Unemployment Rate August 2018

GDP Quarter-on- Quarter Growth Q2 2018

Inflation Rate July 2018

Bank of Canada Policy Interest Rate October 2018

6.0% 2.7%

1.75%

The Canadian economy is growing steadily, despite various challenges. As of August 2018, economic optimism can be inferred through the low unemployment rate of 6%, and 40,400 new full-time positions being injected into the labour force.

Quarter-on-quarter nominal growth stood at 1.3% for the second quarter of 2018, up from 0.6% in Q1 2018. This increase is in part a response to the adverse weather conditions having a negative effect on retail in Q1.

Factors that impact on this market optimism include the increase of both Canada’s inflation and interest rates. For the fifth time in 12 months, the Bank of Canada raised its benchmark interest rate in October 2018, to 1.75% and has remained at this rate since. Canada is also experiencing its highest rate of inflation since February 2012 at 2.7%, seasonally adjusted, largely caused by higher oil prices.

With US trade tariffs causing strain between the two North American countries, the economic impact is unpredictable. The US has proposed 25% and 10% tariffs on steel and aluminium imports, respectively from Canada, Mexico and the European Union. Canada has retaliated, producing a list of items subject to taxes ranging between 10–25%, equating to C$16.6bn.

In addition, the Canadian government announced C$2bn subsidies for Canada’s steel and aluminium industries, to offset the impact on the economy.

Economic indicators Nominal GDP quarterly growth for Canada, Canada-wide unemployment, inflation and the policy interest rate

Nominal GDP growth Unemployment Rate Inflation Rate

2014

2015

2016

2017

2018

-2

-1

0

1

2

3

4

5

6

7

8

Source: Knight Frank Research, Statistics Canada, Bank of Canada

1.3%

Residential Market Update November 2018

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Vancouver

2

For many years, Vancouver has had low levels of available housing stock to buy. However, in June 2018, the number of homes for sale reached a three-year high. The total number of homes listed for sale on the Multiple Listing Service (MLS) in Greater Vancouver was 11,947 in June 2018, a 40% increase from the previous June.

Despite this greater supply, the number of transactions has decreased significantly across all property types. The transaction levels in June 2018 for Greater Vancouver were 28.7% below the 10-year average for June. In comparison to June 2017, June 2018 saw a 37.7% reduction in transactions, from 3,893 to 2,425. This fall has been experienced across all property types, with the number of detached dwellings and apartment sales falling by 42.0% and 34.9% respectively.

The fall in transactions across Greater Vancouver is indicative of higher interest rates, higher prices and the introduction of more stringent mortgage requirements. In January 2018, the Canadian government introduced

a ‘stress test’ on mortgage lending. Lenders have to qualify for a mortgage using the Bank of Canada’s higher benchmark rate, which in June 2018 was 5.34%. This enforcement of restrictive lending requirements has made it harder for both first-time buyers and existing homeowners to qualify for a mortgage.

Unusually, the greater supply and lower transaction rates have not caused average property prices to fall. Indeed, overall residential properties in Greater Vancouver have seen an annual price growth of 9.5% in June 2018, with the average price now reaching C$1,093,600.

Despite an overall increase in the whole-of-the-market property prices, Vancouver’s prime market witnessed an annual fall of 6.2%. This price reduction may have been caused by the accumulative influence of the Empty Homes Tax, School Tax, Property Transfer Tax and Capital Gains Tax, which all have higher rates targeting prime properties.

The number of homes for sale reached a three-year high in June 2018

42.0% Transaction levels have fallen significantly, with the number of detatched dwellings sales in June 2018 being 42.0% lower than June 2017

9.5% Annual growth in residential property prices in the year to June 2018. However the prime and mainstream markets are diverging, with the former seeing prices fall by 6.2% in the year to June 2018

Vancouver Sales Market InsightCurrent conditions in the Greater Vancouver sales market.

Residential Market

Residential transactions The number of residential transactions in Greater Vancouver

Household growth The annual increase in number of households in Vancouver

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q1 2

015

Q2

2015

Q3

2015

Q4

2015

Q1 2

016

Q2

2016

Q3

2016

Q4

2016

Q1 2

017

Q2

2017

Q3

2017

Q4

2017

Q1 2

018

Q2

2018

3,000

6,000

9,000

12,000

15,000

2013

2014

2015

2016

2017

0

5,000

10,000

15,000

20,000

Source: Knight Frank Research, Real Estate Board of

Greater Vancouver

Source: Knight Frank Research, Real Estate Board of

Greater Vancouver Source: Knight Frank Research, Macrobond, Oxford Economics

Residential prices The annual percentage change in residential prices in Greater Vancouver

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q1 2

015

Q2

2015

Q3

2015

Q4

2015

Q1 2

016

Q2

2016

Q3

2016

Q4

2016

Q1 2

017

Q2

2017

Q3

2017

Q4

2017

Q1 2

018

Q2

2018

-5%

0%

5%

10%

15%

20%

25%

30%

35%

The relationship between supply and demand influences any rental market, and Vancouver is no exception. Predictably, with the city’s extensive landscape and low unemployment rate, demand is very high. Consequently, Vancouver is experiencing a lack of supply which has led to a vacancy rate of 1.8% in Q1 2018, well below Canada’s historical low of 3.3%.

Rental prices in the city reflect this imbalance, with a 2.7% annual increase to June 2018 – the average rental price for a one-bedroom property in Vancouver is now C$1,900. However, this is below the peak average price reached in September 2017 of C$2,000. The largest increase in rental prices between the property types was with three-bedroom properties, where rents have now reached an average C$3,000 a month, a yearly increase of 3% to June 2018.

So what is going on? In essence, the market is responding to various factors. The rental market in Vancouver is subject to the cyclical nature of international

students leaving and returning, reflecting their academic schedule. Rental listings fell by 2.5% between August and October 2017, a common time for students leaving and then subsequently returning to university. The Downtown listings over the same time period increased by 12%, which is indicative of the area’s popularity with students upon their return.

The Empty Homes Tax was brought into effect in January 2017 to increase the amount of supply within the market. The annual tax targets vacant or underutilised properties at 1% of the property’s assessed taxable value. The 2016 census highlighted that there were roughly 25,000 dwellings – 8.2% of the city’s stock – that were unoccupied or underutilised. At the time of implementation, the number of listings increased substantially to 5,068 compared to just over 3,500 the month before. In January 2018, the listings rate hit a record high, with 5,718 listed properties. This would suggest that the tax is having a relatively small, but seemingly long-term impact, on the supply of housing stock in the rental market.

1.8% The high demand and low supply has led to a vacancy rate of 1.8%

2.7% Rental prices rose 2.7% in the year to June 2018

Large fluctuations in both demand and supply are led by student demand

Vancouver Rental Market InsightA look at recent demand in the Greater Vancouver rental market.

Residential Market

Source: Knight Frank Research, Oxford Economics Source: Knight Frank Research, Canada Mortgage

and Housing Corporation (CMHC)

Source: Knight Frank Research, Macrobond, Oxford Economics,

Quantitative Rhetoric (quantitativerhetoric.com)

Rental population The annual change in the population aged between 20-39 in Vancouver

Rental completions The number of annual rental completions in Vancouver

Financial & business services Annual change in employment in financial & business services

2013

2014

2015

2016

2017

0

3,000

6,000

9,000

12,000

15,000

2013

2014

2015

2016

2017

0

2,000

4,000

6,000

8,000

10,000

12,000

2007

200

8

200

9

2010

2011

2012

2013

2014

2015

2016

2017

0

1,000

2,000

3,000

4,000

5,000

Local Residential Market PerformanceA look at market performance on a district level over the second quarter of 2018.

Local Performance

4

1 Bowen Island 7 Maple Ridge

4 Burnaby South 10 Pitt Meadows

2 Burnaby East 8 New Westminster

5 Coquitlam 11 Port Coquitlam

3 Burnaby North 9 North Vancouver

6 Ladner 12 Port Moody

Price 3 months Price 3 months

Price 3 months Price 3 months

Price 3 months Price 3 months

Price 3 months Price 3 months

Price 3 months Price 3 months

Price 3 months Price 3 months

5.6% 2.4%

1.7% 3.3%

1.5%

3.3%

2.6% 1.6%

1.7%

-0.4%

0.0% 3.9%

1

15

3

13

17

9

6

16

4

14

Vancouver International

Airport

| the change in average prices over the three months to June 2018Price 3 months

Local Performance

15 Vancouver East

16 Vancouver West

14 Tsawwassen 17 West Vancouver

13 Richmond

Price 3 months

Price 3 months

Price 3 months Price 3 months

Price 3 months

-0.5%

-4.3%-1.0%

-0.6%0.6%

115

7

2

12

8

10

Pitt MeadowsAirport

6

Vancouver West Since early settlers arrived in Vancouver in the 1800s, Vancouver West’s reputation has travelled far beyond the boundaries of British Columbia. With mansions in Shaughnessy dating back to the early 1900s, it’s clear that wealth is not new to the area. Known for its affluent lifestyle, unrivalled landscape and exceptional recreational opportunities, the district remains the envy of the city.

Local Focus

Vancouver West is within a 15-minute drive of three major ski mountains – Seymour, Grouse and Cypress – and is close to Vancouver International Airport. Predictably, the combined proximity to a bustling inner city and downtown core, with access to both mountainous terrain and beautiful beaches, makes Vancouver West a popular destination for tourists and residents alike.

This inherent desirability has had an effect on property prices in Vancouver West, which are representative of the luxurious lifestyle of its residents. The average single family detached property in the district is over C$3 million, and the area has seen a price growth of 112% over the past 10 years. Due to its exclusive nature, Vancouver West has witnessed significant international interest in properties, especially with overseas students renting in the city while studying at one of the top universities, including The University of British Columbia (UBC).

Vancouver West boasts excellent educational facilities, being home to UBC as well as many top-ranking high schools. Most notably, York House and Little Flower Academy, two greatly sought-after private schools.

Residents benefit from a vast array of recreational activities – from hiking the trails at Pacific Spirit Park, retail therapy in the Kitsilano shopping district, and sunbathing on Jericho Beach, there is something for everyone. Vancouver West also boasts many niche independent businesses, including restaurants with an international flair, drawing in the diverse local community.

An addition to the unique offering of Vancouver West was the construction of a C$1 billion mixed-use complex for the 2010 Vancouver Winter Olympics, which housed the athletes in the Olympic Village. After the Games ended, the complex was repurposed and has since been adapted into a housing complex with over 1,100 living units, almost a third of which are affordable housing. This development underlines the importance of cohesive living in Vancouver West where, despite the high prices, a community feel is important.

What you could buy for…

C$1.7 million A two-bedroom townhouse in Kitsilano

C$5.6 million A penthouse apartment in Vancouver West

C$11 million A five-bedroom gated house in Shaughnessy

Property Snapshot

Property Snapshot*

In this section, Knight Frank highlights certain characteristics of properties that appear to be driving demand. Using data collected from the Multiple Listing Service between March 2018 and August 2018, it is possible to derive patterns of property characteristics that help readers to better understand the local market.

Data from the Real Estate Board of Greater Vancouver shows that in the second quarter of 2018 there was 2,245 residential transactions. Over the same time period, according to Canada Mortgage and Housing Corporation (CMHC), construction was started on 10,454 private properties across British Columbia.

For sales across Greater Vancouver, Vancouver West saw the most activity between March 2018 and August 2018, with 2,449 transactions. As outlined in the Local Focus section, Vancouver West is situated in a prime location, with close proximity to Vancouver International Airport, as well as providing both oceanic and mountainous views. An example property in the area that utilises this district’s accessibility is demonstrated to the right.

Sales of attached properties were the most common, representing 69.9% of all transactions from March to August 2018. The district that saw the most attached property sales was Vancouver West, with 2,059 transactions. The popularity of these properties is demonstrated by the fact that they spend, on average, 20.3 days on the market, compared to the average of 25.6 across all transactions. A flat on Point Grey Road, pictured to the right, is an example of an attached property in this district.

Across all districts, two bedroom properties saw the most sales between March and August 2018, with 4,252 transactions. To illustrate their popularity, two-bedroom properties, like the ones listed in the development to the right, spent an average of 21.0 days on the market.

Location

Home type

Size

*The property listed in this section is for reference only. HSBC does not hold a view of the property and is not soliciting, advising or recommending any reader to buy or sell the property. Readers should be aware of changes to the price of the property and exercise proper due diligence before entering into any property transaction.

West 57th Avenue

Turner’s Dairy

Point Grey Road

8

Next Steps

Please contact your HSBC Premier Relationship Manager or call our HSBC Premier hotline:

Hong Kong+852-2233-3322www.hsbc.com.hk

Important Notice© Knight Frank LLP 2018 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

Important NoticeThis report is issued by The Hongkong and Shanghai Banking Corporation Limited (“HSBC”). The content of this report, including but not limited to the information stated and/or opinion(s) expressed in this report, are exclusively prepared and/or provided by Knight Frank LLP. This report is to provide a high level overview of a specific property market, and is for information purposes only. HSBC has not been involved in the preparation of such information and opinion. HSBC makes no guarantee, representation or warranty and accepts no responsibility for the accuracy and/or completeness of the information and/or opinions contained in this report. In no event will HSBC or HSBC Group be liable for any damages, losses or liabilities including without limitation, direct or indirect, special, incidental, consequential damages, losses or liabilities, in connection with your use of this report or your reliance on or use or inability to use the information contained in this report. This report does not constitute and should not be construed as a solicitation, an investment advice or a recommendation to any reader of this content to buy or sell properties nor should it be regarded as investment research or tax or legal advice. HSBC is not recommending or soliciting any action based on it. Any market information shown refers to the past and should not be seen as an indication of future market performance. You should always consider seeking professional advice when thinking about undertaking any form of investment. This report is distributed in Hong Kong and may be distributed in other jurisdictions where its distribution is lawful (but not intended for jurisdiction where its distribution is unlawful). This report is not intended for anyone other than the recipient. The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings.

For property enquiries:Jason MansfieldSales Manager, United States & Canadajason.mansfield@knightfrank.com