Here’s What I Mean About “Window Dressing An Issue Without Actually Dealing With It”


Canada’s Federal Government has today implemented new regulations “to attempt to stabilize the country’s housing markets“, particularly in Vancouver and Toronto.

In Vancouver they also implemented new tax policies to restrict non-residents from declaring a property that they let sit empty as a “principal residence” for tax purposes.

Chinese investors seeking global investments have long seen Canada, particularly Vancouver and Toronto as solid low risk investments.

The window dressing comes in when you realize that the measures implemented today really just affect first time buyers and won’t affect global investment (thus cooling the market).

Off shore investors don’t rely on bank financing to buy up and thus push up prices in our real estate markets.

The average price of middle market condos in Hong Kong run around $1,300 per square foot where in Toronto it is around $800 per square foot.

We’ve always had a robust Chinese investor community, parents in China with kids attending University here.

They optimize their investment potential through buying condos for their kids to live in while getting their University education, selling them for profit after graduating and having offset boarding costs that have to be built into any education budget.

These new rules won’t affect this sector at all.

The new rules require a “stress test for all insured mortgage applications (no high ratio mortgage  . . .  no stress test) to ensure the borrower can still service their debt in the event interest rates rise“.

Sophisticated investors don’t rely on “high ratio” mortgages, thus these rules that are allegedly designed to “cool an overheated market brought on by off-shore investors” fail to hit their mark!

All this does is really hit first time buyers who don’t have conventional deposit money to secure a conventional (non-insured) mortgage, or “the consumer“.

I’m not convinced that these changes actually deliver any “up side”.

They don’t apply to detached houses as most of those these days are too expensive to even get a mortgage.

I believe that what they are really saying is that with prices, as inflated as they are in Condoland, the “risk factor” of holding highly leveraged first time buyer mortgages has simply become too great.

I have personally stopped investing in Condoland and most of my investors have tended to follow my logic and advise.

We’ve been waiting on the sidelines for things to cool and we continue to as I am convinced that a market correction is imminent.

I have difficulty accepting the logic that “anything (let alone housing prices) can go up for ever” especially in a “supply and demand” driven marketplace (after all, everyone has to live somewhere right?).

But as over-satchurated and over-priced as we seem to have become in Condoland, I still see a literal flood of new projects continuing to come on stream monthly!

I’ve been in the market for a very long while.

When I started in Condoland we had only a Provincial Land Transfer Tax (a little over 1%).

I saw the GST (6% Goods and Services Tax) introduced on new condos and heard everyone fret that the “sky was falling“!

It didn’t and condo sales continued to boom.

I then saw the GST balloon into the HST (13% “Blended Tax“) and heard everyone saying that the “sky was falling” and “this would be the end of the good old days”!

It didn’t and condo sales continued to boom.

Then I say the Municipality introduce it’s own (redundant) Land Transfer Tax and again I heard everyone say that we had hit the ultimate road block.

And we hadn’t!

So, is limiting access to purchase in this over-heated and over-priced market to first time buyers going to cause the sky to fall?

I don’t think so.

I’m Charles




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