Ephraim Vecina
Other

Assignment sales, wherein properties are sold and resold, have seen increased popularity in Canada and many other markets worldwide. While it has proven to be attractive for enterprising sellers and realtors, however, it has also raised allegations of fraud among its practitioners.

Not helping matters is the fact that a considerable number of consumers have raised concerns about being ripped off by unscrupulous industry players.

“The council has become aware that some licensees may be engaging in business practices that are contrary to their clients’ best interests,” B.C. Real Estate Council communications officer Marilee Peters said in a statement on Monday (February 8), as quoted by MoneySense.

To help would-be buyers and sellers avoid legal pitfalls, the Council has encouraged the public to report offenders. In addition, real estate resource CanadaRealty.org outlined some fraud-prevention tips for those who would like to enter in such an arrangement:

– Among the most important steps are to secure a copy of the agreement of purchase and sale held by the builder, and to determine the type of assignment agreement to be used. Setting the original and new purchase prices as well as the occupancy payments is also crucial to avoid any financial missteps.

– The buyer/seller also has to determine the status of construction along with the interim occupancy and the final closing dates. Identifying the responsibilities of the people involved, from the agents to the legal representatives, would help streamline the sale as everyone would be aware of whom exactly to approach at a particular stage.

– Who would pay for the builder’s closing costs, and who would receive the credit for interest on already-paid deposits? Who would be responsible for the non-residency/withholding taxes? Knowing the answers would make the final parts of the transaction much easier for the buyer/seller.

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There are two BC cities where condominiums priced lower than Metro Vancouver make for positive cash flows

Frank O’Brien
Other

Condominium investors buying units to be used as rentals could take a look outside of the Metro Vancouver market as they search for positive cash flow.

In Greater Vancouver, for example, the typical condominium sells for $436,000, while condominiums in smaller BC centres can be half that price, though rents can be similar.

In general, investors buying rental properties must put down a minimum of 20 per cent.

There are some issues to watch for when investing in smaller cities or towns in BC. The first rule is to buy in markets that are showing an increase in population and, ideally, have a pool of potential tenants, such as university students or construction workers for long-term projects. Recent appreciation in condominium prices is also a signal of an investment opportunity.  

This narrows the search somewhat. According to BC Stats, only two regions outside of the Lower Mainland showed population growth from 2014 to 2015. Those were Vancouver Island and the Okanagan.

Nanaimo

On Vancouver Island, perhaps the best small market to consider is Nanaimo, which posted a 1.7 per cent population increase last year, among the highest in the province. With 89,000 residents, Nanaimo is BC’s second-biggest city outside of the Lower Mainland. This year, a passenger-ferry link between Nanaimo and downtown Vancouver is planned; this could improve access to the “harbour city” and add to its appeal to Vancouver investors.

The apartment rental vacancy rate in Nanaimo is 2.9 per cent and the average two-bedroom apartment rents for $820 per month (condominiums normally rent for higher prices), according to Canada Mortgage and Housing Corp. As of mid-January there were 55 condominiums listed for sale in Nanaimo at less than $225,000 and a good selection priced at $155,000 or less. Condominium prices have increased modestly over the past year, rising about four per cent.

Kelowna

Another option for condo investors is Kelowna, the largest city in the Okanagan and the biggest BC city outside the Lower Mainland. Its population growth of 3.2 per cent last year, from 2014, led the entire province. The city’s 1.7 per cent rental vacancy rate is among the lowest in BC while its average rent, at $1,020 a month for a two-bedroom, is among the highest outside of Greater Vancouver. It is possible to find two-bedroom condominiums in Kelowna priced under $200,000.

With a 20 per cent down payment and today’s historic low interest rates, condominium investors may find they can achieve a positive cash flow (where rental income surpasses mortgage costs, taxes and strata fees) much easier in smaller BC centres than in most of the Lower Mainland.

© 2016 Real Estate Weekly

Barbara Yaffe
The Vancouver Sun

Exasperated by all those $1.5-million fixer-uppers out there that, anywhere else, might sell for around $275,000? Counting on Christy Clark’s recent pledge to deliver relief?

The B.C. budget, to be tabled next Tuesday, will almost certainly bring you back down to earth.

The premier, in advance of the budget, says housing relief is a top issue for her government.

And it should be. In the past year alone, prices have increased between 14 and 24 per cent, depending on housing type. Royal Lepage expects Vancouver prices to rise another nine per cent in 2016.

But most analysts agree that the province is unlikely to do more than tinker around the margins of the affordability crisis, with its focus on first-time buyers, a group reflecting only 30 per cent of buyers, therefore not a terribly costly one to assist.

Clark laid her cards on the table last year. She stated her government will do nothing that might harm people’s home equity.

That, by definition, means not easing the competitive forces driving equity gains. Forces like house flipping and foreign buying, which are at the root of the price escalation.

Notwithstanding a plea the other week from a group of B.C. economists for a non-resident real estate tax, industry consultant Michael Geller predicts the Feb. 16 provincial budget won’t include tax changes applicable to foreign buyers or vacant units.

Municipal development charges, which the premier has long blamed for high prices, and new building code requirements, which developers grouse about, also add costs, but they pale next to demand forces.

Politically, Clark’s is a logical strategy. At any given time, there are more people with home equity — 40 per cent of Lower Mainlanders — than there are home buyers confronting high prices. Only 30,000 to 40,000 MLS sales occur annually.

If B.C. acts on Mayor Gregor Robertson’s appeal for a speculation tax or special levy on luxury homes, that could cool the market, ease pricing pressures, perhaps even prompt prices to decline.

So, the most likely targets for provincial action are the transfer tax and property taxes.

• The Property Transfer Tax could be adjusted in the budget in favour of making more first-time buyers exempt. As well, the government could impose a higher transfer tax on purchasers of multi-million-dollar homes, to subsidize buyers at the low end of the market. The tax, say Micheal Ferreira and Jon Bennest of Urban Analytics, ought to be adjusted automatically over time, as house values change. And buyers of expensive property who haven’t been paying income tax in B.C. should pay higher PTT.
• On property tax, urban development specialist Bob Ransford would like to see a surcharge, applying to homes that are not an owner’s primary residence, with revenues directed to affordable housing.

Geller believes the budget might introduce a sliding scale to reduce property tax for lower-priced properties and increase it for expensive properties.

He would like property taxes shifted so multi-family units — which are more resource efficient and use less infrastructure — would carry less property tax than single-family homes, even where assessed value is equivalent.

Ferreira and Bennest want the property tax deferral program extended to younger buyers.

All interesting suggestions, but, it should be noted, the province has never shown much generosity when it comes to housing affordability.

The finance ministry has only incrementally adjusted the Property Transfer Tax over the years — homebuyers these days pay more transfer tax as a percentage of a home’s value than in the past. And the province has taken full advantage of the windfall, raking in more than $1 billion last year.

Where the $570 Homeowner’s Grant is concerned, the Clark government has been equally stingy. Back in 2013, the homeowner grant eligibility threshold offered relief to 95.5 per cent of B.C. homeowners. Today, only 91 per cent remain eligible.

Based on past experience, housing relief in next week’s budget is apt to be selective and sparse.

© Copyright (c) The Vancouver Sun

Jo Boxwell
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Laura Kane
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The independent office charged with overseeing the British Columbia real estate market will investigate allegations of fraud and insider trading by some Metro Vancouver realestate agents, the provincial government said Monday.

Superintendent of Real Estate Carolyn Rogers will work with an advisory group being set up by the Real Estate Council of B.C. to look into concerns raised by media reports and Opposition politicians, said B.C. Minister Peter Fassbender.

“The reason we have an independent superintendent’s office is that they are charged with ensuring that best practices are in place,” he said in an interview.

“Any regulatory changes that might be required will be brought forward, and so we are encouraging that any issues that come up be directed to the superintendent or to the real estate council, to make sure the public is protected on every front.”

The government dismissed calls from the Opposition New Democrats to launch a formal arm’s-length inquiry. Fassbender said the superintendent is independent and the government will take “very seriously” any recommendations that are issued.

Fassbender said the government will also be taking measures in the upcoming budget intended to address concerns about housing supply, pricing and affordability.

NDP housing critic David Eby claimed Monday that some real estate agents have been avoiding property transfer and capital gains taxes while exploiting a clause in contracts that allows for a series of home flips, increasing the final price by hundreds of thousands.

He also alleged that some real estate agents have been helping clients hide the foreign origins of money used in transactions by putting the broker’s location instead of the purchaser’s address on federal anti-money laundering forms.

“Both of these independent issues would be serious enough on their own,” Eby said at a news conference. “But together, with so many widespread reports coming from different sources, they lead us to the inevitable conclusion that oversight of the real estate industry in British Columbia is woefully inadequate.”

He said the province has fallen “asleep at the switch” and could be losing millions in tax revenue, while allowing realtors to have an unfair advantage in insider trading and defeat anti-money laundering protections.

“There are many Realtors who conduct themselves professionally … and are valued members of our communities,” he said. “Their reputations are directly impugned by this kind of conduct.”

Eby sent two letters in January to the Real Estate Council of B.C., which regulates licensed agents, after a real estate agent came forward as a whistleblower.

He outlined allegations that some agents and investors were exploiting a clause that permits contracts to be sold multiple times before the closing date.

The practice allows agents to enjoy what’s called a “lift,” or an increase in price each time the contract changes hands, as well as a commission on each sale. Only the final buyer pays the property transfer tax.

The council initially declined to investigate, stating in a Jan. 19 letter to Eby that “no specifics have been provided that would suggest that your informant’s concerns are warranted.”

But in a statement on Monday the council said it was deeply concerned by the allegations. An advisory group will investigate whether the so-called assignment clauses are being used appropriately and develop recommendations to increase enforcement and oversight, it said.

“We realize that this is an urgent matter and expect to announce the members of the multi-stakeholder advisory group within the coming two weeks,” it said.

The group will report back to the council with initial recommendations in 60 days.

The Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, is the federal agency responsible for policing attempts to launder money in Canada. Realtors are required to fill out a FINTRAC form for every transaction.

Using the broker’s Canadian address on the form instead of the purchaser’s foreign address reduces the level of risk perceived by FINTRAC as they do their audits, Eby said.

Renee Bercier, speaking for the federal agency, said it is legally barred from commenting on any information it has received or enforcement actions it has taken.

“That being said, FINTRAC considers the allegations made to be serious.”

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John Shmuel
The Vancouver Sun

Vancouver’s eye-popping housing market is seemingly defying gravity, with sales in January rising nearly 32 per cent — the second busiest January on record.

With prices in Metro Vancouver slowly creeping up to the $2 million mark, the searing pace of housing in the city has many worried.

But the state of the market makes sense if you look at the market as a U.S. dollar play, say economists Derek Holt and Dov Zigler of Scotiabank. Because so much of the market is being fuelled by foreign buyers, many of whom purchase in U.S. currency, the Canadian dollar price surge makes a lot of sense.

The Canada Mortgage and Housing Corp. estimates that foreign buyers own 3.5 per cent of the condos in Metro Vancouver, up from 2.3 per cent in 2014.

But Holt and Zigler called those estimates “ridiculously low ball.”

A much higher foreign investment rate would explain the surging prices and sales in the market even as wages remain stagnant in Canada and the economy slows.

The pair point out that in U.S. dollar terms, Vancouver still remains affordable to foreign buyers and in fact is a bargain compared to some other cities in the Pacific Rim such as Sydney, Hong Kong and San Francisco.

The buyers who are out of luck are Canadian buyers purchasing homes with domestic currency. The gap between home prices in U.S. dollar terms and Canadian dollar terms is at its widest in more than a decade.

“A strong USD has kept Vancouver’s house prices relatively affordable if one is entering the market as a buyer with funds in U.S. dollars,” the economists write. “That has pushed Canadian dollar house prices through the roof over the past couple of years. This can be taken as one piece of evidence that it is U.S. dollar flows that are driving Vancouver real estate regardless of what are likely ridiculously low balled estimates for foreign buying.”

© Copyright (c) The Vancouver Sun

Barbara Yaffe
The Vancouver Sun

My neighbour told me last fall he had sold his Kerrisdale home with a distant closing date of January, in a “contract assignment” arrangement. He did not appear distressed, despite the fact he did not receive the additional profit that flowed from the quick flip that took place following the initial sale.

Call the arrangement a shady real estate practice or insider trading, such contract assignments have been occurring for some time in Vancouver — with full knowledge of both the Real Estate Board of Greater Vancouver and the Real Estate Council of B.C., a regulatory agency for the industry. (They also happen regularly in Toronto.)

Yet, it took only a matter of days, after a newspaper article about the practice, for the Real Estate Council to strike an advisory group to scrutinize the practice as “an urgent matter”, and for B.C.’s Communities Minister Peter Fassbender to declare that the government would take “very seriously” any recommendations.

NDP housing critic David Eby remarked on Monday that the situation leads “to the inevitable conclusion that oversight of the real estate industry in B.C. is woefully inadequate.”

Well, anyone who has ever made a complaint to the Law Society of B.C. or the College of Physicians and Surgeons may have the impression that regulatory bodies often do a better job of protecting members of their industry than members of the public.

Those who have seen the movie, The Big Short, about the financial shenanigans surrounding the 2008 American housing market collapse, know that the U.S. Securities and Exchange Commission was entirely asleep at the switch in regulating the markets at that time. Just as it was even after being tipped off about Manhattan investment mogul Bernie Madoff operating a Ponzi scheme.

Regulatory bodies too often become captive to the interests of those they regulate.

If anyone imagined that the Real Estate Board of Greater Vancouver was unaware of these contract assignments taking place, they had only to read the board’s website last autumn, which featured an article titled Protecting Yourself in an Assignment Agreement.

It stated: “A contracting party can sell … rights (embedded in a Contract of Purchase and Sale) to someone else unless the contract states otherwise. This type of transaction is known as an assignment agreement.

“In simple terms, someone can buy the right to step into the original buyer’s shoes to complete the contract.”

The article counsels people to work with realtors on such arrangements and says the original seller should be made aware of the process, as well as ensure that “every individual involved in the transaction has been verified.”

The real estate council’s Professional Standards Manual notes that the seller’s consent for a contract assignment is, in fact, not required by law — as long as written notice of the assignment is provided to him or her.

To that end, the council recommends inclusion of an “Assignment Option Clause,” stating “the buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the seller.”

In other words, the ostensible buyer can play the role of middle man, and subsequently flip the property, pocketing any additional profit.

It is worth noting that the original seller is not out any money; hence my neighbour’s insouciance.

But with prices escalating so quickly in Vancouver’s market, there is a clear incentive for a buyer, be it a realtor or third-party speculator, to try to achieve an even higher price before he or she has to close on the deal and pay out any taxes to government or monies to the original seller.

The practice is not illegal. But whether it is ethical is another matter. Housing is extremely costly and in short supply in this region and thus ideally reserved for those wishing to acquire housing units as places to live. Flipping, as it is carried out in contract assignments, further inflames an already overheated market.

© Copyright (c) The Vancouver Sun

Steve Randall
Other

The pace of housing starts was slower in January according to new figures from the Canada Mortgage and Housing Corp. The trend measure was 199,169 in January 2016 compared to 203,304 in December 2015; the seasonally-adjusted annual rate was down to 165,861 from 172,533. Urban SAAR was down 3 per cent; multiple urban SAAR was down 5.3 per cent; single-detached urban SAAR was up 1 per cent.

“Housing starts trended down across the country with the exception of Ontario,” said Bob Dugan, CMHC Chief Economist. “The overall decline is mostly attributable to a slowdown in the Prairies where the housing starts trend was at a 4-year low in January. The slowdown in new housing activity coincides with an unemployment rate that is at a 5-year high in Alberta”.

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