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At a Vancouver forum, experts see immigration adding fuel to the overheated big-city housing market

Kerry Gold, The Globe & Mail, April 23, 2021

Spring is in the air and the outlook is cheery for the next couple of years, according to pundits who spoke at the Vancouver Real Estate Forum held online last week

The opening remarks were delivered by Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal. His tone was far more encouraging than his talk last fall, in which he predicted the next six months would “not be very pretty,” with a housing market that would slow by winter. The housing market, however, did not slow. It only gained momentum. Last week, Mr. Tal said he sees a quick economic recovery – with Canadians sitting on piles of savings accumulated in the pandemic and immigration numbers greater than predicted, both of which will add more fuel to the already overheating housing market.

And he estimates around 60,000 to 70,000 non-resident Canadians, most of them living in Hong Kong, will return.

“We are starting to see this money coming into real estate in Vancouver and Toronto,” he said.

Anthem Properties chief executive officer Eric Carlson, who spoke as part of a panel, and other industry members also forecasted a roaring market thanks to increased immigration.

“[Immigration] numbers will be up in 2022, almost like the way they were pre-COVID. But it will take time to get up,” Mr. Carlson said. “In 2023, they will be higher; 2023 will be a rock concert of immigration. It’s going to be phenomenal. It’s going to completely mess up housing affordability.”

Mr. Tal says the economic fallout from the pandemic is deep, but narrow. Low-income jobs were wiped out, but high-income earning jobs actually increased.

“This is the first recession in Canadian history [in which] personal income has gone up. Crazy, but that’s exactly what we’ve seen.”

As a result, the income gap is even wider than it was prior to the crisis. That will increase the need for affordable housing.

“I see purpose-built rental as the solution,” Mr. Tal said. “I see a situation in which you are 35 years old and you are married with two kids, renting, and there is nothing wrong with [that]. When we develop this mentality, this way of thinking, I believe the affordability channel in the Vancouver market will be open in a very dramatic way.”

As for those who were lucky enough to make more money in the past year, the only obstacle getting in their way of spending it is access to the COVID-19 vaccine. A lot of people have saved a bundle, which will play a role in the recovery.

“This has major implications, because you have high-income individuals keeping their jobs and their income is rising, but they are not spending.

“We are sitting on a mountain of cash. I estimate that individuals are now sitting on roughly $100-billion of extra cash, more than they need. This is money that is sitting in chequing and savings accounts, collecting nothing, and those people are willing and able to spend that money the minute that they have the green light. Believe me, all those people are dying to go to restaurants but they are not willing to die doing so, and so they are waiting.”

The question becomes, what to do with all those savings? With interest rates as low as 1.3 per cent, mortgage broker Andrew Wade said borrowed capital is too cheap to even think about paying off the home. He’s seeing a “major surge” in Canadians buying vacation properties in Canada. However, he’s also seeing spending behaviours that are making him nervous. It’s common to see bidding wars on houses where people are making subject-free offers up to $300,000 above asking price, Mr. Wade said.

“This scares me,” he said. “I advise explicitly against this if the buyer is depending on borrowed funds.”

Mr. Wade is not so sure there is a “mountain of cash” available to most Canadians, who need to think about the high cost of future retirement and other costs. Also, the new stress test for uninsured mortgages goes up to 5.25 per cent on June 1, which will reduce a buyer’s borrowing amount by about 4 per cent, he says. That should help address a market that might not be sustainable, particularly on purchases of more than $1-million. Another trend he is seeing is homeowners tapping into their equity to afford their lifestyle. If there’s a market correction, he advises his clients to remember that, “cash is king.”

Real estate industry veteran Rudy Nielsen concurs. Mr. Nielsen, founder of the NIHO Land & Cattle Co. Ltd., says he always keeps available cash, even if it’s earning next to nothing. Mr. Nielsen generally agrees with Mr. Tal’s outlook, but he adds that there are a lot of people struggling, too.

“Some people do have a lot of money in their bank account, yes, and some are living month-to-month. Lots of people are hurting out there.”

For a long time, Mr. Nielsen was B.C.’s largest owner of private property, with about 500 properties at his peak. He started out logging properties, and then bought acres of ranch land and farms, office buildings, even entire towns. He’d sell properties in the towns on a lease-to-own basis.

In the 1970s, he’d built a real estate empire and then in 1981 he got caught in the crash, when interest rates soared to 17 per cent, and he owed $1.8-million. He rebuilt the empire, and he says he learned some lessons, such as not to over-leverage like he’d done when he was young. Today, at 80, the appraiser, developer, landowner and outdoorsman has downsized to about a dozen large properties, including 700 acres of farmland in the north only accessible by helicopter.

His advice is to invest for the long term.

“Some of the properties I’ve sat on for 30 years, but my returns are incredible, in the thousands of per cent,” Mr. Nielsen says.

He believes in investing in mortgage investment corporations, which he admits are “a little risky” because they are mostly investments in second mortgages, and foreclosures are always a possibility. But the returns he’s getting are 9 per cent to 10.5 per cent, he says.

“And I still keep some properties. I am patient and I sell as I see fit.

“The way I look at my land is, it’s my second bank.”

He advises people who’ve saved some money and who are starting out to buy recreational property that they will use, which will be worth a lot more by the time they retire. He tells the story of meeting a young family a decade ago in Williams Lake. They had sold off their Maple Ridge home to buy acreage with a few holiday cabins to rent out, with less income but less stress. He sees a trend like that happening now.

“I’ve always done good in land. Right now, I’ve been in business since 1964 and I’ve never seen more demand for land than I have right now. … We are selling everything we’ve got. We are getting good prices. There is a line up of people wanting the next piece.”