Real Estate

Vancouver housing bubble?

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  • Dec 2nd, 2020 5:59 pm
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Deal Fanatic
Oct 7, 2007
7616 posts
3689 upvotes
RxMills wrote: Hindsight is a wonderful thing.

The strength in the housing market seems to have been due to two things:

(1) Access to money
- extremely low interest rates, that may get even lower, giving everyone access to more cheap money
- most people, that can buy at today's prices, are doing as well as before or even better
- no one is talking about debt-load, and most know that the gov't will step in to help if the masses need it

(2) Desire a more COVID-compatible Home
- a little bigger space
- perhaps a less urban location, or a less congested urban life

Absent anything else, these could mean continued price support of the market.

Two things are currently absent from the market:

(1) A significant belief that our incomes required to support our monthly costs may be significantly diminished
- most of the current COVID economic causalities were not in a position to purchase a home of any kind in today's market
- no mass-layoffs/down-sizing (yet) for those with higher incomes

(2) My home may be worth significantly less in the future
- many had this belief in March/April, but once the market fully re-opened in June/July, high demand was there
- the opposite seams true now and most believe that prices will continue to rise
- no motivated selling

These beliefs will likely continue, absent any surprises or prolonged shocks to the economy. We'll see what unfolds in 2021. As 2020 financial results become disclosed, there may be significant cost-cutting. The Feds shocked the country with a $350B deficit. Now I'm hearing $450B and no one seems concerned. The misbelief is that all the govt high spending won't be needed after a vaccine. I think that's a misbelief as the natural economic markets won't be able to support themselves for a long time to come, absent monthly govt monetary interventions.
Interesting analysis. Buyer behaviour definitely seems to reflect these observations.

It is really concerning that both those who lead us and those who are being led seem to show little to no concern for fiscal responsibility. It is as if there is no concern for ever having to pay anything back. In previous times, we would hear reminders every so often from the government about not getting too leveraged and just being mindful of our personal spending for our own sakes. Today, it just seems like we can spend both as individuals and as governments at the maximum of our limits. I don't know where such confidence comes from, especially during a pandemic. I am not so sure it is good for anyone's mental health to be carrying an excessive debt load. JMHO
Deal Addict
Apr 10, 2011
2014 posts
1615 upvotes
GVRD
Canada is following the lead of many other nations in continually lowering interest rates and providing liquidity (and other supports) to encourage borrowing and spending. People with good income/wealth with continue to have more spending power (through access to cheap credit) and will put money into any investment that will protect their wealth (stock markets, precious metals, and real estate).

People negatively affected by the COVID-economy will continue to have less spending power and will continue to request more assistance from their political leaders. It's likely that a Biden win in the US election would mean more tax on corporates and higher-income earners. Trump has already been using massive monetary stimuli so there isn't much more Biden can do there. What's worse is that a substantial stimulus will be needed post-vaccine to return to our previous economic robustness and more - we'll need an even better economy to work on our new debt bubble. Biden's increased taxes (and possible COVID-shutdowns) will produce some further negative pressure on their economy. Biden's increased spending on green, health care and social programs will push the limits of trillion-dollar spending programs even further, while tax revenues received will go the other direction. It's going to be interesting to watch this new unchartered territory.

For Canada, I believe the Trudeau-DP alliance will continue, along with current government policy. The NDP will continue to promote maintaining and enhancing the financial support of lower income (and no income) Canadians. If Trudeau's economic advisors try to pull in the reins on gov't spending, the NDP will be there to say "not yet". Canada neither has the economic engine of the U.S. nor is the Canadian dollar a world currency. Normally, the Conservatives would have taken over, but many conservatives have become quite liberal - eager now to demand government help in all forms for their family members and businesses.

Therefore, the US and Canada should continue to have bottom-level interest rates and massive government spending for a long time to come. Perhaps real estate, as a perceived monetary "safe haven" and mostly a tax-free one, will continue to do well. The one area that I think could be the catalyst for change is the condo markets of Toronto and Vancouver. With a declining economy, high priced condos are not seen as long-term investments. Condo owners tend not to think long-term and are more "mobile" in their locations. I anticipate a steady decline in that market for the next year at least. If that decline were significant, and they say it always starts with condos, there would ultimately be an impact on the detached market.

Ultimately, all governments need their economies to bounce back and get into high growth to save their housing markets and costly government economic interventions. Ironically, so far, only China seems to have been able to accomplish that. China has the added benefit of low taxes and low government social support costs. It may be the Yuan that gets the most support from the coming year.
Deal Fanatic
Oct 7, 2007
7616 posts
3689 upvotes
RxMills wrote: Canada is following the lead of many other nations in continually lowering interest rates and providing liquidity (and other supports) to encourage borrowing and spending. People with good income/wealth with continue to have more spending power (through access to cheap credit) and will put money into any investment that will protect their wealth (stock markets, precious metals, and real estate).

People negatively affected by the COVID-economy will continue to have less spending power and will continue to request more assistance from their political leaders. It's likely that a Biden win in the US election would mean more tax on corporates and higher-income earners. Trump has already been using massive monetary stimuli so there isn't much more Biden can do there. What's worse is that a substantial stimulus will be needed post-vaccine to return to our previous economic robustness and more - we'll need an even better economy to work on our new debt bubble. Biden's increased taxes (and possible COVID-shutdowns) will produce some further negative pressure on their economy. Biden's increased spending on green, health care and social programs will push the limits of trillion-dollar spending programs even further, while tax revenues received will go the other direction. It's going to be interesting to watch this new unchartered territory.

For Canada, I believe the Trudeau-DP alliance will continue, along with current government policy. The NDP will continue to promote maintaining and enhancing the financial support of lower income (and no income) Canadians. If Trudeau's economic advisors try to pull in the reins on gov't spending, the NDP will be there to say "not yet". Canada neither has the economic engine of the U.S. nor is the Canadian dollar a world currency. Normally, the Conservatives would have taken over, but many conservatives have become quite liberal - eager now to demand government help in all forms for their family members and businesses.

Therefore, the US and Canada should continue to have bottom-level interest rates and massive government spending for a long time to come. Perhaps real estate, as a perceived monetary "safe haven" and mostly a tax-free one, will continue to do well. The one area that I think could be the catalyst for change is the condo markets of Toronto and Vancouver. With a declining economy, high priced condos are not seen as long-term investments. Condo owners tend not to think long-term and are more "mobile" in their locations. I anticipate a steady decline in that market for the next year at least. If that decline were significant, and they say it always starts with condos, there would ultimately be an impact on the detached market.

Ultimately, all governments need their economies to bounce back and get into high growth to save their housing markets and costly government economic interventions. Ironically, so far, only China seems to have been able to accomplish that. China has the added benefit of low taxes and low government social support costs. It may be the Yuan that gets the most support from the coming year.
I think what you have outlined makes sense and seems reasonable.

My sense is that people in the U.S., even those in the lockdown states, are chomping at the bit to get back to work/school/business and this is going to have a strong impact on the results of the upcoming election. I think that the desire for normalcy is so strong in the U.S. that they will be heading back to normalcy quicker than many other jurisdictions. And, hopefully, if a reputable pharmaceutical company is able to produce a vaccine in the coming days, this will go along way to them rebuilding their economy.

I see Canada in a different place than the U.S. and I am not sure what our reaction will be when the U.S. starts to open things up. Will we be even more fearful than we are right now? Will we continue to keep our borders locked down? My sense is that many Canadians like it this way so perhaps it will remain like this for some time.

I am hearing rumblings about some major changes to how our society will be governed in the coming days including changes to individual debt obligations, private property ownership rights, etc. that are making me a little bit uncomfortable. I keep trying to dismiss such articles as crazy but the more these are being discussed and raised elsewhere, the more I wonder if there is something there to be concerned about.
Deal Guru
Jan 27, 2006
14891 posts
7837 upvotes
Vancouver, BC
choclover wrote: I am hearing rumblings about some major changes to how our society will be governed in the coming days including changes to individual debt obligations, private property ownership rights, etc. that are making me a little bit uncomfortable. I keep trying to dismiss such articles as crazy but the more these are being discussed and raised elsewhere, the more I wonder if there is something there to be concerned about.
No one will be concerned about debt until debt becomes a concern. I know that sounds strange but that's how it was previously. Once you start seeing interest rates go up, you'll suddenly see stories about how the government interest payments are now chewing into more and more of the budget resulting in lower levels of service...
Member
Dec 5, 2009
219 posts
112 upvotes
Debt obligations mean nothing now. The total debt number will grow dramatically before the pandemic is over. Once you do the math, you will understand that paying it back will not be feasible and we are on the way to something else.
Jr. Member
Dec 21, 2011
179 posts
34 upvotes
BURNABY
When I was in my early 20s I wanted to buy a one bedroom condo in Metrotown, I had the downpayment but needed help to sign for the mortgage but couldn't get it....that condo was going for 300k then is now pushing 600k

Now 7 years later my mom wants me to help her buy a place here, it pretty frustrating to be sure.
Deal Addict
Dec 20, 2018
3966 posts
3181 upvotes
RxMills wrote: Canada is following the lead of many other nations in continually lowering interest rates and providing liquidity (and other supports) to encourage borrowing and spending. People with good income/wealth with continue to have more spending power (through access to cheap credit) and will put money into any investment that will protect their wealth (stock markets, precious metals, and real estate).

People negatively affected by the COVID-economy will continue to have less spending power and will continue to request more assistance from their political leaders. It's likely that a Biden win in the US election would mean more tax on corporates and higher-income earners. Trump has already been using massive monetary stimuli so there isn't much more Biden can do there. What's worse is that a substantial stimulus will be needed post-vaccine to return to our previous economic robustness and more - we'll need an even better economy to work on our new debt bubble. Biden's increased taxes (and possible COVID-shutdowns) will produce some further negative pressure on their economy. Biden's increased spending on green, health care and social programs will push the limits of trillion-dollar spending programs even further, while tax revenues received will go the other direction. It's going to be interesting to watch this new unchartered territory.

For Canada, I believe the Trudeau-DP alliance will continue, along with current government policy. The NDP will continue to promote maintaining and enhancing the financial support of lower income (and no income) Canadians. If Trudeau's economic advisors try to pull in the reins on gov't spending, the NDP will be there to say "not yet". Canada neither has the economic engine of the U.S. nor is the Canadian dollar a world currency. Normally, the Conservatives would have taken over, but many conservatives have become quite liberal - eager now to demand government help in all forms for their family members and businesses.

Therefore, the US and Canada should continue to have bottom-level interest rates and massive government spending for a long time to come. Perhaps real estate, as a perceived monetary "safe haven" and mostly a tax-free one, will continue to do well. The one area that I think could be the catalyst for change is the condo markets of Toronto and Vancouver. With a declining economy, high priced condos are not seen as long-term investments. Condo owners tend not to think long-term and are more "mobile" in their locations. I anticipate a steady decline in that market for the next year at least. If that decline were significant, and they say it always starts with condos, there would ultimately be an impact on the detached market.

Ultimately, all governments need their economies to bounce back and get into high growth to save their housing markets and costly government economic interventions. Ironically, so far, only China seems to have been able to accomplish that. China has the added benefit of low taxes and low government social support costs. It may be the Yuan that gets the most support from the coming year.
I don't know, the Dems have managed to decrease deficit in past while republican seem to run it up with huge spending on wars and tax cuts for selected group

Also taxes (personal and corporate) are actually quite high in China and with rapidly aging population, their spending will also increase. Tax burden from income to capital gains is higher in China than Canada/US generally

Where did you get China has low taxes from? They range 3-45% and is a progressive system like ours
Deal Addict
Apr 10, 2011
2014 posts
1615 upvotes
GVRD
StatsGuy wrote: Where did you get China has low taxes from? They range 3-45% and is a progressive system like ours
I was referring to the tax rates applicable to business owners, rather than ordinary citizens (plumbers, teachers, etc.). Most "satellite families" in Canada, that come from China, have business operations in China. Dad/Husband is not returning to China for his work as a plumber or teacher. Owners of successful companies pay themselves in dividends, not personal salaries.

In China, the tax rate on business dividends is only 10%. (In 2005, the rate was cut from 20%.)
In Canada, it can be as high as 51%, depending on the province.

On the company itself, China's corporate taxes on companies is 25%, but it's reduced to only 15% for technology companies. For Canada, it can be as high as 38%, depending on the province. Canadian companies have to pay very high public (mandatory in many provinces) and private (optional) health care costs. China... not so much.

Let's look at why Meng Wanzhou obtained a Canadian Citizenship as a "wealthy immigrant investor", and then revoked her Canadian citizenship afterwards - to eliminate being taxed on her world-wide income.

Huawei's corporate tax rate is merely 15% in China, as a result of being a technology company. The dividend tax rate is also only 10%.
Therefore on $1,000,000 in corporate earnings, Huawei would pay China taxes of about $150,000. If Meng Wanzhou were the sole business owner, she'd then pay 10% in dividend earnings on the after-tax corporate profit of $850,000, or another $85,000.

CHINA >>> Total tax of $235,000 on $1,000,000 in business earnings paid out as dividend income

In Canada, Huawei would be first taxed at a rate as high as 51%, depending on the province and credits. That's about $500,000 in taxes on $1,000,000.
Meng Wanzhou's tax on earnings from dividends might be as high as 34%, depending on the province. That's another $170,000 in dividend taxes to Canada, after the after tax corporate earnings of $500,000.

CANADA >>> Total tax of $670,000 on $1,000,000 in business earnings paid out as dividend income

This is why business owners in China continue to work in China while their Canadian satellite-family presence reports low/no income in Canada. China continues to benefit from those tax revenues, but Canada receives almost nothing towards the cost of Canadian social programs (medical, etc.).

Sources:
https://www.cbc.ca/news/canada/british- ... -1.4943162)
https://en.wikipedia.org/wiki/Meng_Wanzhou
https://en.wikipedia.org/wiki/Dividend_tax
https://en.wikipedia.org/wiki/List_of_c ... _tax_rates
Deal Addict
Apr 10, 2011
2014 posts
1615 upvotes
GVRD
"Chinese Communist Party, satellite families and Vancouver real estate"
September 22, 2020
https://thinkpol.ca/2020/09/22/chinese- ... als-nexus/
A recent divorce case offers a glimpse into the nexus between the Chinese Communist Party, satellite families and Vancouver real estate.

In the case recently argued at the Supreme Court of British Columbia in Vancouver, Bin Bin Tang had applied for interim spousal support from her ex-husband Wei Cheng. “Ms. Tang worked her way up to a senior position in the Communist Party of China,” read the judgement by Master Elwood. “Mr. Cheng built a successful business focused on real estate development.” Court documents reveal that Ms. Tang moved to Canada, in her words, “upon the insistence of [Mr. Cheng] … and became a full time housewife” In 2007.

They bought a house in West Vancouver where she raised her son while Mr. Cheng lived part-time in China while running the family business there. Mr. Cheng spent most of his time in China after their son went to university in the United States, and Ms. Tang split her time between West Vancouver and in China with Mr. Cheng.

“Ms. Tang’s evidence is that she spent time in China at the request of Mr. Cheng to help him maintain his Canadian permanent resident status (permanent resident status can be retained outside of Canada by living with a Canadian citizen at least two thirds of the time),” the judgement reads.

“In 2015, the family company sold a subsidiary to the Chinese government,” the judgment reads. “The company realized a capital gain on this one transaction in the amount of the equivalent of $11.6 million CDN.”
Deal Fanatic
Oct 7, 2007
7616 posts
3689 upvotes
RxMills wrote: I was referring to the tax rates applicable to business owners, rather than ordinary citizens (plumbers, teachers, etc.). Most "satellite families" in Canada, that come from China, have business operations in China. Dad/Husband is not returning to China for his work as a plumber or teacher. Owners of successful companies pay themselves in dividends, not personal salaries.

In China, the tax rate on business dividends is only 10%. (In 2005, the rate was cut from 20%.)
In Canada, it can be as high as 51%, depending on the province.

On the company itself, China's corporate taxes on companies is 25%, but it's reduced to only 15% for technology companies. For Canada, it can be as high as 38%, depending on the province. Canadian companies have to pay very high public (mandatory in many provinces) and private (optional) health care costs. China... not so much.

Let's look at why Meng Wanzhou obtained a Canadian Citizenship as a "wealthy immigrant investor", and then revoked her Canadian citizenship afterwards - to eliminate being taxed on her world-wide income.

Huawei's corporate tax rate is merely 15% in China, as a result of being a technology company. The dividend tax rate is also only 10%.
Therefore on $1,000,000 in corporate earnings, Huawei would pay China taxes of about $150,000. If Meng Wanzhou were the sole business owner, she'd then pay 10% in dividend earnings on the after-tax corporate profit of $850,000, or another $85,000.

CHINA >>> Total tax of $235,000 on $1,000,000 in business earnings paid out as dividend income

In Canada, Huawei would be first taxed at a rate as high as 51%, depending on the province and credits. That's about $500,000 in taxes on $1,000,000.
Meng Wanzhou's tax on earnings from dividends might be as high as 34%, depending on the province. That's another $170,000 in dividend taxes to Canada, after the after tax corporate earnings of $500,000.

CANADA >>> Total tax of $670,000 on $1,000,000 in business earnings paid out as dividend income

This is why business owners in China continue to work in China while their Canadian satellite-family presence reports low/no income in Canada. China continues to benefit from those tax revenues, but Canada receives almost nothing towards the cost of Canadian social programs (medical, etc.).

Sources:
https://www.cbc.ca/news/canada/british- ... -1.4943162)
https://en.wikipedia.org/wiki/Meng_Wanzhou
https://en.wikipedia.org/wiki/Dividend_tax
https://en.wikipedia.org/wiki/List_of_c ... _tax_rates
Excellent analysis. Thanks for compiling.
Deal Guru
Jan 27, 2006
14891 posts
7837 upvotes
Vancouver, BC
A sidebar to the whole satellite family story and immigration situation is the story that just broke out of the US where 5 were arrested trying to 'force' Chinese citizens to return to China from the US - FBI arrests five in alleged ‘Operation Fox Hunt’ plot to stalk and pressure citizens to return to China.
The Justice Department charged eight individuals Wednesday morning with conspiring to work on behalf of the Chinese government to harass, stalk and intimidate Chinese citizens into returning to their home country.

Five of the individuals charged were arrested by the FBI on Wednesday, while the other three individuals are believed to be in China, John Demers, the assistant attorney general for the Justice Department’s National Security division, said during a virtual press conference.

According to the complaint unsealed Wednesday in federal court in Brooklyn, the defendants participated an “international campaign to threaten, harass, surveil and intimidate John Doe-1, a resident of New Jersey, and his family in order to force them to return to the People’s Republic of China.”
I suspect that this is probably happening in Canada (particularly in areas with large mainland Chinese communities) as well. We may see 'forced' repatriation of Chinese nationals by their own government start to move many of these satellite families or at least drive them into deeper hiding. I suspect that much of the hacking of hotel records in the past few years by Chinese government agents was aimed at gather information to do just what they are doing (ie locate those nationals of interest before sending in the agents).
Deal Fanatic
Oct 7, 2007
7616 posts
3689 upvotes
craftsman wrote: A sidebar to the whole satellite family story and immigration situation is the story that just broke out of the US where 5 were arrested trying to 'force' Chinese citizens to return to China from the US - FBI arrests five in alleged ‘Operation Fox Hunt’ plot to stalk and pressure citizens to return to China.



I suspect that this is probably happening in Canada (particularly in areas with large mainland Chinese communities) as well. We may see 'forced' repatriation of Chinese nationals by their own government start to move many of these satellite families or at least drive them into deeper hiding. I suspect that much of the hacking of hotel records in the past few years by Chinese government agents was aimed at gather information to do just what they are doing (ie locate those nationals of interest before sending in the agents).
Could this be happening in Australia as well? I thought I saw a story done by CBS Australia that was along these lines but it must have been at least over a year ago that I saw it.
Deal Guru
Jan 27, 2006
14891 posts
7837 upvotes
Vancouver, BC
choclover wrote: Could this be happening in Australia as well? I thought I saw a story done by CBS Australia that was along these lines but it must have been at least over a year ago that I saw it.
I would not doubt that it's happening all over the world. After all, why stop at America?
Deal Addict
Apr 10, 2011
2014 posts
1615 upvotes
GVRD
China's in a unique position to do that, and more, to it's former residents.

- continuing on-going long-term policies that don't change like democratic governments
- no "whistle-blowers" in China's government
- most former residents of China leave behind extended families that would be pressured
- many former residents of China continue to conduct business operations in, or with, China

Most immigrants to western countries have a clean-break from relationships with their former governments. China has publicly stated ("warned") that they don't have that luxury. Even more so, China has told their former residents that they'll continue to count on them for their support.
Deal Guru
Jan 27, 2006
14891 posts
7837 upvotes
Vancouver, BC
RxMills wrote: China's in a unique position to do that, and more, to it's former residents.

- continuing on-going long-term policies that don't change like democratic governments
- no "whistle-blowers" in China's government
- most former residents of China leave behind extended families that would be pressured
- many former residents of China continue to conduct business operations in, or with, China

Most immigrants to western countries have a clean-break from relationships with their former governments. China has publicly stated ("warned") that they don't have that luxury. Even more so, China has told their former residents that they'll continue to count on them for their support.
Don't forget that China doesn't recognize citizenship the way that Western nations (or most nations for that matter) recognize it. The Chinese government has basically stated that if you are ethnic Chinese, then you are Chinese which means that the Chinese government is your government. In other words, you can't 'give up' your Chinese citizenship or use another country's citizenship as a shield.

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