My wife and I live in downtown Vancouver, B.C., one of the hottest real estate markets across the country. We just received our property assessment value for 2016, and it has gone up by over 12 per cent in just one year, and that's probably average for where we live. Places like Lion's Bay, just 30 minutes outside the city, reports of property assessment values rising 15-20 per cent, and some as high as 30 per cent. Every day I hear about a real estate bubble on the edge of bursting, with home sale prices exponentially rising well above assessment values, a new crane/development being announced and friends complaining that rental prices are getting ridiculously high.
So where does it all stem from, why are we such an attractive market? I don't think it's a surprise to anyone that foreign investment from Chinese investors over the past few years, and even decades, has been a major contributor to our real estate boom. There are plenty of other factors I'm sure (our incredible beaches, scenic views, fireworks in English Bay, etc.), but I would argue that the Asian influence would be at the top of the list.
OK, so with the previous in mind, what kind of impact will the recent market downturn in China have on our precious real estate? For those of you who might have been in a coma over the past few months, here's a quick update -- China's stock market isn't doing so well, like not well at all actually. It all started in June of 2015. At the time, China's stock market was on an incredible hot streak. With the state-owned media urging them on, many people started pouring their money into stocks. The resulting growth was explosive but unsustainable. As the demand for stocks increased, so too did stock prices. Meanwhile, the overall Chinese economy had actually been slowing down, and debt was skyrocketing. This led to a sudden mass loss in confidence, and a shocking drop in the Chinese stock market.
Over the past few months, the Chinese government has done everything in its power to stop losses. At first their efforts seemed to be working, with volatility in the region decreasing towards the end of 2015. However, over the past first few days of trading in 2016, it's clear that there is still a lot of anxiety and fear amongst investors in China. Just last month, China's stock market was again halted after only 30 minutes of trading, the shortest day in its 25 year history. Since the majority of investors in China's markets are individuals, rather than institutional investors, panic and sell-offs have spread at a much faster rate. Most economists agree that the recent wave of downturns stems from the lowering of the local currency.
This leads me to the Renminbi (also known as the yuan), China's currency, which is fixed to the U.S. Dollar. Just recently, and with little warning, the People's Bank of China lowered the exchange rate of the yuan against the U.S. dollar by 0.51 per cent. This recent currency move has led to a massive selloff in the region, with investors looking to move their assets out of China. Although it's not as easy to convert and move funds out of China, as it is for us to move down south, the government has yet to impose any major restrictions or limitations on doing so.
So now that you have some lay-of-the-land, let's bring it back full-circle. Below is a simple flow-chart that I think will help in explaining why I think the recent market turmoil in China will lead to higher demand for real estate in Vancouver. Working our way through, it seems pretty clear that a major fall in the Chinese Stock Market, could ultimately lead to further increases in Canadian real estate prices.
I understand that this is a heated topic, so I welcome your comments and thoughts. As an investment advisor, it's important for my team and I to help educate others on the importance of diversification. Although my opinion is towards a further increase in property prices in Vancouver/Toronto, this is not a fact or with 100 per cent probability. It's important to consider your home and investment properties as part of your net worth, especially as they are typically some of the larger portions of your portfolio. For more specific questions or concerns, please seek the advice of a professional real estate agent.
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This home was listed at just under $3 million in June, and was sold to an offshore buyer for $4.1 million after a couple hours, the realtor said.
This abandoned home (read: eyesore) became a dumping ground over several months in 2015. Piles of rotting trash and unwanted furniture attracted rodents to the area, and the smell was sometimes so bad that neighbours refused to open their back doors. The house was assessed at $813,000, and others in the area were valued at over $1 million.
"Avail now. Bring your tent." A Craigslist ad advertised a backyard for rent for $500 per month. WiFi, use of the home's bathroom, kitchen, laundry, and "art room" were part of the deal. Great for travellers, apparently!
This Tudor home in Vancouver's ritzy Shaughnessy neighbourhood was listed for $5.99 million in May. After 12 days, it sold for just over $8 million. “When you’ve got too little supply (of detached houses) and too many buyers, that’s always what happens,” realtor Stuart Bonner told The Province.
Bargain alert: a former grow-op hit the market in March for $930,000. The 1968 two-storey home was in such bad shape that no one could live in it. The house got an occupancy permit back in 2001, and was renovated before it was listed. The price was mostly because of the 6,000 sq.-ft. lot.
This rare, 3.6-metre wide home sold in April for $1.35 million. Tucked in the upscale Point Grey neighbourhood, the floor space is only 945 sq.-ft., but manages to cram in a full kitchen, master bedroom, living room, garage, den and 1.5 bathrooms. The home is believed to be one of the last of its kind in the entire city, according to the realtor.
This house, listed for just under $1.6 million, sold for $2.17 million in March — a mind-boggling 35 per cent over asking. "It was the highest price per square foot ever achieved for an East Vancouver home," realtor Paul Eviston told CBC News.
Chump change, amirite? This 25,000 sq.-ft. mansion, which sits on a 1.09 hectare property, was purchased in December 2014 for $51 million. (Details of the sale were made public in March.) The deal included a movie theatre, grass tennis court, and 10-car garage, according to the CBC.
Talk about a sweet deal! This (very well-decorated) gingerbread house was advertised on Craigslist for $4.5 million in December. It's a one-bedroom home that's a single sq. ft. in size. The baking sheet upon which it stands was not included in the sale. The seller asked for "serious" inquires only.
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