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Archive for August, 2019

Royal LePage reveals Canada’s most affordable markets

A Royal LePage report on Canadian condo prices by the square foot reveals Montreal and Ottawa remain among the country’s most attractive real estate markets.

“We’ve seen a continuous slowing in the rate of appreciation. Prices have continued to rise in Montreal, but right through 2019 we’ve seen the rate at which prices are going up begin to slow,” Phil Soper, Royal LePage’s president and CEO, told REP. “Pent up opportunity that existed in Montreal has been taken advantage of, and as a city it sat on the sidelines for a good six years while the other big cities in the country had expanding real estate markets. It didn’t get in on the party until the latter half of this decade.”

According to the Royal LePage report, the median price per square foot for a Montreal condo through the first seven months of the year rose 7.9% year-over-year to $433. The price per square foot of a single-family detached home in Montreal increased 6.9% during that same span to reach $313. The aggregate price per square foot in Montreal proper and the Greater Montreal Area jumped 8.3% and 5.9% to $357 and $286, respectively.

In Ottawa, the median price per square foot of a condo surged a whopping 17.9% year-over-year to $395, while the median price per square foot of a single-family Ottawa home increased 8.5% to reach $265.

“Ottawa, for the most part, missed the market correction driven by the B-20 regulations, so they slowed but they never backed up the way Toronto and Vancouver did, and I think the base reasons are affordability—people found they could continue meeting the new stress test regulations given the lower entry price of property,” continued Soper.

“It’s a goldilocks market that doesn’t have the peaks and valleys you see in bigger cities, so there was no overshooting of price like there was in Toronto and Vancouver between 2014 and 2016.”

Through the end of July, Greater Vancouver condos saw the steepest year-over-year decline of any major Canadian market, as the price per square foot fell 8.3% to $764. In the City of Vancouver, the median price per square foot also fell, but only 6.3% to a still-exorbitant $1,044.

“The Vancouver issue was a perfect storm of regulatory intervention, meaning municipal, provincial and federal regulations were all raining down on an already twitching market,” said Soper. “It weighed heavily on consumers, developers and foreign investors. Everybody was pushed to the sidelines. It’s the most expensive market, which saw the highest appreciation in the run up to the middle of the decade.”

British Columbia is an interesting case study, added Soper. Economic prospects are auspicious with low unemployment and high business investment relative to GDP percentage—Soper points to the money flowing into LNG development in Kitimat, as an example. However, the homeownership rate in Vancouver is the lowest in Canada.

“It’s affordability-driven. It’s still much higher than in cities like San Francisco and New York, but low by Canadian standards. It’s an expensive city to live in; it has really expensive real property. The place is improving with development of new commercial and residential projects.”

by Neil Sharma

28 Aug 2019

Ontarians say they’re taxed to the hilt

A new research report commissioned by the Ontario Real Estate Association reveals the overwhelming majority of Ontarians feel overtaxed.

The report, Public Perceptions Regarding Municipal Government Programs, administered by Navigator, reveals that 70% of respondents believe governments should spend money more wisely before hitting them with yet more levies, including a land transfer tax.

“Taxpayers are rightly saying taxes are high enough as it is and they work hard, yet give almost half or more of their money to various levels of government through their taxes,” said OREA CEO Tim Hudak. “The last thing we need is a new tax when you purchase a home.”

In addition to a provincial land transfer tax, Toronto residents pay a municipal LTT as well, and Hudak charges that government are addicted to this revenue stream—as evidenced by discussions to expand the LTT at a recent Associations of Municipalities of Ontario conference.

Moreover, citing a C.D. Howe Institute report from May 2018, Hudak says that red tape and levies in the form of rezoning and development charges have ballooned the cost of single-detached housing in Toronto by more than $70,000, over $100,000 in Hamilton, and almost $125,000 in York Region.

“Those costs are up to $100,000 in York Region before the shovel even hits the ground,” said Hudak. “Ontario realtors invited taxpayers into the conversation because they pay the bills and they overwhelmingly said no to higher and new taxes. They want municipal governments to spend more efficiently and smarter.”

The president of the Residential Construction Council of Ontario says that municipal governments should invest in innovation rather rely solely on tax revenues. As an example, he points to Windsor, where the municipal government implemented e-permitting as a cost-cutting measure.

“There’s been exponential growth in development charges and other costs, which have caused the cost of housing to go through the roof,” said Richard Lyall. “You throw a land transfer tax on top of that—homeowners are already struggling with costs—and it’s way too much. The average tax on single-family low-rise product in the GTA is about $240,000 and on a condo it’s $160,000.”

Don’t expect talk of land transfer taxes to disappear simply because the people have spoken, added Lyall.

“The land transfer tax is more stable than development charges because if new construction in a market stalls and falters, so does the revenue source, but land transfer taxes concern existing buildings and the government can easily access that money. However, people already pay property taxes, so why should they pay an additional municipal land transfer tax? It has negative consequences for people trying to sell and move.”

by Neil Sharma

21 Aug 2019







































































































































































































































































































































































































































































































































How to avoid a capital gains tax on your cottage

There are few things more Canadian than a weekend at the cottage, but given the leisure property’s appreciation potential, shielding it from capital gains taxes is imperative.

According to John Natale, head of tax, retirement and estate planning services at Manulife, a cottage could be taxed on its appreciation in the event of the owner’s death. If unplanned for, the estate could then be forced to sell it.

“Hopefully the cottage appreciates in value, but, unfortunately, that means 50% of that gain will be taxable just like any other capital gain,” said Natale. “To get around it, assuming you qualify—and most people would, assuming renting is only ancillary to the real purpose of enjoying the cottage—you could qualify under the principal residence exemption if you designate the cottage as a principal residence.

If the capital gains tax is unavoidable, there are ways to mitigate the cost. Cottage owners should keep record of their cost bases, which are to be maximized much as possible, added Natale. For example, if a renovation is made—for example, adding a dock or building a deck—those upgrades increase the cost base, thereby reducing the capital gains.

Still, planning ahead is always advisable. Should the cottage’s owner transfer it to their children before passing away, the tax liability gets capped and any future capital gains become the children’s responsibility.

“Consider transferring the cottage to the next generation now, as opposed to waiting to pass away,” said Natale. “The benefits to doing that are manifold: You, as parents, have captured capital gains now going forward when it’s sold, so when the cottage is transferred to the next generation, any future growth is taxable to them, so you’ve capped your tax liability.”

If the owner receives a promissory note and payment doesn’t exceed a fifth per annum, the capital gain can be spread over five years, meaning only 20% needs to be reported a year.

“You might actually save tax overall because of how graduated tax rates work,” said Natale. “Because you report 20% capital gain each year, it may allow you to stay in a lower tax bracket whereas if you record 100% of capital gain in one year that could bump you into the top tax bracket and in a province like Ontario you’d pay 53.5% tax on taxable capital gains in the top bracket.”

Life insurance is another way to fund the tax liability.

“You can start a savings fund if you want to match the potential tax liability, or, unfortunately, you may have to pass the tax liability onto the estate when you pass away, which may be treacherous, because if the estate doesn’t have the funds it may be forced to the sell the cottage, or one of the beneficiaries may have to step up to fund the tax liability themselves.”

02 Aug 2019

by Neil Sharma

Will the “More Homes, More Choice” Act solve Ontario’s supply gap?

At an affordable housing roundtable in Brockville this week, an Ontario government official addressed the housing supply shortage affecting the province by drawing attention to a key reversal measure.

“Through the More Homes, More Choice Act, our government has acted quickly to address the housing crisis we inherited,” said Minister of Municipal Affairs and Housing Steve Clark. “As Minister, I’m committed to continuing to work with all partners to increase housing supply and to give people more housing options, while bringing prices down.”

Talk at the roundtable sounded much like discussions in the rest of the province, especially southern Ontario. The roundtable, organized by the Ontario Real Estate Association, focused on the More Homes, More Choice Act’s intended outcomes.

Matthew Thornton, OREA’s vice president of public affairs & communications, says red tape is to blame for the difficulty in bringing housing to market commensurately with demand.

“The supply challenges in the eastern region of Ontario are largely driven by red tape constraints around development, which are needless,” he said. “There are barriers to getting shovels in the ground and getting more homes built for people. What the government is trying to do, as part of the legislation it moved forward with More Homes, More Choice Act, is reduce those barriers so that developers can build more housing and more housing types for more people. Over time, that will help with some of the affordability challenges people are experiencing.”

Thornton fervently believes the time is nigh to explore, and encourage development of, different housing types because not everybody gravitates towards entry-level homeownership and, moreover, one weak link in the chain impedes mobility throughout the rest of the housing market.

“More Homes, More Choice tackles things like building more secondary suites and streamlining the rules about how secondary suites are regulated,” he said. “Secondary suites are a great housing option, an infill housing option, that a lot of renters—be they students or young people using it as a transition property to get into the market, or even seniors—can use to bring down their costs.”

The provincial real estate association has long advocated for easier entry into the market for first-time buyers, and with homeownership rates on the decline, Thornton says immediate action is imperative.

“There’s real urgency about this issue, and what the roundtable was intended to do—and to give credit to the Minster and the government on this—is find meaningful solutions to tackle this problem in a meaningful way,” he said. “It’s a province-wide problem; in a lot of markets, young families struggle with affordability and being able to achieve the Canadian dream of homeownership.”

by Neil Sharma

02 Aug 2019


Commentary: Emulating a foreign housing model may help Canada

To help solve the long-running affordability problem, Canada might consider following the example of European nations, where the private sector plays a large part in the creation of new purpose-built rentals.

Earlier this week, veteran market observers Murtaza Haider and Stephen Moranis stated that the practices in territories where renting is more common may provide Canada with some effective solutions.

In particular, Germany had to wrestle with the loss of fully 20% of its housing stock during World War II, a volume corresponding to roughly 2.25 million homes. Another 2.5 million residences have been damaged by the frenzied fighting.

“What is worthy of learning from the German experience in housing is not just the outcome of lower homeownership, but the mechanisms introduced by the German government to address housing shortages,” the duo explained. “Contrary to what the supply skeptics in Canada believe, the German government dealt with the housing crisis by building more housing.”

To resolve this quandary, the leaders of the time urged private entities to work with the government in building millions of new homes.

“The German government encouraged the private sector to build and maintain social housing by offering extensive tax incentives in return for keeping rents at affordable levels for 15 to 30 years.”

“The supply-side solutions worked. By 1962, the housing shortfall was down to 658,000 units,” paving the way for the enduring institution of subsidized assisted housing in Germany.

On the other hand, purpose-built rental construction in Canada has significantly waned over the past few decades. This slowdown has mainly stemmed from a lack of profitability brought about by changes in capital gains tax and rent control regulations.

“If the German housing model is to be emulated in Canada, the private sector must be incentivized to produce new purpose-built rentals and reverse the decline in rental construction. Germany was able to build millions of rental units by partnering with, and incentivizing, the private sector — not the other way around.”


by Ephraim Vecina 

09 Aug 2019