Category Archives: foreign investors

Ontario’s 16 new housing measures

Houses are seen in a suburb located north of Toronto in Vaughan, Canada, June 29, 2015.

The Ontario government has announced what it calls a comprehensive housing package aimed at cooling a red-hot real estate market on Thursday. Here are the 16 proposed measures:

  • A 15-per-cent non-resident speculation tax to be imposed on buyers in the Greater Golden Horseshoe area who are not citizens, permanent residents or Canadian corporations.
  • Expanded rent control that will apply to all private rental units in Ontario, including those built after 1991, which are currently excluded.
  • Updates to the Residential Tenancies Act to include a standard lease agreement, tighter provisions for “landlord’s own use” evictions, and technical changes to the Landlord-Tenant Board meant to make the process fairer, as well as other changes.
  • A program to leverage the value of surplus provincial land assets across the province to develop a mix of market-price housing and affordable housing.
  • Legislation that would allow Toronto and possibly other municipalities to introduce a vacant homes property tax in an effort to encourage property owners to sell unoccupied units or rent them out.
  • A plan to ensure property tax for new apartment buildings is charged at a similar rate as other residential properties.
  • A five-year, $125-million program aimed at encouraging the construction of new rental apartment buildings by rebating a portion of development charges.
  • More flexibility for municipalities when it comes to using property tax tools to encourage development.
  • The creation of a new Housing Supply Team with dedicated provincial employees to identify barriers to specific housing development projects and work with developers and municipalities to find solutions.
  • An effort to understand and tackle practices that may be contributing to tax avoidance and excessive speculation in the housing market.
  • A review of the rules real estate agents are required to follow to ensure that consumers are fairly represented in real estate transactions.
  • The launch of a housing advisory group which will meet quarterly to provide the government with ongoing advice about the state of the housing market and discuss the impact of the measures and any additional steps that are needed
  • Education for consumers on their rights, particularly on the issue of one real estate professional representing more than one party in a real estate transaction.
  • A partnership with the Canada Revenue Agency to explore more comprehensive reporting requirements so that correct federal and provincial taxes, including income and sales taxes, are paid on purchases and sales of real estate in Ontario.
  • Set timelines for elevator repairs to be established in consultation with the sector and the Technical Standards & Safety Authority.
  • Provisions that would require municipalities to consider the appropriate range of unit sizes in higher density residential buildings to accommodate a diverse range of household sizes and incomes, among other things.

Source: The Canadian Press – April 20, 2017

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Impact of Trump win on Canada’s real estate: Time to hunker down in your cottages

U.s. presidential election - donald trump

The world’s collective jaws dropped after the early morning announcement: The next President of the United States is reality-TV star, Donald Trump.

But Trump’s victory in the U.S. presidential race raises more questions than confidence—which was reflected in the greenback’s dip early this morning while safe-haven sovereign bonds and gold shot higher. The market is now reflecting fears of a prolonged global uncertainty over the new presidential leader’s policies.

What happens to interest (and mortgage) rates?

For the last few weeks, analysts were predicting that the U.S. Federal Reserve was poised to gradually start increasing interest rates, to reflect the country’s slowly growing economy. Trump’s win may have scuttled this strategy.

Part of the problem is that Trump’s promise to deport 11 million workers—because they presumably entered the country illegally—will have a dangerous impact on America’s currently tight labour market.

Unemployment in the U.S. dipped to its lowest in June at 4.9%. “The country is entering what economists call full employment,” says Phil Soper, CEO of Royal LePage. “By taking that many workers out of the labour force, Trump could bring business to a grinding halt.” Quite simply, it’s a plan that most business people and many leading economists say is very damaging both to the U.S. and to the Canadian economy.

Remove that many workers from the labour pool and you create a labour shortage, which could prompt businesses to contract and slow down in order to fend-off the quickly rising cost of wages.

To combat a business contraction, the U.S. Federal Reserve may abandon decisions to start raising interest rates. The idea is that by keeping rates low, the Fed will continue to encourage banks to lend money and convince businesses to expand (through the use of cheap credit). But it’s been six years of near-zero rates. For many it was time to start seeing better returns. With prolonged low rates from the Feds, it’s unlikely that the Bank of Canada will increase rates, so we can probably expect a prolonged ultra-low rate environment in both Canada and the U.S.

 

Impact on home buyers: Continued low mortgage rates

For anyone buying a home, Trump’s win may help suppress any potential mortgage rate increase that was on the horizon.

This continued low-rate environment won’t stop the slight uptick in mortgage rates, caused by the recent Federal Liberal mortgage rule changes. However, it may prompt different levels of government to consider alternative methods for cooling heated housing markets. According to CBC.ca, Ontario Finance Minister Charles Sousa believes:

“something has to be done” to help people deal with soaring home prices in Toronto.

Sousa is poised to make an announcement next week as to how provincial government will help first-time buyers in Toronto, without hurting home prices in surrounding areas.

For tips on how U.S. citizens can buy in Canada, visit the BRELTeam’s primer on buying homes in Canada.

Impact on home sellers: Could be a rush to buy in Canada

Trump’s presidential win could be a boon for some home sellers in Canada. We could actually see a surge in demand for Canadian homes, says Soper. “Some [Americans] may be so fed-up that they decide to head north.”

This would certainly bolster “Brand Canada,” says SopeMo, as more demand may help support real estate prices, particularly in larger urban centres. Of course, this assumes the American dollar won’t lose value and remove the relatively high purchasing power a U.S. buyer would have in Canada.

If Americans do decide to move north, sellers in bigger urban centres could see the biggest impact as the U.S. dollar still has about 30% more buying power than the Loonie. Home sellers in Vancouver, however, shouldn’t expect a big uptick in American interest, as the Foreign Buyer’s tax that was announced and introduced this past August, will probably dampen interest in property in the Lower Mainland.

 

Impact on vacation properties: Hunker down

Probably the biggest impact will be felt by vacation property owners. Americans are the largest foreign buyers of Canadian property. “Part of the reason is the relative affordability of our recreational properties based on the strength of the American dollar,” says Soper. But the dip in U.S. currency, could mean a wholesale withdrawal from the Canadian vacation property market—and this could impact Canada’s recreational property market for years.

For instance, Nova Scotia and New Brunswick were extremely popular destinations for Americans prior to the 2008/2009 financial collapse. But after the global credit crunch, cottages and lake-front home prices plunged as much as 60%. Some of these markets are still in the process or recovering, almost a decade later.

 

Impact on house prices across Canada is uncertain

The impact of Trump’s election doesn’t stop there. Pre-election promises to place massive tariffs on Chinese imported goods and to “tear-up NAFTA” could mean trading-wars that could seriously impede Canada’s currently slow-growing economy.

In relative terms, trade is much more important to Canada than to the United States. The Americans can afford to be insular since they have 325 million people in their market to our less than 35 million. “Any protectionist stance from the U.S. would do significant damage to Canada,” says Soper. And any hit in our slow-growing economy could further prolong our climb out of the ultra-low interest rate environment. Worse, it could prompt lay-offs in certain parts of the country, where exports and trade help shape the local economies. This will impact localized housing markets.

Think Alberta and low oil prices, and you get the picture.

Source: Money Sense – by   November 9th, 2016

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Major mistakes investors make when buying U.S. real estate

 

There are still opportunities to take advantage of U.S. real estate, according to one veteran who has penned a guide for Canadians interested in purchasing property down south.

“The number one mistake is they don’t own it the way they need to own it based on their circumstances. For example, they may own it as a Canadian corporation; well, that’s perfectly legitimate in Canada but owning real estate in that way in the U.S. causes double taxation,” Dale Walters, author of Buying Real Estate in the US: The Concise Guide for Canadians, told Canadian Real Estate Wealth. “If you get a U.S. advisor, they may recommend they use an LLC. Hopefully the word is out now that in Canada that would cause double taxation.”

Walters’ book focuses a great deal on tax implications for Canadians who purchase real estate down south as well as information on the best way to own a property.

“The book is informational; it’s a tax book primarily. How do you own real estate in the U.S., what’s the proper way of owning it, the options, what are the tax consequences of the various ways of owning it because each way is a different tax outcome,” he said. “How do you deal with rental income and what are the tax consequences of that. You’ve got potential liability issues, how to protect yourself, non-resident estate tax potential – all of those things I cover.”

It can be daunting to purchase real estate overseas, but Walters argues there are still opportunities for all different kinds of investors; including deals for those looking to own vacation properties, become full-time landlords, and those interested in commercial properties.

There are also various markets that provide different risk profiles.

Walters believes there are two major reasons Canadians are still interested in U.S. real estate: Diversification and the availability of bargains.

“The usual markets that have market appreciation potential which would be, generally speaking, the sun belt. Southern California, Arizona, Texas, and Florida, primarily,” Walters said. “If you’re looking at some higher-risk, possibly higher opportunity, you still have places like Detroit and places like that.”

Source: Real Estate Wealth –by Justin da Rosa26 Oct 2016

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Trudeau government to close foreign-buyers loophole

A broker puts up a For Sale sign before an open house in Toronto in this 2015 file photo. (Darren Calabrese For The Globe and Mail)

Finance Minister Bill Morneau will unveil Monday new measures aimed at slowing the flood of foreign money pouring into overheated housing markets like Vancouver and Toronto, a significant federal intervention in the sector.

Ottawa will close a tax loophole that allows non-residents to buy homes and later claim a tax exemption on the sales, a government source said Sunday. The government plans to make sure the principal-residence exemption is only available to individuals who reside in Canada in the year the home is purchased.

Housing prices have soared dramatically the last few years in the Vancouver and Toronto markets, triggering a vigorous debate about the role of foreign money. British Columbia has responded by imposing a 15-per-cent foreign buyers tax on homes and collecting data on who is buying property in the province. Ottawa has also been preoccupied with the issue, with Mr. Morneau creating a working group to conduct a “deep dive” into the state of the housing market and make recommendations on possible policy actions.

Mr. Morneau will announce new measures to combat offshore speculation, including closing the loophole, in a speech in Toronto on Monday. The moves follow a Globe and Mail investigation that revealed a network of speculators flipping homes for profit and avoiding taxes by classifying them as principal residences.

Under the Canadian tax code, homeowners do not have to report the sale of any property that they designate their principal residence, and do not pay tax on the increased value – or capital gains – of that home. In order to make that designation, a homeowner, their current or former spouse or any of their children must have lived in it at some time during the year for which the designation is claimed.

However, there has been widespread abuse of the exemption by foreign buyers who claim residency either for themselves or their spouses or children simply in order to avoid paying taxes on real estate speculation. Non-resident investors must pay capital gains tax at the time of a sale.

Multiple sources have told The Globe of the widespread abuse of the primary-residency exemptions in the Greater Vancouver area. The Globe has seen hundreds of cases in which homemakers or students were listed as registered owners on multimillion-dollar residential properties.

The new measure would make the exemptions available only to home buyers who are residents at the time of purchase.

The Globe’s investigation discovered these cases usually involve a wealthy breadwinner who earns their living in another country, while parking money in Canada, through buying residential properties. Some of the homes are used by family members; others are simply left vacant.

Several expert sources told The Globe there are two ways to exploit the system – to sell those properties and pay no taxes. In the first scenario, the breadwinner claims to be a non-resident of Canada and pays no taxes here, while their spouse and children buy and sell homes registered in their names. The homes are purchased with money received as a “gift” from the breadwinner. The homes can then be sold tax-free, because the family members claim to be residents of Canada, classify the properties as their principal residences, and therefore pay no tax when they sell.

There is more widespread abuse in a second scenario, according to experts. That is when the breadwinner claims to be a resident of Canada but then doesn’t report their worldwide income to the Canada Revenue Agency, as required by law. Because they claim to be residents, they can sell Canadian properties in their name, tax-free, even if they spend little or no time in Canada.

If these homeowners make their living in China, experts said it’s difficult for anyone to determine what they actually earn, because it’s next to impossible to get tax records from that country, even though China and Canada have a long-standing tax treaty. As a result, experts say, these wealthy people get away with claiming little or no income on their Canadian tax returns, while selling homes tax-free.

Tax accountants and lawyers who handle these cases told The Globe this can be done with multiple properties, primarily because the CRA doesn’t require any resident to report any sale of a principal residence. Taxpayers simply have to fill out a form, but keep it for their own records, instead of submitting that information with their taxes.

Experts have urged Ottawa to require taxpayers to report the sale of all homes, even if they are claiming the principal-residence exemption.

“Everybody’s biggest lifetime gain is from principal residence and [Canada Revenue Agency] is saying if you are a resident it is tax free and if you are a resident we don’t worry,” one Vancouver real estate accountant said Sunday. He spoke on the condition he not be identified out of fear of repercussions.

“So the CRA pushes them into residency claims. A wife and kid are allowed to stay in Canada as a resident and as such they are entitled to tax-free principal residence and as such they don’t have to report it.”

Mr. Morneau announced in June that the government was studying developments in the housing sector, with his department working with Canada Mortgage and Housing Corp. and the Office of the Superintendent of Financial Institutions while consulting with provincial and municipal officials.

In a bid to cool its hot housing market, British Columbia introduced a foreign-buyers tax this summer which applies to the sale of all residential properties within 22 communities of metro Vancouver.

The levy applies to buyers who are not Canadian citizens or permanent residents, and corporations that are either not registered in Canada or are controlled by foreigners, and adds $300,000 to the purchase of a $2-million home.

The CRA says it completed nearly 2,500 audits related to real estate in B.C. and Ontario between April, 2015, and June, 2016, and that the agency plans to do as many or more next year.

Source: SHAWN MCCARTHY AND KATHY TOMLINSON

OTTAWA and VANCOUVER — The Globe and Mail

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Syndicated mortgage a high-risk investment bet – analyst

Syndicated mortgage a high-risk investment bet – analyst

The emerging trend of syndicated mortgages for Canadian condominium units might appear to be convenient for would-be investors, but Maclean’s senior business and finance writer Chris Sorensen argued that the arrangement is a high-risk choice that might even upend the market in the long run.

A syndicated mortgage involves hundreds of individuals lending money—in some cases even as little as $25,000—to a developer “in exchange for a fixed annual interest rate of between eight and 12 per cent over a term of two to five years.”

The popularity of the set-up is such that in Ontario, it has garnered nearly $4 billion in sales in 2014 alone, the latest year with available numbers.

However, Sorensen noted that much of the money in a syndicated mortgage goes to expenses for the development and pre-sale of enough units to convince banks to provide financing. The analyst said that this presents the risk of buyers not getting their funds back should the deal go south.

“Even in a hot market like Canada’s, there are no guarantees a given condo project will get off the ground, regardless of how quickly buyers snap up the units,” Sorensen wrote in an April 4 piece published on the Maclean’s website.

“If something goes wrong with a project, syndicated mortgage investors are subordinate to banks and other primary lenders, meaning they’re further back in line for repayment—assuming there’s enough money left over after other lenders have received their share,” he added.

The analyst cited the observations of Toronto-based mortgage broker John Bargis in proving why the present wave of syndicated mortgages isn’t sustainable in the long run.

“I’ve been exposed to multi-million-dollar projects where things have gone bad really fast. It’s not because it’s not a viable project, but there’s just so many moving parts. You’ve got construction managers, contractors, builders—so many things that can go wrong from an investment perspective or a sales perspective,” Sorensen quoted Bargis as saying.

Despite the dour prospects, Sorensen acknowledged that syndicated mortgages would remain popular among enterprising individuals for the foreseeable future.

“The myriad risks explain why syndicated mortgages pay interest rates approaching double digits at a time when a five-year Guaranteed Investment Certificate, or GIC—a truly ‘safe’ investment—offers only 1.5 per cent annually for a five-year term,” he said.

Source: MortgageBrokerNews.ca by Ephraim Vecina | 13 Apr 2016
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Tax implications for selling a U.S. property

I’m considering selling my property in the U.S. I know I’ll need to pay capital gains on the appreciated value but do I claim the gains in U.S. or Canadian currency?

—Paul and Barb, Fort McMurray, Alta.

Timing is everything, in both comedy and taxes. According to Philippe Brideau, spokesperson for the CRA, both the cost of the property to buy and the proceeds of the sale must be converted into Canadian dollars using the exchange rate at the time of each transaction. You then report the capital gain, or loss, on your tax return based on “the difference between those two Canadian dollar amounts.” But the CRA isn’t the only tax collector to consider. The U.S. also cares about that property sale, explains Kim Moody of Calgary-based Moodys Gartner Tax Law. “A Canadian needs to first report a gain or loss in the U.S. by filing a U.S. tax return—form 1040NR—and paying any applicable U.S. taxes.” Expect to pay a withholding tax to the Internal Revenue Service, which you claim as a foreign tax credit on your Canadian tax return. Now, if this is a place in the sunny south, I hope you get to enjoy one last season down there.

Source: MoneySense.ca – Bruce Sellery February 2016

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A turret is on your wishlist, you say? Here’s your chance (plus, it comes with a massive house)

Royal LePage

Someone who wants to entertain family and friends in a warm and inviting environment — and be surrounded by exceptional craftsmanship — will enjoy this home, says listing agent Anita Rapp of Royal LePage Real Estate Services. “No luxury detail has been overlooked and many of the furnishings were custom made to blend seamlessly with the open family-friendly floor plan.”

For example, a curved couch was designed and built to fit into the window-wrapped turret and will be left for the new owner to enjoy.

The custom-built brick-and-stone home offers more than 7,000 square feet of living space including a finished lower level that has heated floors and a fireplace in the recreation room. A large, classic skylight sends natural light downstairs through the staircase opening.

Royal LePage

Royal LePage The 7,000-square-foot house is on a 74×176 irregular lot in an exclusive neighbourhood.

 

A grand entrance is sure to impress guests. The foyer — at 28×17-feet — has heated marble flooring and white wainscotting. The living room has a fireplace; the dining room also has wainscotting. Both rooms have coffered ceilings that lend a grand feeling; other rooms have elaborate tray ceilings. The main floor is lush with extensive mouldings and a warm palette.

Outfitted for casual dinners or entertaining a crowd, the kitchen has a breakfast area with a rich wood built-in desk with storage and bookshelves and a walkout to a deck.

The 74×176-ft. irregular lot has a completely fenced yard with lush gardens, a pool and a waterfall feature, Rapp says.

Royal LePage

Royal LePage The master ensuite is very spacious and features the same detailing as the rest of the house.

 

The library, family room and master bedroom each has a fireplace for quiet relaxation in front of the fire. A cathedral ceiling lends an airy feeling to the master suite. His-and-hers closets keep fashion plates happy. The large ensuite has an inlay marble floor, furniture-like cabinetry, a standalone tub surrounded by windows, a large glass shower and separate WC.

Each of the bedrooms has a four-piece ensuite, so bathroom lineups are non-exisitent.

A games room with a dance area provides a fun place for young and the young at heart to boogie, and overnight company can enjoy the guest suites. A wine cellar helps makes entertaining a breeze, and to work off the extra glass of red, a gym beckons upstairs.

“Many dollars have been spent on sensational upgrades,” Rapp says.

“My favourite spaces are the family room, with its enormous bowed window overlooking the stone patio and resort-like pool area, and the master bedroom, which has the look and feel of a five-star spa with heated, inlaid marble flooring, a deep soaker tub and a steam shower,” Rapp says.

St. Andrews Windfields
21 Don Ridge Dr. (York Mills Road and Yonge Street)
Asking price: $5.95 million
Taxes: $27,273 (2015)
Bedrooms: 2; Bathrooms: 7
MLS# C3368728

Royal LePage

Royal LePage The tree-cloaked rectangular pool features a trio of waterfalls, a spa and several seating areas.

Source: Connie Adair, Special to National Post | February 8, 2016

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