Slowing investments
A year later and a billion shorter: that’s the short story of Avison Young’s roundup of B.C. real estate deals in 2018, which saw $6.5 billion in deals worth $5 million and up.
The activity contributed to the second-biggest year of the past decade, led by exceptionally strong activity in the last half of the year.
While the year as a whole had $1 billion less in transactions than a year earlier, the second half of 2018 saw $1 billion more in transactions than the same period of 2017 and more than $2 billion more than the latter half of 2016. But the activity was largely due to deals negotiated in the first half of the year and masked a slowdown Avison Young expects to fully manifest in 2019.
“The approach of investors involved in acquiring assets started to change by mid-year,” the report states.
“The second half of 2018 ultimately marked the divergence of pricing expectations between vendors and purchasers and a temporary pause in the upward trajectory in pricing that had largely defined the market since at least 2015.”
The number of transactions shifted from 102 in the first half of 2018 to 100 in the second half, and the slowdown is deepening as you read.
“A substantial decline in the number of deals completed is forecasted for the first half of 2019,” reports Avison Young, noting that pricing should nevertheless remain strong. “While capital remains plentiful, purchasers became more circumspect in terms of what they acquired in the latter half of 2018 and into 2019.
Accelerating incentives
The lead item in last week’s federal budget, titled Investing in the Middle Class, was all about housing – reducing barriers for first-time owners, increasing supply and making real estate markets more fair. The free-market folks may balk at government intervention (there’s been plenty in B.C., with mixed results), but industry can’t complain about moves to increase supply.
“One of the most effective ways to address housing affordability in the long run is to encourage the creation of more housing supply,” the budget document states.
To this end, the budget allocates $10 billion in financing over nine years to new rental projects, while $300 million will encourage municipalities to develop innovative ways to boost supply.
There are also demand-side measures to help buyers and give builders a reason to build. These include allowing first-time buyers to access up to $35,000 in registered retirement savings (up from $25,000 today) and a shared-equity mortgage program for households with incomes below $120,000 a year. The program through Canada Mortgage and Housing Corp. will see buyers receive 5% towards the purchase of an existing home and 10% towards the cost of a new home.
CMHC couldn’t say how many households it expects to help in B.C., and Urban Development Institute president and CEO Anne McMullin questions the eligibility and repayment terms.
“We are concerned that this important incentive may not be available to those living in the fast-growing urban communities of British Columbia where it is most needed,” she said.
Budget moves notwithstanding
While the Vancouver market was singled out as one where housing prices had gotten out of control, and where buyers were especially in need of federal assistance, the latest data from Statistics Canada indicates that it’s also among the markets in which new housing costs are falling.
Ottawa’s number crunchers report that new housing prices in Vancouver inched down 0.3% in January versus a year earlier, driven primarily by construction costs, while land values held steady.
Colliers International’s latest report on the residential land market, meanwhile, reports that the decline is largely due to government policies aimed at cooling the residential market. Policy shifts and economic factors have conspired to undermine purchaser and developer confidence, cooling values and slowing starts even as strong population growth continues to drive the demand for new housing.
Relaying data from RealNet Canada Inc., Colliers reports that residential land transactions fell to 731 in 2018 (down from a peak of 1,294 in 2016) and totalled $5.5 billion – a 23% drop from 2017’s peak of $7.2 billion.•
