Archive for May, 2018

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Thursday, May 31st, 2018

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Interest rate held but is the economy set to worsen?

Thursday, May 31st, 2018

Most provinces will see a slowdown in growth this year

Steve Randall
Canadian Real Estate Wealth

The Bank of Canada held interest rates at 1.25% Wednesday but the pause on rates is unlikely to last long with many now calling for a July hike.

“With the economy set to outperform the Bank’s earlier expectations and signs of life in all sectors bar housing, economic conditions favour another interest rate hike,” says Brian DePratto, senior economist at TD Economics. “While we may need a grammarian to distinguish between “cautious” and “gradual”, the message was nevertheless clear: get ready for another rate hike. “

But despite Thursday’s GDP data expected to show a stronger Q1 than previously forecast, a new report this week suggests that most provinces will see a slowdown in growth this year.

The Conference Board of Canada believes that uncertainty over NAFTA, stalled oil pipeline projects, cooling housing markets and weak business investment, will all weigh on provincial economic growth.

“Weaker economic growth is forecast across the country, with only British Columbia, Prince Edward Island, Ontario and Quebec expected to see growth above 2 per cent this year,” said Marie-Christine Bernard, Director, Provincial Forecast, The Conference Board of Canada.

Where is growth set to be strongest? British Columbia and Prince Edward Island will have the fastest growing provincial economies in 2018, with real GDP growth of 2.6% while Ontario and Quebec’s economies will advance at a more moderate pace of 2.2%.

Following growth of 4.9% in 2017, Alberta’s economy is forecast to expand by 1.9% this year. But, with the recent rally in oil prices, there are upside risks to the forecast.

Manitoba’s economy will benefit from strong population increases and numerous construction projects across various sectors but will see growth of 2.1 per cent in 2018 due to weak consumer spending at the start of the year, compared to 2.9% in 2017.

Saskatchewan’s economy is forecast to advance by just 1.3% due to declines in uranium production and weaker public-sector infrastructure spending.

Nova Scotia’s real GDP is forecast to rise by just 0.8% in 2018; New Brunswick will be limited to 1.3% growth this year and next as it struggles to grow its labour force with an aging population. Fuelled by accelerating oil production at Hebron, Newfoundland and Labrador’s real GDP is forecast to advance by 1.6% this year.

Copyright © 2018 Key Media Pty Ltd

Slower Growth Expected for Economy and Housing Market

Thursday, May 31st, 2018

BCREA 2018 Q2 Housing Forecast


The British Columbia Real Estate Association (BCREA) released its 2018 Second Quarter Housing Forecast today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 9 per cent to 94,200 units this year, after posting 103,700 unit sales in 2017. MLS® residential sales are forecast to remain relatively unchanged in 2019, albeit down 0.2 per cent to 94,000 units. Housing demand is expected to remain above the 10-year average of 84,800 units into 2020.

“The housing market continues to be supported by a strong economy,” said Cameron Muir, BCREA Chief Economist. “However, slower economic growth is expected over the next two years as the economy is nearing full employment and consumers have stepped back from their 2017 spending spree.”

“Demographics will play a key role in the housing market over the next few years,” added Muir, “as growth in the adult-aged population is bolstered by immigration and the massive millennial generation enters its household forming years.”

Muir notes there are, however, significant headwinds in the housing market. “Rising mortgage interest rates will further erode affordability and purchasing power, with the effect being exacerbated by an already high price level. The legacy of tougher mortgage qualifications for conventional mortgagors will be a reduction of their purchasing power by up to 20 per cent, and the provincial government’s expansion of the foreign buyer tax and several other policies aimed at taxing wealth is sending a negative signal to the market and likely diverting investment elsewhere.”

The combination of slowing housing demand and rising new home completions is expected to trend most BC markets toward balanced conditions this year, and lead to less upward pressure on home prices.

Copyright ©2018 BCREA

Critics challenge Vancouver’s plans to protect existing rental stock

Thursday, May 31st, 2018

Critics challenge plans to protect old rental stock

Joanne Lee-Young
The Province

The City of Vancouver is holding public hearings next week on proposals aimed at tightening protection for one of the cheapest housing options left: old rental stock.

But the jury is out on what these will actually accomplish.

The affordable rental units are usually found in low-rise, wood-frame buildings, built between the 1950s and 1970s — the antithesis to all the city’s shiny, new, skyscraping condos with granite countertops.

The city wants to make it more difficult to tear down these older buildings. Currently, if someone wants to redevelop anything larger than a five-unit, older building, they have to replace the rental units, one for one. New rules would include three-unit buildings, which would protect an additional 4,500 units in smaller buildings.

It is a welcome move for those in such units at a time of rising rents and tight vacancy rates, but not everyone agrees.

“It’s a noble idea, but it’s sheer, bloody nonsense,” says David Goodman, publisher of The Goodman Report and a commercial real estate agent who specializes in apartment building sales. “They are doing nothing to improve the situation.”

He says only 60 to 70 units have been lost in the last seven years, against 2,452 new housing units added between 2010 to 2017 in the City of Vancouver, according to Canada Housing Mortgage Corporation figures. “It’s really nothing. But this reduces the amount of land that can be used for building new, purpose-built rental. If you can tear down old three- or six-units, you can put in 10 to 15 units.”

Another measure being proposed by the city next week focuses on supporting better maintenance of these older buildings. Less than 25 per cent of landlords have a capital plan for taking on major repairs, according to a report it commissioned.

The city wants to partner with LandlordBC on a pilot project to help landlords plan for energy efficiency-related upgrades, an opportunity that CEO David Hutniak cautiously welcomes.

“We broadly support the measures, but the reality is that the economics are still a challenge,” says Hutniak.”With older buildings, it’s not just cosmetic improvements, but deep retrofits, building envelopes, mechanicals, that must be done. It can be huge bucks.”

“When buildings get to a certain age, the business case of bringing them up to current standards versus tearing them down and bringing in a new building with increased density is a challenging one,” says Hutniak. “We understand what the city is trying to do. It’s a situation not unique to our city and we are trying to help the city walk down this road, but they can’t go it alone.”

Hutniak is encouraged by more recent signs of provincial and federal interest.

“We need to find mechanisms to make it economically feasible,” he said, offering as possibilities various combinations of subsidies or rent support for existing tenants.

“When you look at three-storey, walk-up buildings that are between 50 to 60 years old … the cohort of residents are seniors on fixed incomes,” said Hutniak. “Trying to beat up the landlord over building maintenance and making investments, well, the numbers don’t actually work.

“The situation is that nobody cared about building purpose-built, rental housing for 30-plus years, (so) no new stuff was added. Now, the old stuff is really old. But you can’t fix things overnight. It’s not reasonable to legislate or push existing owners to do this on their dime.”

© 2018 Postmedia Network Inc.

Monitoring, restricting fobs must be approved by owners

Thursday, May 31st, 2018

Be reasonable where FOBs are concerned

Tony Gioventu
The Province

Dear Tony:

Our strata corporation has a policy that each strata lot is entitled to one FOB for the access to our building and each additional FOB costs $50.

We have several families in the building with schoolchildren who are claiming this is unfair and they are being discriminated against because of their family status. But if we allow unlimited FOBs, the cost to the strata corporation will be excessive.

Is there a requirement for us to provide FOBs for every resident in the building? What if someone rents out their strata lot? Do we have to provide a FOB for both the tenant and the owner or landlord of the strata lot? If someone has a daily caregiver, do we have to provide an additional FOB for each attendant? 

We do not have a concierge or on-site manager, so we really need to control the number of FOBs for security and access. 

Miller T., Victoria

Dear Miller:

A strata corporation is permitted to charge fees for common expenses through three basic methods.

Owners pay strata fees for common operating expenses and contingency reserve contributions by special levy for projects approved by three-quarters vote at a general meeting or a strata corporation common expense insurance deductible or by user fees approved in a bylaw or a rule that has been first ratified at a general meeting. 

Many strata corporations impose fees for rentals of guest suites, elevator blankets, FOBs, additional parking or facility rentals as a policy, but have never ratified these as rules or approved them as bylaws.

In your strata, there is no evidence the strata corporation ever approved user fees as a rule or bylaw so that must be addressed first. 

Common access to a building for owners to enter their units is not the same as renting a guest suite, and while the strata corporation may approve the cost for the FOBs through the operating account, it may also need to offset the ongoing expenses through user fees. Ultimately, this comes down to what each strata corporation approves through the annual budget as a common expense or user fees in the rules or bylaws.

Every strata corporation is different and some corporations provide two or more FOBs per strata lot, while others only provide one per strata lot, but step back a moment and ask what is reasonable.

If most units in the building have more than one occupant, perhaps two FOBs per strata lot are required with an additional cost for extra FOBs. But remember: you don’t have the authority to simply impose a fee for a service or asset unless it is approved by the owners. 

FOBs are common in most new buildings and an inexpensive conversion in many older buildings. They may also enhance security and reduce operating costs.

If someone misuses a FOB or a FOB has been lost, that specific FOB can be deactivated without needing to pay the cost of re-keying a building and distributing new common area keys to all owners. If your strata corporation monitors the use of FOBs, that is a form of surveillance and collection of personal information and you will also be required to adopt a bylaw that meets the requirements of the Personal Information Protection Act in B.C.

© 2018 Postmedia Network Inc.

Bordeaux 140 homes in a 23 storey tower at 4488 Juneau Street Burnaby by Solterra Group of Companies

Thursday, May 31st, 2018

Bordeaux a showcase of iconic French design

Mary Frances Hill
The Province


What: 140 homes in a 23-storey building

Where: 4488 Juneau Street (corner of Willingdon Avenue), Burnaby

Developer and builder: Solterra Group of Companies

Residence sizes and prices: One-, two- and three-bedroom homes from 457 to 2,241 sq. ft.

Sales centre: 4247 Lougheed Hwy., Burnaby

Sales centre hours: By appointment

Phone: 604-294-8989

Three icons of French design have made an indelible impact on the interiors of Bordeaux, the planned community for Burnaby’s Brentwood neighbourhood from the Solterra Group of Companies. Vancouver interior designer Jade Kwok is such an admirer of the works of designers Pierre Balmain, Madeleine Vionnet and Olivia Putnam that she used their influence in her own work on the display suites at Bordeaux.

Kwok named the interior schemes of the residences slated for floors 16 and lower floors “Pierre” and “Olivia”, as tributes to Balmain and Putman (Putman is also an architect and scenographer). Visitors to the display spaces can tour either the Pierre or Olivia colour palettes, while levels 17 and above are fashioned in the Madeleine scheme in honour of Vionnet.

The one-bedroom suite features the Pierre colour scheme, dominated by black and light oak. Balmain, the scheme’s namesake, was a fashion designer who described his own dressmaking as “the architecture of movement,” according to Kwok, Solterra’s vice-president of interior design. She prizes Balmain’s work for its sophistication and boldness, qualities that inspire her in her everyday practice. “He definitely inspires me to think outside the box, to not be afraid of colours or the use of different materials. Sometimes we all have to challenge the [expectation] of the typical neutral coloured homes.” The effect of the Pierre scheme’s dark shades against light is indeed dramatic, thanks to black upper kitchen cabinets contrasting with lighter cabinetry at the bottom, “reflecting the balance of mixed use of materials, bold patterns and intricacy,” Kwok says.

 “We strive to design spaces that are classic, that will last year over year, but that also add that element of surprise. While the matte black cabinets can be dominating, they are softened by the warmth of the light wood cabinets and flooring.” In one bedroom in the two-bedroom home that showcases the Olivia palette, the simple moulding on the wall takes on a sculptural effect, a harder edge relative to the plush comfort of the rest of the room. “The geometric design effortlessly juxtaposes the softness of the rest of the design — silky linen bedding, ample plush pillows and the light white marble table lamps,” Kwok says.

She installed a sliding frosted glass panel bedroom door that can be closed or left open for a more spacious feeling.

“The design philosophy for Olivia is to combine the elegance and comfort of lines with extreme functionality,” she says. Meanwhile, the softer finishes and materials from this same scheme makes Kwok think of romance and luxury.

“The rounded-back dining chairs complete any space with style and graceful elegance, while reflecting in shape of the plush velvety metal lounge chair in the living room.”

© 2018 Postmedia Network Inc.

Bank of Montreal releases Q2 report

Wednesday, May 30th, 2018

Last of chartered banks releases Q2 report

Armina Ligaya
Canadian Real Estate Wealth

The Bank of Montreal joined its peers in delivering second-quarter profits that beat expectations as Canada’s Big Five banks earned a collective $10.6 billion _ up nearly 11 per cent from a year ago.

Canada’s biggest banks also handily beat analyst estimates for adjusted profits, brushing off concern about the impact of a cooling real estate market amid tighter mortgage lending guidelines.

“The market is in various stages of worry about the outlook for the mortgage market in particular, but the results themselves seem to indicate that a lot of that worry is misplaced,” said Meny Grauman, an analyst with Cormark Securities in Toronto.

BMO was the last of the biggest banks to report its earnings for three-month period ended April 30 on Wednesday.

Its second-quarter net profit of $1.25 billion was relatively flat compared with a year ago, but included a $192-million after-tax restructuring charge primarily related to severance costs. Canada’s fourth-largest lender also raised its quarterly dividend to 96 cents per share, up three cents from 93 cents in its previous quarter.

BMO said it earned $2.20 per share on an adjusted basis for the quarter, up from $1.92 per share a year ago. Analysts on average had expected the bank to earned $2.12 per share, according to Thomson Reuters Eikon.

Like its rivals, BMO benefited from strong earnings on both sides of the border. Its Canadian banking arm saw net income rise 11 per cent to $590 million. And although home sales activity across the country in April hit a monthly low not seen in years, due to factors including a new stress test for uninsured mortgages as of Jan. 1 and higher interest rates, BMO’s total Canadian residential mortgage portfolio grew by 2.2 per cent to $106.4 billion in the latest quarter.

“BMO’s results this quarter demonstrate strong performance and momentum in our U.S. and Canadian (personal and commercial) banking and wealth businesses,” said Darryl White, BMO’s chief executive officer, in a statement.

The other Big Five banks generated strong earnings at home as well. TD’s Canadian retail division net income was up 17 per cent compared with last year. RBC’s Canadian personal and small business banking division reported a seven per cent increase in net income, while Scotiabank’s domestic banking division saw a five per cent increase and CIBC’s Canadian personal and small business banking division reported a 16 per cent increase in net income.

International growth was a bright spot for the Canadian lenders as well, and a big contributor to the $10.6 billion in net income attributable to shareholders amongst them during the quarter.

BMO on Wednesday said its U.S. personal and commercial banking division saw net income increase 46 per cent to $348 million for the quarter. The Canadian Imperial Bank of Commerce saw an even bigger increase of 431 per cent, helped by its acquisition of Chicago-based PrivateBancorp in June last year.

Profits at TD Bank’s U.S. retail arm’s rose 16 per cent, while Royal Bank’s U.S. Wealth Management unit, which includes Los Angeles-based City National, saw a 25 per cent jump. Scotiabank, which has focused its international expansion in Mexico, Peru, Chile and Colombia, saw net income at its international banking arm increase 14 per cent to $675 million.

Canada’s sixth-largest bank, National Bank of Canada, also reported better-than-expected results and raised its dividend Wednesday. It earned $547 million or $1.44 per diluted share for the quarter ended April 30, up from $484 million or $1.28 per diluted share in the same quarter last year.

“We’re seeing a lot of good contribution from their U.S. and international businesses,” said Robert Colangelo, senior vice president of Canadian banking and financial institutions at ratings agency DBRS.

“Those seem to be the platforms that are taking off.” 

The Canadian Press

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Bank of Canada makes interest rate announcement Wednesday

Wednesday, May 30th, 2018

Interest rate unchanged on Wednesday

Craig Wong
Canadian Real Estate Wealth

The Bank of Canada kept its key interest rate target on hold Wednesday, but hinted that rate hikes could be coming as it noted the Canadian economy was a little stronger than expected in the first quarter.

The central bank held its target for the overnight rate _ a key financial benchmark that influences the prime lending rates at the country’s big banks _ steady at 1.25 per cent.

“Exports of goods were more robust than forecast and data on imports of machinery and equipment suggest continued recovery in investment,” the Bank of Canada said in a statement.

“Housing resale activity has remained soft into the second quarter, as the housing market continues to adjust to new mortgage guidelines and higher borrowing rates. Going forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018.”

The central bank also said global economic activity remains broadly on track, but added that ongoing uncertainty about trade policies is dampening global business investment and stresses are developing in some emerging market economies.

It noted that recent developments have reinforced its view that higher rates will be warranted to keep inflation near its target, but added that it will take a gradual approach and be guided by the economic data.

“In particular, the bank will continue to assess the economy’s sensitivity to interest rate movements and the evolution of economic capacity,” it said.

Economists had predicted the Bank of Canada would keep its key rate on hold Wednesday, but many have suggested the rate may be headed higher later this year.

The central bank’s decision to keep its trend-setting rate on hold came as inflation sits above the two per cent midpoint of its target range of one to three per cent and core inflation has crept past the two per cent mark for the first time since 2012.

It noted that inflation will likely be a bit higher in the near term than was forecast in its April monetary policy report due to recent increases in gasoline prices, but that it will look through the transitory impact of the fluctuations at the pump.

The central bank has raised its key rate three times since last summer, increases that have prompted the big Canadian banks to raise their prime rates which are used to set the rates charged for variable-rate mortgages and other variable-rate loans.

Its next scheduled interest rate decision is set for July 11 when it will also update its outlook for the economy and inflation in its monetary policy report. 

The Canadian Press

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Aston Martin to debut electric luxury brand

Tuesday, May 29th, 2018

The Province

Aston Martin’s new electric luxury Lagonda brand will bow in 2021 with an SUV, the British automaker recently confirmed.

Though it teased crowds this year with its Lagonda Vision concept sedan, the brand — designed to take on Rolls-Royce and Bentley in the ultraluxury field — will try to get its footing with what Aston calls the first “luxury battery electric SUV” to hit the market.

Aston plans to become an industry pioneer in solid-state battery technology via Lagonda, and further down the road wants to offer Level 4 autonomous capabilities in the luxury vehicles.

Aston Martin’s own upcoming SUV, previewed by the once-upona-time DBX concept, is set to launch next year, but will remain distinct from the Lagonda. That utility will use gasoline-driven powertrains only.

© 2018 Postmedia Network Inc.

Banks brush off debt concerns

Tuesday, May 29th, 2018

Canada set the interest rates but banks say no problem

Chris Fournier and Erik Hertzberg
Canadian Real Estate Wealth

Canada sets interest rates Wednesday, and there’s widespread concern about what any further borrowing-cost increases might mean for consumers, their immense pile of debt and the housing market.

It’s one of the reasons to be bearish on Canada. Steve Eisman, who was featured in Michael Lewis’s book “The Big Short,” told Bloomberg TV this month investors should short Canadian financials, citing looming housing “issues.”

The country’s largest lenders are warning against overplaying the concerns. While unprecedented debt levels pose risks, they say there won’t be any major upset to the economy for a number of reasons, including the view Bank of Canada Governor Stephen Poloz won’t press ahead with higher rates if signs of stress begin to emerge.

While the debt levels are a problem, “we don’t expect it to derail the economy, just because we expect Poloz to go quite gradually, or more gradually than what might have warranted hikes in the past,” Brittany Baumann, macro strategist at Toronto-Dominion Bank said in a telephone interview.

Other reasons not to panic — according to economists at the other five major commercial banks — include households’ ability to keep monthly payments on mortgages in check, a manageable number of home-loan renewals, and the still-low cost of borrowing.

That Canadians are heavily indebted is without question. Household debt — mortgages and consumer debt such as credit cards — has swollen to C$2.1 trillion ($1.6 trillion), and levels as a share of income are easily the highest in the Group of Seven. Two-thirds of that is mortgages. With the central bank raising rates three times since July and with more hikes to come, there’s concern things could get messy.

Mortgage Renewals

Yet, rate rises will be gradual and it will take a while for that to flow through to households, according to Nathan Janzen and Robert Hogue at Royal Bank of Canada. More than 40 percent of outstanding residential mortgage debt issued by federally regulated financial institutions is five-year, fixed-rate, and for those resetting now, rates aren’t much different than they were five years ago. The central bank’s effective household interest rate — a weighted-average of various mortgage and consumer credit rates — was 3.64 percent on May 11, compared with 3.54 percent in May 2013.

“It will take a while for the full impact of higher rates to hit household incomes,” Janzen said by email. “Household ability to pay is increasing along with interest rates. The economy looks strong, labor markets look tight, and wages have been increasing more quickly.”

For variable-rate mortgages, depending on how the loan is structured, rising borrowing costs won’t necessarily translate into higher monthly payments, but could mean instead a longer amortization period.

Read more about how millennials are feeling higher rates in their wallets

Canadian Imperial Bank of Commerce estimates only about 20 percent of outstanding household debt — mortgage and non-mortgage — has so far been exposed to higher rates.

“It’s actually not a huge number, which kind of dampens the headline effect of ‘Oh, there’s such a huge amount of mortgages coming due,”’ Ian Pollick, head of North American rates strategy, said in a phone interview.

Matthieu Arseneau at National Bank Financial says the “payment shock” from elevated household debt and rising rates will equate to a mere 0.24 percent off aggregate disposable income this year. Considering real disposable income has grown about 2.5 percent annually over the past decade, the shock will turn out to be more of a “slight touch on the brakes” of consumer spending, he said in recent a research note..

Poloz’s Path

Poloz has been mindful of the risks of the debt overhang. The central bank estimates that due to elevated household debt, the reduction in consumer spending “might be as much as 50 percent more in the two years following a persistent change in interest rates.”

Such concerns have helped keep the central bank on hold since January. Poloz is expected to leave the benchmark rate unchanged at 1.25 percent this week.

“The bank is at a slower rather than a faster mentality,” Pollick said, with CIBC predicting just one more increase this year.

Most economists anticipate debt worries won’t be enough to keep Poloz on hold forever.

Derivatives trading suggests two more hikes by the end of the year, to 1.75 percent, and Poloz has been emphatic that rates will eventually go higher. The Bank of Canada estimates its “neutral rate” is about 3 percent.

The Bank of Montreal predicts two more rate increases this year, and three more next year. National Bank sees Poloz hiking twice more this year and twice next year. Royal Bank of Canada projects 100 basis points of increases between now and mid 2019. TD predicts one more hike this year and one in early 2019.

Robust Economy

But even as rates rise and consumers pare back spending, another mitigating factor is a relatively robust economy that can handle modest increases in rates.

Sal Guatieri at Bank of Montreal thinks the only things that could really derail the economy are a recession or a sharp increase in borrowing costs, neither of which is likely.

“We don’t foresee a recession, we still place relatively moderate odds of one occurring over the next couple of years, and we certainly don’t see a big spike in interest rates over the next couple of years,” Guatieri said.

In fact, the economy is so strong, there may be little reason for the central bank to remain cautious at all, according to Derek Holt at the Bank of Nova Scotia, particularly if it stops its rate hike cycle well below the neutral rate. He predicts the central bank will double its benchmark rate to 2.5 percent by the end of 2019.

The increased sensitivity of the economy to rate hikes doesn’t mean Poloz “cannot continue hiking along a fairly aggressive path,” Holt said by email. “It just means there is a lower end point in this cycle and over the longer run.” 

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