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Property prices tend to rise along SkyTrain lines—and consequently, so does development
There are plenty of questions surrounding B.C.'s real estate market in 2015 (though that may actually be a good thing). Fortunately, amid all the uncertainty, some sectors seem poised to outperform
To stock market investors, the phrase “wall of worry” refers to the negative factors that a market must surmount if it is to keep ascending. The wall can sometimes prevent other people from making sound decisions, possibly to the benefit of the investor.
Well, the wall of worry also pertains to the purchase of four walls, especially just now. For example, here are two questions, identical except for the preamble: With property valuations high and returns on investment low, and this at a time when resource industries are stumbling, is 2015 the right time to invest in B.C. real estate? Alternatively, the question could be: With bonds, equities and virtually every other investment option currently looking so risky, is 2015 the right time to invest in B.C. real estate?
Worries either way, but with different twists. On one hand: clear risks to local property markets. On the other: the kind of relative security that has turned B.C. and its real estate into something of a global safe haven.
It’s a tie that economists don’t seem willing to break. For residential real estate, the CMHC predicts lower starts and a mild price uptick in 2015, while a brace of bank and industry economists lean toward more of the same, even as many worry that housing is overpriced and unaffordable. Mentions of continued strong immigration inflows and the phrase “soft landing” echo through their myriad forecasts, but so do concerns about an inevitable increase to interest rates, toughened lending standards and economic uncertainties.
In the case of commercial and industrial property, the landscape is especially complicated, with some sectors and locations shining even as others dim. Overall, though, forecasters such as PwC point out that cities like Vancouver are only now being discovered by global investors, even as domestic REITs and pension funds continue to show a strong appetite.
So, uncertainties and contradictions—and that’s even before diving into prospects for northern B.C., which mere months ago looked so bright. If anything can be said about B.C.’s real estate market in 2015, it’s probably this: Some areas and sectors will shine, some will muddle, and others will limp. Here are three that might shine.
Rapid Transit Corridors
It’s inarguable that property prices have risen significantly along Metro Vancouver’s SkyTrain lines, and clear also that the trend toward densification, upzoning and higher valuations has only accelerated in recent years. The wall of worry for investors has more to do with the timing and routing of potential additions to the network.
The first obstacle is a June vote mandated by the provincial government to approve a plan to raise $7.5 billion for a new 10-year transit infrastructure plan, including the Broadway subway and light rail in Surrey. There’s no guarantee the vote for a new 0.5 per cent regional sales tax will pass, which has perhaps helped delay price appreciation along the routes.
Even if voters cooperate, it’s not certain how quickly new lines will be built and in what order, let alone what the effects might be. A Broadway route might have less impact from an appreciation point of view, as much of the corridor is already fairly dense (with accordingly high property values), while in some of the other areas community opposition to densification will be intense. Meanwhile, current plans for an extension along King George Boulevard and from the SkyTrain terminus to Langley call for light rail transit, which doesn’t attract ridership as readily and might not precipitate the same kind of densification.
Still, with half of the region’s population growth through 2041 slated by the Metro Vancouver Regional District to occur south of the Fraser, Surrey genuinely is a city on the move—yet with real estate valuations that remain reasonably attractive. The median selling price of detached houses hovers around $600,000 compared to $960,000 in demographically similar East Vancouver, and Avison Young’s office space survey shows a lease rate for Class A space topping out around $22 per square foot compared to $40 in downtown Vancouver. Former mayor Dianne Watts is now running for federal office with the governing Conservatives, who just might speed the construction timeline by chipping in a little pre-election transportation cash.
In just the past five years, a benchmark detached house on Vancouver’s west side has risen in value by almost 50 per cent while its equivalent a few kilometres away on the Sunshine Coast (albeit some of them via ferry) has dropped almost 10 per cent. Incredibly, the west-side house would cost almost seven times as much: $2.32 million versus $351,000.
There are reasons to think the trend might reverse. One is a mild resurgence within the coastal forest industry, which is mostly geared to producing lumber for the steadily improving U.S. housing market. A second is the fall in price of almost every other commodity and the economic wake that’s likely to follow, especially a lower Canadian dollar. That should induce snowbirds from the prairies and Ontario to once again consider coastal B.C. instead of automatically choosing Arizona or Florida—alternatives that in Canadian dollars have almost doubled in price over the past three or four years. A third is the combination of real estate wealth for those who have it and unaffordability for those who don’t in Metro Vancouver, since that’s where a big chunk of coastal homebuyers originate.
Might the better times extend to areas of the Interior that cater to the same mix of recreational buyers and lifestyle migrants? Forecasts suggest so, but some cautions should be noted. There’s no similar forestry industry uptick (thanks in part to the mountain pine beetle), and most other local resource industries are flagging. As well, housing markets in places like the Okanagan are closely linked to those in Alberta, which are almost certain to sag with the collapse of oil prices.
By now it’s almost a cliché that Vancouver is an example of that newest phenomenon, the hedge city, favoured by the global super wealthy as a place where money can safely be parked with little concern for short-term returns. In a word, the city is considered to be sustainable. Along with Toronto and Calgary, Vancouver topped the list in a 2014 survey by U.K.-based property developer Grosvenor, which ranks 50 of the world’s cities on their resilience—their ability to cope with adverse events, and by extension, their soundness as long-term investments. There’s that consistently high ranking in livability surveys of various stripes. Even climate change, so catastrophic to many parts of the world, is forecast to go relatively easy on the region. No wonder a Barclays Bank survey in 2014 found that of the astounding 47 per cent of wealthy Chinese who wanted to get out of the country within five years, most preferred Canada (and by inference, Vancouver) as a destination.
True, with the cancellation of the Immigrant Investor Program early in 2014, getting from there to here isn’t going to be as easy as it once was, but there are ways, and markets in places like West Vancouver and Vancouver’s west side have yet to be dented. On the surface, this is a category of real estate that would appear uniquely vulnerable to the unpredictable intricacies of geopolitics and global economics, not to mention domestic policy. Yet for more than a decade it has been the surprising Steady Eddie, striding ever upward (save a months’-long blip in 2008-09) as other sectors fluctuated, sometimes wildly. The same pattern has been evident in other hedge cities, especially for ideally located properties, whether residential or commercial. In turn, that has given rise to yet another new designation, “Super-Prime,” a category for which pretty much every forecaster sees blue skies ahead.