Baby, we got a bubble!?

[TrickyRicky]

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.

 

[steveintoronto]

If they have been doing it for years, obviously they are lax or all this money was transferred over to Canada a long time ago as investors must have been hearing that the Chinese gov,t would be introducing the measures

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).

Still, I don't see even a foreign buyer tax collapsing the bubble.

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:

SINGAPORE — Lamborghinis, Porsches and Bentleys fill the driveways of multimillion-dollar villas in Sentosa Cove. Yachts line the 400-berth marina nearby. A number of homes have guardhouses for security.

But signs of a slowdown are just beneath the shiny surface. The grass on front lawns has turned brown from neglect. Two condominiums last summer went for less than half their original price, while others sit empty.

At the W Residences, one of the newest condominiums, fewer than half of the units have been sold. Walking around a lavish showroom apartment with infinity pool, Sheena Teng, a sale consultant for City Developments Limited, the developer of the W Residences, says that prospective buyers in Sentosa once were rich Asians looking for vacation homes. She said most of the current occupants at the W Residences were expatriate professionals in Singapore — and they are renting.

As Singapore pitched itself as a place for Asia’s rich, Sentosa Cove attracted many wealthy Chinese, Malaysians and Indonesians. But the momentum behind that boom is slowing, putting the gated community at the center of the weakness.

The slowdown has been orchestrated, in part, by Singapore’s leadership.

Faced with simmering discontent over rising living and housing costs, the government executed a succession of cooling measures that have hit the high-end market especially hard.

A property sales tax of 18 percent for foreigners has reduced buyers’ enthusiasm. Levies are nearly as high for those hoping to flip their properties in the first or second year. [...]

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.

 

[rbt]

Canadian banks can't knowingly do so by law but they still do.

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.

 

[steveintoronto]

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.

Large Cash Transactions
If you are a reporting entity, you have to send a large cash transaction report to FINTRAC in the following situations:

• You receive an amount of $10,000 or more in cash in the course of a single transaction; or
  
  
• You receive two or more cash amounts of less than $10,000 that total $10,000 or more (24-hour rule). In this case, if you are an individual, you have to make a large cash transaction report if you know the transactions were made within 24 consecutive hours of each other by or on behalf of the same individual or entity. If you are an entity, you have to make a large cash transaction report if your employee or senior officer knows the transactions were made within 24 consecutive hours of each other by or on behalf of the same individual or entity.

You have to send a large cash transaction report to FINTRAC within 15 calendar days after the transaction.

If you are an individual who is a reporting entity and you are an employee of a reporting entity, your employer is responsible for meeting the large cash transaction reporting requirement associated to any of your activities as an employee.

Similarly, if you are a reporting entity and you are an agent of, or you are authorized to act on behalf of, a reporting entity, it is that reporting entity's responsibility to meet the large cash transaction reporting requirement associated to any of your activities on their behalf. However, if you are a life insurance broker or independent agent, you are responsible for reporting to FINTRAC (unless you are an employee as explained above).

You do not have to make a large cash transaction report to FINTRAC if the cash is received from a financial entity. In this context, a financial entity means a bank, credit union, caisse populaire, a trust and loan company or an agent of the Crown that accepts deposit liabilities.

Furthermore, you do not have to make a large cash transaction report to FINTRAC if the cash is received from a public body. In this context, a public body means any of the following or their agent:

• a provincial or federal department or Crown agency;
• an incorporated municipal body (including an incorporated city, town, village, metropolitan authority, district, county, etc.);
• a hospital authority. A hospital authority means an organization that operates a public hospital and that is designated to be a hospital authority for GST/HST purposes. For more information on the designation of hospital authorities, refer to GST/HST Memoranda Series, Chapter 25.2, Designation of Hospital Authorities available from the following website: http://www.ccra-adrc.gc.ca/E/pub/gm/25-2/README.html

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

Canadian banks helping clients bend rules to move money out of China
Kathy Tomlinson - INVESTIGATIVE REPORTER
VANCOUVER — The Globe and Mail (Includes Correction)
Published Tuesday, Sep. 08, 2015 3:00AM EDT
Last updated Wednesday, Oct. 07, 2015 2:31PM EDT

Some Canadian banks allow wealthy Asian investors to skirt Chinese law by helping them bring in large amounts of money that is often used to buy real estate in Vancouver.

Financial institutions in the area have flagged more than 8,200 suspicious transactions since January, 2012, the year China began cracking down on citizens they suspect of corruption.

Ninety-six per cent of those transactions were also facilitated by the banks, however, even though the vast majority of that business involved suspected money laundering, according to FinTRAC, the federal agency responsible for tracking money laundering.

These findings, obtained by The Globe and Mail through an Access To Information Request, come as a debate rages over the source of foreign investment and Vancouver’s soaring luxury housing markets. A recent study by Macdonald Realty said 70 per cent of clients who paid more than $3-million for Vancouver houses last year were from China.

It is illegal for Chinese citizens to remove more than $50,000 (U.S.) a year from China without government permission, partly to stop corrupt millionaires from fleeing with their money. But a review of B.C. court cases by The Globe found they have worked around this restriction by sending millions of dollars into Vancouver-area banks through multiple wire transactions of smaller amounts by family and friends.

Banks are legally obligated to report transactions they deem suspicious to FinTRAC, the Financial Transactions and Reports Analysis Centre of Canada, but do not have to stop them or shut down accounts. The agency’s mandate is to gather and analyze those reports. It will not say what percentage involve this type of foreign investment, but said almost none that do are passed on to police.

The data are raising serious questions among legal experts about the effectiveness of federal laws meant to curb money laundering and transnational crime, and shines a light on a system that is time-consuming and expensive for taxpayers.

“The whole regime is a waste of money,” said lawyer Christine Duhaime, an internationally accredited expert on money laundering who has testified before parliamentary committees. “It seems to be completely ineffective.”

In her experience, Ms. Duhaime said, Canadian police do not have the resources to take on these cases.

“I think they also might face obstacles in China because of political differences between the two countries.”

FinTRAC’s guidelines on what banks should consider suspicious include multiple deposits to a client’s account by third parties, a high volume of wire transfers and frequent wire transfers to a client from individuals who do not have an account with the bank.

A recent B.C. court case heard that CIBC regularly helped wealthy clients move large amounts of money out of China – using several transactions and multiple third parties – even though the bank is familiar with Chinese law.

“This process is often conducted using different remitters in the same Chinese city sending funds to one or more accounts in CIBC, then through a common financial adviser get the funds collected back in one account – to be paid out to a law firm,” testified Kim Clark, a CIBC corporate-security investigator. [...]

http://www.theglobeandmail.com/repo...s-to-move-money-out-of-china/article26246404/

 

[Eug]

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

 

[blixtex]

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

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

 

[BMyers]

I apologize to those folks that don't like me posting my articles and reports, but I wrote lengthy sections on housing bubbles and government market intervention in my latest report, you can download it here: https://fortressrealdevelopments.com/news/market-manuscript-ben-myers-spring-2017/
https://fortressrealdevelopments.com/news/market-manuscript-ben-myers-spring-2017/

 

[Eug]

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

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.

 

[TheKingEast]

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.

 

[Eug]

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.”

 

[TheKingEast]

Complete lunacy.

 

[algotr8der]

http://www.theglobeandmail.com/real...r-heating-the-toronto-market/article34380897/

 

[JohnnyBoySoprano]

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!

 

[narduch]

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.

 

[JohnnyBoySoprano]

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.

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