Garth Turner - Real Estate in Canada

[rb]

We should make that the new Canadian motto. Go to school, work hard, and maybe you'll get to live in squalor.

[Liberty]

http://www.financialpost.com/m/wp/news/fp-street/blog.html?b=business.financialpost.com/news/fp-street/osc-accuses-home-capital-of-misleading-disclosure-after-uncovering-fraud-in-mortgage-broker-channel

[Keemochi]

Haha Vanier, never would've imagined that little corner of the world mentioned on here. One of my best buddy's family owns the Lorenzo's there in Overbrook, if you are familiar Liberty

[Peregrine]

http://www.financialpost.com/m/wp/news/fp-street/blog.html?b=business.financialpost.com/news/fp-street/osc-accuses-home-capital-of-misleading-disclosure-after-uncovering-fraud-in-mortgage-broker-channel

 

Thanks for this Liberty. It's ironic how these problems surfaced as Home was trying to ramp up its insured mortgage business (Accelerator program), which is theoretically supposed to be a higher credit quality business.

[CalvinL]

"there is no particular reason why housing has to be affordable for the average person"

 

I'd add that it's the average local person without foreign connection.

 

http://www.baskinwealth.com/a-contrarian-view-on-canadian-housing/

 

[SafetyinNumbers]

We should make that the new Canadian motto. Go to school, work hard, and maybe you'll get to live in squalor.

 

Rent is still actually pretty cheap. Cap rates are between 2-3%.

 

 

[rb]

"there is no particular reason why housing has to be affordable for the average person"

 

I'd add that it's the average local person without foreign connection.

 

http://www.baskinwealth.com/a-contrarian-view-on-canadian-housing/

Yeah, I've read that. It's such a joke and so bad that I didn't even think it merits a take down.

 

Anyway it was written by a kid barely out of school - nothing wrong with that some of them are totally brill. But the thing reads like an assignment you just bang out while hungover in the morning because you didn't have time to do it the night before cause you were out drinking. Thing guy would get laughed out of any investment committee  meeting.

 

Anyway, I'm surprised Baskin published that. They're actually a semi-decent shop.... Maybe they're slipping.

[EliG]

http://business.financialpost.com/personal-finance/mortgages-real-estate/tax-on-non-canadian-residents-buying-ontario-housing-set-to-be-unveiled-as-early-as-thursday

 

Ontario is poised to announce sweeping measures to deal with its overheated Toronto housing market, with sources close to the situation saying a 15 per cent tax on non-residents buying in the region is at the top of the list.

 

The provincial government is said to be aiming the tax at speculators in the market but it will only apply to foreigners purchasing in the region known as the Greater Golden Horseshoe (GGH), an area of southern Ontario that is home to nine million people.

 

The move, along with several other changes that could be unveiled as soon as Thursday, is aimed at cooling a Greater Toronto Area housing market that saw prices rise 33 per cent in March from a year ago with neighbouring communities reporting massive price increases too.

 

Ben Rabidoux on twitter:

 

https://twitter.com/BenRabidoux/status/854740938408833025

 

"If Toronto rolls out a foreign buyer tax, get long anything in Ottawa and Montreal. #HotPotato"

 

I think he is right. Maybe I should trade my modest Ottawa home for a swanky McMansion before it's too late? Hmmm....

[clutch]

"there is no particular reason why housing has to be affordable for the average person"

 

Rent is still actually pretty cheap. Cap rates are between 2-3%.

 

This makes me think. What if home ownership should not be the norm for most people? If an average person is priced out to buy a house, but can still afford renting, is that really a problem?

[EliG]

We should make that the new Canadian motto. Go to school, work hard, and maybe you'll get to live in squalor.

 

Rent is still actually pretty cheap. Cap rates are between 2-3%.

 

Rent is only cheap compared to insane house prices. It's definitely not cheap compared to income. Average 1 bedroom condo in Toronto rents for $1750 - $1800. That's 21K annually. Median Canadian individual income was 33K in 2014.

[Liberty]

Here we go.

 

Ontario Premier Kathleen Wynne will roll out a 15 per cent “non-resident speculation” tax to help cool down southern Ontario’s real estate market.

 

"A key plank in that would be the 15 per cent surcharge on offshore speculators, who are estimated to make up just 5 per cent of the current market."

 

"Among more than a dozen measures in the government’s housing affordability plan will be some kind of clampdown on domestic housing speculators — though they will not face a 15 per cent tax."

 

"Also, there will be an expansion of rent controls to all buildings. Currently, only those built before 1991 are protected from massive increases.

 

Under the amendment developed by Ballard, rent hikes on all newer units would be limited to the inflation rate, which was at 2 per cent in February."

 

https://www.thestar.com/news/queenspark/2017/04/20/wynne-to-slap-15-per-cent-tax-on-foreign-real-estate-speculators.html

[KCLarkin]

Yeah, I've read that. It's such a joke and so bad that I didn't even think it merits a take down.

 

I thought the analysis of Cap Rate spreads was interesting. Do you see any flaws in that approach?

[alpha]

Here we go.

 

Ontario Premier Kathleen Wynne will roll out a 15 per cent “non-resident speculation” tax to help cool down southern Ontario’s real estate market.

 

"A key plank in that would be the 15 per cent surcharge on offshore speculators, who are estimated to make up just 5 per cent of the current market."

 

"Among more than a dozen measures in the government’s housing affordability plan will be some kind of clampdown on domestic housing speculators — though they will not face a 15 per cent tax."

 

"Also, there will be an expansion of rent controls to all buildings. Currently, only those built before 1991 are protected from massive increases.

 

Under the amendment developed by Ballard, rent hikes on all newer units would be limited to the inflation rate, which was at 2 per cent in February."

 

https://www.thestar.com/news/queenspark/2017/04/20/wynne-to-slap-15-per-cent-tax-on-foreign-real-estate-speculators.html

 

They just announced a long list of exceptions to the foreign buyer tax e.g. it does not apply to: international students, refugees, people applying for PR, non-citizens employed in Ontario, etc...

 

It seems like these taxes/policies will be easy to avoid. My understanding is that the Chinese "investors" already use a bridgehead strategy where they get Chinese immigrants with full citizenship to act as buyers for pools of investors from china. Using this strategy would already satisfy the new requirements I have seen proposed this morning.

[Liberty]

I'm more interested in how these things affect market psychology. When things are disconnected from fundamentals, changes in fundamentals don't matter that much. If people start believing that maybe RE doesn't always go up, things can get really interesting.

[EliG]

They just announced a long list of exceptions to the foreign buyer tax e.g. it does not apply to: international students, refugees, people applying for PR, non-citizens employed in Ontario, etc...

 

It seems like these taxes/policies will be easy to avoid.

 

Yes. It's just a dogs and ponies show before the election.

[gurpaul88]

 

They just announced a long list of exceptions to the foreign buyer tax e.g. it does not apply to: international students, refugees, people applying for PR, non-citizens employed in Ontario, etc...

 

It seems like these taxes/policies will be easy to avoid. My understanding is that the Chinese "investors" already use a bridgehead strategy where they get Chinese immigrants with full citizenship to act as buyers for pools of investors from china. Using this strategy would already satisfy the new requirements I have seen proposed this morning.

 

+1

 

 

[rb]

 

They just announced a long list of exceptions to the foreign buyer tax e.g. it does not apply to: international students, refugees, people applying for PR, non-citizens employed in Ontario, etc...

 

It seems like these taxes/policies will be easy to avoid. My understanding is that the Chinese "investors" already use a bridgehead strategy where they get Chinese immigrants with full citizenship to act as buyers for pools of investors from china. Using this strategy would already satisfy the new requirements I have seen proposed this morning.

 

+1

I'm not so sure. I thought the same thing when they announced the Vancouver tax but Vancouver seems to have calmed down some since then.

[clutch]

 

They just announced a long list of exceptions to the foreign buyer tax e.g. it does not apply to: international students, refugees, people applying for PR, non-citizens employed in Ontario, etc...

 

It seems like these taxes/policies will be easy to avoid. My understanding is that the Chinese "investors" already use a bridgehead strategy where they get Chinese immigrants with full citizenship to act as buyers for pools of investors from china. Using this strategy would already satisfy the new requirements I have seen proposed this morning.

 

+1

I'm not so sure. I thought the same thing when they announced the Vancouver tax but Vancouver seems to have calmed down some since then.

 

Impact of B.C.'s foreign buyer tax wanes as March sales surge almost 50 per cent

 

http://vancouversun.com/business/local-business/impact-of-b-c-s-foreign-buyer-tax-wanes-as-march-sales-surge-almost-50-per-cent

[EliG]

It's "funny" they found it necessary to give international students an exemption. This is in a market where even upper middle class Canadians are priced out. What a travesty.

[EliG]

http://business.financialpost.com/personal-finance/mortgages-real-estate/ontario-slaps-15-tax-on-foreign-buyers-expands-rent-control-in-16-point-plan-to-cool-housing

 

The tax will have exemptions for skilled workers in the Ontario worker nominee program and refugees will be exempt. Anyone obtaining a permanent residency or Canadian citizenship within four years of purchasing their home would receive a full rebate of the NRST. Any international student enrolled full-time for at least two years would receive a full rebate. If you’ve worked in Ontario from the date of purchase of your home, you also get a full rebate.

 

The last one seems like a big loophole. Register an Ontario corp and hire yourself or/and spouse. Voila, you get a full rebate. What am I missing?

[rb]

Yeah, I've read that. It's such a joke and so bad that I didn't even think it merits a take down.

 

I thought the analysis of Cap Rate spreads was interesting. Do you see any flaws in that approach?

I don't think that looking at cap rates spreads to 10 yr bond is bad as a data point. But I do think that his data is crap. One of his sources is globalproperty guide.com... please. Then he bounces between GTA cap rates and condo cap rates. Then on the spread graph he uses a nation average cap rate. Just a back of the envelope cal will tell you that the Toronto cap rates between 3-5% is bullshit. There have been way better studies that put the Toronto cap rate around 2%. Then he has the national cap rate at 6%. Since Toronto is at 2%, Vancouver isn't better, you must have some crazy cap rates in the rest of Canada to pull the average to 6%. That's just not true... so i call bullshit on that too.

 

Add to the fact that he talks about Toronto as a global city comparing it to New York, London, and Tokyo as a reason for why housing should be unaffordable but leaves out the fact that both New York and Tokyo are more affordable than Toronto and not by just a bit.

 

In addition his Demographia numbers are wrong. I don't know if he fudged them or used an outdated report. All these things add up to the fact that the numbers in that report are seriously unreliable. The author is either bullshitting or he's incompetent. In the end it doesn't matter the value of that report is the same.

[TBW]

I think Liberty's point above was the right one on these announcements.  This tax does not need to be effective it just needs to change the psychology.

 

Housing bubbles need 2 things, cheap/easy to access credit and psychology (typically due to some narrative, houses only go up, supply, foreigners etc.).

 

Credit is being restricted by the big 6, everyone I talk to it's harder to get a mortgage from them.  The next providers were the HCG's/EQB's of the world that sourced from the Broker network.  HCG announcement should mean that credit availability will be much more scrutinized and brokers more wary to cheat.  So credit is availability is shrinking quickly.

 

The last thing is the psychology, this seems to be cracking (just from hearing what the average person is saying, newspaper headlines, comment sections etc), so if a new tax can kill the narrative for the last buyers this thing ends soon.

 

My view and portfolio position is that this is over.

 

 

[physdude]

I think it is really important who the marginal buyer is. If the marginal buyer is from HK or China, they have the advantage of a currency that has appreciated significantly against the CAD in the last 3-4 years as well as much higher local prices to use as the benchmark. For them, Toronto probably still looks cheap on a relative basis. OTOH, if the marginal buyer is a Canadian (not just in respect of nationality or permanent residence but with respect to closest economic connections), the price is clearly out of whack. We might have an interesting transition if and when the marginal buyer's identity shifts for any reason.

 

(For reference, a nominally 1000 sq ft condo in the outskirts of HK (real floor area by normal measures being about 800 sq ft) retails for about C$1.5 million at this point and a similar one in a more central area could easily be C$2.5 million or more. But HK has very limited land availability so it is not really a fair comparison.)

[TorontoRaptorsFan]

Until interest rates climb it will be status quo.

 

 

[physdude]

Until interest rates climb it will be status quo.

 

Or until the Chinese real estate bubble pops!  ;D (HK real estate prices only recently crossed their 1997 bubble peak and have been on a tear since)