Tuesday, April 18, 2017

Real Estate Supply is not the Problem, Demand Is: The "Foreigners - Buy Here" Sign has Been Up For Years

I would not normally quote the following source as "news"; however, it did outline clearly the significance of what is still coming to Toronto in an over zealous Canadian real estate market.  While two new skyscrapers are planned to be taller than that ivory tower of commerce, finance and a Bay Street mecca – First Canadian Place.  Think about that!


Although the benefits are seeing areas like Gerrard/Yonge with a facelift (yes, where you used to buy your "Big Slice"), it shows that despite Canadian buyers trying to purchase in Canadian dollars is a mug's game as we are in direct competition with billions of other real estate purchasers world wide who think and manage their wealth in US$ (which will continue to strengthen versus our Canadian dollar thanks to, oh say, i) Liberal deficits that are multiples of what they were forecast to be, ii) no plan to pay these deficits down within decades, iii) unemployment at 7% and iv) GDP hovering at or below 2.0%).  They are trying to move large sums of funds (millions), they are motivated purchasers, and are willing to outbid for that.  In summary, such purchasers salivate when they see the development continuing in cities such as Vancouver and Toronto due to the “discount” as the Canadian dollar is approximately 75% of a US$, the rule of law in Canada and the fact that Federal, Provincial or Municipal governments will NEVER react in a direct, firm and fair way for Canadians otherwise facing that term WITH NO CONSEQUENCES ATTACHED (whether right or wrong) by its constituents AND the media… the “R” word (“racist”).

In other words, CANADA AND CANADIANS HAVE IMPORTED THEIR OWN REAL ESTATE INFLATION, and now there is no stopping it until: i) interest rates increase (LOL, sometimes I crack myself up – see reasons above), or ii) there is a better place for foreigners/potential permanent residents to purchase.   Neither of which are happening.

In Australia, there are restrictions to combat such circumstances.  This requires foreign purchasers to buy “new” construction, not a resale, thus fostering jobs in the construction industry, and yes more supply which according to Economics 101 takes care of real estate pricing shocks as theoretically there should be no shortage .

Although Canada is part of the FinTRAC system (from the government web site, "The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada’s financial intelligence unit (FIU). The Centre assists in the detection, prevention and deterrence of money laundering and the financing of terrorist activities. FINTRAC's financial intelligence and compliance functions are a unique contribution to the safety of Canadians and the protection of the integrity of Canada's financial system.), this system has very little restrictions in stopping the movement of capital into Canada nevermind enforcement.  In the meantime, as Canadians we just have to accept that every dollar (Canadian$ or US$) is legitimate and well-earned, and only used for purposes of real estate as a place to live or to earn a capital gain in already over-heated market (that is, fuel to a fire).  And that every real estate agent dealing with a foreign buyer is screening them appropriately, and the banks are doing their due diligence…as per the law as well as the codes and integrity of their industries. 

No wonder the real estate agents and the real estate industry wants to keep this foreign data to themselves, and the significance of it.  What if a different truth was known and (naïve) Canadians actually woke up one day to what is happening behind the scenes (Exhibit A, around this time last year, the Globe and Mail blew the doors open on a story involving the Vancouver real estate market where real estate agents were assigning purchase and sale contracts, picking up tens of thousands in fees along the way, resulting in an unknown buyer showing up at the closing of the unsuspecting seller). 

On another note, CIBC has announced it will move into two brand new office towers, the first move for one of the big banks that have been residing in their respective office towers on Bay Street for decades.  Despite this refreshing move, when commercial towers are constructed and the doors open, usually that happens just in time for a….you guessed it, a market crash. 

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