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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Why researching your rent-to-own company is important

While rent-to-own purchases are becoming more popular, it’s important to know who you’re dealing with, and to balance the risks and rewards.

According to Bob Aaron, a real estate lawyer with Aaron & Aaron, rent-to-owns typically surge in popularity during market downturns, and they’re also one of the few options people with bad credit have available to them. However, Aaron also says that it’s his preference to advise clients against entering such arrangements.

One way in which buyers get short-shrifted is by paying above-market rental prices than they would for a similar house, which, if the buyer chooses not to purchase the home, cannot be recovered.

“Rent-to-own helps when the seller can’t sell and when buyers can’t get approved for mortgages, but the way it often works is the seller gets the lump sum from the buyer/tenant which is used to underwrite the down payment,” said Aaron. “So if the buyer decides not to close, or can’t close, or can’t get a mortgage, all that money they paid up front and along the way is down the drain.”

He also says another problem with rent-to-owns is there aren’t any industry standard forms.

The buyer/tenant isn’t the only party at risk, though.

“A defaulting owner can stick the landlord-/investor with all kinds of arrears, mortgage taxes, utilities, and damages to the house, and the landlord/owner/seller is going to be stuck with those arrears and damages,” said Aaron, adding the courts don’t recognize rent-to-owns under the tenancy act.

“If the buyer- occupant is in default, it’s very difficult to get rid of them.”

There have been stories of unscrupulous rent-to-own companies in the media, but one in particular has taken a unique approach to the rent-to-own model, and has a 100% success rate of turning its renters into homeowners.

Dale Monette, CEO of Homeowners Now, explained to CREW that by empowering renters with everything they need to improve their credit scores, save money, and eventually own their homes, the rent-to-own model can become an exceptionally successful way to help families achieve homeownership.

Homeowners Now endeavors to get their clients both financially- and emotionally- invested in their future homes. by holding tenants’ down payments in trust. The company a client-first approach, which entails allowing the client to choose the home they want to live in and purchasing it for them.

“Some rent-to-own companies do a $0 down payment, but we want to get them financially invested by an initial down payment, typically 3% of the purchase price, and holding it in trust for them,” said Monette. “Based on our research, $0 down programs have a higher likelihood of the client walking away from the property, because they weren’t financially invested.”

Homeowners Now made the internal decision to return down payments should their clients default, but with a 100% success rate that’s never happened. One reason is the company does everything in its power to make sure its tenants have everything they need at their disposal.

“We actually pay for home inspection reports and appraisal reports, as well as the closing costs for our clients,” he said. “They don’t have to give us any more money for closing costs or legal fees – they just provide the down payment and monthly rent. We take care of the rest. When working with us, essentially our clients are working with a team of self-employed entrepreneurs, like realtors and mortgage brokers, so they stay directly in touch. We even help our clients with grants when they experience hardship, which ultimately helps them become successful in the rent-to-own transaction.”

As Aaron says, it’s important to have all documents perused by a lawyer. Equally as important is selecting a company that invests in its clients as much as it does in properties.

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Condo developers hike fees on luxury building

A Vancouver luxury condominium is stiffing pre-sale condo purchasers with a 25% levy if they flip their units before occupancy.

Purchasers of units at One Burrard Place, being built by Jim Pattison Developments and Reliance Properties Ltd., once only had to pay the developers a 1.5% fee to re-assign their units, however, in recent weeks they’ve been forced to sign an amended agreement contractually obligating them to pay a quarter of their resale price.

It is speculated that Vancouver’s surging price points have whetted the appetites of developers, who want a bigger piece of the pie. However, it’s also believed the reason is to curtail speculation. Units at One Burrard Place went on sale in late 2015, but the 53-storey luxury condominium won’t be complete until 2019, and two years in prices have already climbed astronomically.

When sales opened, the price per square foot was in the neighbourhood of $890, however, they’ve risen to about $1,250 today, according to the Vancouver Sun.

Jim Stovell of Reliance Properties told the Sun that the inflated fee is designed to discourage speculators from flipping units at One Burrard. He added that buyers are welcome to wait until the units are completed, by which time the sale will be legally binding and the 25% levy won’t apply.

Stovell also told the Sun that unauthorized advertising of assignments are floating about online, especially on social media, private realtor websites, and through emails – which the developer is also trying to check. He added that some purchasers have legitimate reasons for needing to re-assign their units, such death, divorce or job change, and their needs will be balanced.

The industry standard for re-assignment is between the 1.5% One Burrard was charging, and 2%, while other developers proscribe it altogether.

One Burrard Place is a luxury tower in Vancouver’s West End, close to the Burrard Bridge at Drake St.

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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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How housing policy is impacting one hot market

The Hamilton market is showing some signs being impacted by Ontario’s Fair Housing Plan, according to recently released statistics.

There were 1,638 residential home listings in August, up 6% year-over-year from 2016’s mark of 1,546. Those listings are 4.2% higher than the 10-year average. Sales, meanwhile, were down 18.2% with a total of 1,086 last month.

That didn’t stop price growth, though, with the median residential home selling for $485,450 – up 14% year-over-year from $426,000.

All of these stats together point to a balanced market, according to the Realtors Association of Hamilton-Burlington.

“The tendency toward a more balanced market that we have seen over the last few months has continued into August,” RAHB CEO George O’Neill said. “The sales to new listings ratio is at just over 65 per cent, which is still in the low end of a seller’s market, but much closer to balance than earlier this year.”

The median freehold home price jumped 13.2% year-over-year and the median condo home price increased 20.9%.

“The median and average prices continued to rise,” O’Neill said. “There had been speculation that with more listings on the market and fewer sales, prices would decrease as a result. That is not the experience in our market area – at least not so far.”

The average days on market increased to 33 days from 27 days for freehold homes and to 29 days from 27 days for condos.

Source: RAHB

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This market may soon attract an influx of potential renters

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Analyzing years of mortgage rule impact

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

There has been an unprecedented number of housing policy changes over the past year-and-a-half, according to TD Bank, and each has been aimed at tempering housing demand.

And while the industry viewed the last round of changes as particularly invasive, they have proven less impactful than previous iterations.

“Each successive regulation change at the federal level has left a smaller mark on home buying activity. Our estimates suggest that the most recent federal rule changes may have only shaved 2% off demand nationwide,” TD Economists Beata Caranci and Diana Petramala, wrote in their latest report, Canadian Regional Housing Outlook Navigating a Soft Landing. “In contrast, the first regulatory changes implemented in 2008 dampened home sales by roughly 10%. That policy increased the required down payment from 0% to 5% for insured borrowers and lowered the allowable amortization period from 40 years to 35 years.”

The reason for dwindling influence, according to the economists, is that each round of mortgage rule changes has specifically targeted borrowers who require mortgage insurance.

“This incented a shift away from high loan-to-value mortgages into conventional mortgages,” the economists wrote. “New loans that require homebuyer’s insurance now account for less than 20% of all new chartered bank mortgage originations, compared to 40% prior to 2008. So, each round of policy changes has targeted a shrinking share of the overall market.”

The Bank of Canada claims insured mortgage originations fell 43% in 2016 and early 2017 from the peak in late 2015.

However, that shrinking share was up by a growing number of Canadians relying on conventional mortgages.

Looking forward, it seems federal policymakers aren’t quite finished with their market tinkering.

The Office of the Superintendent of Financial Services (OSFI) has proposed additional rules in the form of income tests for all borrowers at a rate of 2% higher than the contracted rate.

And that policy is expected to temper housing demand even further.

“ … if the new measures are put into place, which will cause buyers in the former group to adjust their behaviour by coming up with a bigger down payment, opting for a lower priced purchase, scaling back other debt, or delaying a home purchase altogether,” the economists wrote. “In the year of implementation, we estimate that this new rule could depress demand by 5% to 10%, and shave 2% to 4% off of our current forecast for the average price level in 2018. This will be yet another force limiting price growth in the future.”

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The building blocks to investment success

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Building equity for multiple properties

by Haripal Pannu, real estate broker and investor

One real estate agent looks at pre-build investments for the first-time investor.

It’s always challenging to buy the first investment property because there is a lot that must be learned. There is a little bit of difference when it comes to buying real estate as your primary residence compared to buying it as your investment property.

If you are buying real estate as your primary residence you can get financing even with 5% down
(as long as you qualify) but for investment properties you typically need 20% down in some cases even 25% or more.

Some “A“ lenders (big banks) don’t finance an investment property after a certain number of properties; for investment properties there are other costs associated too if you are also buying a primary residence you get certain rebates and you can even buy under first-time home buyers plan while in case of investment property it is not possible. If you are buying a brand new investment it is very likely you are going to pay HST on top of purchase price (if you fulfil the conditions the HST you pay you will get it back one condition is that you cannot sell the property before one year period).

Let us look at where and what kind of investment property one should buy so that equity can build up fast and that equity can be used in future to buy more properties.

One thing which matters most in real estate is the location; excellent location makes all the difference where your property is located location is always the key. Do not buy a property in an area where you do not want to live. Good location must have public transit system accessible to everyone, good walk score and should be close to all amenities.

Check the vacancy rate in the area. A low vacancy rate in the area is an indicator that your property will be rented out quickly and more chances are that rent will increase in the near future.

Check employment rates in that area. Property prices are increasing at a very fast rate not only in the GTA but all over in Central and Southern Ontario and, as a result, more and more people are being forced to rent instead of owning.

Let us look at an example of a $400,000 pre-build condo property. We’ll assume it will be ready in 2-three years. By the time you take ownership of the condo you will see that property already has already appreciated by 3-4 % or approximately $50,000. If it is in a desirable location you will have no problem renting it out and in another 2-3 years you should have paid already approximately $15-20k of your mortgage and also at the same time your property is further appreciated by another approx. $30 – 40K. Now it is time to talk to your bank or your lender so that you can take money out and on your way to buy another property and in another 2-3 years next property and so on.

The more properties you own, the more cash flow you will generate. In times of inflation real estate creates hedge against inflation. One can reap the rewards of equity build up, not to forget many tax advantages of owning real estate and advantages of appreciation real estate enjoys.

Word of caution before you buy a rental property: it is very important you do your due diligence.
Make sure numbers work out for you and seek help from a real estate expert. Owning your real estate is owning your own business and you are your own boss.

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New home market unfazed by housing policies

The new home market continues to boom, despite efforts to slow down real estate in this one hot city.

New homes in Toronto continue to see strong demand from buyers – especially in the condo sector.

“We continue to see that the province’s fair housing plan in effect since April has had little impact on the new home market,” BILD President and CEO Bryan Tuckey said in the association’s latest report. “Unlike the resale market which experienced a slow down last month, the numbers reflected in the new homes market are quite different. Prices continue to rise and supply continues to be low.

“Three out of four of the new homes purchased in the GTA so far this year have been condo apartments. With condo prices continuing to escalate, this segment of the market is becoming out of reach for many consumers.”

Multi-family condo sales increased 59% in May, according to the Building Industry and Land Development Association.

New home sales jumped 23% year-over-year in June with a total of 28,889 sales sold this year so far.

According to BILD, over 90% of June home sales were for condo apartments in high-rise, low-rise, mid-rise, and stacked townhomes.

June also saw a record number of new condo sales with 5,495 total units sold – an increase of 89% year-over-year.

“The record number of condominium apartment sales in June was the result of a ‘perfect storm’ of factors”, Patricia Arsenault, Altus Group’s Executive Vice-President of Research Consulting Services, said in the report. “These factors include: the sizeable number of units in new condo projects opened in May and June (over 8,500); demand from end-user buyers who might have preferred a single-family home but have adjusted their expectations due to lack of affordable supply; and heightened investor interest due to the rapid price increases for condo apartments in recent months.”

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RBC raises fixed-term mortgage rates

Royal Bank of Canada has increased the interest rates on its fixed-term mortgage products.

RBC’s mortgage rates were all boosted by 20 basis points, up to 2.54 per cent (two-year rate), while 2.64 per cent (three-year rate), and 2.84 per cent (five-year rate). Said rates are for products with amortization periods not exceeding 25 years.

The rise came amid rising bond yields and enduring expectations that Canada’s central bank will hike its benchmark interest rate, which currently stands at 0.5 per cent. Should the Bank of Canada push through with the increase on Wednesday (July 12), it will be the first such movement in 7 years.

Manulife Asset Management senior economist Frances Donald told CBC News that the move by RBC is “another signal that economic and market agents are preparing for a rate hike next Wednesday… It also opens the door to a Bank of Canada rate hike because it implies that the economy is already going to absorb higher interest rates via the banks themselves.”

“We import higher rates via our bond curve from the United States, and the more we see higher rates around the rest of the world, the more the costs are going to rise for Canadian banks as well,” she explained, alluding to the recent boost in the U.S. Federal Reserve’s rates. More hikes are anticipated to come this year.

“We are clearly in the beginnings of a tightening cycle and these are not just influences from the Bank of Canada but from global sources as well.”

Related stories:
Possibilities for consumers in the event of a BoC rate hike
Canadians are incapable of servicing higher mortgage costs – report

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