Time for your weekly cheat sheet on the hottest stories in global and Canadian real estate.
The Chinese government’s anti-corruption campaign has swept up one of the world’s largest real estate buyers – Anbang. While they aren’t directly accusing the firm of any wrong doing, they’re combing through the firm’s books to attempt to better understand their business model. They have been behind almost a third of Chinese investment in international real estate over the past two years (when measured by dollar volume). Any slowdown to the way they do business is expected to be felt by international real estate markets pretty fast.
This comes shortly after a top Chinese financial news site Caixin, combed through ownership documents to demystify shareholders. They questioned whether Anbang’s cross investments overlapped in equity, which would have led the firm to double count investments. If true, this would mean the firm is operating on a very high leverage model.
The Parliamentary Budget Officer (PBO) is warning that Canadians will hit levels of debt the country has not yet experienced. The total dollar level has already hit records, but that’s not as indicative of a problem as the ability to service that debt. The PBO is projecting as early as the second quarter of 2018, Canadians will be devoting 14.9% of their income to servicing debt. They predict this record high will accelerate soon, reaching 16.3% by 2021. This means 16.3% of all dollars earned by Canadians will be devoted to just servicing their debt. Yikes!
A new report from the Office of the Parliamentary Budget Officer (PBO) doesn’t see interest rates rising until 2018. The PBO used a regression model linked to bond rates, and believes interest rates will hit a “normal” level of 3% by mid-2020. Using their current model, they don’t see interest rates rising until 2018. This is drastically different from the hawkish statements the Bank of Canada made just last week.
Turns out Chinese-Canadians make more than the general population. A survey conducted by Rolia.net showed that Chinese-Canadians were overrepresented in the highest income brackets, and underrepresented in the lowest income brackets. This means proportionally, more Chinese-Canadians earn higher incomes than the general population. It also means that fewer Chinese-Canadians earn less than the general population.
Literally. A subsidiary of Berkshire Hathaway has made an offer to buy up to 39% of Home Capital Group (HCG). The catch is it will happen in two phases, at significant discounts to the current trade value. HCG is attempting to block shareholder approval on the initial investment, which they’re being offered $9.55/share. This represents a 56% discount from the trade value being offered the day we wrote this. Typically the stock market doesn’t do bulk discounts like a Costco, so the deal is a little odd. The deal will also see Berkshire lend HCG $2 billion at a 9% usage rate, secured against a portfolio of $4 billion in mortgages. That’s right, $2 in mortgages for every $1 they can borrow.
The Bank of Canada’s Housing Affordability Index shows shelter is at a lower cost than the historic average. Currently the affordability ratio, which determines the percent of income devoted to housing, is sitting at 0.346. This is 1.14% cheaper than the historic average of 0.35, a pretty big reminder that the majority of Canada isn’t playing the speculation game. The majority of homeowners have locked in homes at prices far below the surging prices seen this year and last. Is housing cheap for everyone that didn’t move over the past year, or is this a bunk indicator from the BoC?
Toronto condos are appreciating at the fastest rates of all home types in the country, with the exception of condos in Oakville-Milton. Greater Toronto Area (GTA) condos now have a benchmark price of $464,600, a 31.85% increase from the same time last year. That’s $112,200 more than the same time last year. This is despite an increase in listings, and a decline in sales.
Vancouver condos are hitting an all-time pricing high. According to the Real Estate Board of Greater Vancouver (REBGV), those Boomers that cashed out of detached units last year are looking for a new place to live. This has them turning to condos, competing with the segment of housing traditionally dominated by first-time buyers. This increase in demand sent prices to an all-time high of $571,300.
Vancouver commercial real estate is starting to rise again. Altus Group, a commercial real estate data provider, released first quarter stats for 2017. Turns out the total number of deals are on the decline, but the increased property values sent dollar volumes to a new high. Residential land accounted for 31.3% of the sales, down from 50.6% the same time last year.
Real estate firm CoreLogic observed an interesting trend in the US that’s currently happening with mortgage rates. CoreLogic Chief Economist Franck Nothaft observed that as mortgage rates climb, the average credit rating drops. By the firm’s calculations, every 0.5% rise in mortgage rates has resulted in a 9 point drop in average credit score. Nothaft believes the reason behind this is when rates increase, less people apply for credit. This results in mortgage brokers spending more time with people that have less than perfect credit.
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