Sorry to Burst Your Bubble

Perhaps one of the biggest debates in Vancouver since, whether Earnest Ice Cream or Rain or Shine serves better ice cream, is if the current Vancouver housing market is a bubble.  Of course, if I could tell the future I would probably living here, but I have had this conversation many times over a cold one, and I’m happy to provide my two cents.

Firstly, when talking about this so-called real estate bubble, I would like it to be known that unlike many people, I believe that the markets in Vancouver and Toronto are completely different, and the main reason for this, is geographical. Toronto is a large sprawling city that will continue to grow in size because there are no oceans or mountains to hinder its growth. Developers will continue to build condos and create new neighborhoods in the GTA. For this reason, I think eventually the Toronto real estate bubble will eventually burst and, while I do not expect a full-out recession, I do believe the cost of condos will decrease as the supply eventually surpasses the demand.

Vancouver, on the other hand, looks like this, which should draw comparisons to other high priced real estate markets such as here and here, New York and Hong Kong respectively. With a limited land supply due to hindrances, such as oceans and mountains, there is a limited supply of real estate available. Foreign investment is also driving up prices, according to quartz.com, which is increasing the demand for real estate while the supply remains stagnant. For this reason, Vancouver is considered a “sellers market” meaning there are lots of people wanting to buy, and a limited number of houses available. This has even begun to cause bidding wars in Vancouver where properties are going for over asking, driving up the prices of Vancouver real estate.

The province newspaper recently posted an article that Chinese foreign investment is responsible for approximately 70% of homes priced over $3 million. Other articles have noted that there have been adjustments in Chinese currency (a decline of 4.4% last week), and decline in the Chinese stock market. I’m certainly no expert on the Chinese economy, but articles like this due speak of the instability of the Chinese economy, which may be responsible for wealthy Chinese investors wanting to avoid locking their money up in Chinese currency or the Chinese stock market, and seek more stable investments. So when world investment experts such as Laurence D. Fink say to “forget gold, [and] buy a Vancouver condo if you want to stash your wealth”, I tend to believe that the Vancouver market is a good investment.

What further blurs the picture, is that Harper has finally decided to take action on foreign real estate investment (article posted here). Harper has agreed that, if elected, he will begin to collect data on foreign buying of homes (finally). If it is found that the foreign investment is significant, and a government decides to take action by decreasing the amount of foreign investment, what effect will this have on Vancouver housing prices? While I do believe there will be an adjustment in housing prices, I believe the it will mainly affect the high end houses, and only make a small adjustment on the “cheaper” homes. My belief, is that even with major taxation on foreign investment, it will not be significant enough to ever cause a housing collapse, and that the Vancouver housing market will continue to be worth its weight in gold…or more.