Federal Government’s Decision To Increase Minimum Downpayment Will Have Negligible Affect In Condo Land

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Our Federal Government’s to raise the minimum down payment for new insured mortgages from 5% to 10% may suggest that they are doing things to stabilize the real estate markets in Vancouver and Toronto, but in my opinion, that’s all “window dressing“.

After all, it is the same Federal Government that has created this “false economy” that we are living in today buy “buying down” mortgage interest rates to continue to “speculation” in residential condos.

Vancouver is “out of control” according to the media, while Toronto with its lingering shadow inventory of unsold overpriced condo suites should not be ignored.

Nothing goes up for ever! The entire problem that I feel we are facing is that the entire shell game is built on the false premise that real estate prices will go up for ever.

I lived through the crash of 1989 when real estate prices plummeted while interest rates skyrocketed (jumping 10% in just over a week).

I would suggest that we do an analysis of that situation presenting itself today. In my opinion it already has, but for our government “buying down” interest rates using our tax dollars.

Isn’t this where “deficits” come from?

Vancouver’s residential condo market is driven by off-shore “investors“, principally from Hong Kong and Mainland China.

Having lived there for years I can tell you that ownership of foreign real estate is cherished in that culture. The Chinese are all about “face” and the prestige of investing globally should not be underestimated when considering these buyers.

I frequently attend VIP Broker Sales Events, not that I would ever recommend buying from them (as I’ve explained here at simplycharles.com many time) but to see how many “white faces I see“.

I attended the King Blue relaunch following its sale to the Chinese Government and was laughing with one of the sales staff because I had asked her “how many white faces she saw in the crowd“. She and I were the only ones, Realtors and buyers alike!

This is what causes me the most concern as the key buyer today is a speculator. It has been this way for decades and constitutes a “house built on sand“!

In Condo Land, where corporations own the bricks and mortar with owners being the shareholders, and shareholders who are totally disassociated and disconnected with the day to day affairs of the corporation, it is virtually impossible for a legitimate end-user buyer to even get to play in the game!

With the price on condos in Hong Kong, New York and elsewhere at such outrageous prices, Toronto per square foot is still seen as “cheap” in those circles.

With so many sending their kids to our Universities, they buy condos for their kids to reside during their education, confident that in four years the increased “value” of the unit(s) increases while giving them “security of investment” (real estate is always #1 no matter where you go).

This additional of 5% to the existing requirement of 5% carries no impact on the real buyer’s market thus condos remain competitive “commodities” on which to speculate.

With the market primarily having turned to “flipping” over the past decade and the Canadian Revenue Agency (our IRS, Tax Bureau) now aggressively pursuing “Tax Fraud” through those who have assigned units over the past decade requiring the “flipper” to show that their gains were accounted for in their tax filings, this demand may soon dry up.

And guess what?

Most can’t account for their taxes because they didn’t include those gains in their tax filing!  There was no “paper trail” as the condo unit did not exist when the contract was “assigned”, leading many to think that they could never be found out.

Well, that ship has sailed, and if you have assigned a unit in the past decade, you should expect a letter from CRA simply asking you to disclose to them, “all real estate that you have had any ownership in over the past decade“.

That’s where the real game is today!

So as for this most recent “show-move” allegedly designed to protect the economy, it seems more like a political ploy than true fiscal management.

For the genuine home buyer, there still is sound logic to owning your own home providing you know, or work with someone who knows, all of the good bad and ugly older buildings in the area in which you choose to live.

There are older quality buildings in which you don’t get gassed each morning with cigarette smoke from neighbouring units, or are kept up all hours listening to normal conversations of those living on the other side of your walls, not to mention buying your home and having it end up located in a “rental building“!

I’m Charles

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