Future of Victoria

[Geoffrey]

Like Toronto and Vancouver, Victoria just went through a 2 year growth-spurt. Do we have evidence of a major downturn or more for a leveling off the next couple years? I'm curious because I just bought a half duplex and suite. No plans to sell for a few decades though.

 

[Matt Crowley]

Victoria is going through a significant expansion cycle right now with cap rates in the 3.8% range. (See the Colliers Q2 2017 multifamily report http://www.collierscanada.com/en/co...ultifamily-market-report-q2-2017#.WW4hi4TyuUl). Some transactions trading sub-3%.

From what I have seen, I think multifamily valuations in most of Canada and most US markets are overvalued for the income they are putting off. When you get into 3% cap rates in a 4.5% cap rate average environment for Canada you are saying that Victoria will grow at 1.5% more than the average income growth for the rest of the country forever.

Investors getting into the market should know they are "buying high" right now. Maybe it goes to a higher high, there are some legitimate supply constraints and pent up demand. But in a world where interest rates are hiking in Canada, how do you see cap rates continuing to compress? Cap rates will most likely expand in response which means your valuation growth is only from rents...what drives rents? In Canada, it is primarily interest rates, credit availability, and secondarily job growth.

Victoria is not a "value" investment it is a "growth" strategy. At 80% LTV you will have $0 cash flow, probably negative and are betting on ever higher-highs. Nothing wrong with that but that is the strategy.

My view of the Victoria strategy is a quick in and out, probably a good environment for flips and refurbs right now. Very low vacancy but a lot of supply in the pipeline about 6,000 units. Keep in mind the rental universe is 16,000 units, according to CMHC October 2016. If 30% of those units are rentals that is an 11% increase in market supply...this will affect rents. I don't view it as a great investment for highly leveraged investors (more than 60% LTV), but it is a highly, highly desirable market and has bandwidth to grow.

Its limitations are location, jobs, industry, and logistics. It is a beautiful place and if you are comfortable with a bit smaller returns than a secondary market (maybe 2-3% lower) it is an attractive investment.

 

[Thomas Beyer]

Victoria is a great place to study or retire. Warmest climate in Canada. Walkable. Golf. Ocean. Flowers in February. Cheaper than Vancouver and more white. Not nearly as Asian, yet.

Prices will rise a bit more, say 20-25%, then level out fast or rise very slowly at best, especially after the new GreeNDP will have added 30% foreign buyer tax and expand it to all of BC and tax foreign owners more. You might even see, just like Toronto just did, a sudden spike then sharp pull back !

Few jobs and either retail, construction or government oriented. I would consider selling if you bought more than two years ago or try to time the peak.

Holding tough to justify at these prices but if you can hold why not ?

 

[Tina Myrvang]

Please see our newest report on Victoria.
Click HERE

 

[CanadianIce]

A few questions....

Why would rents be driven by interest rates and credit availability?

The 11% increase in housing supply will have an affect. It's also right next door from where I rent out now. BUT, there are too many factors in the mix to predict, in my opinion.

The Green/NDP plans for foreign buyers tax is worrisome. I don't know if they will do anything as radical as 30% province wide, but something is going to dampen things, as will rising interest rates. High immigration and in migration, strong overall economy, rising public sector wages. These factors are going to affect both residential prices and rents though.