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There are plenty of property management & other real estate firms in Vancouver which cater to foreign owners. But the math on renting isn't actually so straight

There are plenty of property management & other real estate firms in Vancouver which cater to foreign owners. But the math on renting isn't actually so straight forward. A 10-20 year old building in Vancouver will have many units with kitchens that have literally never been used. There's wear and tear and a lot of extra work and risk that comes from renting a place. And as odd as it may sound, the resale value can take a hit when a property is "used". Unlike San Francisco, rents in Vancouver have not gone through the roof. Recently AirBNB seems to have put some upward pressure on rents, but rents still remain fairly detached from capital costs. Frankly, the rental income is almost a rounding error. Vancouver real estate is about capital, not cash flow. It's a place to store capital (which in and of itself is quite valuable for many foreign owners), and current supply/demand trends also lead to price appreciation. Traditional views of real estate market fundamentals are nearly irrelevant to the observed behaviour of the Vancouver real estate market.

eldavido 10y ago
So, if I may summarize, you're saying that there's a lot of demand for safe-haven assets by investors whose priority is capital preservation? I don't see the math on this working out. Have you been in a house that hasn't been occupied? Things depreciate: roofs leak, water pipes break, floors rot, bugs get in, etc. Given a sane property rights regime (something notably absent from San Francisco), I would vastly prefer real estate I own for investment purposes to be occupied. Tenants make sure the place is at least habitable, pay rent, and you can feel good as an owner about giving someone a place to live. I get that the market may not view it that way, but I think the market is wrong, and maybe that's an opportunity in and of itself. Honest question: do Chinese people understand capitalism? Even poor people in the US have some inkling of understanding about the stock market -- it's on TV, in the newspaper, the presidential primaries, etc. I get that the main motivation might be just getting capital out of China and into the US, but I really don't understand the investment thesis of holding empty real estate, at all.
- DanielDent 10y ago
  For condo towers, things are mostly going to be OK even if no one is living in the unit. You pay your strata fees & the strata takes care of most of the things which become a problem simply due to the passage of time. For single family detached, the value of the building is not a big deal. It's the dirt the building sits on that people are buying. Prices went up ~30% over the last year in Vancouver. There are also buyers who think nothing of tearing down a relatively new building because it's not quite what they want. As long as the city remains a place people wish to live, the dirt will retain value. Perhaps it goes down 50-80% - you can live on your land or you can use its cash flows to help cover your living expenses. As a safe-haven, it's not a bad option. The price in CAD/USD/EUR/CNY/XBT is almost irrelevant to these owners. The problematic purchasers in my view are the locals. Many are buying because the market is going up - "I'd better buy now or I'll never be able to afford it". In a falling market, that demand many not exist. Though I also remain unconvinced that the foreign demand will remain strong in a falling market. What's going on in Vancouver isn't sustainable in any traditional sense. But the market can also remain irrational longer than many can remain solvent. I agree that the phenomenon of properties remaining vacant represents a failure. I'm curious what opportunities you think there are. I suspect that many of the opportunities would require regulatory changes to be viable, but I'm open to a different perspective. Regarding Chinese people understanding capitalism, I suspect there's a very different view culturally. I'm told that the advertising for financial products is quite different - in North America we tend to expect a convervative branding. In China you'll see investments with more of a WeChat approach (including being actually promoted on WeChat). Property rights were recently codified in China - i.e. 2007 or 2008. Real estate is mostly only available as leasehold in China. There's a lot of people who recently became quite wealthy quite quickly. I think it's very likely that they have very different understandings of capitalism than North Americans, who also have a different understanding than Europeans.
  - eldavido 10y ago
    This is really great discussion, thanks for that. I'm not at all a Marxist (pretty pro-capitalism in general) but this does strike me as a case of over-financialization. Wasn't there some Marxist/socialist line of thinking that in late capitalism, so much gets accumulated that the economy shifts from one oriented around socially useful production of goods ("socially useful" is the broad sense, anything people want), to a purely financialized system driven more strongly by investment returns vs. profits from production? I recognize there's always an element of balance between starting a company to satisfy the demand for goods vs. the demand for return, but cases like this make me think the investors are more in the driver's seat than marketers/product people thinking about what we should make. Sort of like there's this giant mass of passive capital chasing yield and there isn't enough to go around. And I think this view is consistent with the idea that asset ownership isn't backed by a legally sound property rights regime in China. It seems a lot of this would be fixed if they could channel more accumulated domestic capital (profits) into housing, business equity formation, or even consumption. It's funny to think that "make something people want" (YC truism) might be good investments, rather than products. But maybe true here?

eldavido 10y ago

So, if I may summarize, you're saying that there's a lot of demand for safe-haven assets by investors whose priority is capital preservation? I don't see the math on this working out. Have you been in a house that hasn't been occupied? Things depreciate: roofs leak, water pipes break, floors rot, bugs get in, etc. Given a sane property rights regime (something notably absent from San Francisco), I would vastly prefer real estate I own for investment purposes to be occupied. Tenants make sure the place is at least habitable, pay rent, and you can feel good as an owner about giving someone a place to live. I get that the market may not view it that way, but I think the market is wrong, and maybe that's an opportunity in and of itself. Honest question: do Chinese people understand capitalism? Even poor people in the US have some inkling of understanding about the stock market -- it's on TV, in the newspaper, the presidential primaries, etc. I get that the main motivation might be just getting capital out of China and into the US, but I really don't understand the investment thesis of holding empty real estate, at all.

DanielDent 10y ago
For condo towers, things are mostly going to be OK even if no one is living in the unit. You pay your strata fees & the strata takes care of most of the things which become a problem simply due to the passage of time. For single family detached, the value of the building is not a big deal. It's the dirt the building sits on that people are buying. Prices went up ~30% over the last year in Vancouver. There are also buyers who think nothing of tearing down a relatively new building because it's not quite what they want. As long as the city remains a place people wish to live, the dirt will retain value. Perhaps it goes down 50-80% - you can live on your land or you can use its cash flows to help cover your living expenses. As a safe-haven, it's not a bad option. The price in CAD/USD/EUR/CNY/XBT is almost irrelevant to these owners. The problematic purchasers in my view are the locals. Many are buying because the market is going up - "I'd better buy now or I'll never be able to afford it". In a falling market, that demand many not exist. Though I also remain unconvinced that the foreign demand will remain strong in a falling market. What's going on in Vancouver isn't sustainable in any traditional sense. But the market can also remain irrational longer than many can remain solvent. I agree that the phenomenon of properties remaining vacant represents a failure. I'm curious what opportunities you think there are. I suspect that many of the opportunities would require regulatory changes to be viable, but I'm open to a different perspective. Regarding Chinese people understanding capitalism, I suspect there's a very different view culturally. I'm told that the advertising for financial products is quite different - in North America we tend to expect a convervative branding. In China you'll see investments with more of a WeChat approach (including being actually promoted on WeChat). Property rights were recently codified in China - i.e. 2007 or 2008. Real estate is mostly only available as leasehold in China. There's a lot of people who recently became quite wealthy quite quickly. I think it's very likely that they have very different understandings of capitalism than North Americans, who also have a different understanding than Europeans.
- eldavido 10y ago
  This is really great discussion, thanks for that. I'm not at all a Marxist (pretty pro-capitalism in general) but this does strike me as a case of over-financialization. Wasn't there some Marxist/socialist line of thinking that in late capitalism, so much gets accumulated that the economy shifts from one oriented around socially useful production of goods ("socially useful" is the broad sense, anything people want), to a purely financialized system driven more strongly by investment returns vs. profits from production? I recognize there's always an element of balance between starting a company to satisfy the demand for goods vs. the demand for return, but cases like this make me think the investors are more in the driver's seat than marketers/product people thinking about what we should make. Sort of like there's this giant mass of passive capital chasing yield and there isn't enough to go around. And I think this view is consistent with the idea that asset ownership isn't backed by a legally sound property rights regime in China. It seems a lot of this would be fixed if they could channel more accumulated domestic capital (profits) into housing, business equity formation, or even consumption. It's funny to think that "make something people want" (YC truism) might be good investments, rather than products. But maybe true here?