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Baby, we got a bubble!?

Bill123

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Also, if Toronto is deemed cheap, why hasn't Montreal been the target of money laundering either?

Montreal and quebec in general is very mean to non-quebecois. Not a place to put your chinese kid if you want him to be treated nicely and with respect. The people there are not afraid to be called racist.
 

wild goose chase

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In Vancouver, I've noticed though that the local Chinese-Canadians, many who no doubt are born-and-bred in the city their whole lives, are themselves no less vocal critics of money laundering from China than other Canadians.
People aren't necessarily more happy to be priced out by rich people of the same race as them, as opposed to rich people of a different race, are they?
 

Bill123

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No one is going to be happy if they are priced out of a home they should historically be able to afford. Its just when you as a foreign investor have a choice between buying land in liberal vancouver/toronto or in conservative xenophobic montreal you'd probably choose vancouver/toronto. Also in van and tdot there are already established chinese communities whereas there are almost none in Mtl. The language barrier is also a factor since the chinese are taught english, not french, in elementary school. If this was to start happening in montreal i'd wager significant protests. Here in van and tdot people get angry then after they get called racist they shut up and just move further away from the bubble to areas like ajax, vaughan, pickering, barrie...
 

ponyboy

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no worries, CMHC says developers are taking the low risk route --

http://www.cbc.ca/news/business/cmhc-toronto-condo-market-1.3685165

Interesting to see what stories CBC allows comments. This one doesn't allow comments.

Perhaps getting 70% pre-sales and having investments backstopped by public guarantees is low risk for developers, but what about the risk to the economy and housing market when condo investors, many without much of a stake or footprint in Canada, put all that inventory up for sale.
 

RButler

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no worries, CMHC says developers are taking the low risk route --

http://www.cbc.ca/news/business/cmhc-toronto-condo-market-1.3685165

Interesting to see what stories CBC allows comments. This one doesn't allow comments.

Perhaps getting 70% pre-sales and having investments backstopped by public guarantees is low risk for developers, but what about the risk to the economy and housing market when condo investors, many without much of a stake or footprint in Canada, put all that inventory up for sale.

The foreign investors put "all inventory up for sale" narrative is ridiculous, didn't happen in 2009 and won't happen. The reason why these folks have money to divest in out of country real estate is because they know how to invest, and you don't sell when the market is down. Many of these investors have been holding these units for a decade and even if the market dropped 20% they would still be up 30% to 70% and cash-flow positive on their unit.

I'm guessing you're not a successful investor yourself. Buy high and sell low amirite?

The fact that the majority of a purchaser's deposit is guaranteed by Tarion doesn't change a developer's risk in the slightest. By the time purchasers have a mortgage (and some of those mortgages get insured by CMHC), almost all of the risk in a high-rise project is gone.
 

ponyboy

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In my view, the low risk to developers is made possible because the central bank and govt is doing everything possible to enable buying by house/condo hungry Canadians -- to prop up easy mortgages at low rates and never utter too much concern about ability to pay once rates increase. Feeling a "need" to own a home is cultural, and propagated at every opportunity, although it is questionable public policy for diverting resources away from more productive investments. Low risk to developers is also made possible by doing everything to not address the elephant in the room of where funds originate for many purchases, and by refusing to collect key data on such an important industry.

If tough rules came into place looking at the source of funds, requiring clear documentation that is shared with other countries, imposing vacancy taxes, and higher transaction costs for foreign buyers, you might see a lot of units dumped in a short matter of time. People do often buy high and sell low -- many examples of that in recessionary times. Fortunately I have not suffered that fate -- I own a house in Toronto that I don't plan on selling anytime soon. It has appreciated in value handsomely, but I'd rather have smart public policy focused on sustainability and genuine productivity than boom-bust cycles. At some point, the market will return to the fundamentals of price to income and price to rent.

Continuing on the low risk narrative -- Developers, like most savvy businesses, can fold the business with the principal's leaving (mostly) unscathed. Sure there is risk of losing seed money, but the risk to reward in this political environment is low. Bankruptcy laws allow obligations to to be structured so that principal actors retain their wealth as it can be largely separated from the business that generated it. Similar sophistication is seen in large investors who distribute wealth across many places to reduce risk -- they are good investors in part because they can leverage their wealth to take advantage of loopholes, wield influence, and buy the best advice. Some are also very smart and lucky. Average homebuyer can't externalize risk and utilize loopholes like developers and wealthy investors.

Low risk is not just a strategy developers are taking in isolation. It stems from a toxic political economy of the past 10 years that will cause problems down the line for average people who have no recourse from their bad homebuying decisions. Because so many people are doing well in real estate, the alignment of regulators and regulated is making it as low risk as possible for them, but I feel that it is achieved by shifting the risk to others and into the future.
 
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Bill123

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I think the tax will make more of them if not all of them use Toronto instead of Vancouver as a laundering machine. Vancouver prices here we go!
 

Bill123

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I don't know man! Saving 200k+ on an average Vancouver home by buying in Toronto is a pretty big incentive!
 

digitalis

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I don't know man! Saving 200k+ on an average Vancouver home by buying in Toronto is a pretty big incentive!

Agreed. 1-5% would be seen as a cost of doing business. 15% becomes material and provides incentive to place capital elsewhere, which is exactly what I think we'll start to see happening. However now that the ice has been broken on taxing foreign capital, I think it will be much easier for other politicians to follow. The important part here is that the government ensures they actually follow the money and don't allow proxies. Otherwise we'll see even more student permanent residents (with $0 income) start buying up housing.
 

Migos

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Immigration can't even catch these rich Chinese from gaining PR and citizenship through illegal means, what chance are they going to have trying to tax them?
 

digitalis

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Ministry of Finance Tax Information Sheet can be found here.

The tax begins August 2, 2016 and applies to:
Anmore, Belcarra, Bowen Island, Burnaby, Coquitlam, Delta, Langley, Lion’s Bay, Maple Ridge, New Westminster, North Vancouver, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, Surrey, Vancouver, West Vancouver, White Rock

- The tax does not apply to permanent residents
- It only applies to residential properties
- It applies in addition to general property transfer tax

Due to the nature of the tax, we will probably see areas not imposing such a tax start to heat up. Toronto/GTA, Kelowna, etc. Commercial real estate will probably see increases. It's likely there will be an increase in permanent residents purchasing property within areas subject to the tax, as the information sheet says nothing about looking at beneficial ownership. It only goes as far as looking at trustees.

I'm very interested to see the effect this has on pricing over the next year or two. The provincial government in BC seemed to be avoiding this at all costs and has now committed to removing self-regulation within the real estate industry, collecting more data, and cracking down on so called shadow-flipping. CRA has indicated it is going to step up oversight of real estate transactions in BC. It's not clear if Vancouver mayor Gregor Robertson will still move forward with his vacancy tax scheme. All of these measures along with this new tax should seriously discourage the poor practices that have plagued real estate in the GVA. It also remains to be seen whether Ontario will implement similar measures.
 

TheKingEast

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Prices in Toronto will soar. Unless they do the same thing here. Feel like the tax is quite steep and also feel like this should have been done such a long time ago. Now it's pretty much too little too late and may hurt the market
 

Bill123

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