to vote in people that bring this forward in a sensible way that wont overcrowd or over densify our neighborhood. But who will deal with the  Real Estate speculation?Politically, no one wants to touch it.

I dont have the answers . I just think someone has to start asking the questions.

canadian culture

I was fortunate to participate in the Global Buyers Mission a couple weeks ago. Groups from Taiwan, Japan, Korea and many others came to see what forestry/wood building products we are making/creating.
I was hosting the tour at a lovely laneway house which garnered plenty of interest. They were amazed we dared to build with so much wood in a landscape of forest and bugs!

The wonderful people Imet from Korea and Taiwan came bearing gifts and It reminded me  that in their culture that is very typical. I lived in Manila for 7 years and started to recognize different cultural traits when I was there.

But what about Canadians? Whats our " culture"?

 I have heard some people say its the culture of " sorry"

as in... "sorry"  you go first when merging,
" sorry" i took your spot in line
 and maybe soon to be ...
"sorry" i overcharged you on the price of my home....

Canucks Stanley Cup run, and reminiscing

wow, I just listed a home that reminds me of times gone by. A beautiful .8 acre estate in lower  properties that has the wonderful feel of an english country estate. 1165 Chartwell. I should be thrilled but I am nervous. Not for the Canucks tonite  as i believe they deserve this win ( not just because i was an old Rota router in the 82 series, and thanks to Bob and Tom Larsheid got to see some playoff games- but because the ones sided calls, the honorable Sedins and young Mason all deserve it!)
 I am nervous because this beautiful immaculately maintained and lovingly cared for home has people calling every few hours about how big a house can they build on this lot.35,000 sq ft is big and the flat buildable area is probably about 18,000 sq ft. But somehow I really want a family to continue to love this home and make it their own. Maybe renovate the kicthen and bathrooms and fix up the lovely cottage on the knoll that would have a nice view! and it has power and water - what a great doghouse when hubby comes home late. ok just kidding, how about a wandering teen. Anyway, the property is worth seeing, even if just to remember the type of homes we dreamed about when we were young. ill be there thursday 10 to 12 and saturday and sunday 2 to 4.   oh the price you ask?  $ 2.28

I see a dark cloud on the Real Estate horizon

It takes a little agent to notice trends that are earning big agents alot of money ( excuse the pun) If I was a big agent  listing and selling tons of houses for way over market value why would i question my food trough?
It took a couple  of recent sales to sound the alarm for me.

A small kerisdale home sold in Sept for 1.489, new owner  puts it back on market for 6 days in end of march for 1.598 but very soon realizes the market since Sept is way up, and changes the price on day 6 to $2.190 and sells it within a couple weeks for $2.1. The house was the same as it was in September.

Upper dundarave view bungalow with assessed value of 1.3 ish goes on market for $1.990.000 Local agents thought actual value was probably more like 1.7, it sells over asking with a clean -no subject -offer at $2.3 mill. At least one offer was an overseas buyer who is a non resident.

Did you know as a non resident most banks will give you a mortgage with no checking on your income if you put 50% down? National bank will loan you without asking proof of income for only 35% down. However the down payment money has had to have a trail and be in an account for 3 months.

Did we learn nothing from the fiasco in the USA?
If the market keeps going up, they flip and get their money out. If it tanks, who is footing the bill? Will we really be able to find these people?
It gets worse.

Banks sell those mortgages. I have heard CMHC  owns billions of dollars of them. What happens when the property values go down?... hmm... this is all eerily reminiscent of the sub prime chaos. Who is checking into this?

FINTRAC is getting reports of supposedly all wired money through a financial institution. ( EFT is electronic funds transfer)
SWIFT reporting only applies if you send EFTs by transmission of a SWIFT MT 103 message, as a SWIFT member, through the SWIFT network. (SWIFT means the Society for Worldwide Interbank Financial Telecommunication. It is a co-operative owned by the international banking community that operates a global data processing system for the transmission of financial messages.)

Real Estate agents are required to report any suspicious transactions. They are also required to fill in identification forms when they are dealing with people they do not know. These files are sent to the brokerage and then  sent off to the Real Estate Board. They are kept in case FINTRAC requests them. But who is checking?

Here is a far fetched example of what could happen

What if person X and person Y are friends. x buys a property for $1 mill

Now x gets his friend to buy his property for $2.5 
Y  putting down  35%  or $875,000.
the rest borrowed from the bank.
X has made 1.5 million and heads back home waiting for Y who disappears from Canada ,leaving the bank to foreclose.
X and Y split the $625,000 profit.( ok ...less 10 % witholding tax, PTT and commissions)
 At that time the house is no longer worth - because it never was - 2.5 million
So whoever bought the mortgage is on the hook.
Far fetched ? Yes but is this possible? yes. "Oh! The bank would never loan them on the inflated 2.5 value" you say? In speaking with appraisers they look at CURRENT market value, so since many homes in very specific areas have gone up ridiculous amounts, the appraisals will show the market value at that inflated amount. Not that this is happening but the fact that I imagine it could is scary enough for me.

Another scary thought-

Lets look at rent ratios.
Take a homes cost and divide that by its yearly rent.
 10 used to be a good market return in years past. A $400,000 home renting for $3300 a month. Thats a rent ratio of 10.
Las Vegas has property values with a rent ratio of 6 now so thats would be seen as a good buy.
Vancouver? Try 36- 42!
 That $2.5 Million  home might rent for $5000 a month, that means its cost is almost 42 times its yearly rent.
Its unfortunate I am working with many buyers right now.
 If I advised any sellers? Take the money and run...