Bully Bids and Bans

Ontario’s powerful realtors and their respective lobbying vehicle, the Ontario Real Estate Association (OREA) have asked Doug Ford’s provincial government to outlaw the practice of ‘bully offers.’

A bully bid is an offer submitted by a prospective buyer ahead of a seller’s established offer time. These bids are largely designed to aggressively pre-empt purchasing activity from other potential buyers and to place pressure on the seller to accept. This aggressive bid is submitted before the designated offer day. Sellers accept the bully bid if they believe that it will exceed what they will get conventionally. 

The practice can occasionally result in one buyer out-muscling potential counterparts and entices a seller to close a deal quickly without reviewing and considering other potential bids. The move is seen as unfair and limiting to realtors, who have little room to bid up prices if only one bid is submitted and ultimately accepted. Realtors also feel banning bully bids would enhance fairness in the market and allow all prospective buyers, or at the very least a greater number of them than present, will be allowed to participate in bids. OREA submitted 28 recommendations on reforms to their profession to the government which is currently reviewing the Real Estate and Business Brokers Act; the landmark legislation governing real estate professionals.

OREA is headed by Tim Hudak, the former Leader of the now governing PC Party of Ontario. The organization is heavily staffed with politically minded employees and is close with the present administration and enjoyed reasonable ties with the former Liberal Government. Several PC lawmakers and government staffers are former realtors and the government is keen to develop and maintain strong ties with realtors, developers, and the construction industry. These groups have heavily bankrolled the PC Party in the past. 

 

This Year’s Federal Budget

Budget 2019 is the final Liberal budget before this year’s election. It outlined billions of dollars in new spending to please key Constituencies across the country. The Federal government has seen its revenues rise by over $10 billion from a strong and growing economy and wasted no time in maintaining its deficit figures and boosting outlays.

The budget does, however, deliver major initiatives designed to address housing anxieties, this blog post will discuss those measures.

 

First time home-buyer incentive program

The Feds have announced a $1.25 billion first time home buyer incentive program. Households with less than $120,000 in income will be able to receive up to 10% of a home’s down payment interest free from the CMHC (Canada Mortgage and Housing Corporation). This amount of money is expected to be repaid on the eventual sale of the home. For a $400K condo, this equates to $40K in government money for a down payment. In other words, the government will provide you with tens of thousands of dollars which will be taken away from the overall equity of the home. This will also lower monthly mortgage payments by roughly $200 a month.

 

RRSP usage

The budget also boost the amount of money a first-time buyer can withdraw from his or her RRSP for a home purchase. Individuals can withdraw up to $35,000, and a couple can withdraw $70,000 for their home purchase. This was the first time this amount was amended in over 10 years. The Feds are aiming to get both the RRSP increase and incentive program initiated and out the door by September.

 

New housing builds

The Feds also announced the construction of over 40,000 new housing units in low-supply areas to be built over the next decade. These units will be rental. This announcement builds on past promises to build more housing and honours the government’s election promise of adding housing stock.

 

On Real Estate Predictions for Spring 2019

It’s hard to predict real estate trends and long term changes. Experts, economists, and real estate watchers will all have their views. Southern Ontario and GTA residents are generally positive about the long term fundamentals.

 

They believe that immigration, a stable economy, and a sound financial system will all facilitate long term growth and general real estate stability. This positivity comes from the fact that since the early 1990s, the real estate market has been on a positive upswing. Only two brief periods saw prices and demand ease, in the early 2000s with the popping of the dot-com bubble, and in 08-09, with the Great Recession.

 

Overall, given the data we now have and the trends we’re aware of, there is little that suggests there will be drastic changes to the real estate market. Expectations suggest that the price growth we saw in the last few years are unlikely to return. Interest rates will remain stable. While the BOC will want to raise rates when necessary, there is the dual pressure of not overwhelming consumers with higher borrowing costs and managing economic expectations.

 

Demand will continue to be strong. Experts are predicting stable or increased demand for luxurious apartment and detached home units as international money shifts out of Australia, the UK, and New Zealand in favour of Canada and the U.S. Condo prices and demand are likely going to trend higher, as detached home prices are still too high for first time buyers. As for prices and sales, both are expected to trend upwards in the Spring. A 30 year fixed rate mortgage is trending at 4.375%.

 

 

On The Value Of Land In The GTA

In May of 2017, the RGF Real Estate Fund LP bought the Toronto Region Board of Trade’s Woodbridge area golf course. The 290-acre course was iconic, the sight of many golf tournaments, networking events, and business function since its opening in the mid 1960s. Many golf courses are being sold across North America. High land values, declining golf use, and enormous demand for housing is driving the changes.

Woodbridge Golf Course
Only one third of the land sold can be developed; roughly 100 acres. The other two thirds of the sold golf course are green space off limits to real estate construction. Even though this is the case, the developer has said that the capacity to develop the 100 acres will be very profitable. The developer plans some 600 detached residential units and 60 townhomes. This plan was presented to the city of Vaughan and has yet to be fully approved. Many local residents are opposed to the development proposal, fearful of increased traffic, noise, and pollution.
In April of 2015, the 400 acre York Downs golf course was sold for $412 million. Both York Downs and the Country Club are courses adjacent to valuable suburban real estate and they are similarly sized. Assuming a similar valuation, it can be assumed that RGF bought the Country Club for roughly $300 million. Despite the fact that only a third of the course can be developed, this massive purchase will likely be very profitable. These transactions highlight the extent of housing demand in the GTA.

October Was A Good Month For GTA Real Estate

Positive numbers marked the overall situation for GTA real estate. Both the detached and semi-detached home and condo markets saw positive figures. Condo prices rose 7.5% and semi-detached home prices were up 6.6%. The average selling price for a home rose past the $700K range where it has languished for roughly to hit $810K, This was the first significant increase in prices in over 3 months. 

The positive sale price increases highlight a recovery that is steadily building momentum. Analysts saw the figures as proof that the perennial forces of supply and demand were returning to their general positions in the GTA market. The supply of homes continues to be a significant factor impacting the market – with recent inventory showing a tightening of listings. The slowdown the market saw exacerbated this issue because many prospective sellers are waiting for prices to increase again before listing their homes.
The condo market continues to show its heft. Impressive price figures and demand has not been shaken by government intervention. Higher interest rates in the medium to long term may damage the health of the condo market but it continues to be seen as a haven for young professionals trying to get into the market affordably. The recovery continues. 

The Fed eases off on its tightening

Federal Reserve Chairman Jerome Powell did not signal another rate hike in its most recent announcement this week. The Board was unanimous in its support for the not raising rates. With the U.S. economy absorbing large stimulus through tax cuts, increased government spending, and still very low rates, economic activity and job growth is on the rise. This has strengthened the Fed’s longstanding argument that rates have to be increased.
Caption: U.S. President Donal Trump shaking hands with Fed Reserve Chairman, Jerome Powell at the White House
The big opponent to higher rates has been Donald Trump. Irritated at the propensity for these rate increases to dampen economic growth, the President has vocally attacked the Federal Reserve. He has argued that all of its actions have been ‘wrong.’ It’s a possibility that the Fed’s decision to hold off on rate increases could have been prompted by this language and a desire to placate the President, especially given the U.S. mid-term elections.
The results of these mid-terms has been mixed for the President. On the one hand, his party gained Senate seats and tightened up its control of the U.S.’s upper house. On the other hand, the Democrats won back control of the House, albeit not with the momentum many in the media had predicted. Many key gubernatorial races were also won by Republicans, particularly in the key states of Ohio and Florida. The next two years will be tumultuous and difficult, and the partisan divisions in America will only increase.

Toronto Commercial And Industrial Real Estate Is On Fire

The traditional condo, detached, and semi-detached housing market is in relatively good shape in the GTA. This week, Tembo will focus on another component of the market; commercial and industrial properties.

Toronto Commercial Real Estate
In a few of our past blogs and newsletters, Tembo has outlined that the general trajectory for commercial properties has been positive – with healthy stats; strong demand, high prices and soaring investment. In 2017, commercial property investment hit an all time high. Some of Canada’s biggest pension funds, corporations, firms, and banks invested huge amounts into building, leasing, and buying commercial real estate.

Commercial Real Estate Trajectory Continues

Commercial and industrial real estate availability hit a record low of 3.9% this year, according to the CBRE. Toronto’s availability is the lowest in the country, at 2.2%, even lower than Vancouver’s tight 2.4%. 
Massive socio-economic changes and strong growth are driving the ongoing surge. Warehouses are in high demand, as is real estate that caters to the e-commerce and food sectors. Recently, multinational Amazon announced several large scale warehouse, or Fulfillment Center investments across the country, most notably in Ottawa.
The massive commercial demand has seen the market respond with huge increases in construction activity; a 47% rise from earlier years. In provinces with relatively weak economies and increasing commercial vacancy, such as Alberta, new sectors such as cannabis and e-commerce are replacing traditional ones. Overall, residential real estate will be competing for capital that could be allocated to the commercial sector.
The boom, in all things real estate, continues.

June Was Good to Toronto Real Estate

Sales had their best month in over 14 years as growth hit 18% from June 2017 figures.

Toronto Real Estate Update
Prices rose almost 3%, with the average home now exceeding $800,000. Listings also declined, tightening supply and beginning a trend which will benefit sellers in the long term. Overall, numbers in all respects were positive for both buyers and sellers.

Sellers Are Feeling The Pinch

The very strong data comes at an important time when market watchers and participants could use good news after a very tumultuous period. Real estate is under huge pressure from multiple fronts. New insurance rules, extreme conservatism among banks, a higher interest rate environment, and lack of supply hurt buyers. Sellers are feeling the pinch from government intervention which was designed to deflate sky high prices, and which worked. 

Toronto Condo Market Continues To Soar

The condo market continues to do very well, with prices up over 7.5% on average in the city of Toronto. In all, these positive numbers and the move to a healthier market overall is a strong signal which sheds a light on how resilient the GTA real estate market is. Many experts believe these numbers point to a broader, positive long term trend which will hold for the rest of year as long as macroeconomic indicators remain in decent shape. 
If

Interest Rate Increase Is Imminent

Interest Rate Increase Is Imminent

higher interest rate sign

Prepare for another increase in interest rates on Jan. 17th, the date of the Bank of Canada’s next monetary policy announcement (decision on rates). It is Tembo’s prediction that the possibility of another hike from 1% to 1.25% is extremely high. While it is possible that the Bank will hold off on a hike until later, given the recent release of some important economic statistics, the likelihood of a hike is sky-high. Economists, bankers, and the media are all anticipating a hike.

interest rate increase

Low unemployment is the likely precursor to a hike

  In December of 2017, the Canadian economy added 79,000 jobs, lowering the country’s unemployment rate to 5.7%, the lowest in over 40 years. Every region of the country added jobs, with most of the growth in Quebec and Alberta. Most of the jobs were full time and private sector, another sound aspect of the increase. More jobs will increase spending and will further add pressure to inflation, which is creeping up, albeit very slowly. The consensus among experts was that the Bank of Canada would wait for the latest employment statistics before making its decision and essentially every economist was amazed at the sheer number of jobs created. The Canadian dollar surged to almost 81 cents on the strong news.

CDN Dollar rate

Job market is booming

The sectors that are seeing the most job creation are services and manufacturing, public sector job growth which was strong in 2017 is beginning to decrease. Across the country, job numbers are growing and there is a growing diversification away from construction and energy related jobs which is a positive sign. January jobs numbers will be interesting as they will reveal if so much of the reduction of unemployment was seasonal due to the holiday season. Either way, higher interest rates will make it more expensive for Canadians to acquire mortgage debt, especially first-time buyers.

unemployment rate

Ontario Election 2018 – What’s in it for real estate?

Ontario Election 2018 – What’s in it for real estate?

In this blog post, Tembo Financial Inc. will analyze the election platform for the Progressive Conservative Party (PCs) and will outline what the official opposition is proposing to do for real estate professionals, prospective homebuyers, and homeowners if it were to replace Premier Kathleen Wynne’s Liberals as the province’s governing party.

 

infrastructure icon

1.    Local Infrastructure Fund

This is being touted to create jobs and build infrastructure in small communities.

park infrastructure fund

2.    Investment in Parks and Green Infrastructure

Investing some money to make certain green spaces across the province more user friendly.

apprenticeship icon

3.    Increased access to apprenticeships, doubling the loans for tools program

This will stimulate people learning an apprenticeship, and could be beneficial to the real estate and construction industries hungry for skilled apprentices.

transit funding icon

4.    Transit

The PCs are making a big push to invest $5 billion over 4 years on top of existing funding into new subways, particularly a downtown relief line which Tembo discussed previously. They will also upload the administrative and maintenance costs of Toronto’s subway system from the TTC while allowing the TTC to keep all the fairs. In return, they want the city to build more LRTs – especially a connection from the soon to be completed Eglinton-Crosstown to UofT’s Scarborough campus. These initiatives will spur development, improve property values, and stimulate construction.

sell air rights to developer icon

5.    Selling transit station air rights to developers

Self-explanatory, the PCs want to develop long along and by transit stations to create more housing stock.

Land Reform icon

6.    Reforming the Planning Act

To reduce permit delays, cut red tape, and to stimulate more housing construction and development by sending a clear signal to municipalities.

Selling Property Portfolio icon

7.    Reviewing the province’s property portfolio

In other words, see what the province owns or has rights to and look to sell chunks of it to developers so they can build. Think underused or vacant parking lots, undeveloped land, wills, etc.

Reforming Planning Process icon

8.    Reforming planning processes

This will encourage municipalities to update their planning and zoning processes and to update them routinely so as to send regular signals to developers about what and how to build, the goal is to ultimately increase supply in the long term.

Review Tenancy Act

9.    Reforming planning processes

This will encourage municipalities to update their planning and zoning processes and to update them routinely so as to send regular signals to developers about what and how to build, the goal is to ultimately increase supply in the long term.

 

Overall the PCs are promising to make big new investments in transit and to increase housing supply. The full platform with all of its proposals is available here: https://www.ontariopc.ca/peoples_guarantee

 


Disclaimer:

Tembo Financial Inc. is non-partisan and looks forward to analyzing the party platforms of the Ontario Liberal party and government and of the third party NDP. Let’s hope that the 2018 election sees issues of housing supply, affordability, and infrastructure discussed thoroughly and qualitatively.

Is Affordable Housing A Human Right?

Is Affordable Housing A Human Right?

Prime Minister Trudeau

Prime Minister Justin Trudeau announces the government’s National Housing Strategy at the Lawrence Heights Revitalization Project in Toronto. (Photo Source: https://pm.gc.ca/eng/photos).

Prime Minister Justin Trudeau seems to think so, and recently declared that the federal government would make “adequate housing” a right in Canadian law. At the same time, the Prime Minister announced a $40 billion plan over 10 years to a national “Human Rights-Based Housing Strategy.”

What Is The Rights-Based Housing Strategy?

The strategy has several components, first the government will provide $2,500.00 in annual rent support a year for low-income vulnerable families called the Canada Housing Benefit. Second, more social housing will be built across the country. Third, 100,000 new affordable housing units will be completed, along with repairs to 300,000 affordable housing units, and removing hundreds of thousands of households from “housing need.”

The plan is also geared to “protect” 385,000 households from losing their affordable housing (social housing), and commits to cut chronic homelessness in the nation for 50%. The aforementioned Canada Housing benefit will cost $4 billion over 8 years with cheques starting to get mailed in April 2020 until 2028, shortly after the next federal election in late 2019. The Canada Housing Benefit is the only part of the overall strategy that is receiving new government money, most of the funding for the $40 billion plan was announced in last year’s federal budget. The plan will also see certain federal lands transferred to private sector partners for housing development if they meet strict environmental standards.

Does This Mean Housing Prices Will Start To Cool?

While stakeholders and expert groups say the plan will have a positive impact on disadvantaged, low-income Canadians, the overall state of housing affordability for middle class Canadians will continue to worsen. The below graph outlines average family incomes and average home prices in some of Canada’s major cities. Overall, as supply constraints and price increases continue, first-time buyers will have to save and leverage more to afford their first home.

2017 mEDIAN fAMILY iNCOME VS. oCTOBER 2017 AVG HOUSE PRICE ACROSS CANADA

Source: CREA, StatsCan, Bank of Canada