To Cool or Not To Cool the Housing Market? Canada Has Imported its Own Real Estate Inflation Problem

It is no secret, there is an influx of non-Canadian (and non-permanent residents) purchasers of real estate (not only residential homes, but commercial, hotel etc.).  And as noticed for example in certain neighbourhoods in Vancouver, some places purchased for +$1.0M have no one living in them, or on the other end of the spectrum, a "starving (international) student" has taken up residence.  As federal and provincial politicians continue their heel dragging methods to avoid "knee jerk reactions", the housing market increases further and becomes more and more unattainable...for Joe Canadian.

Although every "Average Joe" has a suggested solution, while Justin and his Liberal band of tax-seeking merry men and women want more tax dollars, here are some others....

1) Supply is not the issue, demand is the issue: Many in the real estate and construction industry are calling for more supply. Of course, since this is their livelihood and their biased interests they are trying to pass off as the gospel for all Canadians.  The focus should be on demand and this is where the federal government comes in.

2) Investors and speculators from outside of Canada to pay double the land transfer tax: , reduce for Canadians

3) Interest rates increase.  With a staged approach this would certainly more than cool the real estate market as according to the media, Canadians on average have too much debt and a small increase in mortgage payments would be enough to push them into dire circumstances.  However, with unemployment at 7.0% and a GDP running at 2.0%, it is impossible for Poloz and the Bank of Canada to justify such forecasted moves (as the US Fed has done).

In fact, this may only negatively impact Canadians who hold mortgages from Canadian banks and are subject to Canadian rates.  Investors and speculators from outside of Canada in some cases are i) buying houses, condos for cash, ii) may not need a mortgage, iii) are obtaining more attractive interest rates elsewhere.  Increasing Canadian rates...in Canada....will only render real estate prices perhaps slightly lower, which in the eyes of an out of country investor or speculator means "on sale!", and bid up again.

4) Investors and speculators from outside of Canada pay an increased level of property tax:  Why should Canadians

5) Implement a capital gains tax upon a sale. Why should a foreigner be part of the same tax code as Canadians?  Canadians receive proceeds from the sale of their home on a TAX FREE basis (or no Capital Gains tax) as this is the ONLY TAX FREE INVESTMENT VEHICLE left in Canada (other than our paltry TFSAs that Justin and the Liberals continue to render as paltry after nixing Harper's planned increases over the years to come).  With this one financial windfall given where the real estate markets are currently, and Canada's doors wide open to the world to do the same - guess what is going to happen to real estate prices? INCREASE! Canada and the Canada Revenue Agency are throwing gas on its own house on fire!

6) And finally, "what goes up, must come down".  Real estate markets today are different than the last lucrative days back in the 80s...and we all saw what happened after that cycle. CRASH! Interest rates were through the roof (no pun inteded), the decade was mired with the themes of excess and congolomerates, and a lot of investors and honest-to-goodness Canadians looking for a home saw their values drastically decrease and took decades to recover.

The message being, nothing wrong with renting, providing you are doing something with that difference in i) down payment, ii) repairs, iii) lack of renovations, etc you would normally have as a home owner.  As one strategy (not recommended for everyone), invest this difference in dividend paying REITs (some are yielding a juicy 8%) and ride those dividend cheques (and capital appreciation). REITs too will have their day come up, when interest rates do take an increase, but when that time comes, housing prices will become cheaper.

The following charts are from today's Financial Post

More of Justin Spouting Off: With Unemployment at 7.0%, Canadians and Those Influenced by His Comments of "Come to Canada" do not Need This!

From the left leaning CBC whom receives its billion dollar subsidy from the federal government (no conflict there, eh?).

And as unemployment in Canada sits at 7.0%, GDP hovering around a paltry 2.0%, and housing prices through the roof (no pun intended, but thats a whooe other discussion) this is still not enough to have an open, fair and professional discussion on the "sacred" institution of immigration in Canada. Annually, 300,000 entering Canada just because...it's a nice round number?

http://www.cbc.ca/beta/news/opinion/trudeau-message-to-refugees-1.4051008

Power Struggle in Ontario: No not for Monetary, Political or Authoritative Reasons - We're Talking Energy

I do not read much of Rex Murphy, but this one was too good to pass up.  Credit due to for his plain anecdotes and comparisons.  

For those not living in Ontario, we are outrageously "taxed" (well, our fearless Premier "The Kathleen" would not call it a tax, but "necessary extra charges" to fund her dictatorship green energy policies and make up for all the contract gaffes of past Liberal energy policy mistakes).  

As an example, after having recently moved back from Vancouver, my BC Hydro usage for a ~1,000 sq ft, two bedroom condo was between $26 to $28 per month.  And the total cost of that usage?.....$26 to $28.  Here in Ontario, the same "usage" becomes approximately three times higher.  Even if I burned candles all month, unhooked all of my appliances, turned the thermostat down and ate out for every meal I would still be on the hook for a fixed amount of say at least $50 to $60/month. (As such, thanks to Premier Wynne, in Ontario we never say "win-win"). 

Rex has a couple of gems, and I would like to quote and give credit to him here...

http://news.nationalpost.com/full-comment/rex-murphy-actually-witchcraft-is-a-pretty-good-explanation-for-all-thats-happening-in-ontario

First up from Rex, "A businesswoman I met recently — on her way, incidentally, to meet with a spiritual adviser — showed me the energy bill for her company. She was distraught and clearly frightened. And with good reason. For very clearly on her bill was a charge for the power she used — the electricity cost. And it was a mere (she employs nearly 40 people) $5,000. There it was on the bill: electricity charges $5,000. But when she forced her wary eyes to the Total Due, the amount had swollen to a terrifying and inexplicable $42,000.  How can this be? she cried… How could the add-ons cost SEVEN times more than the power actually consumed? It was like buying a low-end car for $20,000 and being charged $80,000 for the clock in the dash..."

Secondly, "It occurs to me that witchcraft in Ontario could explain a great many things. The curious gyrations of the Ontario government in its long embrace of its green plans, for one thing….What reason would bring in contracts lasting for decades with built-in guarantees for ludicrously overpriced power? What government would produce power, at great expense, to then sell it at a loss in a virtual voluntary subsidy to the ratepayers of neighbouring jurisdictions? What government would, on the premise of saving the planet, find itself in 2016 cutting off all power to 60,000 homes? What province would so engorge itself with taxes on its power that it now reaches into those same taxes it has extorted under this wild scheme to “rebate” them to the very people its plan has impoverished? It was bad enough when Ontario robbed Peter to pay Paul, now it’s then robbing Paul to pay back what it just stole from Peter..."

My favourite, "Finally, what province would but days ago ladle a couple of hundred million dollars to Ford Motor Company, in part for the building of V8 engines — the very villains of carbon production so decried in all the government’s other proclamations — some of which we may assume will go towards, directly or indirectly, Ford’s inflated power bill. Surely some superior dark force has a hold on Ontario...."

Red is for (Liberal) Deficit: Why are There Not Outcries and Protests in the Street?

With Federal deficits now forecasted (well a Liberal forecast, based in Liberal math) out to 2050 and with such bloated payouts within the province of Ontario (a proxy for other provinces), why are Canadians not in a panic over future benefits,  oh say, CPP!

(The following "Sunshine list", those making over $100,000 working for the Provincial government was released. Some select positions as outlined. I do not know how the IPO of Ontario Hydro affects some of these positions being reported now, but I will have to investigate)

Sunshine List: http://news.nationalpost.com/news/canada/ontarios-sunshine-list-2017-all-the-ways-you-never-thought-you-could-make-100000-a-year

Although interest rates are low today, the Liberals at both Provincial and Federal levels are spending like proverbial drunken sailors (and on the flip side were receiving payments at a fire hose rate for that little issue called "cash for access", remember that one? As Liberals are also good at using media techniques of distraction which is their proverbial " broom" to sleep things under the rug).

Enough of the clichés, what does this all mean?  Sadly, as the Liberals have a high chance of regaining power in the next Provincial (Ontario cannot help themselves, despite record low rates of approval for "the Kathleen", Ontario voters only see Liberal red and will likely vote this gaffe induced party in again) and Federal elections (no clear leader for ANY of the opposition parties), Canadians had better beef up on their personal finance skills and mind their savings, RRSPs, TFSAs, company pensions, real estate holdings and how they can minimize their tax situation over the coming decades.

I'm 46 now, deficits are " forecasted" to be eliminated when I'm 80, I'm not depending on a CPP and review my RRSP every day.

The Differences of Living Between Toronto and Vancouver

Having made the move to Vancouver and back again, six years later, I thought it would be appropriate to post the following as I'm asked constantly the comparison between Toronto and Vancouver. Here are a list of the most common, starting with...

Weather: if you love four seasons, stay in Toronto. Although Vancouver and most of the west coast for that matter is in a very temperate zone that renders the surroundings Green and lush, that comes at the expense of an above average amount of rain versus the rest of the country. I sometimes wonders how could anyone in Vancouver or Victoria deserve having a Canadian passport where winter tires are a rarity. 

The Landscape: hands down Mother Nature has blessed the west coast with mountains resulting from plate tectonics on the Pacific side of the country. Despite that, skiing does exist in Ontario and Quebec although not to the same degree of elevation as in BC. 

Health care: if anyone has reviewed the financial statements of your province (like I have), Canada's provinces and territories are essentially health care providers as that is the number one expenditure (with education a distant second).  However, in BC, an extra charge of ~$75 is billed on top of one of the cheapest provincial tax rates in the country )unlike here in Ontario). This is covered by most employers. 

Marijuana: the laws may be the same but the attitudes are not. Just saying away from encouragement but beyond acceptance is where the marijuana issue lies. Some thing changes West of the Rockies and as such interpretation of rules are...misinterpreted or even flat out ignored.

Physical Activity: it is contagious when your co-workers are cycling to work in the morning or running during the lunch hour or come in Monday morning full of skiing or hiking stories.  However, there is a certain smugness too about it on top of British Columbians' luck of living in God's country.

Music: with the exception of the Commodore, the smaller venues and live music events tend to come and go in Vancouver. Due to the sheer size of Toronto, the choices between an open mic event and the top grossing concert at ACC are endless and it is likely you will find something for any eclectic interest in between.

Restaurants: Yaletown is concentrated between two short streets where you will find most of the restaurant scene in Vancouver with exception of establishments in Coal Harbour, Stanley Park or Queen Elizabeth Park.  Toronto is much more spread out making it difficult to answer the questions "what do you feel like?" Or "where do you want to go?" .   Lots of amazing seafood and sushi restaurants in Vancouver, of course. 

Electricity/Power: most of the power needs to heat your home, run the laundry machine etc comes from BC Hydro only (yes, no additional gas bill at the end of the month).  In other words, logic has prevailed in BC whereby a 1,000 sq ft uses approximately $26 to $28 per month and is bulled $26 to $28 per month. Not so in Toronto. With some Liberal math and the "greening" (in others words, past Liberal mistakes of cancelling contracts, shutting down coal plants,  wind turbines at all costs and selling power away to neighbouring States), that same electricity bill will run you three to four times higher. 

Taxes: BC has the lowest provincial tax rate in the country.  While in Ontario, the provincial government is copying the Federal Liberal government in spending like drunken sailors and taxing us to oblivion.

Property Taxes: from my limited experience there was not much difference, I think lower in BC; however, in BC you can receive a credit in the amount of approximately $400. 

Cycling: I will need a season to reply objectively; however, a very under rated waterfront trail system exists in Toronto connecting you to as  far as Niagara in the south west and Prince Edward county in the east.

So take your pick on the aforementioned items and make your own scorecard based on your priorities. 

More about BC and the recent election forthcoming....

Another Day, Another Broken Liberal Promise and Another Example of Liberal Math

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/fp-comment/the-federal-government-is-ditching-its-fiscal-pledge-adding-another-thing-to-the-list-of-broken-promises&pubdate=2017-03-31

"The Kathleen" Should Look Over the Fences and Take Note of What is Happening in Other Provinces

Fellow Ontarians and Ontario Liberals, 

Some headlines you would not expect but is is proof of elected governments DO NOT HAVE TO BE BOUND TO CARBON TAXES, EVER INCREASING PERSONAL AND CORPORATE TAXES AND AN ENVIRONMENT OF LAWS AND FEES THAT STIFLE GROWTH, while the only ones that "get ahead" (yes Justin, your phrase) are the politicians passing these outrageous laws and building these sets of head-shaking, stifling circumstances. In Ontario, it's time to stop the insanity (that is, Kathleen, you and your party should have been thrown out of office several political gaffes ago, and it is time to elect a group of trained monkeys that would have a better performance record governing the province). 

In Quebec, traditionally known by ROC (the "Rest of Canada") for having a chronic hand out, is now on a path to having a balanced budget for the next five years...after three years of balanced budgets.

Quebec government balances budget again, cuts personal and business taxes

http://business.financialpost.com/news/economy/quebec-government-balances-budget-again-cuts-personal-and-business-taxes

And in Saskatchewan, the ever feisty and refreshing Premier Brad Wall has laid down the gauntlet with the absurdity happening in Alberta under the NDP.

Brad Wall heats up spat with Rachel Notley by inviting Calgary energy companies to move to Saskatchewan

http://business.financialpost.com/news/economy/premier-brad-wall-kicks-tiff-with-alberta-up-a-notch-by-inviting-calgary-energy-companies-to-move-to-saskatchewan