Number of Years It Takes To Save $35,000 in RRSPs, By Income Group

Penelope Graham
other

The Home Buyers’ Plan (HBP) is one of several tools offered by the federal government to make it easier for first-time home buyers to get into the housing market. A tax-free way to access savings otherwise set aside for retirement in a Registered Retirement Savings Plan (RRSP), the HBP can be a great way to source funds for a home down payment, to go toward either resale MLS listings in Canada or a brand-new build. It can be especially effective for contributors who have been saving long-term, or perhaps enjoy RRSP matching through an employer pension.

How Does the Home Buyers’ Plan Work?

Eligible buyers can pull up to a maximum of $35,000 from their RRSP savings for their home purchase, though if two individuals are buying together and both qualify as first-time home buyers, they can each access the maximum to a total of $70,000. To be eligible as a first-time home buyer, the Government of Canada requires that you have not owned a home, or occupied one that your spouse has owned, in the four consecutive years before this home purchase is made. (However, there are exceptions in the case of a marriage or common-law relationship breakdown where former partners can restore their first-time buyer status.)

Participants must also have a signed agreement to purchase or build a home to use the HBP and intend to dwell in it as a principal residence, living there within one year of its purchase or completion. As well, the HBP funds must be sheltered within the RRSP for a minimum of 90 days before they can be accessed. They also need to be repaid to your RRSP in annual installments made over a 15-year timeline starting the second year after the year when funds were withdrawn; if a home buyer fails to make the minimum contribution repayment to their RRSP at any point, that portion of funds is earmarked as income for that year and taxed in full.

How Effective is the HBP?

However, using the HBP to access funds for a new home isn’t without its criticisms, in particular that it is less likely to be utilized by the first-time home buyer segment than other savings vehicles.

According to Statistics Canada, while 35% of all Canadians contribute to RRSPs, they are most used by households with a major income earner bringing in $80,000 – $99,999 (50.8%), and between the ages of 35 – 54. In contrast, only 20.1% of lower-earning Canadians use RRSPs, seeming to prefer Tax-Free Savings Accounts (TFSA) instead, which come with far fewer restrictions. For example, funds put in a TFSA can come from anywhere (only earned income is eligible for an RRSP contribution) and there are no requirements to shelter funds for a minimum time period, or pay them back.

The HBP Limit as a Percentage of Local Home Prices

As well, while the federal government increased the maximum withdrawal limit to $35,000 for the HBP from the previous $25,000 in the 2019 budget, housing analysts have questioned whether this amount is enough to truly aid buyers in Canada’s largest markets.

For example, assuming a home buyer has saved and accessed the maximum $35,000 from their RRSP, that would account for just 3.5% of a home purchase in Vancouver, and 4.3% of the benchmark price for Toronto real estate – less than the minimum 5 – 7.5% down payment required to purchase a home. However, in Canada’s most affordable markets, such as in Regina, a buyer could fund up to 13.5% of their purchase with their HBP funds:

How Long Would it Take to Save the Maximum Funds for the HBP?

Using the HBP comes with the caveat that RRSP funds must be saved in the first place – not always an easy feat in markets where incomes haven’t kept pace with housing prices and other inflationary pressures.

With this in mind, how long would it actually take for home buyers across Canada to save the maximum $35,000 in their RRSP to put toward a new home?

To find out, Zoocasa analyzed individual income thresholds in 14 regions across Canada, based on 2017 tax filings from Statistics Canada, assuming the income was earned income, eligible to create RRSP contribution room, and that individuals contributed the maximum to their RRSP annually (18% of earned income, to a maximum of $26,500). The study also compared how long it would take for those in the top 50%, 25%, and 10% income groups to save $35,000.

The study finds that for those earning median incomes across Canada, it would take between 4.3 – 6.0 years to save $35,000 for the HBP.

It would take those looking to buy Ottawa real estate the least amount of time to save; due to the city’s strong public service and government sectors, median incomes are higher than in other major regions at $44,700, making it possible for savers to set aside a maximum of $8,046 annually. In contrast, it would take the longest in Toronto, where the median income is comparably lower at $32,600, allowing for a maximum RRSP contribution of $5,868.

Those timelines are roughly halved for those earning within the top 25% of incomes to between 2.5 – 3.3 years. Montreal residents will be saving the longest, due to an income of $58,100, allowing for a contribution of $10,458, while the shortest timeline is again in Ottawa, with incomes of $79,100 and a maximum contribution of $14,238.

However, it would take those in the top 10% of income earners just 1.6 – 2.2 years to set aside $35,000; again, the longest timeline occurs in Montreal, with an income of $88,400 and a maximum contribution of $15,912. Meanwhile, those earning $122,300 in Calgary face the shortest timeline to put funds away, as they’re able to make a contribution of $22,014 annually.

Check out the infographic below to see how long it would take to save $35,000 in an RRSP across Canada:

Methodology

Benchmark home prices and average home prices for December 2019 were sourced from the Canadian Real Estate Association (CREA). Income groups and income thresholds by metropolitan area are based on 2017 tax filings and were sourced from Statistics Canada. The annual RRSP contribution limit is 18% of earned income, up to a maximum of $26,500, as set out by the Government of Canada.

For the purpose of this report, the income amount was assumed to be earned income, and thus eligible for calculating RRSP contribution room. The maximum withdrawal limit from RRSPs for the Home Buyers’ Plan is $35,000, as set out by the Government of Canada. The number of years it takes to save $35,000 in RRSPs is calculated as $35,000 divided by the annual RRSP contribution limit.

© 2015-2017 Zoocasa Realty Inc.

BC Government creating a central registry to guard against money laundering

Kimberly Greene
Mortgage Broker News

The government of British Columbia has been outspoken on anti-money laundering measures, particularly after more than $7 billion was discovered to have been “washed” through the province, $5 billion of which had gone through real estate.

This week, British Columbians have been invited to take part in public engagements on creating a central registry of company beneficial ownership, as well as modernizing mortgage broker regulation to guard against money laundering.

“Money laundering in our economy must end,” said Carole James, Minister of Finance. “These consultations are an opportunity for the public to voice concerns around how we can prevent dirty money from coming into our communities through these channels and create a better, safer British Columbia.”

The consultations reflect key recommendations from the Expert Panel on Money Laundering in B.C. Real Estate, which released its Combating Money Laundering report in May 2019. In its landmark report, the panel identified the disclosure of beneficial ownership as the single most important measure that can be taken to combat money laundering.

The Mortgage Broker Act (MBA) is under review because, as the consultation paper reads, “it has not kept pace with evolving national and international standards such as money laundering in the real estate market.”

As such, the purpose of the consultation is to replace the MBA with “modern legislation” that would establish several requirements, including: business authorization for all mortgage lenders; dedicated compliance management as well as compliance requirements for employees;  licensing standards; minimum standards of conduct; and transparency and disclosure within transactions. Also on the table are enhanced disclosure and reporting requirements for complex products and reducing regulatory gaps.

In addressing these, the Ministry of Finance hopes to achieve its goal of “a regulatory framework that helps to ensure British Columbians continue to benefit from a financial services sector that is strong, stable, and inspires public confidence and trust.”

The government has already begun a beneficial land ownership registry for real estate, launching in spring 2020. The Land Owner Transparency Act will create Canada’s first beneficial land ownership registry for real estate, and as of May 1, 2020, all B.C. private companies will be required to keep transparency registers of beneficial owners within their records offices.

Consultation topics include: a government-maintained transparency registry, public access to said registry, the protection of personal information, the verification of beneficial ownership information; compliance and enforcement; and a transparency register for other entities. The goal is to determine how a potential registry will impact businesses as well as determine ways of streamlining the process, whether B.C. registries should be linked to other entities, the role of government in ensuring that information is correctly reported, and what penalties should apply for being non-compliant, among others.

The registry is intended to help give tax auditors, law enforcement agencies and federal and provincial regulators the information required to conduct their investigations. In the report, James also indicated that it will help those government agencies to crack down on tax frauds and those engaged in money laundering.

“When the price of real estate grows because of the influx of dirty money, it pushes costs above what local incomes can support. From the young family struggling to purchase a home to the small businesses unable to attract talented employees, everyone is affected by money laundering,” she wrote. “Our work to stamp out money laundering is limited by a lack of data, including information on beneficial ownership in corporations and in real estate. That’s why the Expert Panel has made several recommendations to improve data collection and data sharing — including Recommendation 5, which suggests consultation on a full corporate beneficial ownership registry consistent with best practices.”

Copyright © 2020 Key Media

Multi-family property owners have seen value of assets eroded, finds Goodman Commercial

Peter Mitham
Western Investor

According to Simon Fraser University associate professor Josh Gordon, the biggest driver of rental vacancies in any given market is economic activity.

“The low vacancy rate is a product of a high economy – nothing more, nothing less,” he said last fall during a panel discussion at the University of British Columbia Centre for Urban Economics and Real Estate.

With B.C.’s strong performance over the past year, it’s perhaps no surprise that Canada Mortgage and Housing Corp.’s (CMHC) annual survey of rental markets reported ongoing low vacancies in B.C. of 1.5 per cent, up from 1.4 per cent last year.

CMHC reported a vacancy rate of 1.1 per cent for Metro Vancouver, noting a “strong local economy [is] contributing to growing rental demand.”

The vacancy rate was largely unchanged from last year, according to CMHC, which reported a 1 per cent vacancy rate a year ago.

Multi-family sales drop

The release last week of CMHC’s annual survey of rental markets was watched for any light it would shine on the impact of government policies designed to boost options for tenants and make housing more affordable.

Owners, however, have seen asset values eroded, as preliminary 2019 sales data gathered by Goodman Commercial Inc. indicates.

Greater Vancouver saw approximately 76 purpose-built apartment blocks change hands in 2019 with an aggregate value of $1.1 billion, according to Goodman. The average price per suite was $384,013. This compares with 155 transactions last year worth just shy of $3 billion. The average price per suite was $530,401.

The 28 per cent drop in the average price per suite is attributable to a couple of factors, says Mark Goodman, a partner in Goodman Commercial. On the one hand, government policies have made investors cautious and the market more difficult; this in turn has led to fewer properties coming to market, and those that do are more likely to be older, wood-frame properties with a lower price per door.

The reticence of investors is underscored by a rise in cap rates, particularly within Vancouver. West-side properties that used to have cap rates in the low two per cent range are now trading at rates of up to three per cent.

“We’ve seen a dramatic increase in yield expectations from the premier rental markets, like the West End, Kitsilano and Fairview,” he said. “And what that’s done is it’s really brought down the market, in some cases [by] 20 per cent.”

However, if investors are more cautious and demanding, they’re still keen to buy the right property. Concrete projects have held value well and are in demand among institutional investors.

Moreover, a wave of sales went firm in the final weeks of 2019 and will boost the volume of transactions in the first quarter of this year.

Rental starts rise

One of the key questions surrounding the rental market is whether government pledges to boost rental supply have had an impact on vacancies and rental rates.

CMHC statistics released last week said no, but the province had already issued a report that claimed the 12,289 purpose-built rental units registered in the province in 2019 reached an all-time high as a proportion of all new homes registered, at 28.2 per cent. This gave Municipal Affairs and Housing Minister Selina Robinson a moment for self-congratulation.

“Our policy actions are shifting the market toward delivering more of the right type of housing that meets the needs of the people who live here,” she said in a press release accompanying the report.

Registration occurs before construction starts, as required under the province’s Homeowner Protection Act. However, the numbers are only slightly higher than the 12,095 rental units CMHC reports being started in the province last year. This was a 4.7 per cent increase from 2018.

Closer to home, however, the scenario was different. While starts across Metro Vancouver increased in line with the provincial average to 6,727, purpose-built rental starts in Vancouver dropped 20 per cent to 2,716 units in 2019.

According to CMHC, the number of purpose-built rental units in the city of Vancouver increased by 743 units in 2019, while the region added a total of 1,464 units. 

Copyright © Western Investor

There are many financial incentives available to homeowners not available to renters

Catherine Musgrove
REW

Sure, renting has its perks, but did you know there are some great financial incentives only available to homeowners? If you currently own or are thinking about buying, make sure you take full advantage of these.

1. Possible Tax Breaks and Benefits are Attractive Incentives

Everyone loves a tax break! Although most tax benefit programs are specific to each province, there is a National Program called the First-Time Home Buyers’ Tax Credit (HBTC). The purpose of the HBTC is to give you back a small portion of the purchase price considering that one of the biggest challenges for first-time home buyers is the down payment. This tax credit can give you a non-refundable $5,000 when you file your tax return the year after you purchase. This translates to roughly $750 extra in your pocket. Great for those new home expenses that may pop up.

Provincially, there are many different tax breaks and benefit programs available across the country. Exclusive to British Columbia, for example, is the First Time Home Buyers’ Program. It exempts first-time home buyers from the property transfer tax by reducing or eliminating the amount of tax paid. There are certain stipulations so make sure you check the qualification criteria

BC has some of the most expensive real estate in the country, and with that comes some of the steepest property taxes. With the Home Owner Grant, you may be eligible to reduce property taxes on an annual basis with the amount of  tax relief dependant on where you live. For example, if you are living in Vancouver you might be eligible for a $570 grant, whereas outside of the Capital Regional District, Greater Vancouver, or the Fraser Valley District, you may be eligible for a grant of $770.

BC also has a tax incentive for home buyers who are not first-time home buyers necessarily but are purchasing a newly built home. The Newly Built Home Exemption helps lower or eliminate the property transfer tax you are required to pay. This exemption applies to newly built homes only and can save you up to $13,000 in tax exemptions. 

Similarly, Ontario offers a refund on all or part of your land transfer tax. But you need to be an eligible first-time home buyer. This program can save you up to $4,000 in taxes. Prince Edward has a program as well with a maximum of $2,000 refund.

2. How Canada Mortgage and Housing Corporation Helps with Home Ownership

Canada Mortgage and Housing Corporation (CMHC) is a Crown Corporation of the Government of Canada. It exists to help make housing affordable to everyone in Canada and has developed several programs to help homeowners and first-time home buyers find more affordable options.

The First-Time Home Buyers Incentive Plan offers five to 10 per cent of the homes’ purchase price to put toward a down payment. These additional funds added to your down payment help lower your mortgage carrying cost.

The Government of Canada, essentially, partners with you in a Shared Equity Mortgage, taking a share of the increase or decrease in your property’s market value. There are specific criteria to qualify. 

3. Home Buyers Plan Helps You Leverage RRSP Investment

Another great Federal Program is the Home Buyer’s Plan (HBP), which allows you to use a $35,000 Registered Retirement Savings Plan (RRSP) withdrawal to put towards your new home purchase. It is specifically designed to assist first-time home buyers in saving funds to purchase a home.

Normally, when you withdraw funds from your RRSP, you’re taxed on those funds. Under the HBP, you can withdraw up to the $35,000 amount in a single calendar year to put towards a down payment of your first home. 

4. GST/HST New Housing Rebate Can Put Money Back in Your Wallet

It’s true! By buying a home you may qualify for a rebate on part of the GST or HST you paid on the purchase or cost of building your new home. In addition, you could save on the cost of substantially renovating or building a major addition onto your existing home, or on converting non-residential property into a house. There are multiple rebates you can claim, and the value of this rebate will vary based on which category your home purchase falls. Your accountant or tax office and point you in the right direction on this one. 

5. Building Equity and Credit Gives Financial Benefits

Beyond the provincial and federal programs available, another key financial benefit to buying a home is to build equity. Not only will you own “more” of your home (a.k.a. equity), you also build a line of credit. This is a significant asset you can use for almost anything. A home equity line of credit (HELOC) is essentially a secured form of credit. The lender uses your home as a guarantee that you’ll pay back the money you borrow. You can borrow money, pay it back, and borrow it again, usually up to a maximum credit limit. 

If you have been renting because home ownership seemed out of reach, look at the requirements to qualify for these programs. You may be surprised at what you can save as a homeowner!

© 2020 REW. A Division of Glacier Media.

New report by Morguard Corp. paints a positive picture for multi-suite residential sectors

Clayton Jarvis
Canadian Real Estate Wealth

Earlier this month, Mississauga, Ontario-based real estate management company Morguard Corporation released its Economic Outlook and Market Fundamentals report. In its exploration of the trends driving Canada’s commercial, industrial, office, retail and multi-suite residential sectors, the report paints a decidedly positive picture of the prospects facing Canada’s non-residential investors.

Heading into 2020, the office and purpose-built multi-family spaces are both expected to reward investors handsomely, as surging demand collides with growing, but still insufficient levels of supply.

The Morguard report expects competition for desirable properties in each category to be intense, with bidding wars pushing prices into uncomfortable, profit-challenging territory. Investors with the means to build either purpose-built apartments or commercial properties that take into consideration the needs of a new generation of office tenants may find themselves better off than those who slug their way through continuous bidding wars.

Office Office leasing market fundamentals continued to strengthen over the course of 2019. At the end of the third quarter, the national vacancy rate for office space was 12.4 percent. (It was only 9.8 percent for downtown properties.) With supply at historical lows and demand hitting new heights in many Canadian cities, the returns on office properties continue to impress. For the year ending June 2019, the national average return for office space was a hearty 7.3 percent. Montreal (9.3), Toronto (9.7) and Vancouver (10.6) all posted above-average rates of return.

“It’s a good time to be a landlord because there’s very little space, especially downtown,” says Keith Reading, Morguard’s director of research. There is plenty of new product coming to market, Reading says, but not enough “to really have a significant impact on what’s already a pretty tight market.”

Much of the pressure being put on the office sector is coming from tech companies and shared workspace providers. “A lot of companies are looking for flexible options in terms of where to locate their employees as opposed to the old-fashioned long-term lease,” Reading says. The growth of these two spaces won’t be slowing any time soon, but to target them properly, investors will need to provide amenities and location in addition to the requisite amount of space.

Investors with their ear to the ground may wonder if a year in which global economic growth is expected to shrink is one where commercial properties make sense as a real estate play. Reading says it is.

“Even with an economy that is in a slow growth period – even if we see just one percent growth in 2020 – that’s still more than enough that conditions will stay pretty similar to what they are over the next year or so.”

Purpose-built apartments Citing CMHC data, the Morguard report says apartment vacancy rates fell in 2019 in Calgary, Edmonton, Montreal, Halifax and Ottawa. As home prices and immigration rates both climb, apartment vacancy rates will continue to fall.

“There aren’t enough rental apartments to go around, pretty much across the country,” says Reading, who adds that approximately 25,000 apartments would be needed to be built annually to keep up with the demand in Toronto alone. Slightly more than 50,000 were brought to market in the entire country in 2019.

The opportunity is clearly there for cash-flush investors willing to take the plunge.

“With the building side, there’s always an element of risk because you’re constructing something and you have to rent it out. But if you look at where vacancy rates are across much of the country, if you’re going to build a new purpose-built rental building it’s going to rent up,” Reading says. “You’re not going to have an issue.”

Reading encourages investors considering the apartment space to take a page from condo developers’ books and design them with the next generation of renter’s sensibilities in mind. Today’s stock of purpose-built apartments is generally boring and anonymous, but that’s primarily because it hasn’t been updated in ages.

“If you look at the last couple of decades, the amount of new construction [of purpose-built apartment properties] has been minimal,” Reading says. “It’s only really picked up in the last year or two.”

Competing against condos, especially in Toronto, Montreal or Vancouver, may seem like a fool’s errand. But as more and more Canadians become renters for life, a growing number of them will come to desire a sturdy, stylish alternative to living cooped up in a tiny glass box.

Copyright © 2020 Key Media Pty Ltd

National rental vacancy rate at 2.2%

Gerv Tacadena
Canadian Real Estate Wealth

The demand for rental apartment units continued to outshine the housing supply in 2019, leading to the third consecutive annual decline in the national vacancy rate to 2.2%, according to the recent figures from the Canada Mortgage and Housing Corporation (CMHC).

The national vacancy rate hit its lowest level for all bedroom types since 2002, said CMHC chief economist Bob Dugan.

“The national vacancy rate for purpose-built rental apartments declined for a third consecutive year in 2019, as strong rental demand continued to outpace growth in supply. Low vacancy rates in major centres underscore the need for increased rental supply to ensure access to affordable housing,” he said.

Rental demand remains elevated in Vancouver and Toronto, with vacancy rates in these markets remaining amongst the lowest in Canada in 2019 at 1.1% and 1.5%, respectively. 

The Montréal Census Metropolitan Area (CMA) vacancy rate reached a 15-year low at 1.5%, driving the national decline. Halifax also reported a dip in its vacancy rate to 1%.

Vacancy rates in most other CMAs remained stable, including the major prairie markets of Calgary (3.9%), Regina (7.8%), and Winnipeg (3.1%).

The drop in vacancy rates resulted in an increase in average rents. A two-bedroom apartment, for instance, witnessed a 3.9% gain in average rent from October 2018 to October 2019.

Toronto reported the highest growth in average rents for a two-bedder unit at 6.1%, followed by Vancouver’s 4.9%, Halifax’s 3.7%, and Montréal’s 3.4%.  The highest rent, however, was recorded in Vancouver at $1.748.

Copyright © 2020 Key Media Pty Ltd

Greater Vancouver housing market shows modest growth

Gerv Tacadena
Canadian Real Estate Wealth

The housing market of Greater Vancouver is projected to witness a modest growth this year after a weak 2019, according to the latest forecast by Royal LePage.

During the fourth quarter of the year, the region showed signs of improvement. The aggregate price of a home in Greater Vancouver decreased by 4.8%, improving from the 5.2% drop recorded during the preceding quarter.

The median price of a standard two-storey home and bungalow in Greater Vancouver declined by 4.7%, while the median value of a condominium unit went down by 3.4%.

The region’s increased sales volume and shrinking inventory are signs pointing to a recovery, said Randy Ryalls, general manager of Royal LePage Sterling Realty.

“We’re likely to see some moderate price growth after last year’s decline in prices. The window of opportunity for buyers to get a deal is closing quickly for most typical buyers. There remain some excellent opportunities in the luxury market,” he said.

Ryalls said the region remains healthy for both buyers and sellers.

“Sellers were able to purchase a new home and then sell their current property in a pretty short window,” he said.

Copyright © 2020 Key Media Pty Ltd

Vancouver ranked world’s second-least affordable housing market-again

Alissa Thibault
other

VANCOUVER — For the second year in a row, Vancouver has ranked as the second-most unaffordable housing market in the world.

That’s according to the 16th annual Demographia International Housing Affordability Survey, which looks at middle-income housing affordability.

Hong Kong topped the list for the tenth year, and Sydney came in third.

What do the numbers means?

Demographia rates middle-income housing affordability using what it calls, the “median multiple,” which is the median house price divided by the median household income. For 2020, Vancouver was given a score of 11.9, indicating the median house price is almost 12 times more than the median household income.

Hong Kong, Vancouver and Sydney are all accustomed to being the top three cities on the list. The last four years have looked like this:

 

2020

Hong Kong 20.8

Vancouver 11.9

Sydney 11

2019

Hong Kong 20.9

Vancouver 12.6

Sydney 11.7

2018

Hong Kong 19.4

Sydney 12.9

Vancouver 12.6

2017

Hong Kong 18.1

Sydney 12.2

Vancouver 11.8

 

For analysis, CTV News spoke with Andy Yan, the director of the city program at Simon Fraser University.

“It reflects, really, the ongoing challenges when it comes to affordable housing in metropolitan Vancouver whether it be rental or home ownership,” he said.

He said it also comes down to incomes and wage growth.

“They’ve grown a little bit but nowhere close to the kind of gains you seen in terms of housing values and increases in rents,” he said.

The provincial government has made legislative changes in an effort to ease the inflated market with the introduction of the foreign buyers’ tax and the empty homes tax.

“They’ve certainly had an effect,” Yan said. “It probably will still take another two or three years more before we’ll see the kind of final effect of these kinds of policies.”

Angie Coppersmith has lived in Vancouver since the 1990s. “I came here in 1997 from Montreal, originally from London, and I found it expensive then,” she told CTV News. “You’re paying for paradise, I guess. One week of winter and look at the rest of the country. I guess it’s a sacrifice.”

That sentiment was echoed by Annabelle Stiven, who’s lived in Vancouver for seven years. “It makes economic sense to move somewhere like Calgary where the housing’s cheaper,” she said. “If I didn’t enjoy living in Vancouver, I would live somewhere else.”

Will Vancouver ever become affordable?

Yan says the generally accepted rating for “affordable” is when house prices are within three to five times that of household income. But for Vancouver to reach that “either the need to double incomes, household incomes, median household incomes, or ensure that housing prices go in half,” he said.

 

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