Tag: Canadian Housing Market

Real Estate Franchises are Losing Stock Value

Remax and Realogy Stocks Tank Amidst a Changing Industry

No one seems to be talking about this. Large Real Estate Franchising Groups are Losing Stock Value, and Fast.

The two largest conventional bricks and mortar brokerage conglomerates stocks are tanking. Remax and Realogy have lost close to 50% of their stock value in the past 52 weeks.

On the other side of this news, private investments are fueling over $2 billion in new funding into efficient/scalable broker concepts. $2 billion in market cap lost on one side, $2 billion in market cap gained on another.

Remax and Realogy Stocks

Royalty Fee Models Don’t Align With Franchisor and Agent Member Long-Term Growth

Brokerage Holding companies such as Realogy and Remax rely on incremental individual contributions from their Franchisors agent base. These royalties flow upward from the Franchise to the Holding Companies. The challenge with this model is that both the Franchisor and the Holding Companies are not truly aligned with the agent members due to the conventional cap system. The cap model sees contributions diminish, if not disappear, once an agent member hits certain annual milestones. Low producing agent members (of which form the majority of membership base) contribute a royalty through their Franchise to the Holding Company, in an amount that is very similar to that of a top producing agent member.

In an industry where consumers are demanding efficiencies, the bottom is being weeded out and the 2-10 annual transaction type REALTORS® are finding it harder to justify their value. It is only obvious that the days of mass agent membership are under pressure and the result will be disastrous to the large franchise brands of the past.

Large Real Estate Franchises are Losing Stock Value, and Fast

If this opinion proves to be correct, unless these large franchise holding brands can divert their strategic resources into acquisitions of emerging counterplays, this trend will continue with the steep and aggressive slide that is becoming of a fragmented industry. Paving way for a bright future for forward-thinking scalable, agile operations and technologies, such as DigiRealty.com and others.

These large brands are proving to be the authors of their own misfortune. The brands in the position to stand out as industry stewards became balance sheet adjusters and profit wielders, as opposed to innovators. The results will be obvious.

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Ten Steps of the Home Buying Process

Beginning the journey to homeownership can be overwhelming and stressful. But with a little planning, you’ll get the home that’s right for you. A home that strikes a balance between your “wish list” items and the practical realities of the property, location and the housing market. Before you know it, you’ll have a place to call your very own. A place to entertain. A place to decorate. A place to raise a family. It really is an exciting time!

To help keep you on track, below are ten steps of the home buying process to assist you in buying your first home.

STEP 1 – Build a Budget

An effective budget will map out your plan to set aside money for your down payment and additional costs. It will also help determine the price of a home you can afford.

STEP 2 – Investigate Mortgage Options

There are many different types of mortgages. If you don’t have the 20% down payment for a conventional mortgage, you can get a high ratio mortgage, combined with mortgage default insurance, that allows for a smaller down payment. You should be pre-approved for a mortgage before you start house hunting.

Consult with a mortgage professional to discuss what options are available to you and learn more about how to get started.

STEP 3 – Choose a Realtor

Your realtor will play a vital role in your home buying experience. The best realtor will be a combination of a personal advisor, consultant and negotiator. He/she will show you homes that match your criteria, guide you through the home buying process, negotiate the best possible price for your home and deliver your closing documentation.

STEP 4 – Get a Lawyer

It’s important to hire a lawyer who specializes in real estate. You could find yourself in a bidding war for the home you want, and it doesn’t hurt to have a lawyer look over any offer to purchase before you submit it. A real estate lawyer will also conduct a title search and check for outstanding taxes and liens on the property.

STEP 5 – House Hunting

* Create a wish list

House hunting can be a lengthy process. To save yourself time, know exactly what you want in a home beforehand. Think about your immediate needs, future plans and lifestyle. When you look at homes, you may be tempted to concentrate on the home, but don’t forget to look at the whole property: the lot, the neighbourhood, the surroundings. How close is the home to facilities and services important to you?

STEP 6 – Make the Offer

Your agent presents the offer to the seller. This document includes the price, conditions, deposit and closing date. The seller either accepts, rejects or counters the offer (also called “signing back” the offer).

STEP 7 – Home Inspection or New Home Warranty

Hiring an inspector is voluntary, but it’s a smart idea for resale homes. You can choose to make your offer to purchase the home conditional on the outcome of your inspection. If your inspection reveals major problems, you can negotiate those repairs with the seller before your deal closes, or legally withdraw your offer.

What is a New Home Warranty?

New Home Warranties are typically used when you buy a brand new home. The builder provides a New Home Warranty to cover things like deposits and completion dates, along with labour and materials for at least one year after the home was built. It also protects you against structural problems for a minimum of five years.

STEP 8 – Finalizing the Deal

Finalizing the deal will include the final approval of your mortgage, a meeting with your lawyer to finalize details like insurance and conditions, and the results of a title search.

STEP 9 – Moving Preparations

There’s a lot to do before you move. Line up utilities and other services like phone, cable and internet. If you rent, you must give your landlord notice. Also, forward your mail to your new address and hire a moving company. Preparing these things well in advance will help you make a smooth transition to your new home.

STEP 10 – Closing Day

This is the day you legally get possession of the house. Your lawyer completes the paperwork (so the home is in your name), payments are finalized and you receive the deed and the keys. Congratulations on your new home!

 

Andrew Thake, Mortgage Agent

Dominion Lending Centres – Smart Debt

www.andrewthake.com

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Canadian Mortgage Rates are Rising

Canadian mortgage rates are rising. Back in mid-2017, news sites predicted the Bank of Canada was preparing to raise its interest rates to reflect the current economy. Speculation was rampant as to how much the rates were going to climb, with many economists predicting increases of a quarter of a percentage point. They were right. Lending rates went from 0.5% to 0.75% in early 2017.

And then they went up again. 0.75% to 1%.

Just this month, the Bank of Canada announced they were raising their interest rates yet again, this time to 1.25%, a move once more pegged to the booming Canadian economy. The bank is expected to raise rates to 1.75% by the end of 2018.

Canadian mortgage rates are rising with the country’s six largest banks, anticipating the move, already increasing their prime rates as well as their fixed rates. The industry is speculating that this move is an effort to cool down the blazing real estate market to prevent a crash. Of course, this sudden hike breaks no records and is still significantly lower than pre-2014 mortgage rates.

It’s too soon to predict the long-term outcome of the banks’ actions, but house sales are expected to continue at a similar breakneck pace as evidenced by the increase in activity for the 5th consecutive month, recorded at the end of December 2017. There are simply too many factors affecting the housing market like the low unemployment rate and millennial ageing which the rate increase will be unable to buttress.

What does this mean for Canadians?

So, what does this mean if you’re a homeowner? Well, if you have a fixed rate mortgage, then you’re free to flip to the other page. That is until your mortgage comes up for a renewal. In this case, that’s about 47 percent of you with 31 percent due to follow within the next one to three years.

These rates should be of particular interest to variable rate holders as it could affect their mortgages. The increases were anticipated, with several real estate companies advising customers to renew their mortgages or switch to fixed rates as soon as possible. As one or two more increases are expected by the end of the year, it’s not too late to take this advice.

If you’re hoping to purchase your first home and are dissuaded by these reports, don’t be. As a future homeowner, the best move will not be backing away from your property-owning dreams. Rather, you should consider getting pre-approval and locking in a closed mortgage to cushion yourself against any more changes. With the market bracing itself for more action as Canadian mortgage rates are rising, there’s no better time than the present to purchase a property.

Overall, market experts are not particularly worried about Bank of Canada’s moves. We’re still a long way from eye-popping 15% rates as anyone who purchased a home in the 90s will tell you. Combine this relative stability with an iron-hot economy, there’s no doubt that the market has more than enough resilience to ride this wave which means, as a homeowner, you can rest easy. Check out this National Post Article.

 

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Vacant Home Tax

On July 25, the provincial government of British Columbia will officially give the City of Vancouver the power to implement a vacant home tax. But why would the west coast city need such a toll? Data was released in the past months revealing that more than 10,800 condo units sit empty in Vancouver, even though the local population struggles to find affordable accommodation due to a housing shortage.

The study was conducted and released by Ecotagious, a software company hired by the city to analyze domestic electricity consumption of over 225,000 homes in Vancouver. The data was provided by BC Hydro and each home was deemed vacant for the month if the electricity usage showed little change over 25 days. If this pattern repeated for August and September as well as the following June and July it was declared empty for the entire fiscal year.

The findings were both understandable and shocking on two different fronts. The city concluded that the single-family home vacancy rate was steady at 1%, in line with previous calculations since 2002. The more extreme statistic showed that over one in 10 condominium units in Vancouver are currently sitting empty.

Vancouver has found itself in a tough situation right now. Earlier this year, the Canadian Mortgage and Housing Corporation (CMHC) gave warning of strong evidence of overvaluation in the city’s real estate market. 91% of Vancouver homes are currently worth $1 million or more. In December 2015, the average price of a detached home was around $1.65 million, 175% higher than 2005’s average of $600,000.

As prices rise, first time home buyers are turning to condos. That being said, the average price per unit has increased from $400,000 in 2013 to just under $600,000 in today’s market. Moreover, it is unlikely to find a new condo in Vancouver’s downtown peninsula for under $1,000 per square foot. All in all, young Canadians are struggling to find a decently priced condo, let alone detached home, in a market that has basically doubled in value over the past 10 years.

But if the simple rule of economics were applied to this situation doesn’t the supply of 10,800 vacant condos reach the demand of the Vancouver population? Furthermore, if that is the case then why do housing prices continue to increase exponentially? The answer is the growing influx of foreign investment in Vancouver real estate. Many people overseas are exchanging their currency for Canada’s weak dollar and purchasing real assets. In other words, they are snapping up Vancouver properties and letting them sit empty, waiting for their value to appreciate over time.

Another important point to consider is that although the Ecotagious’ study is concrete on most fronts, it does not accurately catch all situations of vacant homes. Houses used only during summer months as well as houses rented out on Airbnb and similar platforms are actually overlooked due to the methodology of the study. This is because both scenarios will show enough variability to disqualify them from the vacancy requirements. With this in mind, the City of Vancouver can only assume that there are even more vacant properties dispersed around the region.

Vancouver Mayor Gregor Robertson has made it clear that the issue is ultimately about supply. This is where Vancouver’s vacant home tax comes in. The aim of the vacant home tax is to free up long-term rental stock. If condo owners pay a premium on an investment sitting uninhabited they will have even more incentive to put it up for lease. Furthermore, the revenue generated will be put towards financing new housing developments.

However, the BC government must give Vancouver ‘statutory powers’ before they can implement a tax to this magnitude. Toward the end of June, Mayor Robertson initially called on the provincial authorities to help with the municipal toll. Two weeks later on July 11, Finance Minister Mike de Jong announced that British Columbia would give Vancouver permission to move ahead with their plan. When asked about the issue de Jong responded by saying “it strikes us that if the city wants to do this, it is a reasonable request on their part.

After the provincial government works out the legislative details on July 25, it is fully up to the City of Vancouver to determine the tax rate, as well as the parameters on who to tax. The main issue is how to decide a property’s vacancy status and if it is eligible for taxation. Due to strict privacy regulations, BC Hydro cannot release specifics on which addresses are deemed uninhabited. Therefore, Robertson and his staff must come up with a different system to identify empty units for the vacant home tax.

One proposal is to create a new class of property called ‘residential vacant’ and relate it to empty or under-occupied investment properties. The criteria fitting this category of housing would most likely include second home owners in Vancouver who use the property on occasion and short-term rentals such as Airbnb listings.

Due to recent contention regarding a substantial number of foreign investors in Vancouver, mainly the Chinese middle and upper class, there has been some speculation that non-Canadian residents could be taxed for owning property in the city. Mayor Robertson has assertively denied these claims, citing how targeting non-residents would be discriminatory. The city’s authority stands strong by their view that applying a tax based on nationality is not going to resolve this issue. The vacant home tax will be formulated to fix the real problem based off of how the properties are being used, not who owns them.

Vancouver’s housing bubble is delicate and there is no way of predicting when it’s going to burst. There is also no way of knowing how the market will react to the vacant home tax. Nevertheless, something must be done. Demand is exceeding supply and prices are at an all-time high. The citizens of Vancouver want affordable housing that is up to Canada’s standard of living. If a vacant home tax is the solution to free up unused property and allow those who want to live in it versus leaving it empty, then so be it. Regardless, there will be many anticipated reports to come in the next few months regarding Vancouver’s housing market and the structure of the borderline-notorious vacant home tax.

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Chinese Investors

Back in 2013, the Chinese government decided to crack down on their very own housing bubble. This included implementing stricter regulations on the 20% capital gains tax for property sales as well as increasing down-payment requirements for mortgages on second homes. Chinese investors, both commercial tycoons and yearning homeowners, needed a new place to go and spend their money.

Meanwhile, housing sales in Canada were on the decline. The country’s largest condo markets, Toronto and Vancouver saw a 7.8% and 25.5% drop respectively in existing high-rise and apartment sales. It was around this time where the Chinese saw the potential to capitalize in Canada and began investing in the Canadian real estate market. In recent months, this effect has been accentuated since China’s turbulent stock market has become virtually unprofitable for investors. Therefore, their citizens have even more incentive to buy into Canada’s real assets.

Foreign funding, from any nation, has started to fuel Canada’s housing market with the average investment from a Canadian citizen or permanent resident at $735,000 versus the staggering $1,157,000 from buyers abroad. However, a more shocking statistic from a recent study in British Columbia showed that 76.6% of foreign buyers for residential properties were from China. Furthermore, Chinese buyers are the largest foreign investors in Canada, holding 65% of the market within the first six months of 2016. This works out to be $1.3 billion, compared to the $309 million at this time last year.

What Is So Appealing From A Social Perspective?

There are of course more reasons for Chinese investors to purchase real assets abroad. Many of the Asian middle and upper class have enough money to establish a decent lifestyle in Canada where the way of life is slightly more refined.  Many Chinese immigrants actually perceive Canadian tendencies to be generally more ethical and respectful than in their homeland.

Pollution plays another strong role. In China, AQI indices are checked regularly to predict the intensity of grey skies and smog. In stark contrast, Canada is known for its fresh air and a plethora of outdoor activities. Living in a society where surgical-style face masks are uncommon is truly enticing, not only for enjoyment but also for one’s overall health.

Statistically speaking, Chinese citizens have the second highest population out of the total number of Canadian immigrants, next to the United Kingdom. Furthermore, upwards of 1.5 million Canadians are of full or partial Chinese descent. With such a large Chinese community across the nation, it has proven to be quite easy for Chinese immigrants to assimilate into society. Some actually say they hardly feel like foreigners at all thanks to the strong sense of openness and pride amongst local Asian communities.

Canadian Developers Working In China’s Favour

When developing a condominium in Canada, lenders want a sense of security, generally asking for builders to sell around 70% of the building’s units before initiating construction finances. With so many condo projects nationwide, including over 115,000 individual units scheduled for completion in Toronto, developers have been heading directly to China to pursue foreign buyers.

Canadian real estate agents, who usually have ties to China, regularly travel to Beijing and Shanghai to showcase new developments to upper-class families and other potential buyers. Macdonald Realty Inc., a Vancouver based broker, actually has a sales office set up in Shanghai to sell Chinese investors a variety of condos units in Toronto, Montreal and the west coast.

Developers see this tactic as a great business strategy given the increased competition in the Canadian condo market and the never-ending announcements of new developments. Nevertheless, heading directly to Chinese investors is making it easier than ever for them to purchase properties without thinking twice. Not only does this add to the housing bubble but there is no sign of foreign buyers slowing down as long as developments continue to be built.

The Current Situation: Canada’s Market Vulnerability

What does all this Chinese investment mean for Canada’s housing market? With foreigner buyers, including Chinese investors, snapping up condos, supply decreases and prices are boosted. This leaves little leeway for Canada’s domestic population who are now struggling to afford a home for themselves. Prices for both single-family houses and condo units have risen dramatically over the past few years and local Canadians are suffering.

The best example of this is in Vancouver, where only a decade ago people of all ages could live a nice and comfortable lifestyle downtown. Now, home ownership is basically beyond the reach of the younger population. Nevertheless, over 10% of condos in the west-coast city remain vacant. This is partially because over the years foreigners have invested in properties with no intention of inhabiting them. Sadly, locals want to live in these empty units, but foreigners beat them to the punch with their higher bids.

Although a vacant home tax has been proposed for this specific issue, economists worry about how the Canadian housing market will react. It has reached a point of sensitivity that even the smallest change could send the industry over the edge. Imposing a special tax could decrease foreign investment, the main driver of the current market. Without foreigners to purchase condos, construction would surely slow and that would deprive the Canadian economy of countless jobs.

At a time where Canada’s dollar is weak and the market is delicate, it is hard to predict what is best for the national economy. Foreign investment is proven to be important, but so is the Canadian population’s right to live in housing where inflation is at a fair rate. It is a vicious cycle and only time will tell how it will all play out.

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