Safe havens and cash flow dominate investor concerns

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Don’t worry

CBRE Ltd. kicked off the Vancouver Real Estate Strategy and Leasing Conference last week with its research director Spencer Levy weighing in on the outcome of the presidential election in the U.S.

“Despite the fact that we’re going to see short-term implications … we’ll be fine, either way,” said Levy, who went to law school with former presidential hopeful Ted Cruz and counts Republican candidate Donald Trump among his first clients. “Optimism is the most important factor of all for … our world going forward.”

Conversations over the past few months suggest that the road to the November 8 election has undermined confidence in the U.S. political process more than in the resilience of the U.S. economy.

Global growth has been slowing in recent months, and while the outcome of the U.S. election may deepen the slowdown, it shouldn’t come as a surprise to anyone. Joe Segal, interviewed for a series of video clips CBRE aired, reiterated that “a correction, not a disaster,” is inevitable – a sentiment he voiced this past May at an Urban Development Institute luncheon.

Once and future king

During times of uncertainty, cash is king.

So when moderator Tony Quattrin and KingSett Capital Inc. partner Rob Kumer clashed at a recent meeting of the commercial real estate association NAIOP over where real estate’s value resides, it was a glimpse of the tensions within the current market.

Quattrin, vice-chair of the national investment team at CBRE, argued that low interest rates combined with strong demand for few assets should fuel higher asset values. Kumer shot back that real estate needed income for tenants to pay existing or higher rents.

“Where the interest rates go, where the cap rates go, whether Calgary comes back on the map or not, whether the Chinese buyer’s here or not – it just doesn’t matter. But you need business growth,” Kumer said.

Taken in stride

Most observers concede it’s still too early to definitely gauge the impact of the province’s tax on foreign home purchases in Metro Vancouver. Yet with each new release of data, it appears the measure is having limited effect.

Statistics from the Real Estate Board of Greater Vancouver point to a mere 1.2% decrease in the benchmark house price for the region since July, with the price for October 2016 still 25% higher than a year ago. The latest buyer data from the province also indicates foreign investment in Metro Vancouver homes strengthened in September.

Between June 10 and August 1, prior to the implementation of the tax, foreign nationals were involved in 13.2% of all transactions and paid 15.4% of the cash. The proportions diminished to 0.9% and 0.3%, respectively, in August.

However, in September, foreign nationals represented 1.8% of home purchases and raised their share of the value to 1.1%.

Small wonder that RBC Economics believes the market is absorbing the effects of the tax, while others expect the adjustment to complete within six months. 

pmitham@telus.net