Category Archives: Canada

Vancouver market now a national problem

Most people in Canada don’t care about the Vancouver housing market, but that doesn’t mean they would be unaffected by a bursting housing bubble here.

Canadian Business argues that what we need is a national regulator to deal with risks in the financial system:

In 2013, the International Monetary Fund called on Canada to create a federal entity with a clear mandate to monitor threats to the financial system. The IMF earlier this month scolded Ottawa for so far ignoring its advice.

The Vancouver house-price surge is exactly the sort of thing the independent agency should handle. It is a national issue: everyone knows who will be called on to clean up the mess if it bursts. The banks would feel it and likely would curb lending. CMHC would feel it because it has insured most of the mortgages Vancouverites have used to buy their inflated assets.

Unfortunately as a politician anything you could do about the housing market would most likely be political suicide. Owners are voters and nobody wants to see the value of their home drop.  Read the full article here.

Vancouver real estate a ‘currency exchange ponzi scheme’?

Polozi Scheme posted this link to a post at Ross McKay real estate consultants with the theory that the Vancouver real estate is a ‘currency exchange ponzi scheme’.

A investor seeking to remove Chinese Yuan from China and have it converted into a foreign currency purchases a home in Vancouver. The investor once having the currency exchange authorized and completed for the purchase to take place then offers the same opportunity to another investor who is willing to offset any costs the original investor incurred through paying a high enough price for the same home that then allows the previous investor to “break-even”. This pattern is continued over and over again causing the selling price to raise higher and higher at no risk to the investor, while at the same time offering higher and higher amounts of currency to be exchanged on the rising home price being paid.

At no time is the price paid reflective of fundamental value of the real estate being traded but is being established for ulterior purposes that are not related to normal house price growth.
At some point in time the scheme ends as the last investor is converting so much currency that the benefits exceed even the need to “break even” and the home can be sold at a net loss. When that moment is reached the appearance of sustained house price growth ends and the scheme ends moving the scheme somewhere else.

Read the full posting here.

Government complicit in fueling housing crisis

A recent report out of SFUs school of public policy is generating headlines that are rather extreme:

Foreign buyers crushing Vancouver home dreams as governments do little.

“People recognize what’s going on, and they’re willing to call a spade a spade,” he said, stressing that such views are based on reality, not racism.

His report compiles a number of other studies, including data on home-buying trends, population density, the cancelled immigrant investor program, and American research on the same issue.

Gordon said his report blames Vancouver’s housing crisis on foreign buyers, particularly from China, because “this is where the evidence points, not because of some anti-Chinese animus.”

Chinese investors have also spiked home prices in the Toronto region, but Vancouver has seen the highest rise in real estate due to the influx of foreign money reaching an unprecedented level in the last year, he said.

Gordon noted that other countries, including Australia and Singapore, have created policies for foreign homebuyers to protect their own citizens but that hasn’t happened in Canada.

Read the full article over at the CBC.

Inching towards instability

Canada’s housing market is overheating.

Don’t worry, there’s no risk of a crash yet and further action by the federal government is expect to cool things down.

This according to Bank of America Merrill Lynch economist Emanuella Enenajor.

And, perhaps more importantly, she noted that “it’s different this time” because the Federal Reserve is in the midst of gradually raising interest rates.

“Economists and investors have become numb to signs of housing excess, as the sector has defied gravity for years,” Ms. Enenajor said.

“However, as the Fed gradually exits its accommodative policy, medium-term rates in Canada could also rise.”

This, she warned, heightens the threat of a correction in Canada’s housing market.

Read the full article over at the Globe and Mail.

 

Before buying real estate, create a bare trust

You know what the difference between you and the wealthy is?

The wealthy have lots of money.

And they tend to keep hold of it by using perfectly legal techniques such as buying and selling real estate within a bare trust to avoid taxes. One recent example prevented more than $2 million from from being vacuumed up into government coffers.

Green Party MLA Andrew Weaver has been concerned about the bare trust for the last two years, highlighting the need to fix the loophole.

He says people who are very wealthy or investing from abroad would be recommended by astute accountants to purchase their house using the loophole.

“Every time most people buy and sell a house, they’re paying property transfer tax. It’s only the wealthy and the wise who would actually buy in bare trust,” said Weaver.

“As a society, if every single person created a bare trust and bought every property in a bare trust there would be no more property transfer tax collected in British Columbia… there’s no reason not to change it.”

Just think of the efficiencies and tax dollars saved if every real estate transaction in BC happened through a bare trust. Less money spent in taxes means more money flowing into a supporting a healthy local economy. Bare trusts for all!

Is Alberta now a buying opportunity?

The oil market has had an effect on house prices in Alberta.  Now with prices lower than they were a year ago does Alberta pose a good buying opportunity for real estate investors?

Don Pittis over at CBC says maybe not yet.

According to long time investment adviser and real estate guru Hilliard MacBeth, the bargain hunting in Alberta has already started.

“I’ve heard of lots of people who say, ‘The prices are down. I’m going to jump in,'” said MacBeth, Edmonton-based author of When the Bubble Bursts.

In fact, some of the people he advises have already identified a buying opportunity and jumped into the market, at least on behalf of their kids, who they are helping out in the role of bank of mom and dad.

“I would have counselled them against it,” said MacBeth by phone as he put on his ski boots in the Lake Louise parking lot. “I would have said, ‘Wait,’ because we’re early days yet.”

It’s more exciting to buy when prices are rising, so maybe try the Fraser Valley instead, where prices are up 27% over a year ago and they don’t have high paying oil jobs to lose.

“One of the things that was supporting Alberta home prices was the fact that our incomes were 40 to 50 per cent higher than the rest of Canada, and that’s changing very rapidly,” said MacBeth.

But property owners and prospective buyers elsewhere would be wise to watch and see if, indeed, the plunge is nipped in the bud by bargain hunters or whether prices continue to fall for a while yet.

Read the full article here.

Condos are hot again, buy two or three

CMHC has surveyed condo owners in Vancouver and Toronto and found that the number of owners with multiple units is growing.

…the total number of investors in the two regions who say they have purchased at least two condo units in addition to their primary residence has risen nearly 13 per cent over the past two years. Nearly a quarter of condo investors told CMHC that they owned least two units, with close to 10 per cent reporting that they owned three or more condos.

Buyers are looking for both rental income and appreciation, with some interesting math:

Among condo investors in Toronto and Vancouver, half told the federal housing agency that they had bought their investment unit for rental income. Of those, 56 per cent expect the value of their condo to go up, while only 8 per cent thought that it would go down. The share of condo investors in Toronto who expected their unit to increase in value fell to 60 from 64 per cent from a year earlier, while the share in Vancouver who expected their condos to increase in value rose to 50 from 41.5 per cent.

A slightly larger share of investors in Vancouver reported paying higher prices for units than in Toronto, although the survey found that the reverse was true of rents, which were higher in Toronto. Nearly 16 per cent of Vancouver landlords reported charging less than $1,000 in rent for their condos compared with fewer than 5 per cent in Toronto. By contrast, nearly 50 per cent of condo landlords in Toronto said they charged more than $1,500 for their units, compared with 33 per cent in Vancouver.

Read the full article over at the Globe and Mail. So how many condos do you own and how many are you thinking of buying this year?

Swimming in debt and bursting with confidence

Low energy prices are a bit of a bummer for a country like Canada, but we’re not worried, we’ll always have real estate!

According to weekly polling by Nanos Research, the share of respondents expecting higher real estate prices reached the most since December 2014 last week, or 38.7 per cent. That pushed the Bloomberg Nanos Consumer Confidence Index to 54.7 last week, the highest this year, from 54.5 previously.

“The main positive driver for the forward look on the economy was the view that the value of real estate would increase,” said Nik Nanos, chairman at Ottawa-based Nanos Research Group.

The only potential downside is that young Canadian families are ‘swimming in debt.  Read the full article over at the Financial Post.

New mortgage rules drive up housing market.

Tighter mortgage rules were intended to cool the Canadian housing market, but according to National Bank economist Marc Pinsonneault they are having the opposite effect in the short term.

The new rules require insured mortgage holders to put down a minimum of 10 per cent for any portion of a house’s price above $500,000. The 5-per-cent minimum down payment still applies for the portion of a house price below that.

Economists predicted last year the rules would temporarily drive the market up, as homebuyers raced to land a mortgage before the deadline.

But Pinsonneault says the effect will continue this year, because the new rules don’t apply to anyone who locked in a mortgage before Feb. 15 of this year, and those people have until July 1 to buy a home.

It seems like everything done in the name of ‘cooling’ the housing market has the opposite effect.  Read the full article here.

CMHC looks to define foreign money

How would you go about trying to determine how much foreign money is going into Canadian real estate? The CMHC is now trying to figure that out.

A core team of analysts at CMHC held several meetings to discuss how best to tackle the data gap. Researchers had initial meetings with agencies including the Canada Revenue Agency and Fintrac, CMHC confirmed. The Financial Transactions and Reports Analysis Centre of Canada monitors money laundering and out-of-country transactions of at least $10,000. The documents show CMHC also planned or had meetings with the Bank of Canada, British Columbia’s housing and property assessment agencies, and the department of finance to start a data working group.

So why are we missing that information and how much real estate is owned by people outside the country?

After meetings with realtors, lawyers and condo developers in Vancouver, CMHC market analysts pointed to the lack of transparency in the market. Realtors often don’t see residency status or identification such as a passport, and that information isn’t stored electronically at the brokerage. Lawyers and bankers who run the transaction aren’t obligated to pass on residency information and buyers don’t regularly check a citizenship box when paying land-transfer tax.

“Conveyance is done through the lawyers and bankers,” minutes from a meeting show. “Money transfers should get passed onto Fintrac. Whether this is taking place or not is an issue.”

Previously, CMHC has tried to glean the scope of foreign investment with a survey of property managers that found less than 6 per cent of condos were bought by people who reside outside the country.

Read the full article over at the Financial Post.