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Archive for September, 2019

“Beds and sheds” will be the best bets for 2020

The year ahead is set to be a broadly positive one for the Canadian real estate industry but there is some concern about government policy changes, housing affordability and technology disruption.

A new report from PwC Canada and the Urban Land Institute shows that developers, investors, lenders and other leading experts are cautiously optimistic about 2020.

They see the best bets for next year in so-called “beds and sheds” – mid-priced apartments, transit-orientated development, and warehousing and fulfillment centres.

For the residential sector, respondents noted the rise of alternative lenders in response to the mortgage stress test, leading to higher risk for both the market and consumers.

"There is a better way to achieve a responsible use of land that addresses affordability concerns, and it's not from current attempts, like the stress test, to temper demand," says Richard Joy, Executive Director, Urban Land Institute (ULI) Toronto. "We need innovative solutions for supply constraints and city building issues. I expect the real estate industry will be waiting to see how future developments will be impacted after Canadians go to the polls in October."

Supply concerns
Respondents are also concerned about supply for the residential sector and cited construction costs and the approval process among the issues for 2020. They want government to do more.

"Governments must recognize that increased supply can help address the affordability issue and be willing to embrace innovative ways of unlocking a supply-constrained market," says Frank Magliocco, National Real Estate Leader, PwC Canada. 

For the commercial sector, the shift in both working and shopping trends are changing real estate requirements but there is opportunity among the disruption.

"The rise of e-commerce doesn't necessarily mean the end of the brick-and-mortar presence, and in fact retail remains an important solution to last-mile delivery," adds Magliocco. As online shopping continues to grow in Canada, the need for dedicated space for deliveries, including cold storage for food deliveries, is an emerging trend in the multifamily residential sector.

Overall, the top five markets to watch in 2020 are: Vancouver, Toronto, Montreal, Ottawa and Halifax.

Proptech investment record
The report forecasts that investment in property technology – including that which is focused on lending and construction – will soar to a record high of $6.3 billion by the end of 2019.

"Digitization, including the rising use of the Internet of Things-enabled sensors in buildings has created an added layer of vulnerability for many real estate players," adds Magliocco.

by Steve Randall

Sept 20, 2019

https://repmag.ca

 

 


National home price index posts another below-average gain

Up to a million Canadians would struggle to cope with a 1 per cent rise in interest rates with 700,000 at risk from even a 0.25 per cent rise

A leading measure of Canadian home prices posted a gain in August but reflected the weakness in some key markets.

The Teranet-National Bank National Composite House Price Index was up 0.4% compared to the previous month, continuing the trend of gains below the 21-year average for each month in the last three (which is 0.7% for August).

However, had the index been seasonally adjusted, it would have seen a slight increase, reversing a trend seen in the previous three months and suggesting an end to an underlying downtrend after correction.

The overall index reading of 227.51 means a 0.6% gain year-over-year, which is small but significant as the first acceleration in 9 months.

Vancouver posted a 13th month without an increase in its HPI with a 0.8% drop in August. Edmonton (−0.1%) and Quebec City (−0.4%) also posted declines, the latter reversing after three monthly gains.

On a positive note, home sales in August were up 55% from March in Vancouver, where market conditions went from “favorable to buyers” to “balanced” (right chart). Over that period, home sales rose 19% in Calgary and 12% in Edmonton. These improvements, if sustained, will sooner or later help limit home-price deflation in this region.

There were HPI gains for Victoria 0.2%, Calgary 0.6%, Hamilton 0.7%, Winnipeg 0.7%, Toronto 0.8%, Montreal 1.1%, Ottawa-Gatineau 1.7% and Halifax 1.8%.

by Steve Randall

20 Sep 2019

https://repmag.ca


How to protect homes in the event of divorce

As the cost of living soars, more couples are cohabitating, even getting married sooner. But, as Statistics Canada showed, there were 2.64 million divorced people living in Canada last year, and when you throw a family gift into the mix, things get hairy.

“Family gifts are a very complicated area of the law and there are two different ways of looking at it,” said Nathalie Boutet of Boutet Family Law & Mediation. “A gift received before marriage is treated as a pre-marriage asset. There’s a huge exception if that gift is the matrimonial home.”

In other words, pre-marital exclusions don’t apply to matrimonial homes—the reason for which is to rectify a historical transgression that saw women spend most of their time in the matrimonial home but have their name excluded from title, effectively leaving them no recourse upon divorce. 

“Parents who want to give money to their child need to understand before marriage that if it goes into a matrimonial home, they end up sharing that with their spouse if there’s a separation,” said Boutet. “If the parents have a condo and they give it to their child who gets married, that becomes equal sharing with the spouse. A parent should understand that first and have a conversation with their child. Sometimes when a person owns a house, they ask the person to sign a marriage agreement as a way to get themselves out of that mess should it ever occur.”

Even if parents retain ownership of a home wherein a child who gets married lives, their spouse is entitled to it because the law recognizes it as equal sharing. Boutet recommends that in-laws-to-be have the dreaded conversation about signing an agreement that will protect them from relinquishing their asset in the even their child gets divorced.

“I often get called in when parents still own a home and let someone go live in it,” said Boutet. “Sometimes, for planning, have them sign a prenup, or a cohabitation agreement if they’re not going to get married. At the time they begin living together, sign the agreement in case they separate.”

Another interesting scenario divorced couples and their in-laws sometimes find themselves in pertains to cottage ownership. What happens if the couple is married for a period of time during which the cottage was renovated with contributions from the outgoing spouse?

“I have a case right now where the parents own a cottage and the family has been using it for upwards of 30 years, but their child is getting divorced and his wife wants to know what her rights are to recoup renovations,” said Boutet. “The husband’s parents had been very well-advised by their own lawyers and, because they paid for all the materials, the wife could not pinpoint any specific expense she paid out of her own pocket. It was determined that she had done a little here and there, and it offsets the cost of free accommodations she’s had over all the years—she didn’t pay for the land, heating, repairs, things of that nature. So she was entitled to nothing.”

By Neil Sharma

September 18, 2019

https://repmag.ca


Taxes on foreign owners might not be enough to moderate markets

New foreigner-targeted taxes proposed by the Liberal party will not likely help the housing market, industry observers warned.Barclays Capital analyst John Aiken stated that any such levy will be just an “incremental factor” that will reduce demand only slightly.

“Realistically, the inelasticity in demand that these type of buyers have, I’m not sure if this is going to have an overly material impact on pricing or the housing market,” Aiken told the Financial Post.

The remarks came in the wake of a new campaign promise by the Liberal party, which vowed that it will “address the impact of foreign speculation, which drives up housing costs” upon re-election.

A 1% speculation and vacancy tax will be slapped on residential properties with “non-resident, non-Canadian” owners – on top of already existing levies in markets like Ontario and British Columbia, where a 2% foreign ownership tax is in place.

Bank of Montreal chief economist Doug Porter cautioned that the proposal will likely not prevent the national housing market’s return to its previous red-hot state.

“I don’t rule out that it could have an impact on cities other than Vancouver and Toronto, but I think they’re much less influenced by non-resident purchases,” Porter said. “And what’s driven the housing market has largely been healthy job gains, strong population growth and, yes, a pullback in long-term mortgage rates this year.”

However, Porter added that any such measure will be a powerful message to unscrupulous wealthy foreigners taking advantage of current conditions.

“In a world where, especially in the big cities, housing affordability is such an issue, I don’t really think we can afford to allow any forms of speculation, especially from outside of the country, to be influencing the market.”

by Ephraim Vecina

18 Sep 2019

https://repmag.ca


How to protect homes in the event of divorce

As the cost of living soars, more couples are cohabitating, even getting married sooner. But, as Statistics Canada showed, there were 2.64 million divorced people living in Canada last year, and when you throw a family gift into the mix, things get hairy.

“Family gifts are a very complicated area of the law and there are two different ways of looking at it,” said Nathalie Boutet of Boutet Family Law & Mediation. “A gift received before marriage is treated as a pre-marriage asset. There’s a huge exception if that gift is the matrimonial home.”

In other words, pre-marital exclusions don’t apply to matrimonial homes—the reason for which is to rectify a historical transgression that saw women spend most of their time in the matrimonial home but have their name excluded from title, effectively leaving them no recourse upon divorce. 

“Parents who want to give money to their child need to understand before marriage that if it goes into a matrimonial home, they end up sharing that with their spouse if there’s a separation,” said Boutet. “If the parents have a condo and they give it to their child who gets married, that becomes equal sharing with the spouse. A parent should understand that first and have a conversation with their child. Sometimes when a person owns a house, they ask the person to sign a marriage agreement as a way to get themselves out of that mess should it ever occur.”

Even if parents retain ownership of a home wherein a child who gets married lives, their spouse is entitled to it because the law recognizes it as equal sharing. Boutet recommends that in-laws-to-be have the dreaded conversation about signing an agreement that will protect them from relinquishing their asset in the even their child gets divorced.

“I often get called in when parents still own a home and let someone go live in it,” said Boutet. “Sometimes, for planning, have them sign a prenup, or a cohabitation agreement if they’re not going to get married. At the time they begin living together, sign the agreement in case they separate.”

Another interesting scenario divorced couples and their in-laws sometimes find themselves in pertains to cottage ownership. What happens if the couple is married for a period of time during which the cottage was renovated with contributions from the outgoing spouse?

“I have a case right now where the parents own a cottage and the family has been using it for upwards of 30 years, but their child is getting divorced and his wife wants to know what her rights are to recoup renovations,” said Boutet. “The husband’s parents had been very well-advised by their own lawyers and, because they paid for all the materials, the wife could not pinpoint any specific expense she paid out of her own pocket. It was determined that she had done a little here and there, and it offsets the cost of free accommodations she’s had over all the years—she didn’t pay for the land, heating, repairs, things of that nature. So she was entitled to nothing.”

by Neil Sharma 

September 18, 2019

https://repmag.ca

 

 


There’s nothing like having your property burn to the ground…

Bob Aaron can tell you all about it personally!

Three years ago, my business partners Ben and Jill, and my wife Dorothy and I, purchased a $230,000 triplex in a small Ontario town. We had good tenants, a local property manager and rents that secured a positive cash flow.

Before closing, I called my insurance agent, Dayle Semple at FCA Insurance Brokers, and asked him to find the best insurance available. He recommended we get replacement cost coverage with a stated value of $493,000, plus rental loss.

Meanwhile, my business partner Ben told me he had a great quote on a much cheaper insurance policy which would keep our operating costs down. In the end, we opted for the high-end commercial multi-peril insurance policy.

As a lawyer, I always advise my clients to get the best insurance coverage possible. And I followed my own advice. There are four different residential policy types available to homeowners:

  • A no-frills policy offers basic coverage for policies which may not meet normal underwriting requirements.
  • A standard, basic, or “named perils” policy insures a house only for the risks specifically detailed in the policy, but with some exclusions.
  • A broad form policy insures a house for all risks of direct physical loss or damage, unless the loss (such as earthquake) is specifically excluded from the policy. It insures the contents only for the named risks. If the damage is not caused by something named in the policy, there is no coverage.
  • A special or comprehensive policy covers the dwelling and contents for what is called all-risks of direct physical loss or damage except for specific exclusions.

Some insurance policies may have different names, using terms such as bronze, silver, gold or platinum. It’s best to ask about the differences when arranging coverage.

I also recommend liability coverage of at least $2 million, and rental loss insurance for income properties.

It’s important to insure a home for an amount equal to what it will cost to rebuild it, using materials of the same quality. This is called the replacement value and is totally independent from market value and assessed value.

Many mortgage lenders insist that policies include coverage for guaranteed replacement cost covering the dwelling for whatever amount is necessary to replace the building — regardless of the amount on the policy.

Back to our rental property. This past May, Ben phoned me and pointed me to a YouTube feed of our property on fire, posted by a neighbour who was filming the valiant efforts of the firefighters.

I was shocked when the insurance adjuster obtained two competitive rebuild quotes exceeding $460,000, plus site clearance and rental loss replacement. All this on a property which we had purchased in 2016 for $230,000. It turns out that the $493,000 coverage in our commercial policy and $25,000 for cleanup will be almost exactly the amount of the claim.

If we had purchased the cheap policy, the fire would have been a financial disaster. Ben now believes in the best coverage possible.

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.


The current lending environment is impelling more consumer fraud

Excessively restrictive qualification rules are forcing a growing number of Canadian millennials to commit mortgage fraud, according to a new Equifax analysis.

“People might see themselves as a responsible borrower, they may feel lender guidelines are too strict, that they would be fine carrying a higher amount of debt,” Equifax Canada director of consumer advocacy Julie Kuzmic told HuffPost Canada in an interview.

The survey found that around 23% of Canada’s young adults consider it acceptable to lie during their mortgage applications, which was nearly twice the rate observed among all other respondents (12%).

Moreover, 19% of millennials said that they provided false information in a previous application, compared to the 12% rate in the rest of the population.

Inflamed competition among would-be buyers, especially in high-value markets, is another source of pressure for millennials.

“People are concerned they might miss out, and if they don’t qualify for the home they’re hoping for, they may never be able to buy a home,” Kuzmic explained.

Alarmingly, among many millennials, getting a home, period, seems to be more important than doing so legally. As much as 23% of the cohort indicated a belief that mortgage fraud is a “victimless crime,” compared to the 16% rate in the general population.

“It’s concerning that so many younger adults we surveyed believe it’s OK to inflate their income to purchase the home they want,” Kuzmic stated.

“Fudging income numbers when completing a mortgage application is fraud. It also becomes a slippery slope for these people who may end up stretching themselves too thin.”

 

by Ephraim Vecina

11 Sep 2019

https://repmag.ca