July 1, 2011, BC Business Online
It all started with a ?Post-it note from a Chinese investor: one Vancouver ?couple’s roller-coaster ?ride through a real estate ?market gone mad.
The note, one of those yellow stickies from 3M, was stuck on the door of our west side Vancouver home late one Tuesday night in March. My wife, Cynthia, found it early Wednesday morning while letting our dog out and called to me upstairs: “Baby, you’ve got to come down here.”
In clear, studied script it read, “I would like to buy your house. I am not a realtor. Please call me.” It listed a local phone number and was signed “David” in block lettering. We looked at each other, both resisting the urge to cackle with glee and dance around the room with our winning lottery ticket. Barely resisting.
Like just about every other homeowner, non-homeowner or potential homeowner in the Lower Mainland, I was aware that property values had soared in recent years. I also knew that this was largely due to overseas buyers – and that “overseas buyers” was a euphemism for several strata of mainland Chinese buyers, some of whom are visiting the region on property-buying trips, some of whom live here already (or have family who do) and some who, so sure are they of the wisdom of investing in Vancouver, buy sight unseen from China.
However, there are property value increases – and then there is the uncontrolled feeding frenzy around select parts of Vancouver that began in January 2011. According to the Real Estate Board of Greater Vancouver, in March 2011 the benchmark price of a detached house on Vancouver’s west side – a disparate area that encompasses everything from one-acre parcels in stately Shaughnessy to the smaller but desirable view lots in West Point Grey to the less-than-grand neighbourhoods that nestle in the big-box shadows of Southwest Marine Drive – was $1,914,693, a 15.5 per cent increase over 2010 and up 32.2 per cent since 2008. During the same three-year period, the S&P/TSX Composite Index – normally a bastion of stability and, more importantly, where the money came from to buy our house – had increased by less than one per cent.
Until David’s Post-it note showed up, the figures and stories were just that: cocktail-party fare that seemed largely divorced from our day-to-day lives. In theory, people who had purchased their homes long ago were now presented with the opportunity to make exponential gains over their initial purchase price. We were in a less rarefied group since we had bought our house only three years ago: a large lot in what we euphemistically called South Kerrisdale, an area realtors call South West Marine that’s frequently called Marpole by our friends. We had paid what had seemed an ungodly sum: $1,875,000, which was, everybody told us, “definitely” the peak of the market. But now, three years later, the stories circulating around town telling of impossible windfalls made our “peak of the market” purchase look as if we’d merely hit the base camp of Mount Everest. And the sudden presence of a suitor opened our eyes to the reality that the mere act of overpaying for a house three years ago might have been the smartest financial decision we had ever made.
But the figures, while crazy, don’t tell the whole story of the madness that has gripped the market. The real estate board doesn’t keep figures for specific neighbourhoods, but that doesn’t mean there aren’t benchmarks from which to gather intelligence. There are the stories, passed on through friends, retold at Caffè Artigianos. A realtor friend told me about one particular house in Quilchena, and within two weeks I must have heard the same story a half-dozen times.
The Greek Church House, as it came to be known, sits on a moderately quiet street, Maple, behind Saint George’s Greek Orthodox Cathedral. After hearing the tale, I decided to drive by and check it out. It was a nice enough house: a one-level rancher, the type of place you’d be proud to show your parents if you didn’t have to tell them how much you’d paid for it. It had last changed hands in 2006 for $1.5 million; in 2010 it had been assessed at $2.3 million; and then, amid a flurry of missives on the late-March “offer day,” it was sold to an overseas buyer for $4.3 million. Its listing sheet cooed about its Sub-Zero appliances and walk-in closets (you can see the listing at julialau.ca), but its 12,482-foot lot was the real kicker: it meant that the next house to be built there could conceivably be almost 8,000 square feet.
Hoping for big bucks and a big buyer
As for our suitor, it took almost a day for Cynthia to call David back, a period in which we simultaneously imagined spending our impossible gains and then chastised ourselves for such greedy thoughts. One terrible idea then came into our minds: “David doesn’t actually sound like a Chinese name,” Cynthia mused. The implications of such a thought were dire, especially given that, due to his neat handwriting, he clearly wasn’t a doctor either. Even the most reckless North American buyer would be loath to pony up the sort of money we were angling for. We needed someone with a briefcase full of cash if we were to become the next Greek Church House.
But as soon as David picked up the phone, such concerns were assuaged. He spoke in competent but halting English and explained that he was looking for a house for his parents. While driving around town, he discovered our block and thought he’d skip the realtor fees by coming to us directly. He asked if he could return sometime over the next week to see the house, with parents in tow. We cleared our calendar.
Some might say smugness is a trait that comes easily to those on Vancouver’s west side, but for this recent real estate tear, we’ve had to share the limelight with a few of the Lower Mainland’s other burgs. Richmond, in particular, had growth figures that trumped even the excesses of south Kerrisdale. According to the real estate board, the Garden City has seen a 47.5 per cent increase in the benchmark price for a detached house over the last three years and a whopping 24.5 per cent jump in the last year alone. According to Richmond/South Surrey realtor Mike Terry, the spike is almost completely driven by mainland Chinese buyers, and there’s a trickle-down effect as well.
Terry has watched as condo developments as far south as White Rock have been bought in huge numbers not just by Chinese buyers, who see Canada as a very stable place to put their money, but also non-Chinese who are buying with cash from the sales of their Richmond and Delta homes to mainland Chinese purchasers. In Vancouver the pretty residential areas around Main and Fraser Streets have likewise swelled in price, as west-siders cash out to Chinese buyers and land on cheaper, if not higher, ground.
Attracting overseas buyers
Within Vancouver city borders, our neighbourhood in particular shines for certain traits that are seen as attractive to the overseas market. First and foremost are the large lots. Ours, at 75 feet by 135 feet, is not Greek Church House size but still desirable as it allows a prospective buyer to raze our restored 4,800-square-foot house and build a new 6,000-square-foot mansion. Secondly, we’re in the coveted Magee Secondary School catchment and with relatively close access to the private Crofton House School, both solid check marks. It’s also a neighbourhood with an already-sizable Chinese population, and as both houses on either side of us are already so-called Hong Kong specials – the box-like two-storey stuccos, frequently clad in garish peach and pinks, erected by the first wave of Hong Kong immigrants in the mid-’90s – a prospective buyer might find comfort in the immediate environment. Finally, our house doesn’t have any uniquely Chinese problems: we’re not located on a T-intersection – which we were warned by one realtor was the kiss of death to attracting Chinese buyers – and our address doesn’t have any fours in it. “We even have a red door,” said Cynthia hopefully.
If we were going to get serious about selling the house, however, we needed to get some more intelligence and develop a strategy. Cynthia mentioned our idea of selling to Mabel, our tough-as-nails next-door neighbour, who was part of the mid-’90s Hong Kong exodus (she has the peach-coloured box to prove it). Mabel often brings potato salad to our house as a gift and once a year at Christmas takes my wife and daughters out for an extravagant Chinese lunch and tells us the state of things, such as, “The former owner of your house was stupid to plant bamboo in your backyard. I told him so. If it disrupts my pipes, I’ll have to sue you.”
Mabel’s response to our thought of selling was equally measured: “You’re crazy.” In 15 years she had yet to develop a touch for the Canadian art of diplomacy. “The Chinese who are coming now are paying with cash – no mortgages. There will never be a downturn because they will never sell at a loss because they don’t have to. They’d rather just give their house to their kids than sell for a loss.” Her message was clear: anyone expecting a major market correction didn’t understand the psychology of the average Chinese purchaser, for whom concepts such as a change in interest rates were of no concern.
Mabel had us second-guessing ourselves. Were we like a mid-’80s Seattle couple selling our Microsoft shares because they had made such nice gains already? Mabel’s logic seemed ostensibly sound (about the house, not the bamboo), but before I made this big step I wanted to talk to an expert more detached from the situation.
Chinese investment in Vancouver
Realtor Cam Good, a marketing wizard whose company, Key Marketing Inc., has become a lightning rod for Chinese investment in Vancouver, was introduced to me by a friend just after David’s note appeared. If Mabel could speak about what it’s like to arrive here from China to buy property, he could speak about going in the opposite direction. His real estate sales company recently opened an office in Beijing (a Shenzhen one is soon to follow) to market Vancouver and Toronto properties to the Chinese on their home turf. In addition to the offices in China, Key will often go the extra step and chauffeur groups around the Lower Mainland in an effort to close the deal, even renting helicopters to show prospective buyers the lay of this new land.
I asked Good about his thoughts on the boom. “We’re just at the beginning,” he told me as we chatted. “With the restriction the government just put on the number of homes a person can own in China coupled with the uncertainty that flows from the Chinese government’s ability to change laws and rules overnight, I feel we’re at a tipping point.” I asked about the Lower Mainland condo bonanza I had heard about, and he confirmed that they were experiencing phenomenal sales success: in January and February alone they sold more than 500 homes to mainland Chinese investors.
Selling to mainland Chinese buyers
A few days after our conversation, I received an email from Good announcing his next venture. Seizing on what I assume was the same demand I was trying to surf, this summer he’s expanding to market of detached residential homes in Greater Vancouver to mainland Chinese buyers. Like a corporate version of our suitor David, Key will approach homeowners on the west side, in Richmond and West Vancouver – people whose homes are considered particularly salable – and convince them to sell, now, for 20 per cent more than whatever is the present market value. Buyers in China will be able to view the available properties through a website, potentially buying several million dollars’ worth of properties sight unseen.
All this had me pondering ?the advisability of selling at all when David and his parents arrived separately, a week after the note had appeared, to tour the house. His parents showed up first in a black Mercedes S600, a $190,000 bank vault on wheels that throughout the world announces, “I’m rich and powerful, and now that that’s out of the way, let’s get down to business.” The father had dark glasses and a stripe of distinguished grey at the temples, and didn’t give his name upon shaking hands; the mother, Maggie, was more gregarious and, as she was taking English lessons, anxious to practice speaking like a local. David, who turned out to be all of 18, arrived a few minutes later in an electric orange $355,000 Lamborghini Murcielago.
The cars alone were a good sign. They marked David and his parents as belonging to the truly wealthy class of Chinese buyers. In my chat with Cam Good, he had spoken of the burgeoning middle class in China who he predicted would be the next consumers of Vancouver real estate, but I had some reservations. If middle-class Vancouverites could barely afford to buy a first house here, how could middle-class Chinese nationals afford second homes?
In McKinsey & Co.’s landmark 2009 study of the Chinese consumer, only two million households out of a population of 1.3 billion were classified as “wealthy.” And wealthy in this context was defined as household earnings of more than $30,000. Other reports are more generous: the 2010 Hurun Wealth Report says there are 875,000 millionaires in China, but even then they noted that the six per cent growth rate of millionaires in China was less than America’s 8.7 per cent and that the U.S. economy isn’t exactly firing on all cylinders. A recent report from Deloitte projects the number of Chinese millionaires in 2020 to be 2.5 million – plenty, to be sure, but only seventh best in the world and significantly less than moribund Japan’s 8.6 million millionaires. Whatever the true figures, all I needed was one determined millionaire to make my dream a reality.
Cynthia led David and his family on the tour as I tagged along. The parents spoke little or no English, so David helped translate such phrases as “steam room with rain-shower fixture” and “programmable Nuheat floor.” (We decided we didn’t want to tax him too much, so we avoided making him translate knob-and-tube wiring.) The parents politely nodded at Cynthia’s detailed chronicling of every upgrade, no matter how small. Halfway through the tour of our cavernous basement, the father muttered something. “My father is very afraid of this space,” deadpanned David. “He would very much like to return upstairs.” In truth, I think we knew that the house tour was a flight of fancy. All the things we had spent $1.85 million on would soon be rubble, replaced most likely by a nondescript house of no discernible era or architectural style.
We moved upstairs to our living room to discuss business. Contrary to the stereotype of tough, straightforward Chinese negotiators, we actually ambled around the question of the house and a selling price for a good half-hour, a long time with most strangers and an eternity when major language barriers exist. Even a month later, I’m at a loss to recall what we talked about. I do recall the line that broke the ice: “The house down the street sells for $1.8 million,” the father instructed David to tell us. It had been an opening salvo but one I was unprepared for.
He was presumably referring to a house a few blocks away in deplorable condition on a small lot. Worse, that price was not only less than we paid but $750,000 below our woefully out-of-date assessed value from the city. The discrepancies were so great that had I been sitting with anyone else my stock response would have been, “What does that have to do with the price of tea in China?” It quickly became apparent we were at cross purposes, but I couldn’t muster any animus. We were the ones who had equated Chinese with irrational spending. They continued to express serious interest in the property, but although we continued to chat for a few minutes I knew our untethered dreams would not be granted by these particular visitors.
A few days after the visit, I called up Dave Peerless, the excellently named president of Dexter Associates Realty, whose firm had represented us when we bought the house. He helped put it in context for me: “Listen, mainland Chinese come here for the same reasons as anybody else does: clean air, good education and a welcoming environment. The only difference is that Vancouver has the added benefit of being relatively affordable for them.”
Ideally, this would have been a self-contained parable, a caution to greed, prejudgment and a score of other vices. A three-by-three-inch sticky note had turned us into speculators – and now a four-by-four-foot sign rises out of our newly reseeded lawn. The asking price? $3.5 million – twice what we paid just 36 months prior.
The open house is next Saturday.