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Kenny Wong, co-director of PHW Homes, stands outside a house the company is building for a client in New Westminster, B.C., on March 26, 2018.

DARRYL DYCK/Globe and Mail

Since British Columbia introduced the foreign buyer tax almost two years ago, Kenny Wong’s custom home construction business has been booming.

The foreign buyer tax, which was just recently increased to 20 per cent, is largely credited for the big drop in house sales in the high-end neighbourhoods. But Mr. Wong says that because of the tax, he’s seen a serious appetite for new home construction on the east side and it isn’t speculation-driven as it was a few years ago.

The biggest drivers of his business are young families who’ve discovered that they can afford to build a house. And they are maximizing their square footage to build big houses with revenue suites and laneways.

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“This year has been kind of insane for us – the custom-housing market is amazing right now,” says Mr. Wong, who’s co-director of PHW Homes. His father began working on the business more than 30 years ago and his grandfather before that.

Prior to the tax, the new detached-house market was hot for all the wrong reasons –speculative ones.

“The biggest issue with the housing market when it was really, really hot was a lot of people were building to sell. Every contractor and their cousin’s dog was busy. At that time, there were a lot of builder/developers, a lot of people wanting to build homes to sell to make a large profit, which caused a lot of inflation. And there were a lot of really questionable homes coming through that people were buying because the property values were so high.

“It was a great place even for foreign buyers to just offload money because they were anticipating things would go up, and people were selling them right away. But now it settled down a lot and that has stopped significantly.

“The biggest impact is that our clientele has transitioned. We are seeing more and more people looking into a custom home to live in and building different things in regard to rental income, laneway houses to help themselves out.”

The vast majority of Wong's clients have upgraded from a condo to a fixer-upper.

DARRYL DYCK/Globe and Mail

Mr. Wong works with clients that already own property. The vast majority of his clients are in the 33 to 45 year old range, he says, and usually they’ve upgraded from a condo they purchased several years ago to a fixer-upper that they’ve been hanging onto. As the market shot up, he says, banks were approaching them and telling them to use their equity to build a new house. Others have bought in to their parents’ property in order to build a laneway house, or their parents have allowed them to rebuild on a second rental property that they’d owned for years. They’ve decided that instead of purchasing a condo for $800,000, they’ll use that money to build a house on their parents’ property instead. And their parents end up downsizing to the basement suite or laneway house once their kids start a family in the main house. Mr. Wong says it’s a typical inter-generational way of living for many Asian families.

“Almost 100 per cent are local younger families that got into the market at the right time, whereas it used to be that 30 per cent of our clients would be people looking to purchase properties to sell – some would be foreign, looking to do investment, or working with people that were working with foreign investors that were looking to build properties, to do flips and invest in Vancouver. So as soon as the foreign-buyer tax came in, I found that investors looking to buy property just stopped.

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“Since then, I would say we get maybe one or two in regards to flips, compared to last year, where we would maybe get 10 to 20. [The tax] stopped the market significantly on one side of things, but pushed us further with regard to the custom market, and custom clientele, locally. That’s a nice thing to see.”

The majority of the houses they build are in east Vancouver, but they also build houses in Burnaby, New Westminster, Maple Ridge and Coquitlam.

“Most of the stories are daunting and sad, about unaffordability and people not being able to get into the market. I understand younger clientele a bit more. The Western clientele, we are very picky, very spoiled,” he says.

His young clients want to know about materials used and they want to be involved in the process.

“When it was hot and crazy, no one would take the time to inform them on this stuff. It’s made building more fun over the last couple of years, building for this younger generation.”

New tax measures, including the higher property transfer tax and the school tax on homes more than $3-million, don’t affect Mr. Wong’s business model.

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Bob de Wit, chief executive officer of the Greater Vancouver Home Builders Association, says Mr. Wong’s clients are basically acting like developers, maximizing the potential of Vancouver residential lots. But there is still a divide between east side and west side of the city when it comes to that sort of activity, he says. West side prices have dropped, but not enough for average local incomes to start buying.

Builders that are also assembling several lots and developing land are facing extra costs, he adds.

“Nowadays if you want to buy a house in Vancouver, it’s possible on the east side, like [Wong’s] clients. They are essentially developers themselves, because in order to buy a house you want to add a laneway for revenue, a basement suite or two for revenue, maybe even strata the upstairs, so you end up with several housing units. That’s the reality of buying a house in the city of Vancouver. That’s not impossible anymore. But it’s pretty much impossible to do that on the west side of Vancouver, because houses are so expensive. But it is still possible in Vancouver, if you have two good incomes and all those mortgage helpers attached to it.”

New tax measures don’t affect Wong’s business model.

DARRYL DYCK/Globe and Mail

The average sales price for a newly constructed detached house on the east side of the city is $2,089,151 and the average price of a new house on the west side is $4,946,016, according to the Real Estate Board of Greater Vancouver data, as of February 2018.

Mr. de Wit says his industry is still busy because crews are working on projects that came to them six or nine months ago. However, he’s worried about a drop-off later in the year, or in 2019. He says the federal government’s new mortgage stress test reduces demand for housing by 20 per cent, and they have yet to see that change make its way through the market. That change will directly impact the lower end.

“It will be a big hit to demand.”

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Then there are the provincial taxes that have been introduced, as well as major hikes in development cost levies that several of the municipalities are bringing in. There is also the upcoming transit tax and the increased cost of labour and materials, he says.

He envisions around $40,000 or more in additional cost of building the average Vancouver area town home.

However, Mr. de Wit says he can accept most of the taxes, such as the transit tax and the school tax, because that’s money that goes towards tangible improvements for the community. He can’t get behind the speculation tax, however, because it’s just an added cost.

“[Government] definitely needed to take action, for sure. How do I say this? The major misstep was the speculation tax, but other than that, I think some of the other measures were necessary.”

However, if returning the market to a locally driven one was the goal, he believes the foreign buyer tax served its purpose.

“The foreign buyers, if they are not gone, they are leaving the market quickly,” he says. “I think it probably is a good thing.”

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