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Infographic: Vancouver Real Estate Mania

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Vancouver Real Estate Mania

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.

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How Decentralized Finance Could Make Investing More Accessible

Under the current global financial system, billions of people do not have access to quality assets. Here’s how decentralized finance is changing that.

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Infographic: How Decentralized Finance Could Make Investing More Accessible

Did you know that a majority of the global population doesn’t have access to quality financial assets?

In advanced economies, we are lucky to have simple options to grow and protect our wealth. Banks are all over the place, markets are robust, and we can invest our money into assets like stocks or bonds at the drop of a hat.

In the United States, roughly 52% of people are invested in the stock market – but in a place like India, for example, this portion drops to a paltry 2%. How can we make it possible for people on the “outside” of the financial system to gain access?

Breaking Down Barriers

Today’s infographic comes to us from Abra, and it shows how decentralized finance could make investing a more universal phenomenon, especially for those that don’t have access to the modern financial system.

It lays out four key obstacles that prevent people in developing markets from investing in quality financial assets in the first place:

  1. The Geographic Lottery
    Where you live plays a massive role in determining your ability to build wealth. In advanced Western economies, the average person is much more likely to be invested in financial markets that can help compound wealth.
  2. Financial Literacy and Complexity
    Roughly 3.5 billion adults globally lack an understanding of basic financial concepts, which creates an impenetrable barrier to investing.
  3. Local Market Turmoil
    Even if a person is mentally prepared to invest, local market turmoil (hyperinflation, political crises, closed borders, etc.) can make it difficult to get access to stable assets.
  4. The Cost of Investing in Foreign Markets
    Foreign assets can be pricey. One share of Amazon is $1,800, which is realistically more money than many people around the world can afford.

In other words, there are billions of people globally that can’t take advantage of some of the most effective wealth-building tactics.

This is just one flaw in the current financial system, a paradigm that has created massive amounts of wealth but only for a specific and well-connected group of people.

Enter Decentralized Finance

Could decentralized finance be the alternative to open up access to financial markets?

By combining apps with blockchain technology – specifically through public blockchains such as Bitcoin or Ethereum – decentralized finance makes it possible to get around some of the barriers that are created by more traditional systems.

Here are some of the innovations that are making this possible:

Smart contracts could automate transactions and remove intermediaries, making investing cheaper, faster, and more accessible.

Fractional investing could allow partial or shared ownership of financial assets by using tokenization. This would make expensive stocks like Amazon ($1,800 per share) available to a much wider segment of the population.

Location independent investing is possible through smartphones. This would make it possible for people in remote parts of the developing world to invest, even without access to nearby financial institutions or local markets.

Like the internet with knowledge, decentralized finance could reshape the world by making financial access universal. Who’s ready?

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Economy

How Macro Trends Shape the Market’s Future

From climate change to aging populations, macro trends are changing the future. Here’s how to use them to your advantage.

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It’s hard to say for certain what the future holds.

Without the luxury of a crystal ball, investors must find opportunities by analyzing the market. There’s just one problem: the 24/7 news cycle is enough to make anyone’s head spin.

Where should an investor focus their attention, when almost every new venture is forecast to be the next big thing?

The Powerful Influence of Macro Trends

Today’s infographic comes to us from U.S. Global Investors, and it highlights how analyzing macro trends can serve as a key investment tool.

U.S. Global Macro Trends

Two Main Investment Approaches

When selecting stocks, many investors fall into one of two camps:

1. Top-down Investing

  1. Analyze macroeconomic trends.
  2. Identify specific sectors and regions.
  3. Choose individual stocks based on company fundamentals.

Considering the aging Chinese population, a top-down investor may choose to invest in Chinese healthcare stocks.

2. Bottom-up Investing

  1. Complete in-depth company analyses.
  2. Select a stock that is outperforming others in its sector.

A bottom-up investor could analyze Home Depot and choose to invest if it had strong performance relative to Lowe’s.

These approaches can be used separately, or even combined together. Zooming out allows investors to identify the big picture opportunities. Then, a bottom-up approach can find the companies that best capitalize on each trend.

What is a Macro Trend?

A macro trend is a long-term directional shift that affects a large population, often on a global scale. For example, climate change is affecting industries in both positive and negative ways. While “green” industries have seen increased support, ski resorts are projected to have 50% shorter winter seasons by 2050.

There are a couple of main ways to identify macro trends:

  1. Government policy
    Government policies are a precursor to change, shaping macro trends and creating opportunities. For instance, Obama’s Recovery Act fueled growth in renewable energy with a $90 billion investment.
  2. Economic cycles
    The cyclical nature of the economy means that investors can also use history to identify macro trends. Consider fiscal and monetary policy, which is implemented in response to economic data:

    • Expanding economy
      The central bank raises rates and the government reduces fiscal stimulus. As a result, inflation is moderated.
      • Contracting economy
        The central bank lowers rates and the government increases fiscal stimulus. As a result, growth is stimulated.

Discovering Long-Term Value

Macro trends are a key tool for discovering long-term market opportunities. They are beneficial because they are:

  • Unbiased and data-driven
  • Not swayed by daily headlines
  • Tend to avoid riskier, niche industries
  • Can be diversified by sectors and regions

There are currently many macro trends at play. For example, Trump’s sweeping tax reform and deregulation boosted the U.S. economy, lifting GDP growth to a 13-year high of over 3% in 2018 Q3.

However, not everyone’s a winner. America’s reduced taxes have made Canada less competitive. It’s estimated that 4.9% of Canada’s GDP is at risk due to ripple effects from U.S. tax reform. What’s more, regulators worry that the bank deregulations might put the financial system at risk.

The proposals under consideration… weaken the buffers that are core to the resilience of our system.

— Lael Brainard, Member of the Board of Governors of the Federal Reserve

So, how do investors distill this wealth of information into a future of wealth?

Spotting the Next Wave

In today’s hyper-connected world, it’s easy to get lost in data overload. Thinking big picture allows investors to focus on trends that:

  • Have a long-term outlook
  • Affect a large population
  • Create a clearer vision of the future

Then, an investor can target the most promising regions and sectors. When used effectively, this approach enables investors to ride the next big wave that will shape markets.

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