Baby, we got a bubble!? | Page 698

Discussion in 'Real Estate General Discussions' started by simuls, Nov 2, 2009.

  1. TrickyRicky

    TrickyRicky Senior Member

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    Palma, someone correct me if I'm wrong but I thought new rules require banks to report all transactions over $10,000 regardless of nature.

    Chinese individuals easily skirt the $50,000 rule by giving multiple family members, employees etc.money, having them all transfer the money to Canada and having the money recombined into a single Canadian account. Canadian banks can't knowingly do so by law but they still do. Large mortgages are also secured for overseas clients in such arrangements.

    Foreign investors matter however the majority of buyers are clearly local Canadians. To an extent I think foreign money is a boogeyman. One of the primary problems in my opinion is CMHC. This may sound radical but I think CMHC should be wound down and disbanded. Mortgage insurance creates the perverse effect where people with capital and good credit are becoming penalized because the incentive for the banks is to lend to people who need mortgage insurance (basically people who can't afford a house, and yes that include people with high salaries with low down payments because high salary jobs are NOT low risk) because the lender risk is offloaded from the bank to the Canadian tax payer. Low interest rates and CMHC are the real elephant in the room, not Chinese buyers. Irony thy name is CMHC.
     

  2. steveintoronto

    steveintoronto Senior Member

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    There's also the possibility of it being sovereign funds, not personal fortune, invested overseas as a safer investment with a higher guaranteed return. The nature of these monies remains a bit of a mystery, not only in Canada, but also in other markets (UK and US, for instance, London especially).
    It won't 'collapse' it, and that's not what anyone wants. It's to disinflate it, not deflate it, and it is relatively small, but negative feedback (a servo loop) works that way in economics, it's *catalytic* to influencing change. It has worked in many countries, Australia, Singapore, London and many more.

    Here's one you don't hear about too often:
    https://www.nytimes.com/2015/02/18/realestate/a-high-end-property-collapse-in-singapore.html?_r=0

    You can either get your fingers singed while the blaze is increasing, or get first degree burns when it explodes later. It's time for Toronto to stop feeding the flames. Other than Vancouver and the surround GTA, the rest of Canada is close to equilibrium. Toronto needs servo control applied.
     
    Last edited: Mar 17, 2017
  3. rbt

    rbt Senior Member

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    Why not? Canada has no laws about money flowing out of China. We also don't have a gift tax.

    They couldn't do that kind of thing in their Chinese branches but I don't see any reason why they can do it on the Canadian side.
     
  4. steveintoronto

    steveintoronto Senior Member

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    http://www.fintrac-canafe.gc.ca/reporting-declaration/Info/rptLCTR-eng.asp

    http://www.theglobeandmail.com/repo...s-to-move-money-out-of-china/article26246404/
     
    Last edited: Mar 19, 2017
  5. Eug

    Eug Senior Member

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    I posted this in the North York vs. Scarborough thread, but I thought it might be pertinent here too.

    In my area, and all along the Scarborough Bluffs, old tiny bungalows on large lots are being torn down. These homes go for under $1 million, despite being lakefront property because traditionally pricing in Scarborough has been more affordable. (For the time being, just ignore the fact that "1 million" and "affordable" are being included in the same sentence.) These bungalows are being replaced with homes 3-4X the size (which is actually OK size-wise for those lots, since the lot sizes are decently big) that sell for $2-3 million or occasionally even more. This obviously will affect pricing stats, but it can be misleading.

    Also, here is a detached home pricing increase interactive map for 2015->2016:

    https://www.google.com/maps/d/viewer?mid=1f0CvJLKjsXBzPlpP-xEzBp_m_Ws&ll=43.69992215027431,-79.34655942431641&z=12
     
  6. blixtex

    blixtex New Member

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    Just wondering, are most of these buyers 'foreigners'? Or just really well off locals.
     
  7. BMyers

    BMyers Active Member

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  8. Eug

    Eug Senior Member

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    Pretty much all of them are locals as far as I can tell. Or at least families that actually live there. However, my neighbourhood is different from say Willowdale.

    The schools in my immediate neighbourhood are decent (top 1/3rd and often better depending on year), but the latest high dollar detached home sales nearby in the $2.x up to $2.9 million were one street over, which happens to be in a different school district which has horrible schools. And by horrible I mean an elementary school 1 km away from them that is next to crack houses and with a Fraser Institute ranking in the bottom 10%, and a high school in the bottom 15%. Plus the shopping in the area isn't good. Yes, you read that right. People are paying close to $3 million to get properties in school districts that are amongst the worst in Ontario. But the draw here is the fact that these homes are literally on a cliff overlooking the water, and they are not far from the downtown core. People in these homes generally work in Toronto, so commute times matter too.

    IOW, these are not properties that rich foreigners would generally be drawn to. These are properties that locals are buying, because they can't afford to spend $4+ million by The Beaches for a large lakefront property, which are never available for sale anyway.

    Willowdale on the other hand for example, has top rated schools and excellent shopping nearby, with lots of say "ethnic" restaurants and few crackheads, but obviously you won't be getting a 12000 square foot lot with unobstructed lake views.

    I'm not saying ALL of these lakeside bungalows are getting converted to giant $2+ million homes, but a lot of them are. It depends on who buys them. Generally, when one of these gets put on the market, the builders swoop in. Then the bidding begins, between families looking to spend $1 million for a lakefront home and the builders looking to flip a $1 million property into a $2.5 million property. When the family wins, often we'll see the home updated and modernized, with say a couple hundred thousand dollars' worth of more modest upgrades, but when the builder wins the bid, the house will be torn down a new 3500+ square foot home will be built. This happened years (or even decades) ago in more central districts in Toronto and in North York, but now it's moving outwards through parts of Scarborough and Etobicoke.

    The original point I was trying to make though was that the sale price for a particular home might change from $950000 to $2.5 million, which represents a 163% price increase over 1-2 years. Obviously this is misleading in terms of pricing stats, because they aren't really the same home.
     
    Last edited: Mar 20, 2017
  9. TheKingEast

    TheKingEast Senior Member

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    Further to Eug's post, I can only speak from my experience but the people I know buying multiple properties are locals. They need to have a better idea than just implementing a foreign buyers tax.
     
  10. Eug

    Eug Senior Member

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    Differing opinions:

    ---

    The Globe and Mail (today):
    Ontario urging Ottawa to change tax rules to curb real estate speculation

    Ontario Finance Minister Charles Sousa is urging Ottawa to address speculative investing in the country’s housing markets by changing how such profits are taxed.

    Currently, a capital gains tax is charged on 50 per cent of the profits on the sale of a home unless the property qualifies for a principal residence exemption.

    In a letter to federal Finance Minister Bill Morneau dated Friday, Sousa says that boosting the taxable amount above 50 per cent could reduce the incentive for people to purchase homes on speculation.

    ---

    Financial Post (summer 2016): Ontario tried a speculation tax on property, and the market ‘collapsed overnight’

    There are some dates you always remember, and for the Ontario real estate industry it’s April 9, 1974. That is the day the province shocked the sector by announcing a 50 per cent land speculation tax.

    “We had no wind of this,” said Lebow, now 69, and still a Toronto realtor. “I was 27 years old and I owned 53 houses the day (speculation tax) came in.

    “We were the largest home buyers in Toronto, my (financial) partners and myself. I went to bed a millionaire and woke up owing about $1.5 million the next morning.”
     
  11. TheKingEast

    TheKingEast Senior Member

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    Complete lunacy.
     
  12. algotr8der

    algotr8der New Member

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  13. JohnnyBoySoprano

    JohnnyBoySoprano New Member

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    Sorry for my ignorance , may someone explain to me what caused these historical market price corrections in the past? How does the rapid increase in home prices today (or over the last 5 years) differ from the subsequent corrections?

    Thanks!
     

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  14. narduch

    narduch Active Member

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    The last price correction was during a major recession.

    That's why I don't understand people who are rooting for a price correction now. They are essentially saying they want to see society as a whole suffer just to afford a house.
     
  15. JohnnyBoySoprano

    JohnnyBoySoprano New Member

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    You sir are correct: "Low unemployment of the late 1980s and large inflow of immigrants to the area helped to inflate the bubble. During the peak of the bubble the borrowing cost started increasing and the 5 year fixed mortgage reached 12.7%. Coupled with the early 90s recession, a spike in unemployment and a drop in the inflow of immigrants to the area, housing prices in the GTA collapsed."

    Unemployment and an increase in borrowing costs for 5 year fixed mortgage seem to be the major factors. Very cheap to borrow money people get mortgages for 30 years and will live minimally to pay it off for ever.. unless a spike in unemployment or interest rates we will keep going up.

    This has probably been all talked about before but i am working this out in my own head :)
     
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