BC Business
The COVID-19 pandemic has kicked the luxury real estate market into high gear, according to a new report by Sotheby's International Realty Canada.
This West Vancouver home, designed by renowned architect Ron Thom, sold in March after being listed for $21.5 million
In B.C. and across the country, COVID-19 has created winners and losers. Among the winners is the luxury real estate market, which is booming in Canada’s major cities, thanks to a transformation driven by the pandemic.
That’s the takeaway from a spring outlook report by Sotheby’s International Realty Canada. The brokerage, which defines luxury and ultra-luxury as residential property worth more than $4 million and $10 million, respectively, sees plenty of upside in Vancouver and elsewhere.
“I think this is going to be a very strong year, barring some unforeseen national event or some government policy that creates unintended consequences,” says Don Kottick, Toronto-based president and CEO of Sotheby’s Canadian division. “The buyers will continue to come, and once immigration picks up [again], there’s going to be even more.”
During the first two months of 2021, Vancouver sales of properties over $4 million jumped 41 percent year-over-year, MLS data shows. For single-family luxury homes, sales rose almost 30 percent compared to the same period in 2020, with one going for north of $10 million. “Single-family homes in the luxury space are selling at a premium, regardless of what price you’re looking at,” Kottick says.
Meanwhile, the Vancouver luxury condo market looks poised for a rebound. Sales of properties over $4 million climbed 75 percent year-over-year in January and February, with seven units sold. “We saw people pull out a little bit, but now with the availability of vaccines coming, we’re starting to see much more activity,” Kottick says. “So I think spring we’re going to see more uptake in terms of the luxury condominium space.”
Several factors are fuelling demand for luxury homes, Kottick explains. “We have an absolute shortage of inventory,” he says. “We’re sitting in a market where we have historically low interest rates still. We have long-term rates that are creeping up, but for the foreseeable future—the Bank of Canada says through 2023—we’re going to have low rates.”
Also, Canadian households amassed about $200 billion in savings last year, TD Economics estimates. “This is unprecedented,” Kottick says. “We’re sitting on this pile of money.”
Then there are the millennials, who represent as much as 40 percent of buyers, creating pressure on the demand side. “They’re coming charging into the market looking for property, and a lot of them are bypassing the first-time-buyer home and going right to the single-family dwelling,” Kottick says. “For while there, people were saying, Oh, millennials aren’t interested in buying real estate. Well, that’s not the case.”
As young buyers rush to enter the property market, they’re getting help from Mom and Dad. Through 2026, baby boomers will transfer $1 trillion in wealth to Gen Xers and millennials, Toronto-headquartered research firm Investor Economics projects.
At the same time, pandemic-related health concerns have prompted older buyers to switch gears. “You’ve got these baby boomers that, due to COVID, have changed what their retirement plans will look like,” Kottick says. “Some of them are saying, You know what? I’m going to fast-track to that ultimate home for my retirement now.”
Homebuyers’ changing needs play a role, too. “They’re looking at larger properties, and they’re going farther outside of where they would have been interested before,” Kottick says. “And then you have people looking for secondary homes and pieds-à-terre. And so that has pushed the interest outside of the urban areas.”
Kottick flags another trend that his company expects to help send luxury house prices higher over the long term. When Sotheby’s surveyed luxury and ultra-luxury buyers pre-pandemic, many wanted to move into homes that didn’t need renovations, he says. Things are different now. “Because of the shortage of inventory, they’ve expanded their search criteria,” Kottick says. “So now they’re willing to come in and renovate, they’re willing to do updates.”
With help from new Canadians, demand for luxury properties will only increase, Kottick maintains. During the pandemic, he notes, the market charged ahead without any help from immigration. Foreign buyers accounted for just 1.4 percent of home sales throughout the province last year, according to the British Columbia Real Estate Association.
But the federal government plans to welcome some 1.2 million new permanent residents by 2023. “Out of those 1.2 million, half are going to be looking to buy a home,” Kottick says.
Asked where international buyers will come from, he points out that there’s a large Canadian expat population in Hong Kong, which is now subject to Beijing’s national security law. Sotheby’s has also seen interest from Taiwan, where “there’s a lot of nervous people,” Kottick adds. Mexicans and Americans are weighing a move to Canada, too, he says. “We’re starting to see an uptick in interest from American buyers that are wanting to get away from all the politics and all the tension that’s currently building in the U.S.”
At the same time, big tech companies are creating more high-paying jobs in cities like Vancouver, Calgary and Toronto, Kottick says. “We’re getting more recognized as a global banking centre and financial centre,” he adds. “So all of this is going to create more demand from people who want to come to a much more stable climate.”
Of course, luxury buyers can afford to pay a premium. For the average Canadian, though, low inventory and high demand will keep pushing home ownership out of reach. But Kottick doesn’t support government policies that aim to make housing more affordable, such as capital gains and foreign buyer taxes.
“Real estate is built on supply and demand, and the government, because they’re not thinking long-term, go after the demand side,” he argues. “What they really have to do is focus on the supply issue. It’s the only way you’re going to address affordability.”
To that end, Kottick wants all levels of government to help grow the nation’s housing stock, from rentals to single-family homes. “Because of what’s happening globally, more people are going to want to come to Canada,” he says. “Unless we attack the true problem, which is supply, we’re just putting a Band-Aid on a problem that is going to get worse. Because everybody wants to come here.”