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December 9, 2020 | The Fraud

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.

The central bank won’t touch interest rates for a while. That was confirmed Wednesday. Meanwhile one lender has hacked its variable-rate to 0.99% while a major bank has four-year money at a buck forty-nine. Historic. And now we’ve got the vax. So, it’s the end of the beginning, if not the beginning of the end. Whatever. It’s good. Vamos, virus.

Oh, my, but what a legacy the slimy little pathogen is leaving for the property market.

Prices, horniness, FOMO and family debt have all leapt higher. Houses with dirt, front doors, yards and home offices are hot. And WFH – even though temporary – has created a suburban renaissance. Now Zoom Towns surrounding the big city are seeing the biggest hikes in sales and valuations.

The impact on the urban core has been equally remarkable.

Ponder this report on Vancouver condos by local analyst Dane Eitel:

The city of Vancouver condo owners, especially investors have taken it on the chin recently. Vancouver proper condo values were down to $861,000 in October, then news broke the vacancy homes tax will triple to 3% for 2021. Fast forward a couple of weeks and the average sales price has dropped to $765,875. A $96,000 loss, month over month.

From zenith to current prices the city of Vancouver condo values have lost more than $325,000 (-30%). A 10% drop from peaks is considered a correction, a 20% is a recession, and 30% drop has no definition other than, “ouch”.

More ouches in The Big Smoke. Condo listings in Q3 mushroomed 113%, and prices continue to fall. From $1,200 a foot for swishy DT condos, buyers – the few still kicking around – are now paying a grand or less. Last week one realtor held a blind-auction, bring-yer-offer day for a unit she’d priced 25% below market. What happened? One lowball, rejected bid.

As listings pile up, rents fall and the vacancy rate climbs. We all know why. Airbnb is broken. The students and bar maidens moved back to mom’s house. Immigration fell by 70%. White collar WFHers moved out. The landlord/tenant board is dysfunctional and evictions are illegal. It is just a bitter, awful, losing time to be an amateur landlord or a condo specuvestor  especially as thousands of newly-built units come online.

In Toronto, as a result, rents have fallen 17% so far this year and continue to erode. The vacancy rate has tripled in the last 12 months, from 0.8% to 2.4%. Rental condo owners are desperate for new tenants to come along, and willing to throw in months of free rent or other incentives.

Meanwhile an unknown number of condo owners who bought in order to get on the first rung of the property ladder and are ready to move up cannot. They’re trapped. No buyers. Some in negative equity – especially those who, in 2018 and 2019, dove into a hot market because (you know) real estate always goes up!

Summary: whether it’s Van, Victoria, Calgary or Toronto, renters are winning. Condo owners losing.

And what’s the government agenda? More tax, of course.

This week Toronto’s local politicians are expected to approve an empty-house tax, as exists in Vancouver, likely to take effect in 2022 and probably at 1% of the assessed value of a property. That would add $6,500 a year to the $3,000 or so paid in property tax on an average condo – tripling the burden on owners who don’t use them as permanent residences or rentals.

Says the mayor (who used to be a conservative): “We simply can’t afford, from the housing perspective, to have housing accommodation for thousands of people sitting empty.”

But with three times more units on the rental market now that last year, and landlords trolling for tenants while monthly lease costs plunge, condos are empty because of demand, not supply. The bug we know as Covid has done a fine job at making rental accommodation both more plentiful and more affordable. So what are these pols doing?

Desperately trying to squeeze out tax revenue, of course. And they’re doing it in the name of a socially justifiable goal. It’s fraud.

Now, you might not own an investment condo, or be an amateur LL, or have to do business in Toronto a few months a year and need digs there, but this still matters. Taxing people in a heavy fashion, as this levy does, because the state thinks they need to spend more nights in a property they own, or forcing them to rent, is a further erosion of property rights.

But wait. You have none.

In Canada there is no legislated, constitutional or legal right to own property. A Conservative government (Mulroney) once tried to include it in the Charter of Rights and Freedoms, but that went down to defeat during the Meech Lake/Charlottetown Accord debacle. (I know. It was my idea at the time.) This means any level of government can take your land, change its usage or zoning, bust up established neighhourhods or pound you silly for not using it enough.

Taxing ‘empty’ units won’t make more of them. Or reduce the cost. Or hurt anybody except owners when apartments are empty from a lack of tenants. It’s a tax grab. Because real estate is the only sitting duck left.

Be wary of what’s coming.

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December 9th, 2020

Posted In: The Greater Fool

One Comment

  • Dale Ripplinger says:

    Well said Garth. Watch out for the reduction of the exemption on real estate capital gains to come next. This is low hanging fruit for governments because no one feels sorry for someone who enjoys a capital gain…despite the fact that that gain is the only financial reward for investors who scrimped and saved to purchase the asset, took the risk on mortgaging the property, managed it for decades, dumped money into repairs, and now when they are about to take a long awaited and well deserved profit the government will swoop in and grab as much as they can. They already tax 50% of it but be very afraid that that percentage will rise.

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