finance – Jewish Independent

Real estate in time of COVID

Michael Geller at the groundbreaking of ConWest’s IRONWORKS development in 2017. (photo from Michael Geller)

The COVID pandemic and the months of social isolation it created will have impacts on real estate prices, urban design and human behaviours, says a local expert. But the changes are not likely to be revolutionary so much as accelerate trends already underway.

Michael Geller, an architect, planner, real estate consultant and property developer, spoke to the Temple Sholom Men’s Club in a virtual event via the meeting platform Zoom May 25. (For more on the club, click here.) Geller is also adjunct professor in Simon Fraser University’s Centre for Sustainable Community Development and a longtime leader in Jewish communal organizations. His topic was Real Estate in the Era of COVID.

“Housing sales are down significantly and are as low as they have been in recent memory,” he said. Wages have been dramatically impacted for an enormous number of individuals and household debt is increasing significantly. Many renters are unable to meet their payments.

Housing sales are affected by the obvious issues of economics, but also because buyers and sellers are reticent about the physical interaction required in the process of viewing potential homes. Sales have not entirely collapsed, though, he noted.

“There are still some bidding wars for more affordable condos, priced under $700,000,” said Geller, adding: “Can you imagine 30 years ago being told that affordable condos would be under 700,000? It just shows you what has happened to our market in recent years.”

While sales are down, there has not been a significant increase in the supply of either listings or new homes coming to market, he said. “So, at the moment, we aren’t seeing the dramatic drop in prices that many assumed, myself included, would occur.”

What may occur is a stalling of new construction because lenders are cautious. “They don’t want to lend money for anyone to buy land at the moment,” he said. “This is a significant factor.”

While there were many years when there was almost no purpose-built rental housing created, this has shifted, with about 4,000 new units this year in the city proper and 9,300 in Metro Vancouver. This supply, combined with the economic challenges brought about by the pandemic, have had impacts on rental rates. “For the first time in a long time, we are starting to see a softening of rent,” he said.

Foreign investment has been credited with playing an outsized role in property values in recent decades and some commentators speculate that buyers may be “circling like vultures” in the event of comparative real estate bargains in British Columbia, he said.

Geller noted the opposite could occur, however, as the market softens. “Some of the people who came, especially from mainland China but also Hong Kong and Europe, might actually divest themselves of their investments and pull out of the Vancouver market,” he said.

International events will also likely play a role. Uncertainty and upheaval around changes in China’s governance of Hong Kong could make Canada very appealing, especially to the 300,000 residents of Hong Kong who have Canadian citizenship.

“We have a high level of personal safety and, when you think about it, that is one of the most important considerations,” he said. “You can have all the money in the world but if you don’t feel safe in your home at night, you may not necessarily stay in that home.”

British Columbia’s recognized success in dealing with the pandemic has enhanced its international image. “As we start to focus more and more on health issues, that cannot be ignored,” he said.

Foreign investment in Vancouver has dropped significantly since the implementation of the foreign buyers’ tax.

“Will those foreign buyers come back, even if they have to pay 20% premium?” Geller asked. “If they don’t come back, and if that means local developers decide not to build, whether it be rental or condominiums, and we start to see significant unemployment of all those construction workers … then it may well be that the government says, you know, this is a difficult situation, these are unprecedented times and maybe they’ll just decide that, for the next two years, the foreign buyers tax will be reduced to five percent rather than 20% in order to stimulate the economy.”

On the commercial real estate front, the experience of working from home may change our relationship to the office. If people continue working remotely, that could reduce demand for office space. On the flip side, new ideas of personal space and social distancing could mean that people come to expect fewer workers in more space, thereby increasing demand.

If more people do opt for remote work options, some may choose to move to more affordable and remote locations. Home design might adapt to include formal workspaces so that people aren’t using kitchen counters as desks. Condo towers and apartment buildings might opt for hotel-style shared business centres rather than spas. They may move toward more “touchless tech” – a familiar example being the Shabbat elevator.

As stores reopen, retailers may see a decline in shoppers, but Geller suspects that warehouse space is headed for a bull market. “As more and more people are buying online, there is a need for more and more warehouse space to store all this product before it’s delivered,” he said. “This applies not just to clothing and giftware, it applies to food and other goods that are stored in cold warehouses.”

Looking at social changes that have resulted from pandemics in previous centuries, Geller said, “One of the things that came out of [earlier pandemics] was an appreciation of the need for more parks and green space throughout the cities. Central Park in New York, that was created by the New York City Board of Health because of the belief that this would lead to improved human environmental health for everybody in the city. In most European cities and many other American cities, large parks and green networks were created to help people lead healthier lives.”

Improved sanitation, water supply and sewage treatment systems were also at least partly a result of these catastrophes. Home design changed, including the advent of sleeping porches, based on the understanding that fresh air was preferable to stuffy interiors. The modern bathroom, including the proliferation of white tiles that both made it easier to clean and added to the perception of sterility, emerged. Wooden toilet seats, which were the norm, were replaced by plastic ones.

“The powder room became a creation in a larger house because the man who came to deliver the coal or to deliver the ice, you didn’t want them going through your house using your bathroom, so powder rooms became popular,” he said.

Though he had plenty of ideas, Geller was emphatic that he didn’t really know what the future holds. But he has some confidence about a general forecast.

“Often,” he said, “pandemics and similar sorts of events accelerate changes that were already happening.”

Financial hopes

In a Temple Sholom webinar May 6, ZLC Financial’s Garry Zlotnik, left, and Jon McKinney spoke on the topic Financial Planning in a Pandemic. (photos from Temple Sholom)

Reflecting on previous financial downturns – in 1987, 2000 and 2008 – Garry Zlotnik, chair and chief executive officer of ZLC Financial, admitted he felt worse now, during the COVID-19 pandemic, than in earlier recessions – not because of the economic implications but rather the health issues currently confronting the world.

“A year from now, two years from now, we’ll look back on this time and say, ‘Wow, that was just the most ridiculous, crazy thing in our lifetimes.’ But things will move forward in a positive way, with all the ingenuity that our population has,” Zlotnik said, adding that, as in any market, there are winners, such as Zoom, the web conferencing platform on which the webinar – called Financial Planning in a Pandemic – took place May 6.

Zlotnik was joined by Jon McKinney, ZLC’s president and portfolio manager, in the hour-long discussion, which was part of Temple Sholom’s Let’s Talk About It series.

McKinney holds overall responsibility for client relations, business development and administration at ZLC and has almost 30 years of financial sector experience in both portfolio management and accounting. Zlotnik, who has close to 40 years of experience as a chartered accountant and formed ZLC Wealth in 2000 – ZLC Financial was established in 1946 – also has served in numerous positions within the Jewish community, including as board president and chair of the Jewish Federation of Greater Vancouver, co-chair of the Vancouver JCC Maccabi Games, co-president of Vancouver Talmud Torah, treasurer of B’nai Brith Canada and president of the Richmond Country Club.

Though the spread of the virus has been flattening lately, the economic statistics – jobless claims, consumer spending – have been grim, with Canada’s economy further challenged by tense U.S.-China trade relations and a downward turn in the price of oil. According to McKinney, a silver lining has been the stimulus and bond buying by governments and central banks to prop up markets.

McKinney cited a Warren Buffett maxim from the midst of the 2008 recession: “Be fearful when others are greedy and be greedy when others are fearful.” If one had heeded that advice in late March of this year, he said, then April would have seen the best returns for equities since 1987, particularly as the U.S. Federal Reserve had been displaying its willingness to pump liquidity into the markets. The S&P 500 index, for example, gained 12.7% last month.

A principal message of the discussion was for investors to take a broad, long-term view. “Market timing is impossible,” McKinney cautioned. “But we can tell you there will be a bottom, and holding investments in companies that can weather this storm will be profitable long-term.”

In outlining ZLC’s own investment strategy, McKinney said, “We have reasonable diversification across different holdings and we pick good managers. We don’t just buy the index, and we look for companies that fly under the radar. We also invest in long/short funds and real estate.”

However, ZLC is concerned that there may be a retreat from the level the market is at now, as more bad news could filter through the system. Short-term, they believe, there could be a pullback and, if it comes, it will provide a great opportunity for investors.

“There are going to be some fairly volatile times ahead,” Zlotnik predicted, mentioning that it will take some time for people to get used to spending as they once did in pre-coronavirus times.

Oil and gas is one sector that has been beaten up in the past three quarters. It is, according to McKinney, contingent on the economy whether it rebounds, but many companies in the sector have seen strong gains through April and May.

“Every asset class has taken a hit,” Zlotnik said, though he sees opportunities in corporate bonds, which operate like a bond when a company’s price goes down and like equity when its price increases.

As for the Canadian dollar, McKinney forecasted the loonie either staying where it is or moving slightly higher after the recent rush to U.S. dollars, which tends to happen during economic crises.

For those with some money to put into the market, Zlotnik spoke of “dollar cost average strategy,” which means placing a fixed amount into a given investment on a regular basis. For example, if someone has $100,000 to invest, then they would place $10,000 in a given investment once a month for 10 months.

“It is important to know what one’s risk tolerance is and having a plan based on that,” he noted. Since March 2009, investment risk, for Vancouverites especially, has not been a factor, as both the equity and real estate markets have headed in an upwards direction.

A video of the webinar can be found on the Temple Sholom website: templesholom.ca/video.

Sam Margolis has written for the Globe and Mail, the National Post, UPI and MSNBC.

Mortgage industry’s future

(photo by Nick Youngson / Alpha Stock Images)

The next decade is going to see an evolution in how Canadians obtain mortgages. These shifts will transform the experience for both the mortgage professional and, more importantly, the borrower. Here’s where things are now and what I foresee.

The mortgage industry

A borrower can go to three sources to get their mortgage: account managers at banks, mortgage specialists at banks and mortgage brokers. (I use “bank” as a catchall for financial institutions, including credit unions and trust companies. Financial planners are not included because they represent such a small slice of the pie and refer files to mortgage specialists.)

Employees, particularly account managers, are a bank’s frontline team for mortgages. These salaried employees get incentives if they hit sales targets, but they are, by definition, jacks-of-all-trades. They help with a client’s routine banking needs, open investment accounts, provide general advice and also write mortgages.

Because mortgages are complex, account managers are encouraged (and often required) to send their mortgage applications to a mortgage specialist. This is good policy, because it is best to have an expert eye review something as significant as an average family’s most significant investment and the average bank’s bread-and-butter. Also, because there have rightly been many – one expert told me there was a total of 168 – new rules since the 2008 financial crisis, it has become increasingly difficult to “dabble” in mortgages.

Given these developments, a consumer would be wise to trust the most important financial transaction in their life to a professional who has expertise in a single field, rather than a generalist who is doing mortgages off the side of their desk.

Of course, every bank employs a network of mortgage specialists, with each bank investing varying amounts of resources into training. Still, a mortgage specialist is just that: a bank employee who specializes in mortgages.

Most banks’ mortgage specialists are commission-based and can make a good living from their work. But remember: bank specialists work for the bank, not for you. (They also don’t require a licence or any accreditation to write up your mortgage application.)

Mortgage brokers are independent professionals whose unique responsibility is finding the ideal financial solution for each client, not whatever rate or product their bank is pushing on any given day.

A mortgage broker is a professional who has successfully completed an educational process, passed an exam and undergone comprehensive assessments, including biannual criminal background checks. Additionally, continuing education is required to ensure that mortgage brokers remain informed of the latest developments in this ever-changing industry. Mortgage professionals at the banks, however well-intentioned or however closely they follow the business pages, have no such requirements.

It is commonly said that a mortgage broker “shops around” for the best rate. This is partly true, but there’s more. Brokers know the rates and conditions of every lender. What we do with that information is tailor each client’s need with rate and product choices, allowing them, with their mortgage broker’s guidance, to make the most informed, appropriate decision for what best suits them.

For example, a broker might recommend a more flexible mortgage product with a slightly higher-than-base rate versus a lower rate with restrictions. This is crucial because, again, everyone’s case is unique. Circumstances change. Relocation is sometimes unavoidable.

Even better: for most mortgages, a mortgage broker’s service is provided at no cost to the borrower. Brokers earn their keep from the lender that finances the borrower’s mortgage.

Where is industry headed?

Account managers at banks will continue to write mortgage applications because this remains an efficient use of the bank’s resources. The banks have been building increasingly sophisticated mortgage application platforms for their mortgage specialists and account managers to use. These easy-to-use apps are straightforward and allow their employees to quickly and efficiently pull together all of the necessary information to verify credit data and employment, assess risk and review the property, all at the click of a few buttons.

The banks built these systems so that employees with less expertise (and lower salaries) can replicate or reduce the work of more highly trained professional staff. And, since mortgage specialists are largely commission-based, it seems to me that banks will increasingly depend on salaried individuals who read from their computer screen while dealing with mortgage-seekers.

The obvious issue with an account manager reading off a screen is that, at any point in time where real advice is required, the bank employee will not have the training or experience to provide it.

There is, of course, still currently a place for bank specialists. The best of them can and do give the best service possible to their clients.

My prediction is that the mortgage specialist role will be curtailed until only a few high producers remain. Banks will probably continue to make it easier for mortgage specialists to do their jobs, allowing them to take on more files and the best will grow and the worst will drop off.

Don’t misunderstand me. There is a place for technology, obviously, in the process. In fact, mortgage brokers, by necessity, are entrepreneurial

and resourceful, and have created economies of scale, processing documentation and applications more efficiently than ever. For instance, my team and I have automated the process of 70-plus internal steps per client throughout the mortgage process, streamlining everything for ourselves so that our clients can benefit from the most comprehensive and individualized experience we can offer. This involved a lot of time up-front, but it means that our clients receive the service they want, tailor-fit to their specific needs.

My prediction for mortgage brokers is that there will be a culling of the herd, just like with mortgage specialists. A broker, and any consultant in this day and age, needs to innovate and use the newest technologies to stay relevant in the eyes of borrowers. Not just that, the brokers themselves need to know each lender’s products and how to get files approved.

Superb knowledge, a fast and efficient process, and amazing customer service will become the bare minimum in the future, and the specialists and brokers who “dabble” or aren’t 100% committed to improving their craft will get left in the dust.

Eitan Pinsky is principal of Pinsky Mortgages, a Vancouver-based mortgage broker.

Praise for whistleblowers

Alan Le Fevre, president of the Wallenberg-Sugihara Civil Courage Society, and Acting Mayor Raymond Louie, right, with the City of Vancouver’s proclamation of Raoul Wallenberg Day. (photo by Masumi Kikuchi)

“If we had a society that was free from embezzlement, free of theft, free of dishonesty, free of unethical conduct, we wouldn’t need whistleblowers. But, unfortunately, we are not a perfect society,” said Ujjal Dosanjh in his keynote address at the 13th annual Raoul Wallenberg Day event, which was held on Jan. 14 at the H.R. MacMillan Space Centre.

Dosanjh, a former federal cabinet minister, B.C. attorney general and the province’s 33rd premier, was, in 2015, the inaugural recipient of the Wallenberg-Sugihara Civil Courage Society’s Civil Courage Award. He was recognized for “his great courage in the face of escalating violence by extremists in the Indo-Canadian community that arose from conflicts that had erupted in India,” said WSCCS board member Ana Policzer in her remarks on Sunday.

The society hosts the annual Wallenberg Day event and, this year, they honoured Vancouver-based lawyer Alayne Fleischmann with the Civil Courage Award.

Fleischmann was born in Terrace, B.C. She got her bachelor’s degree in philosophy from the University of British Columbia, her master’s in international and comparative law from the Institute of International and Comparative Law, Cornell Law School and Université Paris (Sorbonne), and her juris doctor degree from Cornell. In 2006, she was working in quality control at JPMorgan Chase in New York. There, she discovered and tried to stop what she described as “massive criminal securities fraud” – mortgage operations similar to those of many other financial institutions, which led to the 2008 economic collapse. Her efforts resulted in a $9 billion fine being levied on JPMorgan Chase, but no one from the bank was ever prosecuted. She moved back to British Columbia in 2008.

In a 2014 Rolling Stone article, writer Matt Taibbi goes into great detail about Fleischmann’s experiences, the difficulties she faced in bringing the truth to light and the limited impact the truth played in whatever minor justice was carried out against all the banks guilty of mortgage-related wrongdoings. In effect, Taibbi argues, the U.S. department of justice “struck a series of historic settlement deals with Chase, Citigroup and Bank of America. The root bargain in these deals was cash for secrecy. The banks paid big fines, without trials or even judges – only secret negotiations that typically ended with the public shown nothing but vague, quasi-official papers called ‘statements of facts,’ which were conveniently devoid of anything like actual facts.”

The full Rolling Stone article can be accessed via wsccs.ca/wallenberg-days/2018. At the Wallenberg Day event, organizers screened a 2014 interview with Taibbi and Fleischmann by Democracy Now! WSCCS president Alan Le Fevre also spoke briefly about Fleischmann’s actions and why she was chosen to receive the Civil Courage Award. Unfortunately, Fleischmann could not accept the award in person because of the ongoing litigation.

In his remarks, Dosanjh saluted whistleblowers. “In Canada,” he said, “we don’t know too many of our own heroes…. But we have them. One that we have amongst us in Canada is the honouree tonight, Alayne Fleischmann.”

There are monetary costs to illegitimate or immoral actions, Dosanjh said, but such actions also “jeopardize the health, safety and well-being of the employees, the customers and the society of the institutions.”

Whistleblowers like Fleischmann set out to right a wrong, he said. They are morally compelled to the point where they take the “risk of losing their careers,” “being ostracized” and having rumours spread about them to “delegitimize the truth that they’re trying to tell.”

After such individuals come forward, he said, “life is never the same. You lose friends, you lose relationships, obviously you lose a job possibly, or you’re not promoted or you’re demoted…. And, sometimes, it can be dangerous physically. People have been known to be killed, at least across the border, for trying to expose the truth. Karen Silkwood comes to mind.”

Dosanjh warned that whistleblowers aren’t always correct, however, giving the example of eight B.C. health ministry workers who were found to have been wrongly dismissed in 2012, amid allegations of wrongdoing. “It’s a risky business,” he said. “You’re playing with your own life but you’re also playing with the lives of others you’re trying to expose.” So, you have to not only have the courage to speak up, he said, but the wisdom to know when to not do so, or when to investigate further before doing so.

Several audience members gave their take on corporate and government corruption in the question-and-answer period. Dosanjh said people need to get more vocal about these issues. “There is no silver bullet to deal with any particular issue,” he said. “It’s just a matter of becoming more active politically and raising your voices.”

To an audience member who decried greed as criminal, Dosanjh said, “If you say greed is the basic urge to make more money, that shouldn’t be a crime…. You want to make money, you want to work more … that’s what keeps the world going…. Illegal greed should be a crime – and it already is! The fact is we’re not prosecuting criminals, we’re not apprehending them, we’re not investigating them as much as we should, and we’re falling down in some respects.”

The afternoon event also included the reading by Acting Mayor Raymond Louie of the City of Vancouver proclamation of Jan. 14 as Raoul Wallenberg Day. He thanked event organizers and attendees for taking the time “to remember and to also recommit … with this ongoing effort to have a better world overall.”

The WSCCS is continually “seeking to identify people who, at significant personal risk, have helped to improve or save the lives of others by going against unjust laws or conventions.” For more information, visit wsccs.ca.