Smoke and mirrors practices among Chinese business and government may have surfaced again as Chinese builders get dangerously close to defaulting on bonds.
To summarize, Chinese developers have been aggressively strengthening their land holdings of Chinese real estate through acquisition of debt. Companies, such as China Vanke and China Evergrande Group have relied on support of stock investors to make this happen. However, this support is now on the decrease as China’s economic growth slows and policymakers pursue a financial deleveraging campaign.
In the past year, 75 percent of Chinese developers have seen their default risk climb. Zhonghong Holding Co. is now has overdue debt of $3.5 billion yuan. Earlier this year, Zhonghong had defaulted on more than US$174 million in debt.
In total, it is estimated that Chinese builders will have to pay back US$96 million worth of bonds domestically and internationally through 2019.
Paul Lukaszewski of Abertdeen Standard Investments, told Bloomberg that he expects delinquencies to increase moving forward. Especially, companies that have financed themselves on a shorter-term basis are increasingly at risk of potential defaults.
Investors are nervously watching these Chinese developer stocks and for good reason.
On the other hand, Canadian real estate has shown a 20 year appreciation in value and continues to offer a safe and direct investment option. Even with a 15% foreign buyer’s tax, Ontario real estate continues to be among the most attractive in the world. For little know tips and facts on Ontario Foreign Buyer’s Tax exemptions refer to my video with Mark Weisleder. Mark is a prominent Toronto Real Estate Lawyer and he shares important to know details of the Ontario Real Estate Foreign Buyer’s Tax.
For you real estate needs: Buying, selling, investing or managing, contact me at 416-564-0245.
Baldo Minaudo, M.B.A., Broker, Real Estate Homeward Brokerage
Upper Beaches Open House This Weekend
Join us for an Open House in the Upper Beaches at 397 Kingswood Rd. Come experience this old world charm and comforting character. Well maintained home ideal for a young couple or young family with short commute to downtown and all of the wonderful activities one would expect to find in the area near Victoria Park north of Kingston Rd.
I will at the open house from 2:00 p.m. – 4:00 p.m. both on Saturday and Sunday, Kelly Boone will be hosing Saturday from 12:00 p.m. – 2:00 p.m., Lucia Delange will be hosting Sunday from 12:00 p.m. – 2:00 p.m., and Joanna Ionescu will be hosting Sunday 4:00 p.m. – 6:00 pm.
Offers are will be reviewed on April 23 so don’t miss your opportunity this weekend!
Note: the pictures have been modified to give you a better visual
UPSCALE UNIT: 95 Prince Arthur Ave Condo Unit in Annex near Yorkville. Spacious (~900 s.f.), 1 Bedroom plus Den on 2nd floor of well-managed building in upscale, professional neighbourhood near U of T, Yorkville, TTC, Royal Ontario Museum (ROM), Restaurants, and much, much more. Ensuite laundry, Central Air, Storage Locker. INCLUDES WATER AND ELECTRICITY. This is a fantastic unit at only $2500. You won’t find better deal. Looking for quality tenant for minimum 1 year lease.
Please contact me at 416-564-0245 if you’re interested.
Please contact me at 416-564-0245 if you’re interested.
This month the Office of Superintendent of Financial Institutions for Canada is finalizing changes in legislation that will include requiring those that purchase a home with a minimum down payment of at least 20%, not needing mortgage insurance, to prove they could still afford their mortgage payments if interest rates were 200 basis points (two percentage points) higher than the rate they negotiate.
Jeremy Rudin, the Superintendent of Financial Institutions, told reporters. “But we do know this: Housing prices are still near their all-time highs, and mortgage rates are still near their all-time lows. And while sound underwriting is always important, it’s never been more important than it is now.”
Though OSFI, nor the banks have stated that interested rates are headed 2% higher, the fact that they are stress-testing for this to happen, tells me that they are planning for it to happen.
Meanwhile, the Bank of Canada has already announced that they are expecting to increase interest rates again later this month.
Banks have already tightened their lending policies and I’m getting reports of strong applicants having their mortgage applications turned down by the banks.
Record Toronto home prices may have tipped the scales for those looking to make significant lifestyle changes. A few months ago, when the Toronto housing market was at its hottest, I noticed individuals selling their Toronto homes with no intention of getting back into the market. Instead they were deciding to rent in Toronto and invest their money in recreational properties to enjoy a different lifestyle.
Discussions with real estate professionals in caribbean countries revealed a sharp increase in the proportion of their recreational properties being sold to Torontonians. Word from luxury real estate professionals is that three Toronto families have purchased homes on one street alone at the luxurious Albany Club Resort Community in the Bahamas developed by Joe Lewis. It seems that countries that respect privacy and have reasonable tax structures, such as Belize, Panama and the Bahamas are attracting many well-to-do Torontonians.
A few years ago, many high-income earning Canadians had left Canada to reside in Asian countries with lower taxes. One MetroActive member was able to save over a million dollars in taxes and invested that extra money in Asian recreational rental properties which have been providing him with a net 10% annual return, not including the capital appreciation. He comments, “Why would I pay 54% in income taxes of what I earn above $244,000 and then have to pay 13% in HST when I spend what’s left.”
Recent socio-economic changes in Canada, and specifically Toronto may be adding to the desire to make these lifestyle changes. Concerns over record-level spending at municipal, provincial and federal levels, combined with deterioration of civil rights and legislation to accommodate special interest groups at the expense of the majority may have tipped the cart too far.
For some Canadian families, it is about selling their city residence to purchase their dream cabin or cottage, but for others is about escaping the big cities, which have been going through a socio-cultural shift that now supports a much different lifestyle than that which they prefer. Even in Canada, demand for recreational properties is soaring.
According to a survey by Leger for RE/MAX, 28 per cent of Canadian homeowners with children under 18 would consider selling their primary residence to finance a recreational property. Before you get too excited, understand that the key word is ‘would’ not ‘will you sell your primary residence’.
Retirees and those approaching retirement, are putting most of the equity from the sale of their Toronto or Vancouver home into a recreational property. Torontonians are the largest proportion of Canadian snowbirds in Florida with a large presence in Arizona. Canadians have also been investing in Bahamian recreational properties for years, and more recently have been flocking to Panama and now Belize.
A few years ago, I started talking about the retirement lifestyle strategy. In a nutshell, it takes the equity in your Toronto residence and provides you with a recreational property in a warm climate with the potential for both increased cash flow and capital gains. It isn’t for everyone, but if you have a Toronto home it could be your best option.
Contact me for to arrange a meeting to discuss this option. Baldo Minaudo 416-564-0245.