Vancouver and the Canadian Real Estate Bubble

Vancouver, in British Columbia, Canada, is one of the most beautiful cities in North America. The metropolis is now being known for a much less envious reason: many real estate professionals hold the opinion that the Canadian city is now experiencing a real estate asset abnormal rise or what is commonly known as a bubble. There are also a number of signs that it will burst-and this may come soon.

Bad portent

Investment opportunities continue to be available. As per Real Estate Board of Greater Vancouver, the city's single detached homes rose from about $400K CAD to $175 million CAD from 2002. The figures mean a 337 percent increase within 15 years. It is natural that a significant proportion of the city population is now engaged in the real estate business. Many are into renovations, real estate brokerage, constructions and similar activities. It is apparent that the city is moving on the same path to Phoenix, San Diego, and Las Vegas. All what is happening in Vancouver now has already happened in those cities in 2006.

Many Vancouver residents think differently. They point out that the Canadian city is geographically limited to expand. The ocean is to the west and mountains lie in the north. The border is in the south. This logic is not a good one. A number of coastal cities like New York share this characteristic. These cities went through periodic boom and bust times over years. There is no reason that Vancouver is different from such a trend. If precautions are not taken, then there is a possibility of a substantial real estate correction in not only the city but in the whole of Canada.

Other factors

Other elements cannot be ignored, Rates of interest and taxation are inching up. The cap rates on commercial properties or rentals are quite low. The Canadian ratios of price to rent are now much well above what the United States were during the housing debacle in 2006. As per Bank of Canada, about 47 percent of Canadian mortgages will be reset during the next 12 months, to understand this, in comparison, a rate of mortgage for fixed five years is about 5.14 percent. This is about 11 percent more compared to the 4.64 percent it averaged for majority of last two years. Worse is that foreign investment in Canada is on a downswing due to China imposing capital controls.

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