Housing Bust 2017

Leveraging, renting vs owning, making an investment or buying a home?
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Mordko
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Re: Housing Bust 2017

Post by Mordko » 28 Mar 2017 20:18

Koogie wrote:
27 Mar 2017 10:37


:thumbsup: I hope to follow in your footsteps sooner rather than later....
:beer:

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Re: Housing Bust 2017

Post by max88 » 28 Mar 2017 20:19

ghariton wrote:
27 Mar 2017 02:27
What politician would want to alienate up to 10 million voters?
Pretty sad reality.
Politicians who promise to give $9 usually have a chance to the power. Once in power, they are free to take $10 or more.
Those who promise to take $9 always get laughed out of town, before they have a chance to explain how they will give $10 or more. Never mind being in power.
I am cautiously optimistic. When it goes up, I claim I have been optimistic; when it goes down, I claim I have been cautious.

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Re: Housing Bust 2017

Post by ig17 » 28 Mar 2017 22:25

Sousa says Ottawa's help needed to cool real estate market
Finance Minister Charles Sousa is injecting some reality into the real estate market.

Sousa admitted Tuesday there is a limit to how much he can do to cool off Toronto’s scorching house prices without help from the federal government.

“There are individuals that are going into subdivisions that are buying 10, 40, 50 homes – holding paper – and flipping it … and they’re crowding out families who are trying to buy,” the treasurer said.

“We can’t do that without the CRA,” he said, referring to the Canada Revenue Agency.

The provincial government had hoped federal Finance Minister Bill Morneau would increase the capital gains inclusion rate for non-principal residences in last week’s budget.

With the average detached Toronto home having jumped 35 per cent year over year to $1.5 million last month, Sousa asked Morneau to make the tax change.

“Those were some of the requests that were made in terms of what degree of capital gains can we not exempt,” the Ontario minister said.

Currently, only 50 per cent of the capital gain on a non-principal home counts taxable income, which has led to speculators flipping houses in the red-hot Greater Toronto market.
I wonder if that's where the rumours about the inclusion rate came from.

newin96
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Re: Housing Bust 2017

Post by newin96 » 29 Mar 2017 08:24

“There are individuals that are going into subdivisions that are buying 10, 40, 50 homes"

If the individuals are "flipping" these holdings, how could this be considered a "capital gain" by the CRA? Where is the expectation of profit other than selling for a profit?

So increasing the capital gains inclusion rate wouldn't impact this scenario. Shouldn't our Ontario Finance Minister know this? What am I missing here?

Spudd
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Re: Housing Bust 2017

Post by Spudd » 29 Mar 2017 08:45

newin96 wrote:
29 Mar 2017 08:24
“There are individuals that are going into subdivisions that are buying 10, 40, 50 homes"

If the individuals are "flipping" these holdings, how could this be considered a "capital gain" by the CRA? Where is the expectation of profit other than selling for a profit?

So increasing the capital gains inclusion rate wouldn't impact this scenario. Shouldn't our Ontario Finance Minister know this? What am I missing here?
That's exactly the definition of a capital gain. A capital gain is when you buy something and re-sell it, gaining a profit from the transaction. What do you think a capital gain is?

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kcowan
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Re: Housing Bust 2017

Post by kcowan » 29 Mar 2017 08:58

There is also the trader test of comparing income from capital gains when compared to regular income. CRA has that flexibility already. All they need is the data.
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Re: Housing Bust 2017

Post by Peculiar_Investor » 29 Mar 2017 09:04

A little Google helps here. I would say it depends on how CRA views it, per IT-218R | CRA
IT-218R wrote:There is no provision in the Income Tax Act which describes the circumstances in which gains from the sale of real estate are to be determined as being either income or capital. However, in making such determinations, the courts have considered factors such as those listed below: (The list is not intended to be exclusive of any other factor.)

(a) the taxpayer's intention with respect to the real estate at the time of its purchase;

(b) feasibility of the taxpayer's intention;

(c) geographical location and zoned use of the real estate acquired;

(d) extent to which intention carried out by the taxpayer;

(e) evidence that the taxpayer's intention changed after purchase of the real estate;

(f) the nature of the business, profession, calling or trade of the taxpayer and associates;

(g) the extent to which borrowed money was used to finance the real estate acquisition and the terms of the financing, if any, arranged;

(h) the length of time throughout which the real estate was held by the taxpayer;

(i) the existence of persons other than the taxpayer who share interests in the real estate;

(j) the nature of the occupation of the other persons referred to in (i) above as well as their stated intentions and courses of conduct;

(k) factors which motivated the sale of the real estate;

(l) evidence that the taxpayer and/or associates had dealt extensively in real estate.
IMHO, someone purchasing in multiples would seem to have an issue with their "intention" that would qualify them for capital gains treatment.
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Just a Guy
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Re: Housing Bust 2017

Post by Just a Guy » 29 Mar 2017 10:02

You are thinking about this from a Canadian perspective...that's why you are having a hard time understanding what is going on.

China, Russia, etc. are communist dictatorships...places where the "haves" can quickly become the "have nots" (not to mention they could quickly just "disappear") with a simple change at the top.

These people plan for a worst case scenario that we can't even imagine. They need to preserve capital and make sure they can access it outside of their home countries in case they need to get out in a hurry and never return. When you have millions, or billions, you don't really care if you lose a bit...it's the cost of doing business which is cheaper than the cost of losing your life. They can't put it all into hard assets, gold is heavy and hard to move, diamonds are good, but if you get caught and searched you can lose them. Real estate in other countries however is hard for a country to grab...

So they go out and buy assets in different countries, things that can't be seized electronically and made to disappear (like bank accounts), and sit on them. It's the contingency fund. If something happens, they flee and eventually cash out. If they take a hit financially, it's no big deal, they're not happy, but it beats the alternatives.

Now, I'm not saying this is the only reason some people are doing this, but it is one reason why some people are doing things like this.

People need to stop thinking about things from their own perspectives and need to understand that different cultures have different views of the world, different motivations...

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Re: Housing Bust 2017

Post by kombat » 29 Mar 2017 12:28

I don't buy it, JaG. Why would I put my contingency fund in a wildly overvalued asset, in a market that experts insist is in a bubble, rather than somewhere far more boring - but stable - like Podunk, Manitoba?

My personal emergency fund is invested in a boring, rock-solid high-interest-savings account, not SnapChat stock.

newin96
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Re: Housing Bust 2017

Post by newin96 » 29 Mar 2017 12:33

Spudd wrote:
29 Mar 2017 08:45
newin96 wrote:
29 Mar 2017 08:24
“There are individuals that are going into subdivisions that are buying 10, 40, 50 homes"

If the individuals are "flipping" these holdings, how could this be considered a "capital gain" by the CRA? Where is the expectation of profit other than selling for a profit?

So increasing the capital gains inclusion rate wouldn't impact this scenario. Shouldn't our Ontario Finance Minister know this? What am I missing here?
That's exactly the definition of a capital gain. A capital gain is when you buy something and re-sell it, gaining a profit from the transaction. What do you think a capital gain is?
Actually if there is no reasonable expectation of generating taxable income (e.g. like buying an apple tree to sell the apples), then there is no capital gain, only income upon selling (continuing the example... when you sell the apple tree, it could be a capital gain/loss).
I would surmise that there is no reasonable expectation of an income stream here (unless the properties are held and rented vs. just flipping).
The more flipping done, the more likely it will be considered income and not a capital gain.

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Re: Housing Bust 2017

Post by Spudd » 29 Mar 2017 12:40

newin96 wrote:
29 Mar 2017 12:33
Spudd wrote:
29 Mar 2017 08:45
newin96 wrote:
29 Mar 2017 08:24
“There are individuals that are going into subdivisions that are buying 10, 40, 50 homes"

If the individuals are "flipping" these holdings, how could this be considered a "capital gain" by the CRA? Where is the expectation of profit other than selling for a profit?

So increasing the capital gains inclusion rate wouldn't impact this scenario. Shouldn't our Ontario Finance Minister know this? What am I missing here?
That's exactly the definition of a capital gain. A capital gain is when you buy something and re-sell it, gaining a profit from the transaction. What do you think a capital gain is?
Actually if there is no reasonable expectation of generating taxable income (e.g. like buying an apple tree to sell the apples), then there is no capital gain, only income upon selling (continuing the example... when you sell the apple tree, it could be a capital gain/loss).
I would surmise that there is no reasonable expectation of an income stream here (unless the properties are held and rented vs. just flipping).
The more flipping done, the more likely it will be considered income and not a capital gain.
I totally flaked on the part about running a business vs capital gain. My bad! You are totally right.

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Re: Housing Bust 2017

Post by patriot1 » 29 Mar 2017 13:04


Just a Guy
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Re: Housing Bust 2017

Post by Just a Guy » 29 Mar 2017 17:04

kombat wrote:
29 Mar 2017 12:28
I don't buy it, JaG. Why would I put my contingency fund in a wildly overvalued asset, in a market that experts insist is in a bubble, rather than somewhere far more boring - but stable - like Podunk, Manitoba?

My personal emergency fund is invested in a boring, rock-solid high-interest-savings account, not SnapChat stock.
Liquidity. If need be, you can always unload a property in Toronto or Vancouver. Padunk probably sells 1-2 houses a year. They can afford to take a huge hit on prices, they'll still get out millions in the end...much better than getting nothing.

Putting money into a bank account that can be seized by governments doesn't do you much good. Putting it into a physical asset out of government reach, especially since they don't have mutual agreements (though with Mr. T in charge that could change), and public opinion won't support china or Russia, is the boring safe investment.

ig17
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Re: Housing Bust 2017

Post by ig17 » 29 Mar 2017 23:05

Nice kitchen:

Image

You have 3 options:

1. Use the oven and the doorway, but not the light switch
2. Use the doorway and the light switch, but not the oven
3. Use the oven and the light switch, but not the doorway

2 out of 3 ain't bad.

Sold: $1,000,000

https://twitter.com/RobynUrback/status/ ... 9899070464

kombat
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Re: Housing Bust 2017

Post by kombat » 30 Mar 2017 07:09

Just a Guy wrote:
29 Mar 2017 17:04
Liquidity. If need be, you can always unload a property in Toronto or Vancouver. Padunk probably sells 1-2 houses a year.
There are 10 million square kilometers of middle ground between those two extremes. Fine then, Halifax, Ottawa, Riviere du Loup, wherever. The vast majority of markets in Canada are stable and liquid. That still doesn't explain your theory that for some reason, these sketchy individuals choose the two most volatile markets in the country to store their "go" fund.

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Re: Housing Bust 2017

Post by Just a Guy » 30 Mar 2017 10:32

They aren't just limited to Toronto and Vancouver, or even Canada...they probably buy all over the world, but stick to major cities and probably high end housing as it's easier to manage and again resell. These people probably have never even travelled to these countries, have probably only heard of Toronto and Vancouver...may even think you can drive from one to the other.

They are buying blue chip housing, the same as people buy blue chip stocks.

Of course there are other reasons, our land probably looks really cheap to them, the people selling it to them make bigger comissions on larger properties, etc. Do a google search and you'll find plenty of articles about what's going on in the world...

https://www.bloomberg.com/news/articles ... y-near-you

https://www.theguardian.com/cities/2016 ... estment-uk

True, you can make more if you go to other investments, but they don't because they don't want to get burned. Canada is a backwater country...heck, our biggest neighbours still think we live in igloos, it's high risk investing on the world stage.

Btw kombat, are you ever going to update your thread? I actually find it one of the most educational ones I've ever read. I think it also answers your own question as to why one wouldn't just buy some real estate, even though it's in a major city, a long ways away from where you live because you don't really understand the market.

As I said originally, you're thinking of this from a Canadian perspective. The Chinese and Russians are coming from a completely different world...1 Billion people in an area smaller than our country of 35M. Their top 3.5% wealth owners may outnumber our entire population.

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Re: Housing Bust 2017

Post by kcowan » 30 Mar 2017 11:02

ig17 wrote:
29 Mar 2017 23:05
Nice kitchen:
Image
You have 4 options:
1. Use the oven and the doorway, but not the light switch
2. Use the doorway and the light switch, but not the oven
3. Use the oven and the light switch, but not the doorway
4. Swap the stove and fridge locations.
Sold: $1,000,000
https://twitter.com/RobynUrback/status/ ... 9899070464
Kitchen remodelers do this all the time. No exhaust hood. Just electrical and drywall.
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Re: Housing Bust 2017

Post by gobsmack » 30 Mar 2017 11:06

Just a Guy wrote:
30 Mar 2017 10:32
They aren't just limited to Toronto and Vancouver, or even Canada...they probably buy all over the world, ...
Indeed. The problem is probably even worse in Australia and they do have laws that attempt to limit what foreigners can buy. It is probably happening in many places.

JaG has a point. Their behaviour does not make sense to us but that's because they are coming from a different perspective. Take a look at what happened to Mikhail Khodorkovsky, for instance.

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Re: Housing Bust 2017

Post by kombat » 30 Mar 2017 12:45

Just a Guy wrote:
30 Mar 2017 10:32
Btw kombat, are you ever going to update your thread?
There's not much to tell - we haven't heard anything from the company involved (Syndication and Development) in several years. I've pretty much just given up ever expecting any of that money back. I own an acre of land I've never seen, and can't sell because it's part of a co-op or whatever. I'm not even sure the company exists anymore.

On the other hand, just this week, we actually received a letter from some lawyers regarding the class action lawsuit against the organizers of that Parklane Financial charitable donation scheme, advising us that it's going to the Ontario Superior court, and we could be entitled to a slide of any award. To be honest, I'm not even sure we'd be entitled to a share of it. I know we agreed to some sort of settlement a while ago where we ended up getting back like $12,000 or so, but in return, we agreed to forfeit any further claims. I just can't remember if that was against the CRA or Parklane.

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Re: Housing Bust 2017

Post by gobsmack » 03 Apr 2017 19:08


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Re: Housing Bust 2017

Post by adrian2 » 03 Apr 2017 21:32

A million dollar house in the Greater Toronto Area.
1MM.png
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Re: Housing Bust 2017

Post by kcowan » 04 Apr 2017 09:46

Looks like GTA is still 5 years behind GVA:
Our neighourhood
Cooled off by the 13% tax.

Condos going for $1100/sq.ft on the north shore.
For the fun of it...Keith

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Re: Housing Bust 2017

Post by adrian2 » 03 May 2017 14:37

A contrarian view on Canadian housing
Ernest Wong, of Baskin Wealth Management, wrote: The most common explanation for why GTA housing is “unsustainable” is that it has risen beyond household income levels. Many economists state a relatively arbitrary figure of 3x gross household income as a reasonable benchmark for housing prices. The median home in Toronto is now priced at around 7-8x the median household wage.

Here are some housing prices for other cities around the world by comparison:

Image

What this shows is that from an economics perspective, there is no particular reason why housing has to be affordable for the average person. Real estate in Hong Kong has been expensive since the handover in 1997, and continues to be exceptionally expensive. In desirable places where people want to live, it is natural that good real estate is expensive. Short-sellers frequently counter that Toronto is not a world-class city, like London, Tokyo, or New York, in which case I would suggest that they just come here and visit the city, which is consistently ranked as one of the best cities in the world to live. I don’t see Detroit on any of the “best places to live” lists.

[...]

So what does this all mean? Housing prices are expensive not because housing itself is in a bubble, but because all asset classes are expensive. Housing prices might still fall 20% or 30% perhaps due to government intervention, but the evidence shows that despite being increasingly unaffordable for new home buyers, the current expensive housing prices are rational, and should be expected in the low interest rate environment. Canadians are also taking on record amounts of debt, but again, with interest rates so low, their ability to service the debt has remained unchanged.

Until rates rise materially, I would not count on being able to buy a detached house in Forest Hill for $500,000 for the foreseeable future.
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Re: Housing Bust 2017

Post by patriot1 » 03 May 2017 20:51

Ernest Wong, of Baskin Wealth Management wrote:
03 May 2017 14:37
Housing prices are expensive not because housing itself is in a bubble, but because all asset classes are expensive.
Nonsense. Net rental yields for RE are at historic lows compared to yields of other asset classes. There are plenty of quality stocks with P/E below 20 or even 15, while RE in the bubble markets is 30 or over. Net rental yields are low compared to bond yields for that matter - you cannot rent out a property in the bubble markets at an operating profit even with today's mortgage rates.

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Re: Housing Bust 2017

Post by nisser » 15 May 2017 20:40

I've been thinking of purchasing a home in Calgary. We currently carry two mortgages on two different condos. We can easily carry the additional mortgage as we're both high-income earners but I'm not really sure what to think of what will happen to the market going forward. Toronto/Vancouver seem outrageous but then again they've seemed that way for the past 5 years. My worry is that some of that outrageousness may spill over here.

Calgary is somewhat interesting in that there are extreme price differences depending on where you want to buy. Inner city you can easily spend a million. A bigger house would cost you less than half of that in the suburbs but I'd rather die than drive that every day. Moreover, you have people making minimum wage and then others that are bringing in 200k for silly "analyst jobs". If oil ever picks up there are a ton of people that can and are willing to throw money in the inner city. I know that fearing about "being priced out" is what gets markets to bubble but even if some of the housing thirst spills over into Calgary, it has a lot of room to grow. And and unlike other parts of the country, I think it has the income to support it.

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