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
Just released from the Canadian Real Estate Association.
Ottawa, ON, May 15, 2017 – According to statistics released today by The Canadian Real Estate Association (CREA), national home sales declined in April 2017.
April sales were down from the previous month in close to two-thirds of all local markets, led by the Greater Toronto Area (GTA) and offset by gains in Greater Vancouver and the Fraser Valley.
Actual (not seasonally adjusted) activity was down 7.5% year-over-year, with declines in close to 70% of all local markets. Sales were down most in the Lower Mainland of British Columbia, where activity continues to run well below last year’s record-levels. The GTA also factored in the decline, with faded activity compared to record levels set in April last year.
“Sales in Vancouver are down from record levels in the first half of last year but the gap has started to close,” CREA President Andrew Peck. “Meanwhile, sales are up in Calgary and Edmonton from last year’s lows and trending higher in Ottawa and Montreal. All real estate is local, and REALTORS® remain your best source for information about sales and listings where you live or might like to.”
“Homebuyers and sellers both reacted to the recent Ontario government policy announcement aimed at cooling housing markets in and around Toronto,” said Gregory Klump, CREA’s Chief Economist. “The number of new listings in April spiked to record levels in the GTA, Oakville-Milton, Hamilton-Burlington and Kitchener-Waterloo, where there had been a severe supply shortage. And with only ten days to go between the announcement and the end of the month, sales in each of these markets were down from the previous month. It suggests these housing markets have started to cool. Policy makers will no doubt continue to keep a close eye on the combined effect of federal and provincial measures aimed at cooling housing markets of particular concern, while avoiding further regulatory changes that risk producing collateral damage in communities where the housing market is well balanced or already favours buyers.”
The number of newly listed homes jumped 10% in April 2017, led overwhelmingly by a 36% increase in the GTA. Housing markets in the Greater Golden Horseshoe also saw similar percentage increases.
The jump in new listings and drop in sales eased the national sales-to-new listings ratio to 60.1% in April compared to 67.3% in March.
A sales-to-new listings ratio between 40 and 60 is generally consistent with balanced housing market conditions, with readings below and above this range indicating buyers’ and sellers’ markets respectively.
The ratio was above 60% in just over half of all local housing markets in April, mostly in British Columbia and southwestern Ontario. The GTA downshifted into the middle of the balanced range in April, while Greater Vancouver and the Fraser Valley have returned to sellers’ market territory.
The number of months of inventory is another important measure of the balance between housing supply and demand. It represents how long it would take to completely liquidate current inventories at the current rate of sales activity.
There were 4.2 months of inventory on a national basis at the end of April 2017, up slightly from 4.1 months in March when it fell to its lowest reading in almost a decade.
Although new listings surged in the Greater Golden Horseshoe, inventories remain tight at near or below one month across the region. Ontario’s recent changes to housing policy were announced late in the month, so their full effect on the balance between supply & demand has yet to be determined.
Two-storey single family homes posted the strongest year-over-year price gains (+21.8%), followed closely by townhouse/row units (+19.9%), apartment units (18.8%) and one-storey single family homes (17.2%).
While benchmark home prices were up from year-ago levels in 11 of 13 housing markets tracked by the MLS® HPI, price trends continued to vary widely by location.
After having dipped in the second half of last year, home prices in the Lower Mainland of British Columbia have been recovering, are up from levels one year ago, and are now at new heights or trending toward them (Greater Vancouver: +11.4% y-o-y; Fraser Valley: +18% y-o-y).
Meanwhile, benchmark home price gains remained in the 20% range in Victoria and elsewhere on Vancouver Island. Price gains were in the 30% range in Greater Toronto and Oakville-Milton, and ranged in the mid-20% in Guelph.
By comparison, home prices eased in Calgary (-0.9% y-o-y) and Saskatoon (-2.6% y-o-y) and are now about 5.5% below their peaks reached in 2015.
Home prices were up modestly from year-ago levels in Regina (+0.4% overall, led by a 2% increase in apartment prices), Ottawa (+4% overall, led by a 4.9% increase in two-storey single family home prices), Greater Montreal (+3.7% overall, led by a 5.5% increase in prices for townhouse/row units) and Greater Moncton (+4.8% overall, led by a 12.7% increase in prices for townhouse/row units).
The MLS® Home Price Index (MLS® HPI) provides the best way of gauging price trends because average price trends are prone to being strongly distorted by changes in the mix of sales activity from one month to the next.
The actual (not seasonally adjusted) national average price for homes sold in April 2017 was $559,317, up 10.4% from where it stood one year earlier.
The national average price continues to be pulled upward by sales activity in Greater Vancouver and Greater Toronto, which are two of Canada’s most active and expensive housing markets. Excluding these two markets from calculations trims more than $150,000 from the average price.
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PLEASE NOTE: The information contained in this news release combines both major market and national sales information from MLS® Systems from the previous month.
CREA cautions that average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods or account for price differential between geographic areas. Statistical information contained in this report includes all housing types.
MLS® Systems are co-operative marketing systems used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.
The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 120,000 REALTORS® working through some 90 real estate Boards and Associations.
Further information can be found at http://crea.ca/statistics.
For more information, please contact:
Pierre Leduc, Media Relations
The Canadian Real Estate Association
Tel.: 613-237-7111 or 613-884-1460
Information circulating about the significance of foreign buyers on Toronto home prices has been released from many sources. There are strongly opposing viewpoints and some of them are wrong. In this post, I will focus specifically on the impact, or perceived impact of foreign buyers on Toronto real estate.
Toronto home prices have increased aggressively for years. Torontonians wanting to buy their first home are frustrated that prices have gone beyond their reach. The pressure is on as many would-be buyers are turning to the government for answers and solutions. Many believe that it is foreign buyers that lat are pushing up prices beyond what the average family can afford. In fact, as families look further and further to the outskirts of the GTA prices everywhere seem to be skyrocketing.
The Ontario government is now looking at passing a Foreign Buyers Tax in reaction to pressure from Ontarians. Some believe that it is another move by Kathleen Wynne to extract more taxes because she has not explained how she would use that money to make housing more affordable for tax paying Ontarians. So, the assumption is that it is just another tax grab.
The Real Estate Industry has been claiming that foreign buyers are only representing 5% of the buyer group. Then they go on to say that a foreign buyers tax is unnecessary and would hurt the real estate market. If in fact, foreign buyers are only 5% of all buyers, then a tax on them shouldn’t really affect the market. So, why are they so concerned.
To begin with, there is really no way of knowing how much of the overall market foreign buyers represent because there is no tracking or reporting in place. Even if the activity was being tracked, the individuals may not necessarily be accurately declaring their transaction. I will discuss this in greater detail in a bit.
Having represented clients in several bidding wars over the last year, I was able to gauge who the other potential buyers were. By defining ‘Foreign Buyers’ as individuals or families with their head, who spend most of their time overseas or have a significant, if not all of their business activities overseas. Based on this definition, I can comfortably state, that in regards to the deals I was involved with, foreign buyers were a significant force. In some cases with at least 12 potential buyers they represented over 50% of the offers.
However, that’s not the most important thing. The real reason I saw some home selling for what seemed unjustifiable prices was something that most people would not expect. The foreign buyers were offering bids way beyond what was necessary to get the home.
For example, in one situation involving about a dozen offers. The winner offer was $100,000 (10%) over the next highest offer. I was told it was a foreign buyer who wanted to buy a home specifically in that neighbourhood because of the high percentage of Chinese living there and the strong reputation of the local school. I don’t know if the buyer realized how much more he was paying. I also don’t know how much and what kind of research the buyer’s realtor undertook and shared with the buyer.
This is just one example of how foreign buyers have, unintentionally, pushed up the prices, especially in some neighbourhoods.
Now, back to not accurately declaring their real estate activity, let’s say, for example, a student wants to come from overseas to study at an university in Toronto. Having no money, his family friend could give him some or all of the money so the student can purchase a condo in his name and live in it for the three or four years. The friend could then have a legal side agreement where it is understood that the friend owns the condo, though it is in the student’s name. Since the student resides in it, when he sells it at a much higher price, he doesn’t pay any capital gains, and therefore, neither does his friend the real owner. The student would do this in exchange for not having paid rent, or paying reduced rent for that period.
This also leaves the door open for money laundering.
A better solution for the Ontario government would be to have a non-citizen buyers tax. In other words, if someone is here for 3 or 4 years as a student, they would still have to pay the foreign buyers tax. To work effectively, the Canadian government would have to do a better job at qualifying, screening and orienting new Canadians.
Many homes bought by foreign buyers are converted into student housing on a room-by-room basis. Foreign students don’t declare rent they pay as they’re not supposed to be working and therefore the landlords are collecting rent, which they may not be paying taxes on. There are homes in Toronto with as much as 8 or more rooming tenants. At $800 per room, 8 rooms would produce $6,400 every month. That gives the owners justification for paying much more for the house than say an average Torontonian working in an office and paying full income tax would be able to afford.
The rooming house scenario also applies to AirBNB rentals, which the CRA has already begun to target.
So you see, the whole point of percentage of buyers of Toronto homes that are foreign isn’t what we should be looking at, but rather the impact they have.
The bottom line is that average citizens are upset because they can not afford to buy a home to live in. In order to earn enough to afford a mortgage at this prices, individuals would be falling into the 54% income tax bracket. Then they pay 13% HST (VAT) on what they spend, which is pretty much all of what they earn after mortgage payments. With a 67% tax and keeping only 33% they simply can’t afford to buy their first home.
On the other hand, they are seeing new Canadians, foreign students and foreign buyers buying homes and prospering. Many are scratching their head trying to figure out how they are doing it. I hope this post will help discover some explanations.
Please contribute your comments and knowledge on the subject.
Baldo Minaudo, M.B.A.
Real Estate Broker in Toronto
Yesterday, the Tronto Real Estate Board reported that GTA residential sales through the MLS® System in March 2017 reached an average price of $916,567, up 33.2% from March 2016. The number of units sold increased to 12,077, versus year ago of 10,260 (up 17.7%) and surpassed the year-over-year increase in new listings of 17,051 (up 15.2%). This shows that the market continued to tighten.
Detached homes continue to lead the sales growth, followed closely by condominium apartments. What I’m seeing is lots of young individuals looking to condominiums for their first purchase, and then when they start their family, looking for detached homes or semi-detached homes depending on their finances.
Toronto Real Estate Board President, Larry Cerqua, stated “It has been encouraging to see that policymakers have not implemented any knee-jerk policies regarding the GTA housing market. Different levels of government are holding consultations with market stakeholders and TREB has participated and will continue to participate in these discussions. Policy makers must remember that it is the interplay between the demand for and supply of listings that influences price growth.”
Strong competition between buyers continues to drive high levels of price growth, but who are these buyers, how are they able to pay such high prices and why are they taking on such purchases? As a Real Estate Broker, I get to see who many of these buyers and potential buyers are. If government wants to proceed from an informed position, they should speak directly with the Real Estate Agents and Brokers. But, will they like what they hear?
What do you think should be done to make GTA homes more affordable for working Ontarians?
Baldo Minaudo, M.B.A.
Real Estate Broker, Real Estate Homeward Brokerage