Ephraim Vecina
Canadian Real Estate Wealth

A joint program by the RCMP and the CSIS nearly two decades ago offered eerily accurate predictions of the current state of Canadian real estate—predictions that pointed at the nearly irreplaceable role that wealthy Chinese now play in the nation’s housing markets.
 
In a piece by Toronto-based journalist Tiffany Greene for real estate portal Better Dwelling, the fruits of a clandestine investigation codenamed Sidewinder revealed that elements of the Chinese government in the guise of triads, tycoons, students, and shell companies have already been quite eager to penetrate and influence the Canadian financial system as far back as the ‘90s.
 
At the time, such a proposal might have appeared to be a product of overly paranoid xenophobia, which contributed to its summary dismissal by the federal government, Greene mused.
 
“As you can guess, this report didn’t sit well with anyone in government. It alleges a powerful country is conducting a spy mission, using influential Canadians. They even scrutinized a company whose board Prime Minister Chretien’s son-in-law sat on. The company was China’s state-run CITIC, but still. Right or wrong, it wasn’t going to sit well,” Greene said.
 
“All documents were ordered destroyed, and buried in 1997 by the Liberal government. Turns out we were as anxious to build ties with China then as we are now. Despite our national spy services advising the government that, well…this would happen to real estate.”
 
“[The investigation] alleged that the Chinese government is using legal and legitimate businesses to gain control over the economic levers of Canada,” she explained, adding that the report warned of “legislative loopholes governing finance and the concentration of financial power in the hands of few.”
 
Espionage conspiracy theories aside, the warnings now appear to be less far-fetched that they might have seemed before, considering the significant presence of Chinese money in Canadian markets.
 
Greene hastened to emphasize, however, that the investigation deemed a “great majority” of Chinese immigrants legitimate. What the task force warned about was the possibility of subversive elements hiding among those who genuinely want to make good lives for themselves in Canada.

Copyright © 2016 Key Media Pty Ltd

Justin da Rosa
Canadian Real Estate Wealth

There are still opportunities to take advantage of U.S. real estate, according to one veteran who has penned a guide for Canadians interested in purchasing property down south.

“The number one mistake is they don’t own it the way they need to own it based on their circumstances. For example, they may own it as a Canadian corporation; well, that’s perfectly legitimate in Canada but owning real estate in that way in the U.S. causes double taxation,” Dale Walters, author of Buying Real Estate in the US: The Concise Guide for Canadians, told Canadian Real Estate Wealth. “If you get a U.S. advisor, they may recommend they use an LLC. Hopefully the word is out now that in Canada that would cause double taxation.”

Walters’ book focuses a great deal on tax implications for Canadians who purchase real estate down south as well as information on the best way to own a property.

“The book is informational; it’s a tax book primarily. How do you own real estate in the U.S., what’s the proper way of owning it, the options, what are the tax consequences of the various ways of owning it because each way is a different tax outcome,” he said. “How do you deal with rental income and what are the tax consequences of that. You’ve got potential liability issues, how to protect yourself, non-resident estate tax potential – all of those things I cover.”

It can be daunting to purchase real estate overseas, but Walters argues there are still opportunities for all different kinds of investors; including deals for those looking to own vacation properties, become full-time landlords, and those interested in commercial properties.

There are also various markets that provide different risk profiles.

Walters believes there are two major reasons Canadians are still interested in U.S. real estate: Diversification and the availability of bargains.

“The usual markets that have market appreciation potential which would be, generally speaking, the sun belt. Southern California, Arizona, Texas, and Florida, primarily,” Walters said. “If you’re looking at some higher-risk, possibly higher opportunity, you still have places like Detroit and places like that.”

Copyright © 2016 Key Media Pty Ltd

Ephraim Vecina
Mortgage Broker News

The uncanny pace of home price growth in Vancouver has paved the way for a dramatic correction in the near future, according to a recent report by the National Bank of Canada.
 
The value of detached homes in the city could experience a decline of as much as 20 per cent over a 12-month period up to late 2017, senior economist Marc Pinsonneault wrote in the report.
 
“Prices have accelerated sharply, especially at the beginning of 2016, and many more people were priced out of the market,” Pinsonneault stated, as quoted by The Globe and Mail.
 
Observers have pointed at a steady decline in sales volume of detached homes, townhouses, and condos in the city, after reaching record highs in March. The second half of the year saw the introduction of a 15 per cent foreign buyers’ tax as well as tighter federal rules governing mortgages.
 
Among the hardest hit sectors is the luxury property market, and further slackening in the sales of this housing type will definitely pull down Vancouver’s average home price, Pinsonneault warned. Fresh figures from the Real Estate Board of Greater Vancouver backed up this claim: The average detached home price in the city sat at $1.53 million in September, down by 15.7 per cent from April.
 
However, an RBC Economics report released earlier this month countered these fears, saying that once the market has adjusted to the regulatory changes, Vancouver will prove to be just as enticing to wealthy Chinese investors as it was before the announcement of the new rules.
 
“Vancouver offers a sought-after lifestyle and prestige for wealthy Chinese that only a handful of other international cities can boast,” the RBC report stated.
 
And while the foreign home buyers’ tax implemented by the B.C. government on August has slowed down sales, the impact on the luxury market of all these measures would be negligible.
 
“High net worth individuals are drawn to Vancouver for the same reasons as foreign investors, as well as other factors such as good schools, clean environment and the ‘global passport’ that Canadian citizenship offers,” the report assured.

Copyright © 2016 Key Media Pty Ltd

BCREA
other

Since the last Legally Speaking on this topic,¹ the Supreme Court of British Columbia has awarded significant damages against two owner-builders for poor construction. The provincial government has also raised the threshold for the owner-builder exemption.

Since July 1, 1999, unless an exemption applies, every new home in British Columbia must be built by a licensed residential builder, registered with the Homeowner Protection Office (HPO) and enrolled for home warranty insurance. The owner-builder exemption permits an individual to build his or her own home, or to act as their own general contractor, if they meet certain requirements. An owner-builder may provide home warranty insurance, if they wish. Many do not.

If an owner-builder does not supply home warranty insurance, the Homeowner Protection Act imposes a statutory warranty.² The owner-builder is deemed to promise to subsequent owners that the home is, in effect, properly built. From the date of the occupancy permit,³ this ten-year statutory warranty covers materials and labour for two years, building envelope for five years, and structure for ten years. This warranty cannot be waived by agreement.

In Chapman v. Stacey, the buyers relied on their statutory warranty to sue the owner-builders who built the buyers’ home.⁴ This appears to be the first case of its kind. Contrary to the building code and the architect’s plans, the owner-builders improperly built a deck, causing significant drainage problems. The court awarded judgment against the owner builders for $96,900 and GST, being the cost to remediate the deck, plus interest.

Recently, the government added a significant new owner-builder requirement. Effective July 4, 2016, every owner-builder applicant must pass an examination on home construction fundamentals.⁵ An applicant gets one chance to pass the exam per application; 70 per cent is necessary to pass.

When listing a home within approximately ten years of the date of the occupancy permit, the date of first occupancy, or readiness for occupancy, whichever came first:

• A REALTOR® must inquire whether an owner-builder built the home. If the building permit was issued before November 19, 2007, contact the HPO directly. If issued on or after that date, check the HPO’s online New Homes Registry.
• If an owner-builder built the home:
• • Before November 19, 2007, AND there is no home warranty insurance, the HPO will have issued an Owner Builder Declaration and Disclosure Notice to the owner builder. So long as the ten-year statutory warranty is running, that notice MUST be given to the buyer before entering any agreement to buy the home;
  • On or after November 19, 2007, if it is permissible to sell the home, the HPO will have issued a Disclosure Notice to the owner builder. That notice will say whether there is home warranty insurance or not. So long as the insurance applies or the statutory warranty runs, the buyer MUST be given the Disclosure Notice before entering any agreement.

If the home fails to meet the HPO’s requirements, a REALTOR® must not list it.

If a REALTOR® commits professional misconduct or conduct unbecoming a licensee, the Real Estate Council of BC may now order the licensee to pay a very large penalty,⁶ plus an additional penalty equal to the licensee’s remuneration in the deal.⁷ The HPO’s Registrar may impose a penalty up to $25,000, and the province may prosecute the licensee. There could also be a lawsuit.

If there is any doubt whether a home meets the HPO’s requirements, do not assume anything. Check with the HPO.

Copyright ©2016 BCREA

Steve Randall
Mortgage Broker News

Home prices in Vancouver and Toronto are facing an imminent correction according to a special report from National Bank.

The assessment of the housing market says that the downward trend in home sales in the Vancouver market began well before the introduction of the 15 per cent sales tax on foreign buyers; it began in March with single-family homes and spread to apartments in July.

National Bank believes that Vancouver will start to see a correction in prices with a reduction of 10 per cent overall over the next 12 months with detached homes suffering a 20 per cent drop.

For Toronto, the report says that high prices driven by tight supply will begin to ease as higher mortgage rates and Ottawa’s new mortgage rules soften sales. The tight inventory will, however, mean that the price drop will be far lower than in Vancouver at around 3 per cent.

Copyright © 2016 Key Media Pty Ltd

Effect of new foreign buyer tax and mortgage changes will have most impact on detached houses, which will fall 20 per cent over the next year, predicts National Bank

REW

The bank said in its latest economic report that “the reason the sharp drop in sales has yet to translate into a price decline is that the resale market remained tight.”

The report went on to say, “We think Vancouver home prices will soon start correcting. We expect a decline over 12 months of 10 per cent overall and 20 per cent for detached homes.”

The bank pointed out that the downturn in home sales began considerably the introduction of the new overseas buyer tax.

“Some observers expected the July 25 announcement of a new 15 per cent tax on the value of homes acquired by a non-resident… to have an immediate and dramatic effect on existing-home sales in the Vancouver market,” wrote the authors. “A downtrend has indeed begun. But it began in March, well before the new tax was announced.”

The report also observed that despite the decline in average sales prices reported by the Real Estate Board of Greater Vancouver in August and September, the Teranet-National Bank Home Price Index has remained flat.

It said, “This would seem to contradict the REBGV’s report of a 17 per cent drop from July to August in the average selling price of detached homes. But it doesn’t – the REBGV noted that the decline it reported was due not to a decline in property values but to a decline of the share of the most expensive homes in the total number of units sold.”

However, the bank believes that a resurgence in the number of listings, combined with a continued decline in home sales, will bring Greater Vancouver back into a buyers’ market, which will lead to the value of homes in dropping over the next 12 months before stabilizing.

© Copyright 2016

Ephraim Vecina
Canadian Real Estate Wealth

In a report released last week, Moody’s Analytics assured that while the Canadian real estate sector will experience a more relaxed pace in home price growth over the next half decade, rumors of a massive crash are greatly exaggerated.

“There has been a lot of speculation about Canada’s housing markets overheating during the past two years,” Moody’s economist Andres Carbacho-Burgos said in the report, as quoted by Global News.

“The house price outlook calls for a deceleration of house price growth, not for a serious decline, though there are exceptions for smaller regions,” the analyst added.

The Moody’s report predicted that prices for detached single-family properties will rise by 9 per cent in 2016, and by around 2.9 per cent a year for the next five years.

Ontario is expected to be a focus of growth with four out of the five strongest metropolitan markets nationwide. In particular, Barrie prices will increase by 7.9 per cent annually over the next five years, with Toronto and Oshawa prices coming close at 6.7 per cent growth per year.

“Toronto and possibly Oshawa benefit from strong foreign capital inflows, and most of the metro areas in Ontario also benefit from good projected income growth and from the lack of any extended house price correction in the historical data, pointing to weak mean reversion effects thanks to non-measurable factors such as wealth and good mortgage credit quality,” the report stated.

The Moody’s study came in the wake of the Canada Mortgage and Housing Corporation’s statement that there is a strong possibility of major movements in Toronto and Vancouver due to continuous home price growth.

Observers warned that home prices might fluctuate wildly amid new federal mortgage rules, which mandated among others a harsher “stress test” on borrowers. Fears about that this might lead to less construction—and thus more limited supply.

Copyright © 2016 Key Media Pty Ltd

Ephraim Vecina
REP

When it comes to having the best of both worlds, real estate agent Jim Trump of the Trump Realty team has little competition, at least until the U.S. presidential elections finally blow over—or so he hopes.

The Flower Mound, Texas agent kept mum about his choice of candidate.

“I’m not going to say who I’m going to vote for in the upcoming election, but may the best person win,” he told CW33 News Fix.

The extra attention stemming from the surname’s recognizability has been both good and bad, Jim said, with the added client traffic being counteracted by tensions such as a recent trip to a grocery store, in which a cashier almost refused to validate Jim’s transactions (the incident was defused by assurances from Jim’s business partner that they were not related to “that Trump”).

The name has proven to be a fount for uncertainty, with the Republican Party nominee continuously making headlines just weeks ahead of the elections. Recently, the Trump International Hotel—which is not actually owned by the Donald—was snubbed by Hollywood personalities who attended the Toronto International Film Festival last September.

Famed investor and billionaire Alex Shnaider, who holds a $300 million outstanding loan, has placed the building on the market since May. Any would-be buyers would have the option to remove the “Trump” signage from the top of the building.

Donald Trump’s belligerent statements against various groups and scathing attacks on political opponents have also shooed away people from New York City’s Trump Hotels, with data from FourSquare revealing that foot traffic around the building shrank by 17 per cent year-over-year in July. 

Copyright © 2016 Key Media Pty Ltd