Where Does All The Money Come From And Where Is The Balance In All Of This ?

Four of the five major Canadian banks have just released their profits for the past “quarter” (as in 3 months) with Scotiabank leading the pack with $2.1 Billion in profits (in the “quarter“).

RBC saw its profits rise 24% to $3.3 Billion.

BMO is up 39% to $ 1.49 Billion.

And CIBC came in with a solid $1.41 Billion.

TD reports today but rest assured, they will be competitive with the pack.

So, in 3 months the top five banks in the country netted combined profits in excess of Nine ($9) Billion Dollars IN PROFITS.

Mind boggling isn’t it?

And real estate speculators are still fighting to snap up those “preferred prices and selections” at those amazing VIP Condo Sales Events (sarcasm intended).

Real estate continues to boom despite the massive inventory of suits pouring onto the market and prices unjustifiably high.

Condos as a “futures commodity” are high demand items and now that “the right to Assign” are included in the sales packages, Condoland has become the market of choice for speculators.

I spoke with one of my old clients who insisted on keeping on buying investor units after I explained to him that “the math just didn’t work any longer“, based largely on the logic that says “negative cash flow simply means losing money” (I know!  I made up the term back in ’89 as the market crashed then!).

The only logical conclusion that I can see for investors continuing to get sucked into Condoland investing these days is one that I hear far too often when talking to speculators . . . “money is so cheap“.

In my opinion, money is cheap to keep this “global artificial economy going”.

The banks do admit to one specific issue that they are taking seriously  . . . .   “risk overshadowing their mortgage portfolio“.

Last month BMO warned of “a bubble in Toronto area real estate“.

Royal Bank’s CEO Dave McKay is quoted in the Financial Post, calling the market “unsustainable and in need of regulation“.

These are strong words from institutions making such outrageous profits on the back of this market.

CMHC mortgage insurance, insulates the banks somewhat in Ontario but as we saw in the mortgage back securities fiasco that decimated America a decade or so back, when the real estate market crashes so does the rest of the economy.

Investing in real estate is all about balance.

I’ve lived through good markets and I’ve lived through bad ones.

I was selling condos in 1989 when our market crashed, waited about a decade for it to rebound and capitalized on it again when it bounced back around 2000, while introducing “Buyer’s Agency” to Condoland.

With our banks sending out such warnings, possibly investors should take heed.

My fear is for that lower net worth consumer who feels compelled to invest and lacking expertise, knowledge and/or honest information, jumps blindly into investing in Condoland with it’s minimal deposits, and lofty promises and incentives.

A couple of years back (rather a few now) I stopped endorsing investing in Condoland for a number of reasons.

One, prices in my professional opinion accelerated unrealistically resulting in artificially inflated pricing.

An oversupply of product (Toronto has had more residential condo buildings under construction than any other North American city, including Manhattan, Chicago, L.A.).

The product, the actual condo units being built are seriously flawed from a construction stand point which, inevitably will lead to a major financial burden, of which owners have no awareness of.

It is my fear that owners of condos built since 2,000 are at risk of being stuck with a seriously flawed product that they cannot resell or get away from, and no-one is interested (I’ve been blogging about this for years!)!

Window wall systems being installed in Condoland since 2000 have “published life spans” (up to 15 years) that require “replacement” due to seals wearing out and the heavy gasses that deliver the thermal efficiency escaping resulting in units that cannot be effectively heated or cooled.

Replacement will prove a challenge as people will have to relocate while the work is undertaken.

This reality is not being factored into Reserve Fund Studies or Budgets.

With virtually 100% of buildings today being built with this product, and no regulation or requirement for professionally trained construction workers on residential condo sites to install this product (if the life span is 15 years but the product is installed improperly, and I have photographs that clearly prove that this is the case!) that life span could be cut in half!

Condoland resembles a “house of cards“, in that the consumer is ultimately “on the hook” but then, bankruptcy is always an option.

But before we even get there, the argument of “who is responsible for the repair” will dominate the discussion.

The owner?  The condo corporation?  The mortgagor (especially when the owner walks away and/or declares bankruptcy)?

When an entire building fails and skin has to be removed, where do all these people go during the restoration period and who pays for those moves out of and back into their condo and who’s condo will it be at that time?

Enough of this will lead to a major burden on CMHC, thus . . .  you got it!

We tax payers.

This is not an “if” thing!

It’s a “when” thing!

I’m Charles

 

 

 

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