C3BUSINESS || TUESDAY, JULY 28, 2015 | BREAKING NEWS: VANCOUVERSUN.COM

New renters can expect “a rent-increase tsunami” as building owners,

faced with growing demand and restrained by decades of rent con-trols, begin hiking rents to better reflect fair market value.

That warning comes courtesy of David Goodman, principal of real estate services company HQ Commercial and a Vancou-ver realtor specializing in rental apartment building sales.

In his latest newsletter, Good-man says he and partner/son Mark Goodman have been mon-itoring rent increases in the past year and have noticed, “sizable rent increases, of 10 to 20 per cent are regularly occurring on turnover.

“Is this an aberration, or a har-binger of things to come? We contend the latter.”

Such rent increases impact only those signing brand new leases. The province has been limiting rent increases for existing ten-ants to inflation-plus-two-per cent. Last December, it set a maximum allowable increase for 2015 at 2.5 per cent.

Big upward adjustments in rental rates for new tenants is no small matter, however, since some 30 per cent of the region’s 104,681 rental suites change owners annually.

Also, the rental pool is becom-ing larger, not just because of population growth but because more people are opting to rent.

“Severe (property) pricing pressure is driving numerous individuals and families to rent, instead of buying.”

The vacancy rate, now 0.5 per cent, is considered extremely low, and, Goodman says, growth in Vancouver’s stock of rental units has been stalled by a municipal prohibition on demo-lition of aging purpose-built apartments.

Goodman reports recently learning of a West Side build-ing’s owner who sought city per-mission to demolish a 60-year-old building with 16 suites to build a new 80-unit rental build-ing. The city turned him down.

“Council appears terrified at the prospect of having to answer

to 16 irate displaced tenant groups despite knowing full well that 80 very appreciative ones would inhabit the new build-ing,” Goodman says in his news-letter, calling the city’s position “a travesty.”

The veteran realtor says he is anticipating big rental increases because Metro Vancouver rental rates no longer reflect market values.

Indeed, relatively low rents in Vancouver for some time have provided a sort of safety net for people in the region earning modest incomes who are not in the market for million-dollar fixer-uppers.

“Rent levels have not kept pace with soaring real estate prices,” Goodman observes. “In fact, we’d argue that, in relation to home prices, they’re a bargain.”

Hence, the Goodmans are fore-casting that “over the next few

years, in the face of ever-grow-ing demand, tenants will need to brace themselves as annual rent increases will play catch-up and far surpass inflation rates.”

He says building owners, par-ticularly new landlords who are holding mortgages on their property, “want to unearth the latent market value” from their holdings.

They can do this, unfettered by rent controls, when a new renter signs on the dotted line.

Alternatively, a landlord can undertake a wholesale reno-vation of suites in the build-ing, necessitating an eviction of existing tenants.

Then, when the reno is com-pleted and new tenants are found, the building owner is free to set new rental rates.

Meanwhile, apartment vacancy rates have deteriorated in the past year, reports Goodman,

citing Canada Mortgage and Housing Corporation numbers showing a decline in vacancies of between 25 and 66 per cent for bachelor, one-bedroom and three-bedroom suites.

As of last spring, a bach-elor apartment in the region demanded an average rent of $931; a one-bedroom at $1,063; a two-bedroom at $1,352; and a three-bedroom at $1,461.

Goodman says apartment building sales are brisk, with 73 sales in the first half of the year, for a 20 per cent increase over a year earlier. Dollar volume of building sales in the region has jumped by 36 per cent so far this year. New building owners in Vancouver are paying an aver-age of $333,000 per suite for their apartment properties, and $189,000 in suburban areas.

byaff e@vancouversun.com

OPINION

Rent-increase ‘tsunami’ expectedUnit price hike: Tenants may be facing sizable increases in yearly rates to better refl ect market value, greater demand

TRACY SHERLOCK/VANCOUVER SUN FILES

In their monitoring of Vancouver rental rates, realtors Mark Goodman, left, and his father, David Goodman say they are forecasting for annual rent increases to ‘play catch-up and far surpass infl ation rates.’

KIM AND KANA NISHIZAWABLOOMBERG

HONG KONG — It’s days like Monday that reassure Tony Hann he was right to avoid stocks in mainland China.

The severity of an 8.5 per cent drop in the Shanghai Composite Index is bad enough, but what irks him the most is not know-ing why it tumbled so much. In a market where unprecedented intervention has made govern-ment money one of the biggest drivers of share prices, authori-ties aren’t transparent enough for investors to make informed decisions, said Hann, the head of emerging markets at Blackfriars Asset Management Ltd.

Monday’s plunge was all the more surprising because it fol-lowed a government rescue pack-age that had helped drive a 16 per cent rally since July 8. That support appeared to vanish with-out warning, leaving analysts guessing whether authorities shifted their policy stance or got overwhelmed by a flood of sell orders. After the close of trading, the securities regulator denied speculation that the government has exited the stock market.

Investors “are concerned and lost,” said Alex Wong, a Hong Kong-based asset-management director at Ample Capital Ltd., which oversees about $155 mil-lion US.

“China’s market is distorted, so you can’t sell short very confi-dently and you can’t buy up very confidently either.”

Signs of government purchases prevalent in recent weeks went missing in Monday’s rout. Pet-roChina Co., long considered a favourite holding of state-linkedrescue funds, sank 9.6 per cent.The government-run oil producer had been one of the biggest sources of support for the Shang-hai Composite on big down days in late June and early July.

China Securities Finance

Corp., a state-backed agency that provides margin financing and liquidity, hasn’t withdrawn support for equities, China Securities Regulatory Commis-sion spokesman Zhang Xiao-jun said in a statement Monday. The commission will “continue efforts to stabilize market and investor sentiment, and prevent systemic risk,” he said.

The Shanghai Composite’s one-day sell-off was the broad-est since at least 1997, with 959 more shares in the index falling than those that gained.

If state-run funds withdrew support to test whether shares could stabilize at current lev-els on their own, the resulting retreat may prompt the gov-ernment to step back in imme-diately to prop up prices, said Hann, who oversees about $350 million US.

On the other hand, if policy-makers are starting to unwind support measures to let the mar-ket play a bigger role, shares may have further to fall, he said.

“It is impossible to say at this stage,” said Hann, who has

exposure to China through busi-nesses listed on Hong Kong’s exchange instead of main-land bourses. Foreign inves-tors have unloaded about $7.6 billion of Shanghai shares through the city’s Hong Kong exchange link since July 6, selling stock holdings for the 13th time in 16 days.

Chinese policy-makers have surprised investors before. In 2014, they jolted currency trad-ers who regarded the yuan as a one-way bet by selling the cur-rency and widening its trading band, spurring a record quarterly decline. The year before that, authorities tackled speculative lending by restricting the supply of funds to the banking system. The result was China’s worst modern-day cash squeeze.

The International Monetary Fund has urged China to eventu-ally unwind its support measures, saying share prices should be allowed to settle through market forces, according to a per-son familiar with the matter, who asked not to be identified because the talks are private.

MARKETS

Confusion reigns in China’s stock market after quick crash

CHINATOPIX/THE ASSOCIATED PRESS

Stock prices showing at a brokerage house in Hangzhou, in east China, have been bringing a lot of bad news to investors. The severity of an 8.5 per cent drop on Monday comes on the heels of a 16 per cent rally.

HOLLIE SHAWFINANCIAL POST

OAKVILLE, Ont. — A relent-less focus on controlling costs will help Tim Hortons resonate and grow more aggressively in the U.S. and international markets, the coffee and baked goods chain’s new owners said Monday.

Cost discipline, what chief financial officer Joshua Kobza of Restaurant Brands Interna-tional Inc. refers to a an “own-ership over cost” philosophy for franchisees, helped spur Burger King’s international rollout and the same strategy has led to “significant savings” thus far at Tim s, he said after the company beat analyst expectations in the second quarter.

Same-store sales, a key mea-sure of restaurant performance tallying volume at locations open for more than a year, rose 5.5 per cent at Tim Hortons in the period ended June 30, and 6.7 per cent at Burger King as cus-tomers responded to new prod-ucts such as dark roast coffee and chicken fries. Same-store sales were up 5.4 per cent at Tim Hortons locations in Canada and a robust seven per cent at the coffee chain’s U.S. restaurants.

“We have seen a very positive performance (at Tim Hortons U.S.) year-to-date,” Kobza said in an interview Monday. “We are seeing our franchisees’ prof-itability improve with the sales performance, and the unit eco-nomics of those restaurants are improving dramatically, which really helps the case for expand-ing the brand in the country.

“It helps as we look to find additional partners and new franchisees to fill in our existing markets and develop additional density, and look for new part-ners for some of the adjacent markets that we want to build out.”

Restaurant Brands, majority owned by Brazilian investment

firm 3 G Capital, recently opened its first of 40 Tim Hortons outlets in the new market of St. Louis, Mo., said CEO Daniel Schwartz, and executives were encouraged by its strong performance.

“It’s a new market, a little bit further away from the (Canada — U. S.) border, (and) has been one of our bestselling restau-rants in a while.”

He said executives were also optimistic after a recent trip about stepping up growth for Tim Hortons in the Middle East, where it has about 50 restau-rants. In India, the company has opened 20 new Burger King res-taurants in the past six months, featuring a new menu target-ing local tastes with items such as the Veg Whopper and Paneer King Melt.

Kobza told analysts on a con-ference call that Restaurant Brands has been gaining traction with its “zero-based budgeting” strategy at Tim Hortons, which requires head office to analyze the most profitable initiatives each year when coming up with an annual budget, a principle which helped revive the fortunes at Burger King. The burger chain has stepped up its expansion to open 700 restaurants annually around the globe up from a pace of 150 per year since 3G Capital bought it in 2010.

FOOD SERVICES

Tim Hortons sees rise in same-store sales

“We have seen a very

positive performance (at Tim Hortons U.S.) year-to-date. We are seeing our franchisees’ profitability improve with the sales performance.

JOSHUA KOBZA CFO, RESTAURANT BRANDS INTERNATIONAL INC.

BarbaraYaff e