Derrick Penner
Sun

Big Canadian real estate gains and a favourable exchange rate against the U.S. currency may make prices in a lot of American markets attractive, but there are pitfalls that potential buyers need to be aware of once they cross the border:

– Similarities and differences

Whatcom County realtor Mike Kent said finding a house and making an offer works the same way in the U.S. as it does in Canada. The buyer and seller draw up a simple sales contract that is used to guide the transaction, also just like in Canada.

However, instead of using lawyers to handle transactions, Kent noted that Americans use the services of land-title companies and escrow firms to convey properties.

Phil Laird, a Langley resident who recently bought property in Birch Bay, said the costs and fees involved in the transaction are different as well. Most closing costs also fall on the seller, so he only paid fees of about $700 on his purchase of a $266,000 US four-bedroom house.

– Financing

Kent said Canadians can’t get mortgage financing from Canadian banks on U.S. properties, because they wouldn’t be able to foreclose on the property if a buyer defaulted on the loan.

Instead, Canadian buyers he has worked with take out home-equity loans against Canadian property that they own. Or, if they can put a minimum of 25 per cent down, Kent said obtaining a mortgage from a U.S. bank usually isn’t a problem, and people can still get 6.5-per-cent interest rates on 30-year fixed mortgages.

However, Cathy Digby, a mortgage broker with U.S. Bank Corp. in Blaine, Wash., warned that Canadians, as foreign buyers, wouldn’t qualify for the full range of mortgage options that Americans do.

U.S. mortgage lenders typically package their loans as “portfolios,” which they then sell on investment markets. Canadians would only qualify for loans that the banks themselves hold.

Laird said buyers also need to shop around for the most favourable exchange rate. He used a currency-exchange broker rather than a bank, which saved him about $3,000.

Laird added that Canadian buyers also need to make sure they give themselves a lot of time and warn the land-title firm handling the conveyance that theirs is a cross-border transaction.

If you are buying with cash, or taking out a home-equity loan in Canada, you can’t simply drive across the border carrying a $266,000 bank draft. You have to wire the money between accounts in Canada and the U.S., and all foreign wire transfers have to go through New York.

– Taxes

Different tax laws offer the biggest pitfalls where Canadians can get themselves into trouble with their American real estate purchases, according to Robert Keats, a cross-border financial planner with the firm Keats, Connelly and Associates in Phoenix.

For instance, adding a spouse to the title of a property is an ordinary transaction in Canada that doesn’t have immediate implications. In the U.S., however, that triggers gift taxes.

On a property worth $500,000, Keats said tax laws deem that the property-owning spouse has given the other spouse $250,000, which can result in a charge as high as $50,000.

Similarly, if a family wants to add their children to the title of a property, it would trigger taxes in both the U.S. and Canada.

If a Canadian property owner wants to rent out the U.S. property when not using it, Keats added that the owner would have to obtain an American social security number and file a U.S. income tax return.

Also, Canadians tempted to own their American property through a corporate entity are setting themselves up for a bigger capital-gains tax hit than they would in Canada. The U.S. corporate capital-gains tax rate is 34 per cent, versus a 15-per-cent rate personal capital-gains rate.

Probating wills involving Canadian-owned U.S. properties and estate taxes, both at the federal and state level, are other issues Canadians have to be aware of.

Keats outlines all the issues in detail in a book titled The Border Guide: A guide to living, working and investing across the border.

© The Vancouver Sun 2007

Canadians take advantage of subprime woes, high dollar

Derrick Penner
Sun

Langley couple Phil and Casie Laird wanted a vacation home for their young family. But after the astute real-estate investors looked around British Columbia, they instead decided their best option was…

Langley couple Phil and Casie Laird wanted a vacation home for their young family. But after the astute real estate investors looked around British Columbia, they instead decided their best option was to try for a cross-border bargain.

They liquidated an Abbotsford investment property and took out lines of credit to snap up a four-bedroom, 21/2-bath rancher on a quarter-acre lot that backs onto a golf course and is a half-block from the beach in quaint Birch Bay Village for $266,000 US.

“If we were to look at something like that in the Okanagan, we’d be paying twice as much,” Phil Laird said.

The house needed some work — new appliances, paint and a lot of landscaping. Still, Laird, whose day job is as an administrator at Trinity Western University, estimated “now is a good time to get in [to the U.S. market] because of the way the dollar is and the fact that the U.S. market right now hasn’t grown, in terms of price, in the same way as north of the border.”

And in U.S. markets farther flung than Birch Bay in Washington state, the bargains for Canadians are becoming more plentiful as many areas have hit downturns following the subprime mortgage meltdown.

The Lairds, who bought the house with Phil’s brother and sister-in-law, Steve and Andrea Laird, plan to use it as an income property, renting it out for about five years until their children are a little older.

Mike Kent, the Lairds’ realtor in nearby Blaine, said his local market, Whatcom County, is faring better than other markets, with little of the subprime effect so far. Average prices this year are up almost three per cent in the county, hitting $331,499.

“Most people who bought here, bought properties to use, as opposed to buying condos in Miami Beach that they intend to flip,” he added.

Still, Kent said fewer buyers from California, where markets have been harder hit by the mortgage meltdown, are venturing north to Birch Bay than in past years. Canadians are a bigger presence, accounting for about seven of every 10 sales for his office.

“If it weren’t for Canadians coming back, [our sales] would definitely be off,” he added.

Kent said the big equity gains Canadians have earned are still the biggest driving factor, and their greatest influence is on markets closest to the border.

Laird said proximity was another attraction of the Birch Bay property. Not only was it the right price point, but depending on the border lineup, it can be as little as 25 minutes from his family’s home in Langley.

Kent added that he is “seeing a lot of Canadians inquiring and cruising around, trying to learn more about this market. And we hear the same thing over and over again. Prices continue to remain high, particularly in the Lower Mainland.”

In the meantime, Kent said condominiums can be had for as low as $110,000 to $120,000 US. For houses, people can find near-new 1,500- to 1,800-sq.-ft. detached ranchers for $250,000 to $275,000 US.

Kent has also heard interested Canadians complain that Vancouver Island seems harder to get to due to ferry lineups.

And he guesses that Canadians must be starting to reconsider whether it is the right time to buy winter vacation getaways in Palm Springs, Phoenix or other sunbelt locations.

Patrick Jerns, a realtor in Surprise Valley, near Phoenix, said Canadians are a noticeable presence in Arizona markets, but are far from being the biggest out-of-town buyers. And Jerns hasn’t noticed whether Canadians are starting to buy in bigger numbers.

However, Jerns said Arizona markets peaked in 2006, and have since begun to deflate. Prices in his own community of Sun City West are down six per cent from a year ago, he added, and anyone buying now “is in the catbird seat.”

Foreclosures in the area have hit “astronomical” levels, Jerns said.

He added that since economic conditions are good in Canada, and market conditions in Arizona are favourable for buyers, “It’s like Nordstroms is having a big sale.”

Robert Keats, a Phoenix-based financial planner with the firm Keats, Connelly and Associates Inc. who specializes in advising both Canadians and Americans on moving or investing across the border, said there is definitely heightened interest in U.S. real estate among Canadians.

“The smart money is starting to look,” Keats said.

“I remember the last time we had these situations,” he added. “It was the early ’90s, during the savings-and-loan scandal.”

A downturn in real estate followed that debacle, and Keats said the Canadians who stepped in to pick up bargain-priced property reaped big gains once markets recovered — sometimes doubling or tripling their investments.

In Birch Bay, Laird says his family hit the market at just the right time. He sees a lot of new building activity in the community, including a lot of luxurious condominium developments.

When he and Casie began to look around Whatcom County, Laird said his first thought was “if we’re going to do something, we’d better do it quickly.

“If Canadians become accustomed to driving across the border again, as they did 15 years ago, then we’re going to see pressure on prices.”

© The Vancouver Sun 2007

B.C. sits as Canada’s exception with projects still slated to start

Derrick Penner
Sun

The best years are coming to an end for Canada‘s commercial construction industry, according to a Conference Board of Canada forecast.

Profits in the construction sector will peak at $2 billion this year giving builders a profit margin of 4.3 per cent, the national economic think tank predicts.

High corporate profitability over the past three years has helped drive investment in commercial construction and employment growth in the commercial sector has helped shrink office vacancy rates in most major cities.

However, the Conference Board estimates employment growth will slow between 2007 and 2011, reducing the demand for new commercial buildings. There will still be growth in the sector, but it won’t be as high and will not outpace the inflation of construction costs.

Profit margins, therefore, will shrink to 2.3 per cent by 2011, the forecast suggests, although that will still leave firms with $1.3 billion in net income.

“Construction of office buildings, especially in Alberta and Ontario, is the main reason for the record financial performance in recent years,” Valerie Poulin, economist and author of the Conference Board’s report, said in a news release.

“However, rising material and labour costs are starting to trim builders’ profit margins. Since labour accounts for a third of all costs, the tight labour market is of particular concern for the industry.”

B.C. is expected to buck the trend with a series of major projects still to be built.

Manley McLachlan, president of the B.C. Construction Association, said he expects B.C. to outpace the national forecast.

McLachlan, in an interview, said the industry does expect “a little bit of a dip” in activity about 18 months from now, but there are enough projects in planning to pick up that slack past 2011.

“Indications there are that, going out to 2014 with $124 billion in work that’s about to come on stream, the demand for construction services [in B.C.] is not about to decline.”

So, provincially speaking, a decline in profit margins “is not something on our radar screens,” he said.

© The Vancouver Sun 2007

Strike stimulates ‘underground’ renos

Ashley Ford
Province

Vancouver builder Todd Best has seen it all in the sloppy-work department. Ric Ernst – The Province

It’s open season for Vancouver‘s multibillion-dollar underground home-renovation economy as the civic strike grinds on.

Peter Simpson, CEO of the Greater Vancouver Home Builders Association, says frustrated homeowners and those seeking illegal renovations and other work are fuelling the under-the-table market.

“With the watchful eyes of city building inspectors switched off, increasing numbers of homeowners are willing to take the enormous risk of bypassing the permit process and paying under the table.

“We have always been concerned about the underground economy, but the situation caused by this strike is just fanning the flames,” Simpson said.

Members of the homebuilders association are becoming increasingly frustrated and angry as they play by the rules and then see work taken away from them, he said.

Homeowners need to understand they’re taking a huge risk when they deal with cash and no contract, Simpson said.

“I have four words for homeowners: Get it in writing.

“Without a contract they are exposing themselves to many risks.

“The owner is deemed by the authorities to be the contractor and ultimately responsible for all health and safety provisions, local building departments and possible other liability issues.”

Todd Best, owner of Best Building, describes himself as a “rescue renovator” and often finds himself fixing up poor construction left by unqualified “cash” builders.

Fixing up a mess can get expensive, he said.

“We have done half-a-dozen or so rescue renovations in the last couple of years. These guys have no ideas about building codes and the work you see is often dangerous,” he said.

“We were called in to one job that started out as a $300,000 project but ended up costing $1.3 million to put right. The second floor addition was literally falling off.”

Best has seen it all in the sloppy-work department, including a wiring job that used a lawnmower extension cord.

“I believe the situation is getting worse and all I seek is a level playing field,” he said.

At the best of times, building inspectors are stretched woefully thin, he said.

“Now there is nothing in Vancouver and I believe that nine out of 10 times the city won’t catch illegal or substandard additions and renovations,” he said.

The renovation business is a huge part of overall housing construction across the Lower Mainland.

– Last year, some 22,045 direct and indirect jobs were created by home renovation and repair activity.

– About $2.8 billion will be spent in the Lower Mainland this year on home renovation and repair work.

– On average, Vancouverites spend more on renovations than other major Canadian cities. Vancouver residents spend $14,425 per household annually, compared with an average of $11,302 for 10 other cities.

The homebuilders association holds two seminars annually, with the next coming this fall, explaining the workings of the renovation sector and how to hire a legitimate contractor.

© The Vancouver Province 2007

Capital cost of all major projects hits $51.1 billion

Bruce Constantineau
Sun

Construction plans throughout B.C. continue to soar as the value of current and proposed major projects shot up $6 billion during the second quarter to $130.2 billion, according to the B.C. government’s Major Projects Inventory released Wednesday.

The report said the number of existing and proposed projects worth at least $15 million — or $20 million in the Lower Mainland — has increased by seven per cent in the past year to 826.

The value of those projects has increased 28 per cent — or $28.8 billion — from a year ago. The capital cost of all major B.C. projects under construction rose to $51.1 billion from $48.7 billion in the first quarter this year.

Thirty-four new projects worth a total of $3 billion began construction in the second quarter, including the $1-billion Mount MacKenzie ski resort in Revelstoke and the $300-million Woodward’s redevelopment in Vancouver.

Twenty-two projects, worth a total of $1.6 billion, completed construction during the second quarter this year — including the $350-million Citygate residential project in Vancouver.

The Major Projects Inventory has grown for 16 consecutive quarters, and Vancouver Regional Construction Association president Keith Sashaw said the industry has coped well in responding to the demand for more activity.

A shortage of labour, especially skilled tradespeople, continues to be the industry’s biggest challenge, but employment in the Lower Mainland construction sector has grown to 114,000 from 65,000 in the past 31/2 years.

“New workers are coming from other sectors of the economy, from across Canada, and from across the world,” Sashaw said in an interview. “The industry has had to look at all possible ways of getting new workers and so far we’ve been able to keep pace.”

He said labour shortages have caused some construction schedules to fall behind slightly, but doesn’t expect a huge problem with delays in the near future.

Sashaw said construction is a cyclical industry but doesn’t expect the four-year B.C. building surge will slow down any time soon.

He noted activity is spread across many sectors — including residential, institutional, industrial, commercial, mining and infrastructure development.

“We know it’s not always going to stay like this, but our projections show it staying strong past 2010, and possibly into 2011 and 2012,” he said.

“The encouraging thing is that it’s robust all across the province. In previous cycles, it would be strong in the Lower Mainland, but everywhere else in the province would lag behind.”

© The Vancouver Sun 2007