Vancouver – most expensive housing market

James Surowiecki in the New Yorker wrote a piece about the global real estate market in which he mentioned that recent statistics shows Vancouver as the most expensive real estate in North America. This is rather baffling when you consider that economically the city itself is not wealthy – the median income is US$70,000. There is no major industry in Vancouver like New York and London are to finance and San Francisco to technology. Furthermore it doesn’t have the cultural status of Milan or Paris. However single family houses now sell for US$1 million and smaller apartments are being bought for US$600,000.

There are a few factors that come to mind when you have this imbalance:

1. The bank have been very lenient with loans – little or no down payment and very low interest rates to tempt buyers.
2. There is a housing bubble as price-to-income ratios are not in sync.
3. Vancover has found itself as a part of the global market in real estate.

It is this third point which has been by far the dominating factor with a flood of cash coming in from the emerging markets of China, Latin America, Russia, and the Middle East. This has led to a massive increase in demand for housing which in turn has been the catalyst to a luxury-construction boom. Foreign buyers account for over half the sales in the Vancouver real estate market in the first six months in 2013. However Australia has also been inundated with Chinese investors – it is estimated that US$44bn will be invested in real estate over the next seven years.

Hedge City

With the aftermath of the Global Financial Crisis in 2008 investors have been looking to markets that offer long-term protection against economic instability. Real estate appears to be this market where investors can park their money and feel secure that it will maintain or increase its purchasing power. Normally house prices are driven by fundamentals – i.e. local income levels – but in the global maker this is not apparent. Investors from overseas have a dilemma in that should they lose 10-20% of the value of an overseas property or potentially losing 100% of the value of a property in their own economy – Beijing being a prime example of this. In China the vacancy rate of sold residential homes in urban areas reached 22.4% in 2013, or 49 million homes, up from 20.6% in 2011, according to the Survey and Research Centre for China Household Finance

Zombie Neighbourhoods

Although existing homeowners property’s go up in value from overseas investment there is the tendency of foreign buyers not actually living there most of the time. This has led to the concept by Andy Yan (an urban planner) of Zombie Neighbourhoods.

Global House Prices 2013
Source: OECD

Aussie dollar – Pacific Peso to Swiss Franc of the South

A little over a decade ago the Australian dollar was being dismissed as the Pacific Peso but today some are referring to it as the Swiss Franc of the south. This is an indication of its safe-haven status as central banks worldwide start to diversify their reserves away from US dollars and Euros into Aussie dollars.

The IMF recently announced that they intend to make the Australian dollar and Canadian dollar Global Reserve Currencies. Both will be included in the COFER (Currency Composition of Official Foreign Exchange Reserves) surveys, which currently consists of the:

U.S. dollar
Swiss franc
pound sterling
Japanese yen.

The IMF is asking member countries from next year to include the Australian and Canadian dollar in statistics supplied by reserve-holding nations on the make-up of their central banks’ foreign exchange reserves. In previous years the world has had just two reserve currencies:

1. Sterling up to 1914
2. US dollar since the WWI

Notice the drop in the Australian dollar during the start of the financial crisis but its strengthening since 2009. Australia is just one of only seven countries in the world with a AAA-rating from all three global credit ratings agencies – Moodys, Standard & Poors, and Fitch.