Vacancy tax is pointless, say Vancouver sales agents

Empty abodes in Vancouver will be slapped with a vacancy tax, that one sales agent says amounts to little more than a slap on the wrist.

While the hope is that the tax could free up as many as 25,000 empty units for rent in a city suffering from a rental supply shortage, the 1% vacancy tax likely won’t dissuade owners willing to forgo rental revenue, says Marilou J. Appleby of Dexter Associates Realty.

Homeowners must declare their property’s status annually, however, properties for which no declaration is filed by February 2 will be considered vacant and, in addition to being subjected to the tax, will be fined $250.
An amount Appleby believes is palty.

Moreover, she says it’s affecting Vancouverites who spend part of the year away and don’t want to rent their homes out to strangers.

“Owners are not thrilled about it,” said Appleby. “A lot of people in Vancouver spend winters down south and they have to have their places rented. In my opinion, it’s not going to solve any problems. Really, who it will hurt again are Vancouverites who are living a very normal life, who want to have the opportunity to spend winter in a warmer climate.

“I live in downtown Vancouver and people talk about dark buildings, but I don’t see that. There’s a very vibrant downtown community.”

She also said that if a homeowner can afford to leave the place vacant, taxing them 1% practically amounts to asking them for their pocket change.

“One percent could be substantial to some people, but if you’re allowing your place to stay vacant then you’re losing revenue anyway, so what’s 1%?” she said. “That’s why it’s a useless tax.”

Mahmoud Ahmed, managing broker of Nu Stream Realty, agrees with Appleby.

“The vacancy tax won’t do anything,” he said. “There’s a lot of money in the city, so 1% won’t make a lot of difference. If they don’t need the rent, that’s why it’s sitting empty anyway. It’s not going to be the solution for affordable housing.

“Most homes that are vacant are not entry-level homes, they’re mansions. It won’t make an impact on the rental market because most people don’t have $10,000 a month to spend on rent.”

As for how the tax will affect the market, Ahmed says it’s far too early to tell. But he says the 15% foreign buyer tax only managed to cool down the market temporarily, therefore, a 1% tax probably won’t even make a dent.

“Fifteen percent is a big hit, but 1% won’t do damage,” he said.

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Report highlights next year’s real estate trends

Housing affordability continues to dominate the conversation in the Greater Toronto Area’s housing market. A new report released by the Urban Land Institute in conjunction with PwC, called Emerging Trends in Real Estate described governmental regulation as likely to exacerbate the affordability problem.

The laws of supply and demand lie at the heart of surging housing prices. Not only are single-family detached homes in high demand and low supply, but the condo market, too, is beginning to see signs of strain, as priced-out buyers realize they have no other choice to settle for skyward balconies over backyards.

The foreign buyer tax cooled the Vancouver and Toronto markets, where prices grew astronomically, but the report makes mention of suspicious players within the real estate industry, one of whom believes growth will continue with or without the tax because of natural growth. The report also noted that prices cooled temporally before rebounding and pushing condo prices upwards.

Those interviewed by the report parroted the need for government to stay out of the market, except to address the need for increased supply. It’s unanimously believed that the approvals process is one reason supply isn’t keeping up with demand.

Affordability will catalyze a growing trend: co-living. As the number of single people among the millennial cohort in expensive markets like, Toronto and Vancouver, continue rising, they’ll live with roommates out of necessity. While some may live alone, affordability will compel them forego ownership and rent. One in three young adults in Canada lives with at least one parent, and as others marry and look to start families during an inventory shortage, they’ll settle for living in condominiums. According to the most recent Census data, 6.3% of Canadians live in multigenerational households – a number that’s likely to rise.

The ’18-hour city’ is a burgeoning secondary market. Where NYC, London, Tokyo, and now Toronto, are 24-hour cities, the high cost has resulted in an exodus to smaller cities, like Austin, TX, Raleigh, N.C., Nashville, TN, which have grown in vibrancy. Montreal, Vancouver and Calgary are considered 18-hour cities and will continue staking their claim as emergent centres. Previous versions of Emerging Trends in Real Estate anointed Hamilton an emerging 18-hour city, and that’s likely to continue as affordability drives people further from the Toronto core.

Transit infrastructure is integral to attained 18-hour city status, and Hamilton is planning a downtown LRT.

The only condo growth associated with condos in recent years has been their popularity, but they have, in fact, been shrinking in square footage. The need for larger, family-sized condos will likely buck that trend.

Montreal’s rental market is as strong as ever, however, Ontario – already suffering from a shortage of rental units – has reintroduced rent control, much to the dismay of the report’s interviewees, who noted some planned purpose-built rentals rebranded as condos. Ontario’s rental vacancy rate is dangerously low, and it’s expected it could worsen.

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Kelowna to become multi-family housing hub?

In its latest study, real estate team HM Commercial Group found that Kelowna is poised to distinguish itself in the B.C. housing market through its accelerated pace of building in the residential segment.

“Demand for all forms of housing remains exceptionally strong and the City of Kelowna favours a policy towards densification in the urban town centres, which also bodes well for more affordable forms of multi-family development,” according to the Fall 2017 HM Commercial Report.

Most notably, “the Downtown Core is experiencing a boom of high density development, with projects like the 21-storey tower at 1151 Sunset Drive (now 85% pre-sold before occupancy in Spring/Summer 2018),” the report added. “New projects like One Water Street and Live at Ella are anticipated to achieve average sales of more than $600 per square foot with the upper floors expected to reach more than $900 per square foot.”

As of the third quarter of this year, the value of multi-family building permits in Kelowna totalled $95.5M, compared to the $76.9M for the whole of 2016.

The study results indicated that up to 95% of condo buyers in Kelowna will be occupying their purchases instead of using these for investment purposes—a much different situation from 10 years ago, “when up to 70% were speculative investors.”

“[This] is an excellent sign of continued strength in the market and means more people living in the urban centres and increased vibrancy,” the report stated.

The city will also benefit from an influx of wealthy elderly Canadians, HM Commercial predicted.

“As baby boomers retire, they continue to look to the Okanagan. With fewer properties available in Vancouver, Kelowna and Victoria are benefiting,” the report said, adding that the demographic shift will also be apparent in the younger generations.

“The overflow from Vancouver, combined with all of the things Kelowna has to offer, is bringing a significantly younger demographic to the City, one that is fuelling a $1.3 Billion tech sector. 262 tech companies call Kelowna home and this number is growing every day.”

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B.C. to bring in a 15 per cent additional real estate tax on foreign buyers

Foreign nationals who buy real estate in Metro Vancouver would pay an additional property transfer tax of 15 per cent under legislation being brought in today by the British Columbia government.

Finance Minister Mike de Jong introduced the tax as part of legislation aimed at addressing low vacancy rates and high real estate prices in southern B.C.

The government says the additional tax will take effect Aug. 2 and will apply to foreign buyers registering the purchase of residential homes in Metro Vancouver, excluding treaty lands in the Tsawwassen First Nation.

De Jong says the additional tax on a $2-million home would amount to $300,000.

He says recent government housing data indicates foreign nationals spent more than $1 billion on B.C. property between June 10 and July 14, with 86 per cent being made on purchases in the Lower Mainland area.

The legislative package would also enable the City of Vancouver to amend its community charter in order to levy a vacancy tax.

Last May, de Jong said he wasn’t in favour of a tax on foreign investment, saying he worried it would send the wrong message to Asia-Pacific investors.

(The Canadian Press)

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Toronto sales set record

One of the nation’s hottest housing markets just broke a record in April.

There were a reported 12,085 home sales in Toronto last month, according to the Toronto real estate board, who argues that figure could have been even higher had there been more supply.

“While April’s sales result represented a new record for sales, that number could have been even higher if we had benefitted from more supply,” Toronto Real Estate Board President Mark McLean said. “In the City of Toronto in particular, some households have chosen not to list their home for sale because of the second substantial Land Transfer Tax and associated administration fee.

“The lack of available inventory, coupled with record sales, continued to translate into robust annual rates of price growth.”

Sales increased 7.4% year-over-year in April, according to TREB, which set a monthly sales record.

“As we move into the busiest time of the year, in terms of sales volume, strong competition between buyers will continue to push home prices higher,” Jason Mercer, TREB’s Director of Market Analysis, said. “A greater supply of listings would certainly be welcome, but we would need to see a number of consecutive months in which listings growth outpaced sales growth before market conditions become more balanced.”

The lack of supply is likely one reason prices continue to sky-rocket as well.

The average price in the City of Toronto increased from $690,058 to $766,472 over the past year.

Prices in the GTA also saw an increase, settling in at an average of $739,082 – up from $636,094 a year ago.

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The one market to target in Toronto?

It may be the one market many investors are now overlooking, but one industry veteran argues Toronto is still a great buy for potential landlords.

“Everyone is concerned about all the condos being built in Toronto but every year there are 81,000 new permanent residents coming to the city,” Andrew Adams, vice president of finance and investments for Capital Developments, told Canadian Real Estate Wealth. “Compare that to the 95,000 total new residents in Toronto; prices and rents are growing.”

Prices in Toronto jumped 14.9% year-over-year in February to $685,728. Condos, however, remain a more affordable option at an average of $403,392.

One neighbourhood Adams is bullish on is the Yonge and Eglinton area in mid-town Toronto.
“The Yonge and Eglinton area is one of the strongest markets for investors in Toronto,” Andrew Adams, vice president of finance and investments for Capital Developments, told Canadian Real Estate Wealth. “It’s got the Yonge line and the Eglinton LRT and it’s one of the strongest rental markets in the city.”

According to Adams, there are two types of condo buildings available in the neighbourhood; older, circa 1970 apartment-style condos and new-build condos that boast modern amenities and finishes.
The older condos often yield rents in the $2.60-$3.00 per square-foot range, while the newer units earn investors, on average $3.00-$3.50 per square-foot, Adams says.

“The Yonge and Eglinton neighbourhood has everything you need; the RioCan Centre has recently been updated, it has great access to public transit, and its surrounded by great amenities,” he said.

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The property type investors should avoid?

It may be one of the hottest markets for investors, but there is one type of property potential landlords should avoid according to one industry veteran.

Waterloo is the current hot spot for investors and while many may be tempted to purchase student housing, that’s the one property type potential landlords may want to avoid.

“Student rental has been overbuilt,” Karl Innanen, managing director at Colliers International, told CREW. “A study was recently put out, which found that there is an oversupply of (rental units) — 27% more than the market needs.

“It’s something (investors) should avoid.”

The city has an oversupply of approximately 1,200 beds, according to the Waterloo Region Record, and with all the planned buildings that number is expected to skyrocket above 8,000.

According to Colliers, there are 41,440 post-secondary students in the Waterloo region but nearly 10,000 of those are commuters who don’t require student housing.

Still, the region does offer some interesting investment prospects.

Speaking to CREW last week, Innanen broke down the region’s most enticing opportunities.

Waterloo offers opportunities for office investment; Cambridge is known for its industrial offersings; and Kitchener is home to many urban office opportunities.

And there are plenty of residential opportunities throughout the region for investors as well.

“Residential is front-and-centre in the Waterloo Region; there are 3,200 new homes built every year … and the demand is there (for rentals),” Innanen said at the time. “There are a lot of condos being built; 2011 was the first time there were more apartments built than there were single-family homes.”

Indeed. The Kitchener Waterloo region saw its average home price increase by 8.9% year-over-year to $353,108 in January of this year, according to the Canadian Real Estate Board.

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The market investors should be focusing on may surprise you

Phil Soper, chief executive officer of Royal LePage, is bullish on this one surprising market. This is why investors should take note.

Toronto and Vancouver will continue to provide impressive returns for investors in 2016, but it’s another market that may be home to the best prospects.

“The surprise #3 from my perspective is Montreal; I use a hockey metaphor: Montreal in real estate terms hasn’t made the playoffs in years, it’s had a tough time and, as a result, the average home price in Montreal is much lower than other major or minor cities in the country,” Soper told Canadian Real Estate Wealth. “For example, average home prices in St. John’s Newfoundland are higher than in Montrael and that makes no sense based on the economic potential. There is much more opportunity (in Montreal).”

The average price for a property in the Greater Montreal area rose 2.3% in 2015 to $340,207, according to Royal LePage. It’s expected to see further gains in 2016 as well.

According to Soper, the City of Saints has dealt with it share of economic challenges. However, many of those – including its oversupply issues – have worked themselves out.

“As I look to 2016-2017, some of the broad-based macro-economic factors that benefitted B.C. and Ontario, such as the low Canadian dollar and those will all start to work in Montreal’s favour in 2016,” Soper said. “Quebec is both for manufacturing and for services exports – education and financial – it is an exporting province in a big way yet it didn’t see the kind of uptake in export volume that BC and Ontario have seen and I think we are starting to see the front edge of that improvement in the Quebec economy. And the lower Canadian dollar will (help that along).

“I would call it the most improved market in Canada … for 2016.”

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TREB calls for repeal of the MLTT

Amid a backdrop of rising costs in home ownership and waning purchasing power due to a weak petro-currency, the Toronto Real Estate Board (TREB) recommended the abolition of the Municipal Land Transfer Tax (MLTT) last week (January 12).

In a statement posted on its website, the TREB said that the proposed adjustments to the MLTT administration fee are unjust and injurious to buyers, who already have to contend with thousands of dollars in other MLTT payments.

“Between annual property taxes and the MLTT, City Hall has a huge impact on the cost of home ownership,” TREB president Mark McLean said, adding that the tax does nothing to stem the rising tide of greater house prices.

During its first implementation a few years back, the average cost of a home sat at $400,000. Back then, the MLTT’s highest tax rate wasn’t applied to homes with purchase values beneath the average price. However, the government’s neglect to adjust the relief measure has essentially rendered it useless, as the current average is now at $659,000.

The statement noted that the organization abides by Mayor Tory’s platform of working towards better tax equity. According to the TREB, this is in keeping with their goal of ensuring the reduction of City costs on homeowners.

“The proposed budget demonstrates Mayor Tory’s determined leadership by ensuring equity for taxpayers, specifically through bold, yet fair, property tax increases,” McLean said.

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Toronto condo market will continue to boom — developer

Ryan Smith

Some fear that Toronto’s booming condo market is headed for a crash, but one major developer isn’t worried.

“My prediction, and I’ve been pretty accurate to date, is we are going to have a 30-40% increase in values of the condo market in downtown Toronto over the next three to four years,” Barry Fenton, CEO of Lanterra Developments, told the Business News Network Thursday. Fenton later clarified that he expects that price increase to occur over the next three years, not four, BNN reported.

In November, the average selling price for a condominium in the city of Toronto was $415,316, according to data from the Toronto Real Estate Board. That’s a 5.4% increase from November of 2014. If Fenton’s prediction is correct, that means the average selling price of a condominium in Toronto will be more than $580,000 by the end of 2018, according to BNN. That flies in the face of widely held expectations that the Toronto condo market is due for a correction.

There are 80,000 condo units under development in the city – an unprecedented number, according to BNN. That’s an increase of about 50% over the last four years, and in August the Canada Mortgage and Housing Corporation warned that Toronto was facing a “high risk” of correction due to overbuilding. In November, the Organisation for Economic Co-Operation and Development concurred, saying Toronto was at risk for a “sharp” correction in the housing market.

But Fenton told BNN that despite the record number of condo units under development, he believes that inventory will start to run out in a few months, leading to a demand that outpaces supply.

“There is probably something like five or six months left of inventory and that will be absorbed very, very quickly,” Fenton said. “…It is not the flavour of the month or flavour of the year. For the past 10 years the market has been fantastic and it is only going to continue to grow.”

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