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Baby, we got a bubble!?

^^^
Great analysis as always cdr.

Regarding the condo, I agree not knowing which floor may easily make $200 difference if one is on 10 and the other at floor 40. Add the fact as you say that in 3 months if the place looked less like a construction zone and also given that the cheaper units probably disappear first... that may also explain the difference. Finally, if one sits an extra month vacant, $200/month does not make up for the $2500 lost in the first instance though in year 2 you will be ahead.

Insurance as a landlord on a condo is about $200-250/year so $20/month will cover that at least in my experience. I think $75 is a bit high.
Minor point however. For the short term however;3.5% 5 year is right so I appreciate you lowiering 5.25% to approximately 4%. At renewal in 5 years though 5.25% would likely be a good rate. If rates are lower, it will be because the economy has not recovered and in that scenario I would be fearful that the value of the condo will have dropped or at the very minimum not have escalated.
 
i find the examples of a 852 sq ft 2 bedroom unit with parking, they were renting out for $2500 in October, $2600 in November, and $2700 in December abit deceptive:
- this isn't new ... typical rents for the dt core ranges from $30-36 psf gross (no parking, + utilities, excluding Yorkville). this has been the case for a decade.
- parking is included with unit, that has a value of $150-200 / month ... i typically would not include that in the calculation psf
- without knowing full details as to what floor, upgrades, views, exposure, any locker, etc .... these will factor into the rent and desirability
- we're not talking about the same unit, perhaps identical layout but not the SAME one. it's not like the same tenant was paying $2500 in October, $2600 in November, and $2700 in December.
- M5V is in midst of completion/registration. from October to December, were more condo amenities completed/finished and made the building more presentable than earlier. there is a discount for living in a construction zone.

working backwards, let's see if the math works:
- 852 sf ft x $700 psf = $596,400
- less 20% dp (since that's the example he used for the SFH) = $477,120 mortgage
- $477,120 mortgage @ 5.25% for 5/25 yr (typical offering by big 5 banks) = $ 2,843 mort / m
(if it was 25% dp = $447,300 mort @ 5.25% 5/25 = $ 2,666 / m )

- property taxes @ 0.8%(current mill rate) = $4,800 = $400 / m
- maintenance fees @ $0.52 = $443 / m + $50 / m parking maintenance fee
- property insurance = $75 / m


in the above, the mortgage already equals or exceeds the rental income.
property taxes, maintenance fees and property insurance haven't been included and that's around $950+/m negative cash flow; or 35% more than current rents.

i guess that's why AL tried to allude that rents went up 8% in 3 months.
are we to extrapolate (erroniously) that on an annual basis that will be 32% ?!?



let's try the Cabbagetown semi example:
$600K - 20% dp = $480,000 mortgage;
- $480,000 mortgage @ 5.25% for 5/25 yr = $ 2,860 / m; that already exceeds the $2,450 rent.

- property taxes @ 0.8%(current mill rate) = $4,800 = $400 / m
- property insurance = $75 / m
- garbage + water utlities = $50 /m
- while there are no maintenance fees, since the owners are out of the country, one may have to pay for lawn maintenance and snow removal since res tenants leases don't usually need to do this = $125 /m

working backwards, $2,450 rent - $650 TMI costs = $1,800 net rent;
the only way the monthly mortgage would be that low is if the $480,000 mortgage is @ 1.00% for 5/25 yr ! ! !

http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp

Big banks are still offering 3.19-3.39. I have dealt with a couple recently. They don't like to advertise their lowest rates. Plus property values are not based on re-sale value. Sometimes there is a 30-50% difference from what a property is assessed at and what it sells for.
 
I think from seeing the numbers its a bit biased to choose 3 rental properties and make a conclusion that the rates have increased 32% in three months. I agree that two bedrooms have become more attractive for some because it is cheaper to pool your resources. I haven't seen a bachelor lease for 1500 so I wonder if this is a private listing. With any new build to use specific numbers to justfy a point isn't the best platform. I prefer to look at locations a year after occupancy. It gives you a better idea of what this product can command consistently. Some units were leased during a construction zone, and others were leased when everything was new and shiny. People love being the first to move into a place. After the initial appeal wears off you get a real good idea of what a buillding can command.
 
Big banks are still offering 3.19-3.39. I have dealt with a couple recently. They don't like to advertise their lowest rates. Plus property values are not based on re-sale value. Sometimes there is a 30-50% difference from what a property is assessed at and what it sells for.



$480,000 mortgage @ 3.39% for 5/25 yr = $ 2,369 / m;
however, the total interest paid over 25 years, assuming (AND THAT'S A BIG ASSUMPTION) that one would be able to get 3.39% for the ENTIRE 25 years amortization, would be $230,614

$480,000 mortgage @ 3.39% for 5/30 yr = $ 2,120 / m;
however, the total interest paid over 30 years, (again assuming, AND THAT'S A BIG ASSUMPTION, that one would be able to get 3.39% for the ENTIRE 30 years amortization) would be $283,111 ... that's $52.5K more for the privilege of a longer amortization.

if one was to take the lower assessment value (however, remember the new ones are coming up 2013) and interested's comment about condo insurance:
- property taxes @ 0.8%(current mill rate) = $2,400 = $200 / m
- maintenance fees @ $0.52 = $443 / m + $50 / m parking maintenance fee
- property insurance = $20 / m

.... TMI = $713 / m
... that's still $100-600 negative cashflow per month, with A BIG ASSUMPTION, that one gets 3.39% for the ENTIRE amortization = NOT GOING TO HAPPEN !
 
From the Globe and Mail today: Very apropos cdr's comments about interest rates:

http://www.theglobeandmail.com/repo...uld-come-sooner-than-expected/article2358340/

Many observers believe Bank of Canada Governor Mark Carney won’t raise rates until next year or possibly into 2014. - Many observers believe Bank of Canada Governor Mark Carney won’t raise rates until next year or possibly into 2014. | Edgard
Why a rate hike could come sooner than expected
jeremy torobin
OTTAWA— From Monday's Globe and Mail
Published Sunday, Mar. 04, 2012 7:17PM EST
Last updated Monday, Mar. 05, 2012 6:43AM EST








There is almost no chance that Bank of Canada Governor Mark Carney will use a decision this Thursday to break what has become the longest stretch without an interest rate hike since the 1950s. But even though higher rates are the last thing struggling provinces like Ontario need, if the global backdrop continues to stabilize Mr. Carney’s first step off of the sidelines could come sooner than many think.


Mr. Carney has long pointed to the Canadian dollar’s “persistent strength” and “competitiveness challenges” faced by exporters as reasons to keep monetary policy looser for longer. Traditional markets and key sectors are still in recovery mode, and an easier lending climate gives manufacturers a much-needed buffer which could, in theory, minimize the gulf between Central Canada and provinces that are benefiting from booming demand for oil and other commodities.

Still, that doesn’t mean Mr. Carney is willing to provide an indefinite cushion for industries and regions that may never regain their past form, especially if inflationary pressures in parts of the country that are doing much better threaten to spread.

In a report last week, CIBC economists Avery Shenfeld and Warren Lovely concluded that while Mr. Carney can use low interest rates as a buffer to buy provinces like Ontario more time to adapt to a loonie poised to stay near or above parity with the U.S. dollar, the province’s reduced status in the country’s economic order is not likely to be a short-lived phenomenon.

“Expect this underperformance to continue, with average annual real (gross domestic product) growth in Canada’s industrial heartland – Ontario and Quebec – likely to trail that seen in Canada’s most resource-rich regions by at least 1 per cent over the coming five years,” the economists wrote. “Even a sidelined Bank of Canada won’t prevent a further hollowing out.”

Indeed, a national central bank can only do so much to mitigate problems in one region or industry.

Doug Porter, deputy chief economist at BMO Nesbitt Burns – and the author of another study last week that outlined the effects of the currency’s 10-year climb from a low of 62 U.S. cents – noted in an interview that since conditions in Central Canada are likely to be tough no matter what the central bank does, Mr. Carney may have to respond to rising inflationary pressures elsewhere. Already, for instance, labour shortages are pushing up wages in Alberta and Saskatchewan.

“Under current trends, the regional divergences might just widen over the next five years rather than narrow,” he said. “If some of those other things start to ease – the improvement we see in Europe continues, the U.S. continues to gain traction – then I don’t think the regional divergences are enough to keep the Bank of Canada on hold.”

Mr. Porter recalls the height of the oil-sands boom during the years just before the financial crisis hit. At the time, then-Bank of Canada Governor David Dodge often had to remind central Canadian critics of his rate hikes that his job was to set policy for the whole country, and inflation in Alberta was threatening to spread across the country, regardless of the havoc higher rates were wreaking in Ontario.

“We could end up with a very similar issue to what we faced back in 2005-2006, and that is the Bank tightening at a time when Central Canada, or even Eastern Canada, is well below potential and is still weak,” he said.

To be sure, the logic of lower-for-longer is compelling. Europe’s debt crisis is far from settled. The U.S. rebound, while appearing more secure of late, faces the prospect of high oil prices that could squeeze Americans so much at the gas pump that they’re forced to put off spending on other things, like cars assembled at Canadian plants. Plus, no matter who wins the presidential election, the U.S. is in for some brutal fiscal restraint in 2013.

And if the U.S. Federal Reserve sticks with its pledge to keep rates at near-zero until 2014, moving much past 1 per cent could ignite the loonie – already lofty due to energy prices and Canada’s relatively new status as a “safe haven” for investors – exacerbating Canada’s growing regional divide all the more.

Mr. Carney has argued repeatedly that his “flexible” mandate affords him leeway to take longer than usual to return inflation to his 2-per cent target if the economy is too fragile for rate hikes.

However, he has also stressed that the same flexibility cannot be overused. And in a speech last month on the topic, he also reiterated that he anticipates a “gradual reduction” of monetary stimulus – a statement normally reserved for the bank’s formal forecast papers.

“For him to say that in a speech, I thought it was a subtle way of saying, ‘You’ve got to keep us on the table. We’re not in the same league the Fed is,’ ” Mr. Porter said. “If they have another nod to that in [this Thursday’s] statement, I think it’ll be a pretty strong signal.”

For most observers, Mr. Carney is likely on hold until late next year, and possibly into 2014. But some say not to be shocked if he raises rates at least once in the last few months of 2012. Apart from only being able to shield Central Canada’s manufacturing base from higher borrowing costs for so long, Mr. Carney also has indicated escalating concern about Canadians’ record levels of household debt. So far, the pace of borrowing has slowed, but not by as much as you might expect, considering the parade of warnings over the past two years.

As economists are fond of saying, it is only a matter of time before Mr. Carney concludes that actions speak louder than words.

“There’s more probability that the Bank will surprise us with a sooner increase in rates,” said Charles St-Arnaud, a Canada analyst at Nomura Securities in New York. “As soon as all the uncertainty is removed, they could shift gears very quickly.”
 
February numbers are in, are in, with the average price of detached homes at 818K, are we in Vancouver's territory?

No. 416 detached homes will continue to boom so long as they can be torn down and a 50 storey building plunked down into that lot. The value of the building is a fraction of the value of the land under it.

I would be interested in seeing a total number of detached in 416 from 2005 to today. Would there be the same number or a net decrease (new ones in Scarborough and a few less downtown).
 
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Why is Canada keeping out China's rich?

http://www.nationalpost.com/related/topics/Canada+keeping+China+rich/6244903/story.html

I find this quote quite accurately captures the irony of the sort of self-hating ignorance that Toronto detractors regularly present in civic discussions. The world views us as a pancea while we worry about bike lanes and pollution from idling carpoolers.

"I was considering my son's education and the fresh air, because he has asthma," Ms. Li said. Her concerns with pollution are shared by a growing number of Chinese elite, as are fears of political instability, and security of their assets.

"We worked very hard on our business and we earn every penny. I don't want somebody to take it back," she said, indicating the family made its money from a electrical component manufacturing business.

Why is Canada keeping out China's rich?

Tim Shufelt, Financial Post · Mar. 3, 2012 | Last Updated: Mar. 3, 2012 3:12 AM ET

Masses of wealthy Chinese, their money huddled in less-than-secure foreign assets, are yearning to breathe the free air of Canadian capitalism. But Canada doesn't seem to want them much.

Brimming with the spoils of a historic economic expansion, Chinese millionaires by the tens of thousands wish to make Canada home for their families and their private wealth.

The Canadian immigration system has a program in place to grant rich foreigners permanent resident status, provided they first hand over a six-figure sum to the federal government.

By almost all accounts, that program is broken. It's rife with delays, an enormous backlog of files and misallocation of funds - all providing fodder to critics who characterize the Federal Investor Immigrant Program (FIIP) as a cash-for-visa scheme that enriches banks while providing little benefit to the country.

Two years ago, the federal government suspended the program, then reinstated it with double the financial requirements and a cap on new applications of just 700 a year.

Would-be immigrants filed their submissions to an intake office in Sydney, N.S., beginning July 3. The quota was reportedly met soon after the office opened in the morning. Of the 700 applicants, 697 were from China. FIIP was then effectively shut down for another year.

Proponents of so-called "economic immigration" say Canada is forgoing billions in foreign capital and untold economic growth by limiting the intake of rich newcomers.

Number of investor immigrants approved, 2010: 3,223 Number of newcomers in 2010, including dependents and spouses: 11,715 Amount of money collected federally, 2010: $680M Number of U.S. dollar millionaires in China: 960,000 Percentage of Chinese millionaires considering or in the process of emigrating: 60% Among those seeking to emigrate, those indicating Canada as a top choice: 37%

Canada approved 3,223 applications in 2010, representing a total of 11,715 people including children and spouses. That's a paltry figure in the context of Canada's annual immigration quota of 250,000, says Richard Kurland, a Vancouver-based immigration lawyer and policy analyst.

"It just makes sense to take their money and allow them to consume Canadian goods and services at a time we need it most," Mr. Kurland said. "They're buying houses, they're buying cars, they're buying consumer goods." Just what finance ministers across the country are hoping consumers start doing more of.

The Li family (who asked that their real name not be published) is one example of instant economic benefit. Since arriving in Montreal through Quebec's version of the immigrant investor program in 2005, the family purchased a home in a wealthy suburb of the city, enrolled their son in a private school and acquired a hotel employing about 20 people.

"I was considering my son's education and the fresh air, because he has asthma," Ms. Li said. Her concerns with pollution are shared by a growing number of Chinese elite, as are fears of political instability, and security of their assets.

"We worked very hard on our business and we earn every penny. I don't want somebody to take it back," she said, indicating the family made its money from a electrical component manufacturing business.

Poaching China's wealthy is also a short-cut to establishing economic ties with China, said Louis Leblanc, head of immigrant investor programs at National Bank Financial.

"Canada being a resource-rich country dominated by exports, the beauty of this is that you're creating golden bridges throughout the world with these wealthy families coming into Canada," he said.

In limiting new FIIP applicants, the federal government cited a backlog of more than 15,000 files.

But those familiar with Canada's economic immigration system say of equal concern is how immigrant money is distributed.

"The main issue is one of financial accountability," Mr. Leblanc said. "It's very hard to figure out how the money is used under the FIIP."

The program requires applicants to prove net wealth of at least $1.6million, in addition to an up-front investment of $800,000 to the federal government, to be refunded after five years without interest. Ottawa then distributes that money to participating provinces, which are mandated with funding projects to create jobs and subsidize economic development.

The program generated about $680-million in 2010, about 40% of which went to Ontario, another 20% to British Columbia, and the rest to the other provinces and territories. The link between incoming foreign capital and funding for Canadian enterprises through the provinces is crucial to the rationale behind the program. But the provinces have struggled to find ways to appropriately invest this money.

"Some of the provinces aren't really distributing it; they just hold it for five years," Citizenship and Immigration Minister Jason Kenney said in an interview.

"Sometimes, they don't even pretend to do anything with it. I think Ontario's sitting on $80-million or more of investor immigrant funds. They haven't even set up the pretense of a dedicated purpose for those funds," he said.

Ontario says it has made recent improvements to its program, signing an agreement with Infrastructure Ontario, lending the agency $149.2-million for 34 projects that generated almost 5,000 jobs. Another $34.7-million funded emerging technologies through the Innovation Development Fund.

Mr. Kenney called that use of funds "notional," merely "offsetting their interest costs for five years for that money."

That charge is one of many leveled by the program's critics.

"I'm surprised they decided to cap it; it might be better to just end it," said Jeffrey Reitz, a sociologist at the University of Toronto who focuses on immigration. "They're basically buying visas. There's little way around that. And I think it strikes people as inappropriate.

"That's the reputation abroad, too. That this is a way the Canadian government allows rich people to buy their way in."

Some of the program's biggest supporters, meanwhile, are participating financial institutions, he explained. The $800,000 up-front loan flows through a facilitator - typically a Canadian bank - then on to the federal government. But the vast majority of investor immigrants opt for a financing program offered through the banks, which front the loan requirement. The immigrant pays the bank a fee, which can amount to $200,000 or more. "That's the end of the obligation," said David Cohen, an immigration lawyer based in Montreal. "The applicant never gets his money back. It cost him $200,000 to do this." Banks also receive a commission on each file, from which agents overseas charged with finding candidates earn their own fee. "It's a gold mine for the facilitators and for the agents," Mr. Cohen said.

That system is partly to blame for the deluge of applications, Mr. Kenney said. As are the relatively low financial requirements. While he says he still sees merits to the investor immigrant program, the seemingly unlimited demand is indication that the program is still priced too low, he said.

"The program is underselling Canada."

The failings of the federal program, however, shouldn't stain economic immigration altogether, Mr. Cohen said. "There's no reason to throw out the baby with the bathwater."

Quebec's program, which operates independently of the federal program and isn't subject to the cap, has established an effective system of distributing its immigrant loans. "It works," Mr. Cohen said. "It's one of the few programs that nobody bitches about in Quebec." Through Investment Quebec, the banks recommend grants to companies with net assets under $35-million seeking help with projects to expand their business. The same kind of system could be applied federally through the Business Development Bank of Canada, he said. Reducing the federal backlog need not be a monumental problem, either.

Raising the financial requirements again or asking for a deposit could limit applicants to those serious about immigrating to Canada. Alternatively, the federal government could consider simply ignoring the backlog. Chinese millionaires with their minds set on Canada could reapply under heightened financial requirements.

"I can't get excited about a backlog of millionaires, when they can easily access the front of the queue by paying current market value," Mr. Kurland said.

Once the federal government fixes the program's failings, it can capitalize on the economic potential of the elite exodus from China. A recent survey found that 60% of China's U.S. dollar millionaires, now numbering almost one million, intended to or were in the process of emigrating.

"The day you're convinced that passive economic immigration is of economic benefit, why cap it?" Mr. Leblanc said.

Undoubtedly, there are "millions of millionaires" eager to relocate to Canada, Mr. Kenney said. But their role is limited in countering skills shortages.

" Lending the government $800,000 for five years doesn't respond to labour shortages and it doesn't necessarily even respond to the broader demographic challenges," he said.

But economic immigration is becoming a global reality. More and more western countries are courting the wealthy of the developing world through their own programs, of which Canada is a pioneer. Already, the United States, Britain and a handful of other developed countries have followed Canada's lead.

Canada will lose out at its own game if it doesn't get the FIIP in shape, Mr. Leblanc said.

"Over the next two years, you'll have at least half a dozen new countries going after the very upwardly mobile wealthy individuals who want access to new citizenship."

tshufelt@nationalpost.com
 
In summary, personally I think that home price valuations in Toronto should be about 5-15% lower than where they are currently. However, although I wouldn't count on it, I still think a soft landing is plausible if interest rates rise slowly in the coming years.

BTW, a house nearby that I had been watching that was listed at $2.25 million and then dropped to $1.99 million has recently sold. I had told my neighbours that my guesstimate for a reasonable price on that home would have been closer to about $1.9 million. I wonder if I was in the right ballpark, based on purely a guess on the location and seeing only the exterior of the home and pictures of the interior.
It went for $1.85 million.

So, that's about $0.4 million lower than the list price. IOW, the list price was 21.6% higher than the actual sale price. What were they thinking?

Frame of reference: $1.85 million is already still the most expensive house ever sold on that street.

Just curious, what is considered the expected price for GTA?
Between 5% and 15% below where prices are now. :)

BTW, we just bought a condo for a family member. Got it for about 8% below list, but the asking was a few percent too high to begin with IMO. I was expecting to get it for about 4% below asking, but it was a motivated seller and we made the offer very clean.
 
Little off topic but there's another $28 million condo for sale:

http://www.realtor.ca/propertyDetails.aspx?propertyId=11481607&PidKey=-1660587649
10200 square feet, with 5000 square feet of terrace! And the maintenance fees are $10000 a month.

BTW, that listing is pretty crappy. I had a much nicer MLS listing for my 2-bedroom condo townhouse in Portland Park Village.

The brochure on the realtor's website is nicer though.

http://jimmymolloy.com/pdf/CHESTNUT-155cumberland-8-2.pdf

P.S. I HATE living room TVs over fireplaces. Very unergonomic. I have seen interior designers recommend this on television shows, and I cannot understand why.
 
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^^^
Condos have never been as good an investment as single family houses for price appreciation. That said, for an investor, a single family house comes with a lot more work to rent out. If one is looking for price appreciation alone, it is hard to make an investment that will come to fruition 3-5 years later and hence the time frame on which to make the money work is considerably shortened.
I believe this explains the reason of gravitation towards condos.
As well, again unless one can find a "subdivision" of new houses in the City, as opposed to $50K down, one is investing in the $100's of Thousands of dollars.

In fact, as opposed to single family houses in the core at least but also in most of the suburbs I would imagine, condos like new houses escalate mainly in the first 2-4 years and then plateau and increase with the market in general. Given the ability to build many more condo units what is being seen is simply supply and demand. At the present, there is a shortage of listings and of product in the Single Family Home department compared to condos and since the supply of condos can be ramped up, this keeps the prices somewhat in check for the condos.
 
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^^^
Condos have never been as good an investment as single family houses for price appreciation. That said, for an investor, a single family house comes with a lot more work to rent out. If one is looking for price appreciation alone, it is hard to make an investment that will come to fruition 3-5 years later and hence the time frame on which to make the money work is considerably shortened.
I believe this explains the reason of gravitation towards condos.
As well, again unless one can find a "subdivision" of new houses in the City, as opposed to $50K down, one is investing in the $100's of Thousands of dollars.

In fact, as opposed to single family houses in the core at least but also in most of the suburbs I would imagine, condos like new houses escalate mainly in the first 2-4 years and then plateau and increase with the market in general. Given the ability to build many more condo units what is being seen is simply supply and demand. At the present, there is a shortage of listings and of product in the Single Family Home department compared to condos and since the supply of condos can be ramped up, this keeps the prices somewhat in check for the condos.
FWIW, I've seen more price appreciation at the low end than at the mid to higher end in the first few years after a place is built.

eg. Where I bought, the $200000 units went up X amount. On an absolute dollar basis, the $400000 units went up more, but they went up less than 2X. In other words, a $200000 sold years later (in the mid 2000s) for $300000, which is an increase of 50%. However, people were not selling the $400000 units for $600000 at that same time frame. Furthermore, even though the $400000 units went up less on a percentage basis, they also took a longer time to sell, because the pool of buyers who could afford them was that much smaller.
 
I agree with that statement Eug but I think you have to distinguish between condo units and houses.
In a good market, high end goes up more. In a poor one, it comes down more (both these on a %age basis).

I don't think you can compare the price appreciation on a $200K condo with a $400K house. However; I agree with the comparison of a $200K condo vs. a $400K condo.

By way of example; I know that in 2001 on paper a 600+ sq.ft. condo sold for $175K in a building I know and the slightly less than 1200 sq.ft. 2 bedroom den for $335K. Today; the $175K is about $330K whereas the $335K is about $560K. On a percentage basis; 88% for the cheaper one vs. 67% for the larger. Reason I believe is the smaller one fetches more rent: $1575 vs. $2750 for the larger one.

I also understand that when looking at appreciation for investment purposes, the most appreciation is in bachelor units and small 1 bedrooms....cheapest and therefore go up the most on a percentage basis.
 

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