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“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


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

https://repmag.ca


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

https://repmag.ca

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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

https://repmag.ca


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