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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 12, 2019 | Criminals & Cons

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

In BC last year 78,345 properties sold. The average price was $712,508. So, the market as a whole was worth a tad under $56 billion. This was a big drop from 2017, and there will be more declines to come.

Late last week the NDP government in that province, heavily invested in destroying the housing market through regs and taxes, unveiled reports alleging $7.4 billion had been ‘laundered’ in the province last year by criminal elements, some through casinos and business activities and some through buying real estate.

The Dippers concluded maybe $5.3 billion of this went into property sales possibly impacting prices by as much as 5%. The reports certainly fed the government’s narrative that houses cost more than they should because of external forces – immigration, satellite families, offshore investors, 1%ers, gangs and dirty money. This has so far resulted in a huge 20% foreign buyers’ tax, a so-called speculation tax, an empty houses tax and higher property taxes on expensive homes. Caught in the web have been people in Alberta or Ontario who have seasonal properties, second homes or business-related residences. US citizens working in Vancouver dare not buy now. The laws have done much to isolate the province and, if market activity is any indication, drive away capital.

The reports last week came with a bombshell idea. The NDPers now say they’ll actively consider legalizing UWOs, or unexplained wealth orders. This would grant the government the absolute power to seize real estate from anyone unable or unwilling to provide an explanation of where they got the money to buy. No criminal activity would need to be proven, suspected, or involved. The stated rational is that money might be the result of offshore activity, and beyond the reach of Canadian law.

Recent polls indicating most people in BC approve of taxing people extra just because they live primarily in Calgary, have a recreational property or live in a nice house suggest they’ll also sanctions UWOs. Too bad. The consequences could be dire.

The idea behind such a power is that someone is guilty until proven innocent. The basic principle that authorities cannot search or seize your assets without due process is tossed on the rubbish heap of uninformed, prejudiced and envious public opinion. The privacy of capital is being shattered in BC as the province drifts further to the left. The new beneficial ownership registry is further proof Dippers believe your neighbours, colleagues, friends, workmates or employer should have the right to know what you own. Once that’s public, of course, it can be taxed or taken – if you have too much, or obtained it secretly.

Is money laundering bad?

Of course. It’s illegal. Criminals need to be stopped and punished. We have many laws on the books now enabling agencies to do just that. Including the right to seize property found to have been acquired through crime, or the proceeds of crime.

BC additionally has a civil forfeiture mechanism allowing property to be taken if the province can prove, on a balance or probabilities – but not through a conviction – that it was connected with some crime. Draconian enough, since there’s no way to appeal that action if the asset’s worth more than $75,000.

But giving government the legal right to take property wholly on the basis of suspicion, or from someone unwilling (for any reason) to reveal the source of the funds when there is zero evidence of wrongdoing, is immensely dangerous.

For a while this blog has argued that external factors – offshore buyers and, yes, dirty money – were minor influencers of the entire market. Far more consequential were low interest rates, over-borrowing, rampant speculation, FOMO and a cultural obsession with real estate in most of BC. Government and industry stats have shown about 5% of buyers were non-residents and the dirty money report last week pegged about the same number for money laundering. That is not insignificant, but it’s also not enough to make the market. Those who did 90-95% of all deals – locals – were the ones setting prices. Now that the market’s tumbling, they’re doing it again, by stepping back.

The NDP is the party of victims. It helps raise many voices that are drowned out in the mad rush of growth and progress. That’s worthwhile. But the campaign to blame an entire inflated housing market on dudes from China or gangs of thugs with hockey bags of money is absurd. That people actually believe this is disheartening.

It was amusing to watch for a while. Not any more. The market’s being crushed. Now civil liberties are going under the bus.

You have lost your way.

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May 12th, 2019

Posted In: The Greater Fool

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