Vancouver Real Estate Mania
On January 29th, 2016, Vancouver went crazy.
The story of a humble 86-year-old home in Vancouver’s Point Grey neighbourhood was widely circulated by national media outlets and became a lightning rod for local frustration with skyrocketing property values.
The “knockdown”, with its rotting walls and $2.4 million asking price, perfectly underscored how crazy the region’s overheated housing market had gotten.
A month later, the house was sold for $80,000 above its asking price, rekindling public outrage.
How did Vancouver reach this point?
This infographic’s purpose is to connect the dots between Vancouver’s history of speculation, demographic waves, public policy, and external pressures that have all had a hand in shaping today’s hot real estate market in the city.
Let’s start at the very beginning…
Chapter One: Birth of a Boomtown
In a surprise move in the late 19th century, the Canadian Pacific Railway announced that the tiny town of Granville would become the terminus of the future Trans-Canada Railway. Granville, with just 400 people, is now the nucleus of Vancouver – and the well-connected men who had conveniently purchased property in the area made a fortune as prices rocketed up.
By the close of 1888, the local newspaper was packed with property speculation ads, and Vancouver real estate companies outnumbered restaurants by a margin of over 250%.
These bets on real estate weren’t in vain. Vancouver actually outpaced all major West Coast cities in growth between 1900 and 1910. While Seattle and San Francisco grew at 194% and 22% respectively, Vancouver’s population soared by a clip of 271% over the same period.
Chapter Two: Expo 86
Hosting the 1986 World Exposition was a pivotal moment in Vancouver’s history. The legacy of Expo is far-reaching, including: rapid transit, new neighbourhoods, a connected seawall, increased investment, and a new stadium (BC Place).
The 70 hectare (173 acre) Expo site was carved out of industrial land and the former Canadian Pacific Railway yard. Once the fair ended, the provincial government looked to sell off the entire block of land for redevelopment.
In 1988, after recognizing the potential of the site, Hong Kong businessman Li Ka-Shing formed Concord Pacific and purchased the site for $320 million.
Chapter Three: Hong Kong Loves Vancouver Real Estate
In the 1990s, there was much trepidation in Hong Kong over the looming handover of the colony to China. Many people were looking to move themselves and their money to a more stable market. Concord Pacific, and Li Ka-Shing’s name, sparked enormous interest in the Vancouver real estate market.
Other Hong Kong businessmen also got in the development game in Vancouver. Cheng Yu-tung’s company built International Village and Sun Hung Kai Properties is now well-known for being the driving force behind Coal Harbour.
Immigration from Hong Kong, coupled with an influx of Canadians from other provinces, led to drastic home price increases during the early ’90s. The fabric of the city was changing, and existing residents were vocal about it. The “Monster House” debate raged in the local media throughout the decade.
Chapter Four: The Welcome Mat
During the same year as Expo 86, the Canadian Federal government and the Quebec government wanted to use immigration to bolster their economies. They created programs such as the Immigrant Investor Program (IIP) and the Quebec Immigrant Investor Program (QIIP) to attract wealthy foreigners.
Between the two programs, there were over 110,000 approvals to come to Canada between 2002 and 2014. (Note: From 2007 to 2012, the United States only accepted 19,433 wealthy immigrants through its EB-5 program)
The Quebec Loophole
A recent study tracked the addresses of 5,120 Quebec immigrant investors who arrived from 2000 to 2008. An astonishing 94% of the newly-arrived investors eventually had an address in British Columbia and most were living in the Vancouver area.
The Quebec government now has a quota of 1,330 applications per year from China. Assuming those applicants migrate to Vancouver at similar rates as in previous years, the flow of multi-millionaire immigrants will continue for some time.
Chapter Five: Vancouver’s Housing Feeding Frenzy
Fast forward to 2016. Vancouver is seeing record-breaking prices, and the momentum for single-family homes is showing no signs of slowing down.
In April 2016, the average detached home in Greater Vancouver sold for $1.82 million, which is a 30% increase year over year. That was not a typo – the price of a detached home in Vancouver is now nearly twice that of Greater Toronto ($968k), and multiples higher than Calgary ($540k) or Montreal ($343k).
Record high prices aren’t dampening sales though. In 2016, sales have been brisk with nearly 17,000 houses sold in the first four months of the year. Many of these have sold for significant sums above their asking prices.
Chapter Six: Business is Booming
In response to skyrocketing detached home prices, Vancouverites are increasingly living in condos. Residential development construction is practically propping up British Columbia’s economy.
BC had the highest GDP growth in the country in 2015, and it’s expected to put up strong numbers in 2016 as well. Between April 2015 and April 2016, BC accounted for 110,000 of Canada’s 144,000 net new jobs with construction leading the way.
Business is so good that the value of building permits broke a new city record in 2015 with over $3 billion. There were at least 10 major construction projects – each valued at more than $50 million – approved over the course of the year.
And Vancouver realtors? They’re doing well.
With so much money to be made selling property and condos, the Vancouver real estate industry is thriving. The Real Estate Board of Greater Vancouver says licensed membership is at an all-time high.
Chapter Seven: Locals are Getting Fed Up
The dream of owning a home is getting further out of reach even for well-off Vancouverites. Surging home prices and stricter down-payment rules mean that it can take over two decades to save up a down payment for a home.
Vancouverites seeking relief from the super-heated single family home prices won’t find it elsewhere in the market. The median condo price in Vancouver is up over 40% since 2014.
Renters are not immune to price increases either, as price-to-rent ratios are way out of whack in Metro Vancouver. According to real estate website Trulia, in nearby Seattle it takes 14.5 years of rent to equal the price of a house. In Vancouver, it takes 36.9 years.
Lastly, many residents worry that this red-hot demand is obliterating Vancouver’s character. Land values are so high that viable housing is often demolished to make way for new buildings. As a result, thousands of homes are torn down each year.
Chapter Eight: Is This Growth Sustainable?
The experts are far from reaching a consensus on whether Vancouver’s market can continue on as it is now.
On one hand, experts such as Stéfane Marion (Chief Economist, National Bank) say that growth in the working age population in Vancouver is 70% higher than the national average, and it can help sustain home price inflation. Meanwhile, Thomas Davidoff, an Associate Professor of Economics at UBC, points out that if Vancouver is a magnet for China, this housing run could continue for quite a while.
Davidoff may be onto something – there were 9,000 Chinese millionaires that emigrated from Mainland China in 2015, and there are 654,000 millionaires still in China today. The latter number is expected to double by 2025. It’s also noteworthy that in a recent poll by Barclays that 47% of Chinese millionaires expressed a desire to move abroad in the “next five years”.
The contrasting view, of course, is that Vancouver is in a bubble that is overdue for popping.
Marc Cohodes, a famous Wall Street short-seller we recently profiled in another recent chart we did on Canadian housing, argues that Vancouver is a casino in which residents feel pressured to play, otherwise they miss out. Meanwhile, David Madani, the Senior Canadian Economist at Capital Economics, says that severe overvaluation, high household debt, and overbuilding is going to make the housing correction end in a way that is deeper and more prolonged than initially feared.
The Bank of Canada has sounded the alarm on household debt recently, and “unsustainable debt” per household has soared in the country. Between 2008 and 2014, the amount of Canadian households with debt-to-income ratios greater than 250% jumped from 28% to 40% of all households.
Which province is home to the highest rate of households with “unsustainable debt”? BC, of course.
Vancouver’s parabolic prices may eventually cool down, but in the near-term, Vancouver real estate mania is here to stay.
The Making of a Mammoth Merger: Charles Schwab and TD Ameritrade
A look at the histories of Charles Schwab and TD Ameritrade, what comes next after the merger, and the potential impacts on the financial services industry.
Charles Schwab and TD Ameritrade: A Mammoth Merger
In this era of fierce competition in the discount brokerage space, scale might be the best recipe for success.
Charles Schwab has once again sent shockwaves through the financial services industry, announcing its intent to acquire TD Ameritrade. The all-stock deal — valued at approximately $26 billion — will see the two biggest publicly-traded discount brokers combine into a giant entity with over $5 trillion in client assets.
Today we dive into the history of these two companies, and what effect recent events may have on the financial services industry.
The Evolution of Charles Schwab
1975 – U.S. Congress deregulated the stock brokerage industry by stripping the NYSE of the power to determine the commission rates charged by its members. Discount brokers, which focused primarily on buying and selling securities, seized the opportunity to court more seasoned investors who might not require the advice or research offered by established brokers. It was during this transitional period that Charles Schwab opened a small brokerage in San Francisco and bought a seat on the New York Stock Exchange.
1980s – The company experienced rapid growth thanks to a healthy marketing budget and innovations, such as the industry’s first 24-hour quotation service.
This fast success proved to be a double-edged sword. Charles Schwab became the largest discount broker in the U.S. by 1980, but profits were erratic, and the company was forced to rescind an initial public offering. Eventually, the company sold to BankAmerica Corporation for $55 million in stock. A mere four years later, Charles Schwab would purchase his namesake company back for $280 million.
1987 – By the time the company went public, Charles Schwab had five times as many customers as its nearest competitor, and profit margin twice as high as the industry average.
1990s – In the late ’90s, Charles Schwab moved into the top five among all U.S. brokerages, after a decade of steady growth.
2000s – The company made a number of acquisitions, including U.S. Trust, which was one of the nation’s leading wealth management firms, and most recently, the USAA’s brokerage and wealth management business.
The Race to $0
For Charles Schwab, the elimination of fees is the culmination of its founder’s vision of making investing “accessible to all”.
The company’s fees were slowly declining for decades. In late 2019, it finally took the plunge and introduced free online trading for U.S. stocks, exchange-traded funds, and options. The response was immediate and enthusiastic, with clients opening 142,000 new trading accounts in the first month alone.
Although Charles Schwab sent rivals scrambling to match its no-commission trade offer, fintech upstarts like Robinhood have offered free trading for years now. The “race to zero” reflects a broader generational shift, as millennials are simply more likely than earlier generations to expect services to be free.
The Evolution of TD Ameritrade
1975 – The origin of TD Ameritrade can be traced back to First Omaha Securities, a discount broker founded by Joe Ricketts. The company changed its name to TransTerra in 1987.
1988 – TransTerra’s subsidiary, Accutrade, was the first company to introduce touch-tone telephone trading, a major innovation at the time and one of the first early forays into automation.
Early 1990s – Ricketts’s willingness to integrate emerging technologies into the trading business helped his companies achieve impressive growth. In 1997 the company acquired K. Aufhauser & Co., the first company to run a trading website.
The Internet wasn’t a puzzle. We were crystal clear from the beginning that customers would migrate to this.
– Joe Ricketts (2000)
Late 1990s – The Ameritrade brand was solidified after the company changed its name from TransTerra to Ameritrade Holding Corporation in 1996. The newly named company completed an IPO the following year, and established its new brand Ameritrade, Inc., which amalgamated K. Aufhauser, eBroker, and other businesses into a unified entity.
2000s – Ameritrade entered the new millennium as the fifth largest online investment broker in the United States, fueled in part by marketing deals with AOL and MSN.
The modern incarnation of TD Ameritrade took shape in 2006, when TD Bank sold its TD Waterhouse USA brokerage unit to the Ameritrade Holding Corporation in a stock-and-cash deal valued at about $3.3 billion. At the time of the deal the new company ranked first in the U.S. by the number of daily trades.
2016 – TD Ameritrade acquired the discount brokerage Scottrade for about $4 billion. The deal brought 3 million client accounts and $170 billion in assets under management into the company, and quadrupled the size of its branch network.
What Comes Next?
Naturally, the announcement that these massive discount brokers plan to merge has generated a lot of speculation as to what this means for the two companies, and the broader brokerage industry as a whole.
Here are some of the consensus key predictions we’ve seen on the deal, from both media and industry publications:
- After the deal is approved, the integration process will take 12 to 18 months. The combined company’s headquarters will relocate to a new office park in Westlake, Texas.
- Charles Schwab’s average revenue per trade has dropped nearly 30% since Q1 2017, so the company will likely use scale to its advantage and monetize other products.
- The merged company will continue to adopt features from fintech upstarts, such as the option to trade in fractional shares.
- E*Trade, which was widely considered to be an acquisition target of Schwab or TD Ameritrade, may now face pressure to hunt for a deal elsewhere.
Even though these longtime rivals are now linking up, stiff competition in the financial services market is bound to keep everyone on their toes.
I think Joe Ricketts and I agree that our fierce competitiveness nearly 30 years ago is proof that market competition can be a source of miraculous innovation.
– Charles Schwab
An Investing Megatrend: How Emerging Wealth is Shaping the Future
Emerging markets are ascending on the global stage and wielding more economic power—and it’s drastically altering the investment landscape.
Globalisation is a rising tide that lifts all boats.
In an increasingly connected world, countries are engaging with global markets more than ever before. As a result, global wealth is shifting towards emerging markets. This megatrend—a global trend with sustained impacts—is profoundly influencing everyday life, society, and business.
Shifting Economic Power
Today’s infographic from iShares by BlackRock explains how emerging markets are classified, along with which countries are growing the fastest—and how investors can follow the money.
What Is An Emerging Market?
Every economy goes through five distinct stages of growth:
- Traditional Society: Based on primary industries, such as subsistence farming.
- The Pre-Conditions of Take-off: Spread of technology creates a more productive agricultural economy.
- Take-off: Industrialisation begins, and technological breakthroughs occur.
- Drive to Maturity: More complex manufacturing, and large-scale infrastructure investment takes place.
- Age of Mass Consumption: Urban society and a tertiary industry dominate, as disposable income grows.
Emerging markets fall into the transitory stages between ‘Take-off’ and ‘Drive to maturity’ as their economies modernise. Today, such countries offer lots of promise, but also come with a range of challenges:
- Pro: Greater return potential, growing middle class, increasing consumption
- Risk: Political instability, lack of infrastructure, lack of market access
Between 2000–2018, emerging markets’ share of global wealth has more than doubled from 10% to 24%. China is a major player in this transformation.
China’s Economic Might
China’s impressive trajectory from agricultural economy to global superpower cannot be ignored. The nation is on track to overtake the U.S. in terms of gross domestic product (GDP, nominal) by the year 2030.
|Year||🇨🇳 China GDP||🇺🇸 U.S. GDP|
China’s enormous growth has a ripple effect on its GDP composition. A more affluent middle class is buying higher-priced discretionary goods—such as cars and electronics—boosting the country’s domestic consumption.
Investors must keep an eye out for other emerging markets that are emulating China’s example.
One Piece Of the Puzzle
China is just one case study—several other economies are also making strides on the world stage. Each country brings unique advantages, but also barriers to overcome.
|Country||Real GDP Growth (2019E)||Strengths||Weaknesses|
|🇮🇳 India||7.4%||✔ Rapidly growing economy|
✔ Vast working-age population
|✘ Red tape
✘ Lack of infrastructure
|🇨🇳 China||6.2%||✔ Good infrastructure |
✔ High R&D spending
|✘ Ageing population
✘ High debt
|🇮🇩 Indonesia||5.1%||✔ Cheap labour|
✔ Diversifying economy
|✘Wide income gap
✘ Lack of infrastructure
|🇲🇽 Mexico||2.5%||✔ Integrated with global economy|
✔ Cheap and qualified labour
|✘ Political unrest
✘ Reliant on U.S. ties
|🇧🇷 Brazil||2.4%||✔ Diversifying economy|
✔ Strategic location
|✘ High production costs
|🇳🇬 Nigeria||2.3%||✔ High FDI|
✔ Diversifying economy
|✘ Political unrest
✘ Lack of infrastructure
|🇷🇺 Russia||1.8%||✔ Natural resources|
✔ Educated workforce
|✘ Political unrest
✘ Lack of FDI
|🇹🇷 Turkey||0.4%||✔ Cheap labour|
✔ Strategic location
|✘ Political unrest
✘ Red tape
Source: Global Finance Magazine
With these major emerging markets in mind, how can investors tap into the global wealth shift?
Where Are the Opportunities?
There are several avenues for an investor to play into this megatrend: structural solutions, consumer goods, and international investment.
Emerging markets are increasingly gaining access to technology. Growth in connectivity is closely linked with improved productivity, and many countries are ripe for a surge in online users.
However, much can still be done to speed up technological adoption, such as boosting 3G/4G network volume and coverage, and lowering the cost of data and smartphones to be more economical.
By helping solve some of these structural constraints through technological innovation, investors can tap into the economic growth of emerging markets.
As disposable income increases, a sizeable middle class will seek out products that elevate the quality of life. In India, domestic consumption is estimated to hit $6 trillion by 2023—four times its 2018 level.
The region’s spending will likely be propelled by higher-priced goods, as well as a wider variety of choices across food, transport, and fitness categories.
Global brands that plan to expand into emerging markets, or companies with a proven track record in these areas, are potential winners for investment.
Last but not least, investors can identify local winners in emerging wealth markets, through active or passive investing.
An active investment strategy would be to directly buy into individual company stocks, listed on a country’s stock exchange. Meanwhile, a passive investing strategy would be to seek out exchange-traded funds (ETFs) covering specific markets, and/or sectors within emerging markets. Many of these are also listed on major exchanges.
Diversifying either or both strategies across two or more countries can help mitigate risk. Investors can also choose index funds that broadly encompass all emerging markets.
As countries climb the economic ladder, the emerging wealth shift continues to gain momentum. By staying attuned to these macro changes, investors may unlock long-term growth from emerging markets.
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