“It’s Worse Than 2008”: Toronto’s “Condo King” Weighs In On The Death Of Alberta’s Housing Market

Last week, National Bank’s Peter Routledge did some “back of the envelope” calculations and determined that Chinese buyers might well have accounted for one-third of all real estate purchased in Vancouver during 2015. Here’s how he came to that rather startling conclusion:

“The NAR estimates that buyers from China invested US$28.6 billion in U.S.-domiciled residential real estate properties over the 12 months ending March 31, 2015. The results of a multiple choice survey the Financial Times solicited from 77 high net worth and affluent individuals from China (admittedly not a statistically significant sample size) [show that] of those who had purchased residential real estate outside China, 33.5% had done so in the United States, 11.7% in Vancouver, and 8.3% in Toronto. From this survey data, one could hypothesize that for every three high net worth investors from China who purchase a U.S. residence, one purchases a residence in Vancouver. One can then apply these ratios to the NAR’s estimate of US$28.6 billion in U.S. residential real estate investment made by buyers from China. From this, we hypothesize that, in 2015, homebuyers from China invested ~US$9.9 billion / Cdn$12.7 billion in Vancouver residential real estate; this amounts to 33% of total purchase volume.

If that’s even close to accurate, it would confirm what we and others have been saying for quite a while: namely that capital flight from China is driving the explosion of housing prices in red hot markets like London, Hong Kong, and yes, Vancouver.

Persistent CAD weakness made Canadian homes look particularly attractive to Chinese buyers who had traded in their RMB for USD. The same dynamic – combined with the allure of a burgeoning tech industry – also drove outsized gains in Toronto, Waterloo, and other markets across the country.

But Alberta wasn’t so lucky. Situated at the heart of Canada’s dying oil patch, the province was the only territory where real GDP contracted in 2015. While manufacturing sales across Canada rose 2.3% in January, Y/Y sales plunged 13.2% in Alberta, the sixth decline in seven months and a sure sign that the oil slump has spilled over into the rest of the economy. Provincial manufacturing sales dropped 16% last year.

The dire outlook for the provincial economy has weighed on the housing market in places like Calgary. Have a look, for instance, at the following chart which we’re fond of presenting.

As you can see, one of those three markets is not like the others.

Underscoring just how bad things truly are in Alberta, Toronto’s “condo king” Brad Lamb is putting the brakes on two condo projects planned for Alberta. “The 36-storey Jasper House and 45- storey North will be delayed at least a year,” The Calgary Herald reports. Here’s more:

“The situation in Alberta is worse than 2008,” said Brad Lamb, known as Toronto’s condo king and for his humorous billboard ads depicting his face on a sheep’s body. “This is a unique event that is annihilating anywhere in the world that produces oil.” Executives at Fortress Real Developments Inc., which partnered with Lamb on the projects, declined to comment.

Lamb is pulling back as condo sales in Calgary and Edmonton posted the steepest decline in 2015 since the financial crisis. Sales of condos fell 38 percent in Calgary, Alberta’s biggest city, and declined 56 percent in Edmonton, according to Altus Group Ltd.

Prices for Calgary apartments have been among the hardest hit in the housing market, sliding 8.7 percent to $279,697 in January, while the average Edmonton condo declined 10 percent to $227,052 over the same period, according to the real estate boards for those cities.

Yes, “it’s worse than 2008,” and any locale where the economy depends at least partly on crude has been “annihilated.”

Lamb insists that the two postponed projects will eventually be completed. Construction on Jasper House, for instance, will begin in 2017. In the meantime, if you should happen to own a Toronto condo and want to take advantage of the soaring prices made possible by the billions upon billions fleeing China…