The Vancouver Real-Estate Market is Completely Insane

[mbarrick]

OK, the question of renting vs. buying came up in a friend's journal today. Coincidentally a flyer for the Shangri-La (the 60-storey hotel/apartment building going up a block away) arrived today at home. Looking at the floor plans for the apartment starting at $2,050,000.00 I was struck by three things:

1. The boldface lie on the flyer about 360° views when the floor-plans clearly show solid walls on at least two sides of the apartments. Given the shape of the building the best possible panorama from these apartments in the $2-3 million dollar range is about 135°
2. None of the floor plans show any separation between the formal living room, the dining room, the "family" room (I don't expect there will be a lot of families in these two-bedroom apartments) and the kitchen. For over two million dollars I don't want my my fridge, stove and kitchen sink basically sitting in the middle of the living room. They are trying to pass off one big room with the with the kitchen appliances off to one side and and a kitchen island taking up space (and immovable because it contains the sink) floating off-centre in the middle of the room as 4-5 "rooms" (kitchen, breakfast nook, family sitting room, dining room and living room). These are much more like the open studio spaces I've had in the past, only with separate bedrooms of to the side.
3. The size. On the "cheap" end of the scale (i.e. $2,050,000.00) the apartments are just shy of 2400 sq. ft.  The floor plan actually says, "2387 sf 2-Bedroom + Family Room" - and as I mention, the "Family Room" is actually one end of the the kitchen/living-room/sitting-room with no division. A 25-year mortgage on $2,050,000.00 assuming 95% funding with the CMHC first-time homeowner programme and a locked-in interest rate of 6.75% gets you the convenient monthly payments of $13,341.35. Now, here I have two bedrooms, a separate kitchen with a pantry, a dining room with pocket doors to close it off from the living (the dining room is being used as an office), a sitting room, and a full bath, coming in about about 1,900 sq. ft. Believe me, I am paying significantly less than $13,341.25/month. What does waay over $10,000 get extra? The view from an apartment 35 storeys higher than the tallest ladder truck the VFD has, 1½ extra bathrooms (but no claw-foot tub), two walk-in closets, in-suite laundry, and a gas fireplace, totalling about the 500 square foot difference. Even considering allowable rent increases, I'd have to live to be about 100 years old and stay in this apartment for the next 60 years for my rent paid to approach $2,000,000.00. It would take two people with no kids each earning net $100,000/year to afford one of these apartments with enough money left over to maintain the same lifestyle Elaine and I have. The people buying these apartments are idiots.

Renting vs. buying in downtown Vancouver these days? No contest.

Comments

[sheilamarie.livejournal.com]

Well, in 5 years if they decide to move, they'll have some of the money they've been paying towards the mortgage plus "instant" equity while you might get your deposit back. Usually people who can afford 2.5 million dollar apartments aren't first time buyers (if they are, they are making much more than 200K a year). The earlier you buy into such a place, the higher the "instant" equity goes up once it's built (we have roughly 50,000 in our home simply because we bought in before the ground was cleared) So, from a purely financial stand point, it makes much more sense to buy unless you plan to be in a place less than a year.

Putting emotions back into the mix, anything on land of less than a 1/4 acre sounds completely unappealing to me.

[mbarrick.livejournal.com]

Everything you say would be entirely true for someone buying a home on the outskirts of the city, or was true of anyone who bought strata-title more than five years or so ago. Problem is, you're applying the rules of a normal market to a the very abnormal situation that exists in this city and with this building in particular. The equity only exisits if the market stays level or goes up. And I don't think your "emotional" feeling that anything less than a ¼ acre isn't worth it, we are talking about strata-title here, not land, and there has been an unprecedented change in the market for strata properties in Vancouver this year that anyone paying these prices is clearly not paying attention to. There are thousands of apartments being built in the downtown core as I write this because height restrictions have recently been loosened by 33% (this tower will be the first 600-foot tower in a zone previous capped at 450-feet, and there are scores of 450-foot towers going up in what was previously the 338-foot zone) and speculation around the supposed "boom" the 2010 Olympics will bring (no one, it seems, remembers how quickly the shine faded after Expo 86 and that it took over a decade to recover). The only thing that makes these apartments "worth" the money being asked for them is that this building will temporarily be the tallest in the city and the apartments start above the level of the current tallest buildings. The "uniqueness" of these units, and their value with it, disappears the mintue another another building goes over 40 storeys. A block north of this building a 42 storey apartment is already being constructed. Directly across the street there is a proposal for a 52 storey apartment. These apartments are poised to drop in value dramatically not only when they lose their uniqueness, but when the bubble bursts on the inflated market that exists in this city at the moment. Right now only someone with more money than brains would buy anything downtown.

You're also completely right about the $200K income. No one making that would actually be able to get a mortgage on one of these apartments. The debt to income ratio wouldn't fly with any lender. I know of two people who have in fact already puchased two of the most expensive suites in the building. The top floor, which is one large apartment, is going to one of the associates in the development company handling the construction and marketing of the building. Another of the upper floors has been sold to some guy from a small town outside Seattle named Bill, who certainly won't even blink over losing a million or five a few years from now.

These are strange days for this city.

[mediavictim.livejournal.com]

A friend of mine got married and needed to open a studio for his business.

He moved to Nanaimo For the price he would have paid for a batchelor/closet in Vancouver - he was able to get a two storey 5 bedroom house with Sauna , large swimming pool and a large garage/workspace.

Funny thing - if you live and work in Canada - with the tax system how it is - you would be hard pressed to pull in the type of money required to purchase property here unless you were independantly wealthy - or a criminal.

[mbarrick.livejournal.com]

Thus the rise in grow-ops showing up in neighbourhoods like Point Grey and Shaunessey.

For the price of a 20' x 20' shoebox downtown a person can buy a house in a place like Lake Cowichan. But of course that presumes you would want to live in a place like Lake Cowichan.

Give it a few years. Once 2010 has come and gone, things will crash. Just watch.

[sovietnimrod.livejournal.com]

The minute interest rates go up by more than 1%, I figure we'll start seeing foreclosures.

For every 1% the rates go up, that's approx $11,000 per year on a detached mortgage, $7,000 per year on an attached unit (townhouse) and $5,000 per year on a apartment. Add to that the fact that a lot of people got into the market at the most extreme means possible they could afford.
So what would most renters do if faced with a sudden $420 to $920 increase in their monthly rent?

People don't get raises like that - so my first guess is to walk away...

[sciencequeen.livejournal.com]

Give it a few years. Once 2010 has come and gone, things will crash. Just watch.

They better! I won't be out of school til after the olympics are over, and damn it, I'll want a cheap awesome apartment downtown! ;P

[sovietnimrod.livejournal.com]

The people buying these apartments are idiots.

No, the people buying these apartments are foreigners. 90% of all downtown real estate in Vancouver is owned by offshore money (i.e. the owners do not actually live here or hold citizenship in Canada)

[spider--woman.livejournal.com]

thank you for this post!!!!! it helps alot.

[saturnina.livejournal.com]

To be fair these are being billed as "luxury apartments" and the building will also have a branch of the VAG and an Urban Fare. There has been a trend towards this type of development in Vancouver - like the Wall Centre or Shaw Tower. I totally agree with you on the outrageous pricing. However, the company I work for did custom suites at Shaw, and I know the people who purchased suites there are the same sort who will purchase suites at Shangri-La. They are people looking for a prestige address, not your typical Vancouver buyer.

Anyways, my point is that there are deals to be had, especially in older buildings in the West End. People tend to gravitate towards shiny new Yaletown or Coal Harbour buildings, but there are many older buildings that are not so popular (or that simply aren't being sold by developers, who buy all the suites themselves and release them three at a time so they can rightfully claim a building is 95% sold). There is a lot of hype about real estate in Vancouver, but the market isn't really as smokin' as the media would have us believe.

Personally, we are buying a home now (but only because we are getting a wicked deal on it), but we plan on selling right before 2010.

[mbarrick.livejournal.com]

Good points. I guess my criticism is really rather specific to the shiny new buildings.

And to be fair, as I read deeper in to the pamphlet, some of the other things that come with the Shargri-La apartemts beyond what you mentioned are access to the same services the hotel guests get - the apartemnts come with a 24/7 concierge, maid service, room service, and everything else you would expect of a 5-star hotel. I still don't think it is worth the price, and still woudn't want my kitchen in the middle of the living room, but it does go a little further toward justifying it.

I just hope the roof garden is open to the public. If it isn't I'll pay for a night in the hotel just to get up there to take pictures of the view.

[mbarrick.livejournal.com]

As an aside, I love what Wall Centre brings to the skyline, but I thought the people paying $700,000+ for 300 sq ft boxes in there were idiots, too ;-)