With 2020 now behind us, many are wondering what the Vancouver property/real estate market will look like in the coming year. Thankfully there are a number of reports that analyse actual data (rather than sensationalised media headlines) which we will utilise for our 2021 Vancouver real estate update. Before we look at the data, however, we’d like to issue a word of caution surrounding the sensational nature of property media in general, and a reminder to always approach these ‘headlines’ with a pinch of salt.
What’s Right and Wrong With Vancouver Real Estate Forecasts?
First and foremost, it’s important to remember that property and real estate articles found in the media are often sensationalised in order to grab your attention. More often than not the media will find and exacerbate negative (or positive) or extreme examples to create marketable pieces. It is also very common to see the general media:
Take and highlight one aspect of a story that seems interesting, whilst ignoring other aspects that makes the story less extreme (attention-grabbing)
Use statistics that are overly generalised, which can often mislead buyers and sellers. These statistics can vary a lot by property type, city, neighbourhood, and sometimes even between buildings.
Focus on theories rather than the big fundamentals which actually affect property availability and prices. For example, immigration, unemployment levels, infrastructure etc…
The Vancouver property industry is also full of varying predictions, based on different numbers and assumptions. This often means that the media can find ‘supporting’ information to back up whatever predictions they choose to make, to reinforce their bias or attention-grabbing headlines.
Conversely, there are some quality and quantitative analyses that exist in the Vancouver real estate industry that can give you accurate forecasts and predictions, based on real data. Whilst no one has a crystal ball, these reports will:
Offer real/in-depth explanations based on actual figures- with notes on limitations. These tend to be longer pieces, and as such many people are not interested enough to read through them, but they are available if you know where to look.
Emphasise and make Vancouver property predictions around fundamental drivers such as supply and demand. Generally speaking, these reports are more reliable.
When we zoom out a little further, it’s easier to establish and predict longer-term trends by looking at the macro fundamentals such as immigration. When it comes to short term predictions and price behaviour (such as the next few months) however, the most accurate means is by way of the Sales-to-Actives ratio. That is, the percentage of active listings being absorbed by the market. This is also a version of supply and demand and can be useful for short term predictions.
How Did The Property Market Finish in 2020?
Whether it was a return of confidence, lower interest rates or pent up energy from the restrictions we saw across 2020, Vancouver’s property market finished the year in a strong position. Regardless of calls earlier in the year that an impending recession would limit movement in the property market, sales by the end of November had already exceeded those made in both 2018 and 2019.
To obtain an overall view of the market, we look at the MLS Home Price Index. This is a composite benchmark that measures the change in prices of housing features, over a given time period. When we compare the figures from the past 12 months (December 2019-December 2020), the benchmark price for all residential properties in Metro Vancouver saw a 5.4% increase. By individual property type:
Apartments increased by 2.6%
Townhomes increased by 4.9%
Detached homes increased by 10.2%.
Vancouver Detached Homes
As the graph below depicts, throughout 2020 we have seen a general uptrend in the benchmark price of detached homes in Metro Vancouver. Although this looks at the whole area, it’s important to note that this figure is averaged, and the median prices have varied between neighbourhoods. If you would like more information about your neighbourhood please reach out to our team.
According to the Saretsky Report and REBGV statistics, sales of detached homes in December 2020 saw their second-highest month in the past 5 years. This higher demand was compounded by dwindling inventory, and these forces have led to an average price increase of more than 10% over the year.
Vancouver Condo Market
The condo market has been impacted by a number of factors throughout 2020:
An increase in downtown and condo residents wishing to relocate to the suburbs where they can afford to purchase a detached property
A lack of international visitors or residents oftentimes purchasing investment properties
Various types of investors selling their condos as part of their plan to change their real estate portfolio and lifestyles related to Covid-19.
As a result, we have seen the supply of condo listings increase in Metro Vancouver. However, it’s important to note that although listings are increasing, so are sales- up 41% from December 2019- causing the overall condo inventory to drop. As you can see in the graph below, the number of condo’s available across greater Vancouver dropped significantly in the last few months of 2020, from more 6,648 listings in October to 4326 in December.
We have also seen condo inventory drop in downtown Vancouver between October and December 2020:
East Vancouver’s inventory reduced from 665 to 402
West Vancouver’s inventory reduced from 2053 to 1319.
This lowering of supply could soon be reflected by a rising price in the condo market as we enter 2021.
Potential Market Risks and Trends for the Vancouver Real Estate Market in 2021
Whilst no one can accurately predict how the market will fare across 2021, the general sentiment is clearly in favour of sellers. The annual property cycle may also see sales increase across the first half of 2021, as we approach summer and (hopefully) the end of the wave two COVID restrictions.
There are a number of considerations to take into account which could impact Vancouver’s real estate market, however, depending on your circumstances they could also be beneficial to you. These include:
Declining population growth across B.C. and Vancouver due to the restrictions. This can reduce the pressure on housing prices. Though, I’m sure this will quickly reverse and revert back to the rapidly expanding population pre-Covid.
The potential for mortgage delinquencies. However, it’s important to note that the vast majority of deferred mortgages expired in 2020, and as we’ve seen from the sales figures this has had little impact on the market to date. The government’s assistance policies seem to have worked effectively in this regard.
Property prices across Vancouver are near all-time-highs. This has the potential to price first time home buyers out of the market. However, a higher number of new condo buildings are expected to be completed in the coming 24 months, which may also ease some of this pressure. Additional government support may also come into play for first-time buyers/low-income earners, which can increase the availability of finance and boost sales figures.
Unemployment rates. This will largely be dictated by the state of the economy and COVID restrictions, particularly if they are sustained and/or reimplemented in the coming year. As it stands, the official unemployment rate in Vancouver is 7.4% of the population (up from 4.4% pre-pandemic).
Foreign investment dwindling due to lack of access, the newly increased Empty Homes tax rate (from 1.25% to 3%), and the 20% foreign owners tax. This should allow Canadian residents more access to the market. This being said, for a while now we have already been seeing primarily (almost solely) locals driving the market.
As we have seen in the latter half of 2020, sales of detached homes have increased across Vancouver. Presumably, this has been caused by an increase in people working from home, and a lesser need/desire to live and work in the city centre.
With a limited supply of detached homes, however, we would expect to see these prices increase, as well as a potential increase in the number of 2-3 bedroom condos available on the market as new developments catch up with the change in the market. This may also coincide with condo’s offering larger and more spacious floor plans, and home office spaces becoming a more prominent feature of new builds.
Regardless of whether you’re looking to buy or sell property in Vancouver, the best way to be informed of the state of the market is to reach out and connect with our team. As some of Vancouver’s top-performing Realtor’s, we are dedicated to achieving the results you expect and can help with each step of the property acquisition and/or sales process.
For first time investors, property investing can be a safe and tangible means of wealth creation. It allows you to leverage a downpayment to acquire an asset, and if you find the right property can generate both income and profit. However, there are a number of variables that need to be considered in order to determine accurate property cashflows, equity, and profitability, to decide if the investment is worth it.
Property Investing in Vancouver: Getting Started
Property investing is unique in that it allows you to leverage a smaller position (your downpayment) to acquire an asset that can be 5-6 times higher in value. For many it is an attractive, time-tested and relatively safe investment to make. However, just owning and renting a property doesn’t mean that it is generating a positive cash flow, nor that it is going to be a profitable investment on your part.
Rather, investment properties need to be evaluated on several criteria
Likelihood of appreciation
Ease of renting
Your agent is the best source of information for a lot of this data and should have extensive knowledge of the state of the current market, neighbourhoods, and new developments in the area you’re interested in.
Cashflows: Positive, Neutral and Negative
Cash flow looks at the total flow of cash moving in and out of the investment. That includes any rental income, as well as deducting expenses such as strata, repayments, repairs, property taxes etc… Cash flow can be positive, neutral or negative, and can affect the overall profitability of your investment.
Positive cashflow: your investment is generating more from rental income than your monthly expenses and payments, generating additional income for you.
Neutral cashflow: the rental income is enough to cover all expenses/payments, but not to generate income
Negative cashflow: your payments/expenses are more than your rental income. This requires additional financial input to cover repayments.
In Vancouver, while rental rates are high, so are property prices. Positive cash flow to any significant level at the outset is impossible unless you’re putting down 35% or more (approx.). However, savvy investors love investing in Vancouver because of the number and quality of tenants, the trajectory of this world-renown city, and the historical performance of these investments.
Furthermore, a neutral cash flow will still see about 60% of each mortgage payment being paid towards your equity, which can make the property quite profitable when taken into account. Whilst positive cash flow may not be available immediately, it can become possible after principal repayments have been made, and depending on the intended term of the investment could still reap benefits long term.
What Can Affect My Cash Flows
There are a number of variables that can affect the cash flow and profitability of your property investment in Vancouver. These can affect how much rent you’ll be able to charge, your expenses, and whether there will be demand for your property and it’s location.
Market Variables -Is there a strong rental market? -Competition/availability in the area? -Standard of living -Proximity to amenities -Will a new development affect your ability to let?
Property Variables -Building expenses and maintenance costs –Property taxes -Contingencies for damage/repairs
Financial Variables -Rental income -Downpayment/repayments -Finance -Strata -Insurance -Purchase price
Evaluating a property investment should try to quantify and qualify as many of these factors as possible. The more informed your decision, the more likely you are to benefit from the investment.
Calculating Profitability of Vancouver Property Investments
To figure out what sort of profit could be made from your property as a rental the main factor to consider is your downpayment amount. This would in turn give you a rough idea of how much your monthly mortgage rate would be. Along with this, you factor in things like strata fees, yearly property tax etc… to give you a base amount per month.
Right now mortgage rates are incredibly low which is a huge bonus for you as a buyer. Access to finance and lower repayments can contribute to a larger investment on your part, or reduce the burden of the investment.
Your downpayment will affect your mortgage rate and amount, but with those figures, you can calculate your monthly costs.
Monthly costs = mortgage payment (governed by downpayment size and interest rate) plus strata fees, plus annual property tax amount, divided by 12.
Once you know your monthly costs you can work with your agent to analyse market data, such as current rental prices, property prices, neighbourhoods, and individual properties and match them up to determine if your property would be
a) cash flow positive, and
b) determine if your investment would be profitable.
What About Building Equity?
A positive flow of cash is only one of the ways to turn a profit from property investment. Whilst it can make it more attractive, using the available data and your agent’s knowledge/experience, you can build a thesis as to the likelihood of value appreciation, and determine whether the equity acquired/value built is worth the upfront capital.
A good rule of thumb is to plan to hold onto a property for a minimum of 5 years. This obviously depends on many things, but ideally, you want to be in a position where you don’t have to sell at any particular time, just in case. Of course, it will also be dictated by the evolution of your personal circumstances over time.
Below is a graph of the MLS HPI pricing index. The HPI price is the board’s way of most accurately calculating true average prices. Downtown falls under the area of ‘Vancouver West’.
If we look at Vancouver West (west of Quebec Street – one block west of Main Street) apartments, we can see that over the past 10 years the HPI price increased from about $430k to about $790k. The annualised rate of return is about 6.1% based strictly on this.
However, this does not take into account the ‘leverage’ aspect of real estate investing (using 20% of purchase for an asset worth 5x as much) nor does it take into account the assured equity building each month with every mortgage payment made.
More accurately, we would need to use:
the initial cash investment of 20% of $430,000 ($86,000), and compare that to
the end equity position (790k-430k = $360k)
plus let’s say about $1,000 paid toward the equity component of the mortgage every month for 120 months ($120,000).
So, we start with $86,000 cash and end up with equity of $480,000. The actual annualised rate of return would be 262% in this example. If you were to sell, the profitability would be just under $400,000, before closing costs and expenses are taken into account.
Note: the formula used for annualised rate of return was [(ending value of investment/beginning value of the investment) to the exponent of (1 / 10 years)] – 1
More recently, 2019 saw a slower than usual Vancouver property market, until Q4 where we started to see renewed vitality. This transferred into 2020, and even with the pandemic, we have seen the Vancouver Real Estate market hold strong and continue to flourish.
In November of 2020 sales reached almost 25% above the 10-year average and we had a 3.4% increase in prices of apartments overall compared to November 2019.
Whilst we would expect property transactions in the Downtown core to stay a little slower while the world navigates COVID, we also expect vaccinations to see some normalcy return to the market, and see the return of higher demand.
Ultimately investing in real estate uses leverage to acquire a robust and tangible asset. Regardless of market forces, as the city of Vancouver continues to grow so too will the need for housing. However acquiring the right property can be the determining factor in deciding whether your property is the right investment, and a profitable one to boot.
Your agent is the best source of information when it comes to calculating cash flow, assessing the state of the market, and accounting for unknown or ill-considered variables. If you’re interested in property investing in Vancouver and would like more information, reach out and connect with us.
Purchasing a pre-sale or ‘off-the-plan’ property in Vancouver gives you the opportunity to purchase property that has not been built yet. It can give you more time and flexibility to finance the purchase, may reduce some taxes, and allows you to make customisations to your property before it is even built! However purchasing pre-sale comes with its own set of risks to understand, and here’s what you need to know.
What Does Pre-sale Mean in Real Estate?
Pre-sales are a common component of the Vancouver Real Estate market. In its simplest form, you are pre-purchasing a property that is yet to be built (or in some cases in the early stages of construction).
For a lot of prospective buyers, a pre-sale condo is the most cost-effective way to enter the property market, as there are a number of advantages offered:
More time to accrue/obtain finance. When purchasing pre-sale, you only need to have your downpayment available. Depending on the contract there may be other smaller payments along the way, based on the schedule of construction. Generally, however, the entire payment is not due until the building is completed, which may provide a few extra years to save, and lower your mortgage amount to boot.
Depending on the state of the property market in Vancouver, your property may appreciate over the time that it is built.
Your downpayment and deposits are held in a lawyer’s trust account. This restricts the developer from accessing the funds until the building is complete.
New properties are subject to mandatory home warranties and insurance. This gives you a minimum of two years on the labour and materials, five years on the building envelope, and ten years on the structure of the building itself. By comparison, purchasing an existing property may not come with these warranties, which could increase the overall cost if you needed to rectify an issue.
You get a brand new home! Being involved from the start may give you the opportunity to customise the layout, finishes, colour scheme and more to make sure the property you move into is the one you want, from day 1.
What Are the Risks With Pre-Sale Property in Vancouver?
As with any investment or large financial purchase, there are inherent risks. When it comes to pre-sale property, however, there are a unique set of risks to understand.
Purchasing a pre-sale property as an investment is highly speculative. As these buildings can take years to complete, you are taking on the assumption that the property market will continue to appreciate, which may not be the case.
Even though the property market may change, you are usually purchasing your pre-sale condo at a premium to those currently available. This is because most pre-sale developments price their condo’s on the assumption that property prices will increase, not decrease. As a result, you may pay up to 30% more for pre-sale than you would for an already completed property.
Most pre-sale developments end up taking longer than expected. These delays can range from a few months up to 1-2 years. Regardless of whether the scheduling delays are caused by the developer or some external reason, there are usually clauses in the contract of sale which heavily favour the developer in these instances. This can make it difficult to plan a move-in date, and delay your own plans for your new property.
If a developer needs to make changes to the floor plan, materials or other design elements to comply with building codes they usually reserve the right to make these changes without notifying you. As such, the purchase you agree to in a showroom 3 years prior to the finished product can be different from the property you actually receive.
Your personal finances may change between signing the contract and the building’s completion. If you lose your job or something else impacts your income, you may not be able to access finance when the property is ready and lose your downpayment.
Delays in construction are common, and can be an inherent risk when purchasing a pre-sale condo
Can I Reduce My Tax by Purchasing Pre-Sale?
The property transfer tax (PTT) is one closing cost that often catches home buyers off-guard. It is based on the sale price of a property, at 1% of the first $200k, and a further 2% of the sale price from $200k-$2 million. As a first home-buyer, you may be entitled to a PTT concession, but only if the property is valued at less than $475,000, which isn’t very common in Metro Vancouver these days.
Purchasing a pre-sale property, however, can exempt the sale from the property transfer tax, provided the property is priced at $750,000 or less.
Whilst that is a win for the home-buyer, newly built properties are instead subject to 5% GST. This expense is usually in addition to the sale price of the property and should be accounted for when assessing your own finances.
If the property is to be used as your primary residence, there are opportunities to reduce your taxable capital gains in the future. However, this would be based on price appreciation, among other things.
How Do I Know I’m Purchasing the Right Pre-Sale Property?
Whilst there are never zero risks, there are a few things you can do to reduce the risks associated with a pre-sale property purchase:
Do your homework. Is the developer established and reputable? Do they have a good track record and happy clients? Is the property being built in an up and coming neighbourhood? Will there be access to services and other essentials? It’s important to look at the development as a whole and what it can offer you, not just the condo you wish to purchase.
Use a buyers agent! The best way to understand the property and neighbourhood is to use a licensed Realtor. They should be very aware of the area itself and new developments, including the positive and negative features of the development, and offer you industry-specific insights and advice.
In the same manner that you would assess the developer and development, choosing the right agent can make all the difference to your pre-sale property purchase in Vancouver.
It’s also important to keep in mind that a buyer’s agent does not cost you anything! Rather, a buyer’s agent is paid by the seller upon settlement of the property, so you have nothing to lose by letting the professionals help you.
If you’re interested in a pre-sale property, or another home purchase in Vancouver, the West Haven Group is here to help. Simply reach out to our professional team to schedule an obligation-free meeting.
Ready to purchase a home in one of Canada’s fastest-moving property markets? There are a lot of steps when it comes to purchasing a home in Vancouver, and they’re not always straightforward or easy to understand. So we’ve compressed them into bite-sized chunks! Our 5 step home buyers checklist can be used as a quick reference guide for your property purchases, and of course- we’re always here to help if you need anything further.
Vancouver Home Buyers Checklist #1: Engage a Realtor
There is a LOT of misconception when it comes to engaging a Realtor, or buyers agent when you’re on the property hunt. Many people are familiar with the commission structure of property sales, but for the most part, are unaware of how an agent can help you to purchase a property. The best part? It doesn’t cost you anything!
Rather, when you utilize the services of a Realtor, the commission is paid by the seller’s agency after completion. By engaging an experienced, high-performing Realtor/buyer’s agent you are also given access to:
Behind-the-scenes and off-market property listings
Immediate and arranged property viewings
The Realtor’s, and brokerages, internal communications networks, where new listings are usually posted first, often weeks or months before they become available to the public.
Vancouver Home Buyers Checklist #2: Mortgage Pre-Approval
When it comes to the home buyers checklist, determining the amount that you can actually borrow is an imperative step in finding your new home in Vancouver. Your Realtor can help to put you in touch with a suitable broker, as well as helping you to collect and compile the necessary information.
There are a number of reasons why obtaining a mortgage pre-approval early on is important as:
It helps to set realistic expectations by taking into account your real financial situation.
With it, you can now establish a budget and narrow your search options.
It puts you into a stronger position to make an offer, as vendors know that you are a legitimate and capable buyer.
Mortgage pre-approval can help you to reduce the emotional and financial stress of the purchasing process, by giving you clear, definitive answers about your access to finance.
The process will also determine your monthly repayments, and help you to establish a budget. That way you can calculate what you can actually afford to spend each month, to be able to meet your mortgage obligations whilst maintaining the lifestyle you desire.
Finding out what you can spend will save you time, energy and money when purchasing a home in Vancouver
Vancouver Home Buyers Checklist #3: What Can You Afford?
When it comes to purchasing a property in Vancouver, it can be difficult to marry your wishlist with affordability. Whilst we will always work our hardest to ensure you are happy with your new home, we find that in most cases there is usually at least one compromise, and it’s important to be prepared for it.
However, once you are aware of the funding available, you can begin to establish your wishlist, and then decide what you are willing to spend to acquire those features. If the events of 2020 have been any indicator, it’s also important to establish a budget that accounts for contingencies, as well as any other future events that you can take into account. Start by asking yourself questions like:
Are you starting, or growing your family soon?
Do you really need a water view, or do you need more space to live in?
Are you purchasing the property as an investment, and will it generate an income?
Do you have the required downpayment?
Will you require mortgage lenders insurance?
Do you need to move into something immediately, or can you be patient?
How much do you need for normal living expenses per month? Does this allow for utilities, bills, food, education, and socializing?
What is the maximum repayment amount you can afford, taking into account your lifestyle and contingencies?
Are you prepared for the closing costs on your property? These can add an additional 2-4% of the total purchase price, and need to be considered. Again- your Realtor can help you to determine and establish these costs.
Vancouver Home Buyers Checklist #4: Let’s Find Your New Home!
After completing the first 3 steps of our home buyers checklist, you should have a wishlist compiled, and now be aware of what you can afford to spend to acquire them. With a definitive mortgage figure, you can also begin to narrow your property search, which usually begins with websites like REW.ca.
If you have chosen to engage a buyer’s agent, the chances are they have already lined up a number of viewings and opportunities to meet your needs. As we mentioned earlier- a high performing Realtor will often have access to properties before they become public listings. They also tend to have an ear to the ground within their own networks, which can lead to off-market opportunities, and making sure you have the first access to view properties.
After viewing each property, ask yourself these five important questions:
What did I like/dislike about the property?
What would I have to change about the home in order for it to work for me?
If the price were right, could I see myself living in this property?
If so, what is that price?
Did the home ‘feel right’ to me?
Overall, trust your instinct!
Vancouver Home Buyers Checklist #5: Offer and Negotiations
When you’ve found a home that suits your needs (or your dreams) it’s time to make an offer. If you are using a buyers agent, they will be able to guide you to the right amount to offer, that is within your budget. However it is important to remember that there may be several offers on the table, and the list price is rarely the final sale price.
Moreover, submitting an offer doesn’t necessarily mean it will be accepted, or that you must ‘go firm’ on the sale.
Rather, most offers come with ‘subject to’ clauses or conditions, allowing you the opportunity to fully inspect the property and its condition. It also allows you the opportunity to complete your due diligence on the property, and, once your offer has been accepted, we need to work to satisfy the conditions (or subjects). These most commonly relate to:
Once you have made an offer on a property, it’s time to complete your due diligence
When the conditions of sale have been met, it is time to hand over a deposit. This is usually around 5% of the sale price and will be managed by your Realtor’s brokerage, your lawyer/notary, or both. This is also the time that closing costs need to be settled, including any property transfer tax, GST (on new properties), and legal costs.
Purchasing a new home can be a stressful and emotionally taxing experience. There are a number of moving parts that make the property industry what it is, and having someone experienced and on your side can make the process much easier and simpler. If you would like any advice or information about purchasing a new property, reach out and connect with our experienced team.