Monday, October 20, 2014

Oct 20 Market Update

MLS numbers update courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.


Oct 2014Oct
 2013
Wk 1Wk 2Wk 3Wk 4
Unconditional Sales83
230
356
512
New Listings178393556
979
Active Listings410040603988
4322
Sales to New Listings
47%
59%64%
52%
Sales Projection--661630

Months of Inventory
8.4


There has been some discussion about this piece of "analysis" by a mortgage broker.  His theory is that when interest rates go up, so do prices.  Apparently in the last 30 years, increasing mortgage rates lead to increasing prices 62% of the time 2 months later.  Never mind that the two month lag is never justified (as Just Jack said, a 3 month rate hold would blow that out of the water).  The obvious gaping hole in this theory is that prices have been increasing for most of that 30 year period, so it's not at all surprising that 62% of the months they went up.  If someone were to care to evaluate the entire period they would probably find more than 62% of months that showed increasing prices.

281 comments:

1 – 200 of 281   Newer›   Newest»
JD said...
This comment has been removed by the author.
JD said...

This article shows similar historical data how prices often rise with interest rates.

I took every case from 1976 through the present in which mortgage rates rose by one percentage point or more. I then looked at the FHFA’s Home Price Index for that period. It turns out that in every case, home prices rose(emphasis added) over the period in which mortgage interest rates are rising.

http://blogs-images.forbes.com/billconerly/files/2012/12/Home-Price-Table.jpg

Interest rates on mortgages, bonds, and other long-term debt are not set by the whims of fairies. They are determined by two factors: inflation expectations and economic growth, which combine to set the supply and demand for credit. Mortgage rates only rise when people feel good about buying houses: inflation is pushing up home prices, and more people have jobs. The higher demand for housing pushes home prices up despite the higher mortgage rates.

The full article:
http://www.forbes.com/sites/billconerly/2012/12/18/when-mortgage-rates-rise-will-home-prices-fall/

Phil said...

For Victoria since 1973, here are the only multi-year time frames where mortgage rates and home prices increased together. The mortgage rate graph is from Ratehub and the price graph is from Victoria Real Estate Board.

Leo S said...

JD you still are only considering half the of reality if you don't look at the years where mortgage rates fell. By the way the U.S. collapse was very clearly preceded by a steep rise in rates

Tren said...

mark

dasmo said...

I might add it was a steep rise in rates combined with a collapse in the economy with a dash of financial rigging unraveling.... Not just rates in isolation...

Phil said...

Or was it moreso the fear of an impending banking crisis causing investors to rush into the safety of bonds thereby driving down interest rates. Of course at the same time they would be selling assets like stocks and real estate. I suppose one could argue that falling interest rates are often but not always an ominous signal for stock and housing markets. Here’s the 20-city Case-Shiller versus US mortgage rates displaying the relationship.

CS said...

Rates may rise because the economy is hitting limits and inflation is taking hold or a the end of a period of money printing to combat a recession or depression. The impact on house prices may not likely be the same in the two cases.

In the first, one would expect rates to go very high and RE prices to fall. In the second, the rate rise will likely be gradual, with the result that RE prices are more likely to flatten than to crash.

Leo S said...

Rates in the US were cut because the housing market and by extension the economy were unraveling, not the other way around.

Phil said...

"In the second, the rate rise will likely be gradual, with the result that RE prices are more likely to flatten than to crash."

However what’s interesting to note in that chart above is that there’s nothing gradual about recent rate rise and yet prices actually surged ahead. Then again, they were starting from lower levels.

dasmo said...

@CS For the record I bought some Seadrill this morning based on the charts and their stats it's momentum is shifting upwards... Experimenting now that the gauntlet was thrown to beat the market... Still liking my Sugar play though....

CS said...

However what’s interesting to note in that chart above is that there’s nothing gradual about recent rate rise and yet prices actually surged ahead.

What recent rate rises? According to the chart you linked to, rates have been in a slight downtrend since 2008.

CS said...

I bought some Seadrill

Good luck with that!

At least the quarterly dividend of a dollar a share is good so long as it lasts, and the last I read it was said to be more or less guaranteed (on the basis of existing contracts) for the next two years. In the long-term, assuming no major accidents or spills, the value will likely be determined mainly on the direction taken by the price of oil.

Phil said...

"What recent rate rises?"

The 3.3 to 4.6 in 2013. Otherwise known as a whopping 40% increase in rates. The one that made headlines around the world and had bond markets buzzing.
Anyhow, it's counterintuitive how property prices reacted with it.

DavidL said...

CBC News:
CMHC head says banks should share risk on home mortgages
Evan Siddall says CMHC was a 'shock absorber' in the financial crisis and should not be privatized

CS said...

The 3.3 to 4.6 in 2013. Otherwise known as a whopping 40% increase in rates. The one that made headlines around the world and had bond markets buzzing.

But the chart you linked to shows no period from nineteen seventy something till now when rates were below 5%.

Seems like there must be multiple mortgage rate charts each recording a different reality!

Phil said...

Lol, yes if you are an American homeowner the 30 yr rate is likely more important, if Canadian then the 5 yr is probably more important.

I posted two links. The “3.3 to 4.6 in 2013” was referring to the 2nd link.

Phil said...

Regarding the whole rate discussion, it's my inclination that bond investors are more experienced than RE or stock market investors. That's why one should follow rate cues. IOW if bond rates (interest rates) are declining it is signalling that the smartest investors out there see things lurking in the shadows that you don‘t. Case in point, if you wanted the warning in the middle of September to sell stocks before the swoon, all you really needed to do was watch the US 10y rate not make a higher high like the Dow did. Vice versa, last Wednesday follow the rate cues that day and start buying riskier assets again. Too bad it's not as easy as a click of the mouse for RE.

CS said...

all you really needed to do was watch the US 10y rate not make a higher high like the Dow did. Vice versa, last Wednesday follow the rate cues that day and start buying riskier assets again. Too bad it's not as easy as a click of the mouse for RE.

Cool. Just watch those rate cues, folks, and we'll all be billionaires!

CS said...

Warren Buffett loses $2 billion in two days

Don't take your eye off the ball, Warren. Just keep watching those rate cues.

I cannot see a traditional economic recovery driving inflation and then interest rates sharply higher any time in the near future. However, a slump in the dollar, something the Russians apparently hope to engineer, could certainly drive inflation sky high. The impact on interest rates would then surely kill RE, since even if you wanted to buy property as an inflation hedge you couldn't unless you had mostly cash (pretty much the early 70's scenario).

Phil said...

Lol, someone's touchy about the markets lately!
I promise to never challenge your vast wisdom again CS ;-)
So what are these pesky Russians apparently up to now?

CS said...

So what are these pesky Russians apparently up to now?

You can find out for yourself here:

Voice of Russia: Russia prepares to attack the petrodollar.

Curly Fry said...

welp, i thought long & hard, looked at all the pros & cons, and finally decided.. not to buy a pumpkin this year.

mister money mustache inspired badassity

CS said...

I promise to never challenge your vast wisdom again

Feel free.

Phil said...

Is it kind of like the movie Jack Ryan: Shadow Recruit where he tries to stop the Russians from completely collapsing the economy?
In all seriousness, I think I see from your comments where you're coming from.
"certainly drive inflation sky high" "pretty much the early 70's scenario"
I know a few others praying for inflation to resurrect their energy and mining portfolios. I could get on board with that. Long live inflation! Hear, hear!

Leo S said...

Cool. Just watch those rate cues, folks, and we'll all be billionaires!


Just another in a long line of people that have figured out the secret to consistently beating the market.

CS said...

Here's another neat method for predicting markets:

Sunspot activity and the stock market

CS said...

I think I see from your comments where you're coming from.

Probably not. Certainly I'm not praying for inflation. And the rise in oil price during the 70's was due primarily not to inflation but to supply constraint imposed by the newly created (1973) OPEC oil producers' cartel.

Marko said...

Looks like secondary suite bylaw now permits suites north of McKenzie as well -> http://www.saanich.ca/living/community/suitenorth.html

Introvert said...

Looks like secondary suite bylaw now permits suites north of McKenzie as well

That's awesome. Now the four people north of McKenzie who want to legalize their suite, can.

SJ said...

Here is another one on the master rate debate
http://www.bankrate.com/finance/mortgages/rising-rates-lower-house-prices.aspx
"Rates tend to rise because, in a relative sense, the economy is doing well, incomes are going up, people can afford more and they're willing to take out a larger mortgage. Intuitively, you'd think that if interest rates go up, of course, house prices go down. But "

I don't believe there is any long-term correlation. If central Canada is the one to start doing well first driving rates higher and Vic is suckin the hind teat, then I say prices will fall here and go up wherever it's rockin. Can anyone tell me whos economy is off to the races first? I thought not.

dasmo said...

I think it's more about the fact that you will see any new builds have them... The SFH is truly dead. I wouldn't expect to see any built at all anymore except if custom.

patriotz said...

However, a slump in the dollar, something the Russians apparently hope to engineer

It's the Fed itself that's been trying to engineer a slump in the dollar, and outside forces (most notably China) that have been trying to prevent it.

I don't see why the Russians would want a lower dollar, as it would hurt the Chinese economy and by extension their prospect for energy exports to the latter.

Dave said...

I'm ignorant of what exactly a secondary suite is I guess. If you feed the renter then they become a boarder which is ok? So a secondary suite is simply a renter who doesn't get food/is covered by the RTB/etc.?

Were there any kinds of grandfathered suites that were legal in Saanich prior to these changes?

I've seen so many rental listings for basement suites and personally know of a few that I thought they were all legal! I guess that in itself says something.

And I think we've covered it before, but if someone has renters in their basement or ground floor say, but it hasn't been made 'legal' with a permit, how would they ever get 'caught'?
Are there penalties?
Who bothers to inspect the legality of suites?
What are the ramifications of having a legal/reported suite vs an illegal/unreported one? Is it just having to report the extra income?
Are the property or utility (garbage sewage recycling) taxes higher?

Is Oak Bay anywhere near legalizing suites?

Suites?

Dave3

SJ said...

I know someone who had an illegal suite where tenant caused a fire and it cost them a fortune.

CS said...

I don't see why the Russians would want a lower dollar

Both Russia and China are reported to be reducing their US dollar holdings, which, all other things being equal, would weaken the dollar.

The reason for this action on Russia's part is the belief expressed by Putin that allowing the dollar to serve as the global reserve currency gives the US an unfair advantage allowing the US to live as a parasite on the rest of the world.

I think Putin is referring to the fact that the US runs huge annual budget deficits financed by Treasury bond sales that are matched by the rise in foreign holdings of US Treasuries, with the result that, in effect, the war for global dominance by the US (aka the War on Terror) is financed by the countries to be dominated.

But the issue is complex as you indicate. Some have called the reserve currency status of the US dollar an exorbitant privilege, whereas Michael Pettis describes it as an exorbitant burden.

And while the Russians and Chinese are reducing their US dollar reserves, Russia is "de-dollarizing" having paid down 53 billion in US-denominated debt in the third quarter, an action which likely contributed in some measure to the current strength of the dollar and weakness of the ruble.

CS said...

Is Oak Bay anywhere near legalizing suites?

See:

Oak Bay Secondary Suites Review Committee: Final Report

Note that the survey to which the report refers had a response rate of only 33%.

DavidL said...

@Dave

Wow! Lot's of questions about suites in Saanich. I suggest you contact the Saanich bylaw office to get answers to some of your questions. I have answers for a few of your questions ...

...but if someone has renters in their basement or ground floor say, but it hasn't been made 'legal' with a permit, how would they ever get 'caught'?
All it takes is a complaint from a neighbour to get a Saanich bylaw officer to do an inspection. Prior to legalizing suites south of McKenzie, a previous neighbour (since moved away) complained about a suite that in a house across the street. The owner was told that he must remove the kitchen that he added and that he could not rent out his basement.

Who bothers to inspect the legality of suites?
Saanich bylaw officers.

What are the ramifications of having a legal/reported suite vs an illegal/unreported one? Is it just having to report the extra income?
An illegal suite can be a considerable risk with fire, theft or injury. Not only can there be issues with unreported income and the CRA, but also the capital gains (or loss) when selling the property. CRA: Changes in the use of a principal residence

Just Jack said...

I've spoken with Langford's Fire Chief about suites. The fire department wants to know if there is a suite or suites in the home. One of the reasons the Chief cited was locked and blocked doors where the fireman have to axe their way through.

Marko said...

The owner was told that he must remove the kitchen that he added and that he could not rent out his basement.

But did he actually do it?

Dave said...

^ This

Thanks DavidL! I can't remember if I am Dave3 because there were two other Dave's or if I have lumped you into the Dave group :)

I posed those questions mostly to satisfy my own curiosity, not because I have a stake in a secondary suite.

To Marko's point, my impression is that there is little to no enforcement or punishment w.r.t. illegal suites. Stories of owners simply having to remove a stove, have an officer sign off the residence as compliant, put the stove back, and rent out the suite seem more common than stories of tragedy following the discovery of an illegal secondary suite.

Are illegal suite owners compliant with the CRA, but not the muni? That seems like a disconnect in government communication which isn't unheard of, but is logically insane (muni could just request a list of residences that are of rental + primary residence use.) Either that or suite owners aren't compliant with either the CRA OR the muni in which case are they not reporting all that extra income?

Which is what I mean: it seems like having an illegal secondary suite should be a huge risk (other than insurance-wise), but given that so many exist there doesn't seem to be much in the way of deterrent or punishment for having one.

Dave3

Marko said...

What's Saanich to do? They have 9000 secondary suites give or take. Maybe 400 to 500 have permits (conforming), if that. Shut down 8500 suites that are non-conforming?

Introvert said...

What's Saanich to do? They have 9000 secondary suites give or take. Maybe 400 to 500 have permits (conforming), if that. Shut down 8500 suites that are non-conforming?

Nope, Marko. It's nowhere near 400-500. In fact, only 98 homes have been legalized since the option to legalize began in 2010 (64 in existing homes; 34 in new homes).

That means of all the secondary suites in Saanich, only 1% of them are currently legal.

Mayor Frank Leonard has publicly admitted that secondary suites in Saanich are a necessity not only for Saanich but for the region, and that Saanich is not interested in clamping down on illegal suites. This is probably why Saanich is taking the "soft" approach to legalization--making it optional and hoping it catches on eventually.

Also, just so everyone knows: the illegality of a rental suite does not in any way void a Residential Tenancy Agreement in B.C.

Lastly, I have no idea how many landlords of illegal suites choose not to claim their rental income to CRA. I imagine that it could be the majority. However, I personally claim all rental income to CRA, as it helps me sleep better at night and because the business tax deductions associated with it are somewhat helpful (e.g., I can write off a portion of my mortgage interest).

Marko said...
This comment has been removed by the author.
Marko said...

only 1% of them are currently legal.

Perhaps better wording would be 1% of them are currently conforming (permits in place). The bylaws allow now for suites on RS lots north and south of Mckenzie.

I could be wrong but I seperate suites out into the following classifications...

1/ Legal (zoning allows) and conforming (permits in place)
2/ Legal (zoning allows) and non-conforming (no permits)
3/ Illegal (zoning does not allow), and non-conforming (no permits)

Marko said...

I guess #3 could just be illegal....can't conform an illegal suite :)

DavidL said...

@Mark0

The owner was told that he must remove the kitchen that he added and that he could not rent out his basement.

But did he actually do it?


Of course not ... However, he was obliged to evict his tenant. When the neighbour who complained sold their house, the suite was rented out again. Ironically, the neighbour who complained had her mother living in a separate basement suite in her own house.

Just Jack said...

I'll iterate Marko's comment that legality applies to the zoning of the site while conformity applies to the improvements.

The issue only gets complicated when one uses the word "legal" versus permitted or unauthorized.

A home with a suite may not conform to the zoning bylaw but the improvements may be permitted to allow for a suite.

It can get more confusing when some professions use the word "in-law" suite. That doesn't necessarily mean legal or conforming.

That the Mayor and City council has allowed this to continue means that they are not enforcing the approved bylaws. If this were a Strata Council not enforcing the bylaws then a person would have legal recourse against the council. However Mayors and City Council can not be sued.

The failure to universally enforce the bylaws begs the question that are any of the bylaws enforceable or are they at the whim of City Council.

Marko said...

I personally think municipalities should legalize suites and focus on improving suite safety.

Whenever I call Saanich or Victoria with suite issues their response is "your buyers can rip out the existing suite completely because there are zero permits and then they can start from scratch in building a new one." Part of the reason why so few individuals attempt to conform.

I am guessing liability for municipalities would be too huge to have a program where existing suites safety standards are upgraded as much as possible versus requiring complete removal and re-start.

It's a really difficult problem to find a solution too....but with only 1% of suite conforming in Saanich the current status quo isn't working.

Just Jack said...

It's a mess trying to solve the suite problem now. The horse is long gone from the barn.

And now enforcement is left up to the surrounding neighbors.

I think any new home should have to apply for a suite permit before construction begins to make sure the suite meets minimum health and safety standards.

As for existing homes it's up to the owner to make sure that he or she is providing a safe habitat for their tenants. Knowingly not to do so which results in a death should be treated as manslaughter and subject to civil prosecution.

Marko said...

I think any new home should have to apply for a suite permit before construction begins to make sure the suite meets minimum health and safety standards.

In the core most brand new homes are up to snuff in terms of suites. City of Victoria will make you dedicate an extra parking spot for suite, separate hydro meter, separate water shut off, fire barriers, etc. It's kind of like building a duplex.

Just Jack said...

Then what's the harm in applying for a permit before you start building?

I'm not to sure about the city making you have two electric meters on a single family home? That turns into two separate bills from the electric company.

The city engineer may guess that you are going to put in an unauthorized suite from the plans(that ain't tough). The engineer is being proactive and is concerned about safety. But I don't think it's mandatory. In this case the engineering department is caring more about the tenants than City Council.

I certainly would be hesitant on saying that all or most new homes are up to snuff. That could be a misleading statement to someone thinking of buying a home with a suite.

The odds are certainly in the home owner's favor that nothing will happen. Although I did run across a property last week where someone messed up on the electrical system and the baseboard heaters were not on their own breakers but wired into the electrical outlets. It'll work - it's just not to code.

Marko said...

Then what's the harm in applying for a permit before you start building?

New homes aren't the problem for the most part. You don't see too many situations of builders throwing in illegal suites, why would they when they can just build it from scratch with the necessary permits?

The problem is the 8900 non-conforming suites in Saanich in existing homes.

City of Victoria has its own electrical inspector, if you are building new with a suite you must have two hdryo meters.

Just Jack said...

Simply altering the bylaws to allow those 8900 non-conforming suites to be now conforming would not solve the problem of health and safety.

Each suite would have to be inspected to determine if they meet current building codes. A home owner could always hire their own professional engineer to sign off on the improvements and submit that to city hall.

I think it should be mandatory for landlords to provide proof that the suite has met these minimum standards to a prospective tenant. A better informed tenant can then chose to rent or not to rent. Maybe permitted suites will rent for more than unauthorized suites that would create an economic incentive for landlords to get their suites approved?

Could this be a solution?

DavidL said...

One of my biggest issues with illegal suites in single family homes is all the extra cars parked on the streets. On many Saanich streets (like mine), it is next to impossible for guests/relatives to find street parking when coming over for a visit. This problem seems to have become much worse over the past 10 years as many new owners have added "mortgage helpers" to their single family homes. All the extra cars makes the street less safe for young kids, bicyclists, pedestrians, etc.

I think that it's great that Saanich, Victoria and other municipalities insist on extra parking for a legal suite.

CS said...

What is the difference between a house with a completely self-contained suite with its own meter and parking space, and a duplex?

SJ said...

separate titles

Marko said...

I think that it's great that Saanich, Victoria and other municipalities insist on extra parking for a legal suite.

Is extra parking proven to be specifically safer? Instead of having the tenant park on the street they are back down the driveway across the sidewalk every time they leave.

LeoM said...

Introvert said: " I personally claim all rental income to CRA, as it helps me sleep better at night and because the business tax deductions associated with it are somewhat helpful (e.g., I can write off a portion of my mortgage interest)."

The CRA quietly goes about it's business of catching tax cheats with basement suites in two circumstances:
1. those who fail to declare rental income
2. those who honestly declare all rental income.

In the first instance, the landlords are simple tax cheaters who get the full brunt of the CRA which includes back taxes for each months rent you collected, even if your suite was not rented. You have to prove conclusively that it was not rented otherwise the CRA position is that it was rented and income tax is due. In addition the landlord will get a significant financial penalty imposed by CRA in the thousands of dollars.

In the second instance, the landlord honestly declares his rental income and pays taxes after deducting a portion of mortgage interest and expenses. However, when the landlord sells the house the tax-man from CRA will be knocking at his door. Why? to collect more tax - Capital Gains Tax this time.

Even on your principle residence you will be assessed Capital Gains Tax on the portion that was a suite. In other words if you have a two level house with 1200 sq ft on both levels and 1000 sq ft of the lower level is a suite, then you will be assessed capital gains on 42% of your square footage.So if your house (not land) increased in value from $200,000 to $400,000 then you have a capital gains exposure on 42% of the $200,000 which is $84,000. The actual tax payable will be calculated by CRA based on the capital gains yearly exemption formula, but in this example the landlord will be required to pay approximately $20,000 in Capital Gains tax immediately after selling the rental property.

Dave said...

^ That sounds like a very strong incentive to not tell the CRA you have a suite...

And now enforcement is left up to the surrounding neighbors.

But my point is that when the neighbour 'enforces' and the homeowner is told to remove the stove and evict the tenant and then quietly re-rents a short time later that's ridiculous. That's a very minor penalty for a homeowner who could be collecting tax free income for months and months. The by-law officer should report it to the CRA so they can cross-check declared suite income. Perhaps the homeowner should be ordered to have an inspector in for health and safety reasons.

Not that I know for sure they don't. Maybe the vast majority of landlords report properly, and if they do, the CRA should cross-check with the muni on the by-laws!

Pie in the sky...

Dave3

Introvert said...

However, when the landlord sells the house the tax-man from CRA will be knocking at his door. Why? to collect more tax - Capital Gains Tax this time.

This is true, and I think it's fair. Why shouldn't the government stand to collect a little from me if I've been collecting a lot from my suite as my house gained in value?

Moreover, the tax owing isn't that substantial. In your example, the house did increase in value by $200,000, which is not too shabby. So coughing up $20,000 in capital gains means one would still be pocketing $180,000 in addition to having pocketed years of modest savings in the form of tax deductions not to mention the years of suite income itself.

Introvert said...

There is no one who can't "afford" capital gains tax. If you own capital, and it gains, and you pay a little tax on that gain, well, gosh, you're still doing pretty goddamn well in my books and don't have much to complain about.

dasmo said...

Introvert, you are the only one I know that enjoys paying taxes....

patriotz said...

Are illegal suite owners compliant with the CRA, but not the muni? That seems like a disconnect in government communication which isn't unheard of, but is logically insane

It is a basic rule of income taxation that income is taxable regardless of whether it's obtained legally or illegally. That goes not just for breaking municipal bylaws but even criminal law. Most famous example, Al Capone.

By extension CRA cannot pass on reported income to municipal authorities or even the police.

patriotz said...

Even on your principle residence you will be assessed Capital Gains Tax on the portion that was a suite.

There are exceptions to this.

Change in Use

Go to the bottom of the page.

LeoM said...

patriotz said...
Even on your principle residence you will be assessed Capital Gains Tax on the portion that was a suite.

There are exceptions to this.
Change in Use
Go to the bottom of the page.
-----------------
Those exemptions are not relevant to the ongoing discussion here about basement suites. Those exemptions only apply if you're renting one or two bedrooms to students or family members, usually for less that fair market value. If you have a self-contained basement suite you must declare capital gains when you sell or change the use of the suite back to part of your residence.

totoro victoria said...

"Introvert, you are the only one I know that enjoys paying taxes...."

I like it too. I particularly enjoy that we have a social safety net even though I've never used it. Without tax revenues everything gets a bit more desperate.

Also, for the suite and capital gains, the exemption does not apply "only if you are renting bedrooms".

The CRA Rental Income Tax Guide, T4036, and S1-F3-C2 should be reviewed. They state:

Principal Residence (see partial changes in use) if all of the following conditions are met, you will not be considered to have a change in use:
- the part of the home used for rental purposes is small in relation to the size of the whole property,
- you do not make any structural changes to the property to make it more suitable for rental purposes, and
- you do not claim any capital cost allowance on the part you are using for rental purposes.

If all of the above conditions are met, you will not have to report a capital gain when the property is sold or the rental is stopped. Otherwise, you will have to report a capital gain based on the portion of the house that was rented.

Introvert said...

Introvert, you are the only one I know that enjoys paying taxes....

"Taxes are the price we pay for civilization."

LeoM said...

When I sold a rental house CRA told me that to qualify as a "small" part of the house, a suite had to be less than one quarter (25%) and not be self-contained, and not have a separate entrance. In my personal example the suite occupied 42% of the house, was self-contained, and had a separate entrance. It's impossible to escape paying capital gains tax if you have a typical basement suite; except by tax evasion.

Marko said...

If your suite is 30% of the house and you plan on paying capital gains on it does that mean you can deduct 30% of your mortgage interest?

totoro victoria said...

You can deduct the floor space percentage of mortgage interest and expenses whether or not you get the capital gains deduction.

dasmo said...

I pay my taxes and believe they need to be there. One should spend every effort to minimize what the pay in every legal manner possible. I see no reason to enjoy paying them....

totoro victoria said...

Regular income is 100% taxable, and capital gains currently are 50% taxable, so that is a substantial saving. And this is only on the gain between purchase and sale for the rental portion if it does not qualify for the exemption.

LeoM said...

Blogger Marko said...
If your suite is 30% of the house and you plan on paying capital gains on it does that mean you can deduct 30% of your mortgage interest?
-------------------------

Marko, that's probably the most loaded question yet asked on this ongoing debate. Get a good tax accountant with lots of experience in rental properties because your question does not have one answer.

For example, if a young couple bought their first house with 20% down and an 80% mortgage and the entire mortgage funds were used to buy the house, then CRA will allow a portion of the mortgage interest as an expense, subject to the CRA formula.

But, consider this example where someone owns a house outright, with a self-contained suite, and the house does NOT have a mortgage. The owners decide to take out a mortgage for 80% of the house value then use the mortgage money to spend somewhere other than on the house (say on trips or to invest in stocks). In this second example absolutely zero dollars of mortgage interest can be claimed as an expense against the basement suite rental income.
------
Blogger totoro victoria said...
You can deduct the floor space percentage of mortgage interest and expenses whether or not you get the capital gains deduction.
------

Totoro is only correct in her statement under specific circumstances; her statement would be wrong in many situations.
----------------

Get a good tax accountant Marko, CRA has a million rules to cover every scenario.

Marko said...

But, consider this example where someone owns a house outright, with a self-contained suite, and the house does NOT have a mortgage. The owners decide to take out a mortgage for 80% of the house value then use the mortgage money to spend somewhere other than on the house (say on trips or to invest in stocks). In this second example absolutely zero dollars of mortgage interest can be claimed as an expense against the basement suite rental income.

How does this principal work in real life though? If you have a $400,000 mortgage and you have $500,000 cash in the bank or stocks you wouldn't be allowed to deduct mortgage interest because theoretically you can pay off the mortgage?

LeoM said...

Marko said...
How does this principal work in real life though? If you have a $400,000 mortgage and you have $500,000 cash in the bank or stocks you wouldn't be allowed to deduct mortgage interest because theoretically you can pay off the mortgage?
------------------

If you borrow money to invest, then the interest on the borrowed money is considered an expense against the investment by CRA, in most cases. The investment could be a house, a business, stocks, etc.

Borrowing money to go on trips and then trying to claim the interest payments as an expense against your rental income isn't permitted by CRA. You're effectively just using your house as collateral for your travel loan (mortgage).

But perhaps another example will make it clearer. Change the circumstances in my second example to this:

Someone owns a house outright, WITHOUT a self-contained suite, and the house does NOT have a mortgage. The owners decide to take out a mortgage on the house for $100,000 then use the mortgage money to build an elegant basement suite. The owners use the entire amount of the mortgage proceeds for construction costs to build the suite. None of the mortgage money was used for appliances or furniture.
In this case CRA might allow 100% of the mortgage interest as an expense against rental income because 100% of the borrowed money was invested in building the basement suite. 100% is typically not allowed even in my scenario, but it theoretically could be... CRA has rules for everything...

The amount of money you have in the bank vs. the mortgage interest you pay yearly is not considered by CRA in my experience.

totoro victoria said...

Just read the CRA publications. They are not rocket science.

If you have a mortgage on your house that you used to buy the house the interest is tax deductible on a floor space calculation per the amount rented out.

The circumstance of someone who has owned their home outright and borrowed against will not be the norm. Although if they borrowed against it to invest, 100% of the interest is tax deductible anyway.

dasmo said...

Yep not rocket science. Money borrowed to invest is tax deductible. If I already own investments I can't suddenly claim my credit card debt as tax deductible. I can't own my home and decide to make it a rental and then mortgage it and write off the interest. It's the same thing you see... You could sell the house, then borrow to buy a rental and write off that interest though...

Marko said...

So if you own a house at 2500 Victor Street without a mortgage you can't mortgage it and claim interest as a write off if plan on spending the mortgage on non-investments, but you can sell 2500 Victor Street, buy 2502 Victor Street with a 80% mortgage, blow the cash on whatever you want, and claim the mortgage interest.

Way too many legal loop holes I can think of with this taxation principal.

Marko said...

^both houses have a suite..

LeoM said...

Marko said...
So if you own a house at 2500 Victor Street without a mortgage you can't mortgage it and claim interest as a write off if plan on spending the mortgage on non-investments, but you can sell 2500 Victor Street, buy 2502 Victor Street with a 80% mortgage, blow the cash on whatever you want, and claim the mortgage interest.
------------------

Absolutely correct Marko. That is exactly what most experienced real estate investors/landlords do. When a rental property's mortgage amount is low relative to the value of the property they sell it, but they don't take the proceeds and blow it on fun stuff; instead they re-invest the proceeds in two or three new rental properties using the minimum down payment BUT only after showing a rental profit on their last rental property for a few years; otherwise CRA has **rules** to hit you with more taxes.

It goes further Marko -- If a person with a basement suite or other rental property increases their mortgage at renewal time and they take the surplus mortgage money and spend it on something other than the mortgaged house, then the mortgage interest on that increased amount of the mortgage can NOT be used as an expense against the rental income.

Every variation of this scenario has a CRA implication. I have discussed this with two CRA auditors over the years and they say this is a rookie mistake that many home owners turned landlords make frequently. In Victoria alone this mistake is caught by CRA a couple dozen times each year BUT it is usually caught AFTER the home owner sells the property and declares the rental property disposition on their tax return. This declaration on the tax return will always trigger a CRA review and likely an audit.

totoro victoria said...

I think the rule does make sense. The policy intention is to increase investment, not spending. I'm fine with that.

Marko said...

Yea, but anyone with common sense can legally maneuver around the rule with ease.

It's like when very successful builders build a 3-4 million dollar home for their family. They run a typical home feature in the Saturday Real Estate TC section story about how it's their "dream, forever family home," type story. Three, four years later they put it up on market and if lucky pocket hundreds of thousnads tax free because it was their primary residence. It's not like anyone with common sense is going to come out and say, yea, my real intention is I hope to flip this within five years to make some cash and I'll play the primary residence card to save some taxes. The first one is easy for the builder to argue as a primary residence, but what if they do the same thing again in 3, 5, 7, or 11 years?

I think if everything was clear cut there wouldn't be a need for tax lawyers and accountants and their appear to be quite a few.

Even small things, should you be depreciating a laptop purchase you'll use for your business for the next 5 years? I think so? Is the CRA going to come after you and throw you in jail if you expense it instead? Does it matter if the laptop is $400 or $4,000?

When I sold a rental house CRA told me that to qualify as a "small" part of the house, a suite had to be less than one quarter (25%) and not be self-contained,

25% of finished square footage or total square footage? Many places across Canada don't count basements as square footage, here in Victoria we do, etc., etc...non-self contained is also a tough one to qualify based on the 100s of various setups I've seen in Victoria. Some you could argue both ways. Despite all the CRA rules there is still a lot of room for interpretation.

Marko said...

How do you define finished square footage? I am sure all of us on the blog have gone into open houses or viewed properties where what's being counted as finished square foot is very questionable.

dasmo said...

It's not that complicated... For the write off you can borrow to buy. You get nothing if you borrow against an existing asset.

totoro victoria said...

Again, read the publications.

This information is readily available and you can phone CRA for an interpretation of anything - it is free.

You do get a tax deduction if you borrow against an existing asset to invest.

You are not allowed to claim the capital gains exemption if you flip houses for a business.

CRA has guidelines on what flipping is. Here is an overview: http://madanca.com/learn/articles/entry/taxes-on-flipping-canadian-real-estate-capital-gains-vs-business-income/

It is not just about time, it is about intention.

CRA is cracking down on renovators who flip properties and claim the principal residence exemption each time. Instead of allowing capital gains treatment on the profits made, the CRA is treating the profits as fully taxable business income on which the principal residence cannot be claimed.

In order to avoid this treatment by the CRA, you need to prove that you have another source of income, have consistently lived in the home that you sold, and that you did not purchase the home with the sole intention of selling it.

People who resell every three or four years but have another source of income could be just fine on capital gains. Although in the circumstances you mentioned it might be preferable to be claimed as an investment loss these days...

dasmo said...

That's borrowing to invest... So my statement holds true...

LeoM said...

Marko said...
Despite all the CRA rules there is still a lot of room for interpretation.
---------

Unfortunately Marko, your interpretation and my interpretation mean nothing to CRA. The CRA intrepations are usually based on Federal Tax Court rulings.

Federal Tax Court:
http://cas-ncr-nter03.cas-satj.gc.ca/portal/page/portal/tcc-cci_Eng/Index

Marko said...

How do you prove that a builder building a three million dollar home (or $300,000) and living in it for 3-4 years with his or her family had an intention of flipping it?

Also, I can't find any specific timelines provided by the CRA.

If a builder is building a three million dollar home as his or her primary residence (he or she is living in it) every 3 years it that okay? If not, is every 5 years? Every 7? I certainly don't think every 2 years would fly, for example.

Keep in mind, this builder may be building 10 other houses through his or her company every year, so they do have other income.

totoro victoria said...

It depends on whether you had the stated intention of flipping, whether you earn income outside of flipping that house, and how often you do this. You can call CRA for a free advance interpretation of the rules.

totoro victoria said...

Typically if you are doing this every two years in a pattern as a business you would not be able to claim the exemption.

At four or five years it seems extremely unlikely you would be deemed to flip properties if you have other income despite being a builder.

LeoM said...

Marko said...
How do you prove...
-------
CRA looks at patterns in such cases. If you keep building new, living in it for a couple years, then doing it again without a bona fide reason, then CRA will catch on and audit you.

However...
One of the smartest building contractors I've known started building as a single guy, then when he got married he built a slightly larger house for himself and his new wife, then when the first baby arrived they needed a larger house so he sold the smaller house and built a slightly larger house, then when baby#2 arrived he built a slightly larger house and sold the smaller house. After six children they had a huge house in Uplands. Then the kids started moving away so he sold the big house and built a slightly smaller house. He kept repeating the process based on his family's needs and made a tax free fortune in the process. He wasn't the only contractor to use this technique to avoid capital gains taxes; it's been very common for over 40 years that I'm aware of; some contractors just used it to their advantage better than others.

CRA seems to accept bona fide reasons for building a new principle residence but that wouldn't include "the wife wanted a new kitchen, so I built her a new house." Also, that new registry system the government implemented for builders and renovators probably acts as a CRA alert system too.

Again, the CRA has years of Tax Court judgements' precedence on which they base their interpretations and actions.

LeoM said...

Totoro said:
You can call CRA for a free advance interpretation of the rules.
---------------------
Not true.
The CRA service is called an Advance Ruling and it's expensive. BUT - a CRA ruling is binding on CRA.

Quote from CRA:
"32. The fee for a Ruling is set by Order in Council. The fee is $100 plus GST/HST for each of the first 10 hours or part of an hour and $155 plus GST/HST for each subsequent hour or part of an hour spent on the Ruling. All time spent processing a Ruling will be included when calculating the Ruling fee even if the Ruling request is withdrawn."

Rulings typically involve lots of back and forth discussion between CRA and the person requesting the Ruling. Because the CRA ruling is binding on CRA, they take their time, and it gets expensive. But it can we well worth the expense because 'accountants' often give incorrect CRA tax advice.

http://www.cra-arc.gc.ca/E/pub/tp/ic70-6r6/ic70-6r6-e.html#sec61

dasmo said...

Why should you, as a builder be exempt from the tax free gain that everyone else gets... That story sounds legit enough. As long as you live in it.... I think there are more obvious and deserving cheats to go after.

dasmo said...

Like say flippers who "Intended" to move in....

totoro victoria said...

CRA will give out the information about what will be applied to you over the phone - this is FREE and called a technical interpretation.

You are correct that a written advanced tax ruling is something that is binding on CRA and something that is charged for. An advance payment of $500 is required, which represents 5 hours of work. If the time billed is less than 5 hours, the Directorate will refund the excess. If it is more, you pay more.

nan said...

The main advantage for that builder comes from the discount he almost certainly got on everything he bought to build his houses. The rest of any gain he received as a consequence of all that house selling is available to anyone.

By default, he would have paid market for the land but his purchase price on building materials and labor would have been below market value. I am pretty certain that each sale would have been at FMV.

The discount on labor & materials the builder received because of his job/company might be subject to the CRA's rules around employee discounts and been included in his income as a taxable benefit in the year he built the house. I doubt it was...

I wouldn't want to be on the wrong side of an audit for this - when the CRA doesn't like what they see, they don't have to prove anything. They can just assess you based on what they think you should pay them and leave you to fight your way out of it...

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/dscnts-eng.html

Marko said...

Monday, October 27, 2014 8:00am

MTD October
2014 013
Net Unconditional Sales: 487 512
New Listings: 766 979
Active Listings: 3,968 4,322

Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year

dasmo said...

Looks like a strongish October. It was a Mediterranean afternoon yesterday after all. My sone was slashing around on the beach at Gonzo! So nice...

LeoM said...

During yesterday's debate about capital gains implications, principal residence vs flipping; I should have mentioned one other important CRA implication that might not be common knowledge among some of the younger folks reading this blog.

Remember several bloggers correctly stated yesterday that CRA looks for repeating patterns. If CRA deems that you 'flip' properties either by buying new condos then reselling shortly after construction is completed, or by buying a house and reno'ing it, or by building new then selling after only living in it for a year; then CRA will take the following position if they deem you a flipper:

1. The subject properties were not principal residences
2. You are in business of flipping real estate
3. You are not eligible for the principal residence tax exemption
4. You are not eligible for the capital gains exemption
5. All profit from your flipping business will added to your personal income and taxed as personal income, probably at a rate of over 40%.
6. CRA will likely impose a penalty if the proceeds were misreported
7. CRA will reassess you for the past several years at the same time.

Here is a news article that talks about condo flippers, but the same rules apply to house builders and house renovators who live in their house for a time to claim principal residence exemptions, then flip and then do it again.
Financial Post


Supernova said...

Really great suite discussion, I love this blog.

I have a question for the crowd here too, regarding the relationship between BC Assessment values and market vales - a topic which I've seen come up here before but which continues to interest me.

I went to a couple of open houses this weekend, both small houses in Esquimalt. Both of them are being sold for way more than the BC Assessment value. One of the houses is listed at 365k - they're asking for almost 30k more than assessed value. I thought maybe this would reflect a lot of work done inside the house that perhaps BC Assessment wasn't aware of. Upon seeing the interior, that did not seem to be the case as there wasn't a lot of interior work "to write home about".

The other place I checked out was on Lockley and is listed for 350k, fully $75k over BC Assessment value. To me that's a pretty huge mis-match. But unlike the first property, this one has had extensive interior work done as well as some landscaping. But $75k worth? Maybe not.

So I guess my question is, am I wrong to look at the BC Assessment figures as sort of a guidepost for what a property might be worth? These two properties diverged from that number wildly and I can only imagine that the owners/listing agents believe there is value in the houses that BC Assessment, in their wisdom, is not aware of. What's everyone else's take?

patriotz said...

Both of them are being sold for way more than the BC Assessment value.

I think you mean they are asking way more than the BC Assessment value.

And that's pretty much the answer to your question really.

totoro victoria said...

Right now places are generally selling at or near assessment.

In 2003 is was common to buy at $50-100,000 more than assessment.

JJ is a better source on this but I think that it depends what the market is doing as to whether the assessments are similar to sales.

Right now with a pretty flat market they generally are, although the assessment could still be off if the house is above or below average condition.

caveat emptor said...

You can look at assessments of other similar properties. There is a chance that it is the assessment and not the asking price which is way out of line. Barring that the seller may just be in fantasy mode.

dasmo said...

Assessments can have anomalies. Mine is pretty low since the house is old and they have never bothered to adjust the value except for land value. My house is valued at around 20k. So just look more closely at the assessment to gauge... In part I think it's becaus all the renovations at my place have been smaller and over time some with permits some without. Just this year I finally got a questionnaire from bc assessment asking about the details of the house after owning it for more than 10 years. I expect next year my tax discount will be gone...

SJ said...

I bought a place last year for exactly 30 % under assessment. Upon receiving this years assessment, that was only adjusted down 4%, I called city hall and the lady initially didn't believe what I bough tit for. She checked the sale price then said "do you want to keep it where it's at or move it to what you bought it for?"
My take is city assessments are meaningless.

patriotz said...

My take is city assessments are meaningless

More than that, they are nonexistent, since all assessments are done by BC Assessment, not individual cities.

Just Jack said...

Actually, I'm going to a seminar this Thursday that is about assessments and market value.

It's being put on by the Appraisal Institute, Real Estate Institute and BC Assessment. It's primarily about how to appeal your assessments and how the assessment are determined to be fair, equitable and reasonable.

If you're a real nerd about valuation concepts this is an appealing seminar. This is high level nerd alert seminar.

If anyone wants a question put forward to the panel about assessments, market value or the appeal process I will be happy to present it for you.

These are the top dogs presenters from BC Assessment, Appeal boards and Review boards so the answers ought to be good ones.

SJ said...

The funniest thing was I thought I would have to go thru a lengthy appeal process in front of a review board, but with the stroke of some keys she lopped off 6 figs in about 3 seconds. I thought assessment would try to fight for more taxes.
I imagine it's even easier to raise your assessment.

Just Jack said...

Well SJ, indirectly that's a good question.

Does a clerk at City Hall have the authority to alter your property assessment by 6 figs?

I've never heard of this happening.

But if it does, then I'd suggest a dozen flowers and a box of candies might go a long way in getting your taxes reduced.

We could have used this clerk during the 2008 recession. All that money that was lost - she could have just typed in back into the computer by adding a couple of zeros here and there.




Justsilver said...

@JJ
I have a couple of questions for BC assessment!
how many attributes BC assessments considered when evaluate a home value? Among these attributes, which are the top five weighted factors affecting
what are the top five factors affecting assessment value?

Maybe, you can answer my question :)

SJ said...

The other thing I thought strange was her saying was along lines of "if you are reselling soon you should keep it the same" acknowlegding how often buyers look at them. I wonder how many owners push it higher in case of selling in the near future? I was only happy to be saving tax and remember thinking I could push it higher when I go to sell. By the way, as far as capital gains go, its to do with your intention not timespan.

totoro victoria said...

Yes, I would agree that the intention is the issue rather than the timespan but CRA looks for patterns as previously pointed out.

CRA does not take your word re. your intentions on an audit - they look corroborating evidence.

A purchase and sale every two years for a profit may trigger an audit.

Supernova said...

"I think you mean they are asking way more than the BC Assessment value." - patriotz

I guess that's it, isn't it - a seller can ask whatever they want. So is the consensus that BC Assessment values are a good indicator or market value right until they're not? Haha, great.

In any case, I was told by the agent for the house on Lockley which is listed for $75k over assessment value that there's an accepted offer in place - very interested to see what it ends up going for vis. the assessed value.

Supernova said...

Just Jack

I have a question that you could pose to the panel. How, and to what extent, does BC Assessment attempt to factor-in supposed future development potential? I.e., someone with a large (10+ acre) non-ALR lot in Langford near Westhills may have seen their assessment increase dramatically as a result of nearby development. I've heard of this happening first hand. This seems to be purely speculative, as such development potential entirely depends on the local Council's will and the owner themselves making applications for rezoning, etc., yet BC Assessment does take it upon themselves to make these assumptions. So if that happened to you, and you simply said "yeah, but I don't plan to develop," does BC Assessment just say "Ok, we'll knock it back down to a non-speculative number", or? There is a philosophical question about how they derive these values which might be pretty basic for a trained appraiser, but for me I'm wondering how it is practically implemented in their work.

Cheers!

dasmo said...

Y'all know your intention... Don't worry if you aren't cheating, worry if you are cheating a little, be afraid if you are cheating a lot... I mean if you are buying homes, painting them and flipping them for profit, that's a biz and if your not claiming it as such your cheating big time and should feel the wrath of an audit. If you are a developer or Real estate agent and are fixing up your primary residence and selling it and repeating this cycle...then be careful, you are in the gray zone simply because of your chosen profession. If you own your home and don't even care or think about this stuff, then you have nothing to worry about...

LeoM said...

SJ said...
By the way, as far as capital gains go, its to do with your intention not timespan.

totoro victoria said...
CRA does not take your word re. your intentions on an audit - they look corroborating evidence.
---------------------

SJ's point that CRA relies on "intention" is wrong; although 'intention' is one criterion used by CRA.
Totoro's point is right, the CRA approach is to call you a liar and then make you prove otherwise.

The CRA does not rely on your stated intention; instead they evaluate your claim using the following criteria, plus other criteria, which has been upheld by Federal Tax Court Judgements:

(a)the taxpayer's intention with respect to the real estate at the time of its purchase;

(b)feasibility of the taxpayer's intention;

(c)geographical location and zoned use of the real estate acquired;

(d)extent to which intention carried out by the taxpayer;

(e)evidence that the taxpayer's intention changed after purchase of the real estate;

(f)the nature of the business, profession, calling or trade of the taxpayer and associates;

(g)the extent to which borrowed money was used to finance the real estate acquisition and the terms of the financing, if any, arranged;

(h)the length of time throughout which the real estate was held by the taxpayer;

(i)the existence of persons other than the taxpayer who share interest in the real estate;

(j)the nature of the occupation of the other persons referred to in (i) above as well as their stated intentions and courses of conduct;

(k)factors which motivated the sale of the real estate;

(l)evidence that the taxpayer and/or associates had dealt extensively in real estate

Unfortunately for people like Marko, the CRA treats realtors and builders more strictly because they are extensively involved in the real estate business.

The CRA rarely lose at the Federal Tax Court; however, the judges seem quite fair too and they will go against CRA where they believe the taxpayer was a victim of circumstances which mislead the CRA into believing the home-owner was flipping or running a business.

A good example of false 'intentions' is the person who sells their 'principal residence' after a couple years for a profit after living in the house for two years while renting out 100% of the basement as a suite and then claims 50% of mortgage interest and 50% of all expenses against the rent. If the 50% of expenses exceed the rent received, then CRA will call you a bullshitter because you never had a legitimate expectation of making a profit from your rent. Then you sold after two years and made a profit from the sale. CRA will likely deem you in the flipping business and assess your profit as personal income.

The bottom line is to rigorously avoid anything in your real estate experience that will get CRA involved by being legitimate in all your transactions.

Just Jack said...

I'll ask the question Supernova of the panel.

I'm pretty sure of their answer as it is very basic in determining the appraisal problem when valueing acreage.

The answer can be quite extensive as it deals with Highest & Best Use. There are several steps that you have to go through in order to determine the sites highest and best use. Some of those steps include the current zoning and the likelyhood of a change in the zoning.

BC Assessmet HAS TO value every property at its Highest and Best Use. That can cause some problems such as what is the Market Value of Naden Naval Base? Clearly there are few buyers of Navy bases these days. But still the base has to be assessed considering market factors that may or may not include environmental contamination. We did store Nukes for the Yanks there.

Now just because you are assessed as a development site DOES NOT mean you will be taxed as one. That might be worthy of an appeal.

info said...

. . . . . . .Price Increase/Decrease. . . . . .
. . . . . . . . . Since June 2008 . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+46%. . . . . . . . . . . . . . . . . . . . . . . x. . .
+44%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+42%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+40%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+38%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+36%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+34%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+32%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+30%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+28%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+26%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+24%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+22%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+20%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+18%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+16%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+14%. . . . . . . . . . x . . . . . . . . . . . . . . . .
+12%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+10%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+8%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+6%. . . . . . . . . . . *. . . . . . . . . . . . . . . .
+4%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
+2%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
..0%. . . .x *. . . . . . . . . . . . . . . . . . . . . . .
- 2%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6%. . . . . . . . . . . . . . . . . . . . . . . . .*. . .
---------------------------------------------------------------
. . . . . . .June . . . June. . . . . . . . . .Sept.
. . . . . . .2008. . . .2010 . . . . . . . . . 2014

x = Toronto
* = Victoria
(source: Brookfield’s index)

From June 2008 to September 2014, house prices in Toronto increased by 46% while prices in Victoria fell 6%.

* Year-over-year: prices are down in Victoria.
* Year-to-date: prices are down in Victoria.
* Month-over-month: prices are down in Victoria.

What should be even more alarming for many Victoria mortgage holders is that this price drop happened while 5-year mortgage rates fell from near-normal levels (in 2008) to today’s historically-low (emergency) levels. If historically-low mortgage rates can’t stop Victoria’s price decline, what will?

It's obvious that many Victorians are in the denial stage of Victoria's down market.



dasmo said...

As time goes on and other markets increase it begins to make Victoria look like a deal, not a city in denial!

Marko said...

Toronto up 46%, Victoria down 6% in the same time span. Not sure how this is a bad thing at this point and time? It sucks if you bought in Victoria over Toronto in 2008 but at this point going forward those stats look to favor Victoria in my opinion.

Just Jack said...

It all depends on how the slow down translates into the loss of jobs. Construction related jobs form a significant portion of our economy.

Some contractors are still getting good prices for new homes and the trades don't seem to be cutting their prices for roofs, renovations and general maintenance.

I'm amazed that we haven't had any of the proposed condos mothballed.

It's strange how our real estate market can survive for so long on such historically low sales activity. Especially in the Western Communites where it's even money on a scratch and win ticket versus selling a condo.

Leo S said...

It sucks if you bought in Victoria over Toronto in 2008 but at this point going forward those stats look to favor Victoria in my opinion.

Maybe. Or we just returned to some more reasonable balance. Back in 2008 Victoria was more expensive than Toronto. That was pure insanity and the current state is probably closer to what it should be.

Marko said...

^Absolute shortage of trades is the problem...I've said it before.

When it came to framing my house I contacted 6 framing contractors. One didn't provide a quote as the home is quite complicated and one had too much work already lined up. Then I had quotes of $47,000, $34,000, $32,600, and $29,000. The $34,000 and $32,600 came highly recommended. I was not familiar with the $47,000 and $29,000 contractors. The $47,000 I threw out due to cost and the $29,000 never called back when contacted regarding potential start date. $32,600 was so busy he couldn't start for 5-6 weeks so I ended up going with the $34,000 just because he had guys ready to start on the foundation right away and I didn't want to drag the framing into middle of winter. Literally none of the 6 contractors expressed serious desire to get the job. Everyone was along the attitude of, here is my quote, if you give it to me great, if not, I don't care as there is other work.

I falsely assumed that a fall frame would be cheaper heading into winter; however, the highly recommend contractors have work and they also mentioned that their crews are less productive in the fall (due to weather); therefore, they don't fluctuate too much on quotes depending on season. Makes sense.

Same story with other trades. Electrical contractor complaining that he lost two guys from his crew to work opportunities up north.

Marko said...

Maybe. Or we just returned to some more reasonable balance. Back in 2008 Victoria was more expensive than Toronto. That was pure insanity and the current state is probably closer to what it should be.

What about the 30% difference between Vancouver and Victoria in the same time span? Vancouver was already substaintailly more expensive in 2008.

SJ said...

This new study has Van, Calg & Edm best bets for 2015. They only look at the biggies so not sure where Victoria sits. The real takeaway is to buy the core. The burbs (langford) look to be a losing proposition.

The annual outlook on emerging real estate trends says the move downtown, which has emerged in the past few years, will continue as more Canadians decide to stay in or move back to urban cores. It is not only the millennial generation that is giving up more space in the suburbs for the advantages of downtown living. Baby boomers whose offspring have flown their nests are also shifting towards town centers.
http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/city-dwellers-driving-canadas-real-estate-market-report/article21348040/

SJ said...

I shouldn't say langford, it's its own city and has business and commercial activities. The real languishers would be places more like west saanich, broadmead, view roayl…

Just Jack said...

If you want to make money on real estate simply figure out what everyone else is doing - then do the opposite.

Of course this is easier said than done. We're social animals so the pack mentality is difficult to shake. Yet the pendulum does swing from the country to the city and then swings back from the city to the country.

Personally, I think any gains for the city will be short term. The long term bet for appreciation is in the outer areas.

dasmo said...

You more want to do what people will be doing before they are doing it. Just doing the opposite doesn't really mean much... A great example would have been buying property in Tofono in the 80s

Leo S said...

What about the 30% difference between Vancouver and Victoria in the same time span? Vancouver was already substaintailly more expensive in 2008.

Who knows. Vancouver is a mystery and I think despite some arguments to the contrary it is hugely influenced by foreign investment.
But I agree that it is much safer to invest in Victoria than Vancouver at this point. Maybe Vancouver will survive without a crash but it is pretty risky.

dasmo said...

Yep Van boggles the mind...

Katyusha said...

Broadmead = potential languisher? I wouldn't bet on that.

caveat emptor said...

"great example would have been buying property in Tofono in the 80s"

Waterfront lots on Chestermann Beach in 1975 - approx 20 K.

11% annually for 39 years...

CS said...

Marko,

Would you please tell me whether a real estate agent is legally obliged to transmit a verbal offer to purchase to a vendor that they represent, or should all offers be written formally?

Also, what rules, if any, determine the amount of a deposit and the timing of the payment of a deposit.

Marko said...

Would you please tell me whether a real estate agent is legally obliged to transmit a verbal offer to purchase to a vendor that they represent, or should all offers be written formally?

Hmmm, I'll have to look at our council rules when I have time. I know we have to present all offers to the vendor, but a verbal contract is not enforceable; therefore, is it even an offer if you can't enforce it? All offers have to be written.

Happens to me all the time. I had a realtor phone the other day and was like "would your vendor take, xxx,xxx., my clients want to buy." I call my vendor and say, "hey, would you take xxx,xxx." Vendor says, "hmmm, why isn't it on paper? What if I say yes and they don't accept it and then they come back with a lower number. Between me and you, I'll take xxx,xxx, but keep that confidential and go back to the other realtor and tell her to get in paper."

I call the other realtor and tell her to get it in paper and two hours later she replies with, "my clients are not interested anymore."

So yea, from experience, verbal offers are very sketchy. Any buyer with a have decent intention of buying will take 30 minutes to put it on paper especially these days when it can all be done via electronic signatures.

I personally always make the vendor aware of verbal offers and it always makes me look stupid. Reply always is, why is it not on paper? But I rather look stupid than hold back anything from vendor.

Also, what rules, if any, determine the amount of a deposit and the timing of the payment of a deposit.

There are rules in terms of trust accounts, etc., but the amount of the deposit is totally negotiable. If I am selling a house I could ask for $5,000 or $50,000 and if I am offering on a house I could offer $5,000 or $50,000.

In terms of timing in Victoria usually deposit is paid upon removal of subjects and conditions. In multiple offers situation you might ask for it upon acceptance to weed out any non-serious parties.

Amount negotiated for deposit depends on a number of factors (price of home, lenght of completion, etc.). For example, if completion is really long like 4 or 5 months as the seller you'll want a big deposit. If the completion is 2 weeks out than massive deposit is not as critical, in my opinion.

CS said...

Marko,

Thanks very much for your most helpful comments.

You say:

"Any buyer with a have decent intention of buying will take 30 minutes to put it on paper especially these days when it can all be done via electronic signatures."

I'm not sure what an electronic signature can be. In practice, would it mean a faxed signature, or can an electronic signature be provided by email?

Also, in putting an offer on paper, does it have to be in some specific form, or is it sufficient merely to state I offer x for the purchase of y subject to conditions a, b, an c. for completion by a stated date?

Marko said...

electronic signatures - www.DocuSign.com, I am using this with the majority of my clients. Saves a ton of paper and the contract integrity in terms of legibility remains perfect. Faxing and scanning tends to degrade contracts and you end up with something that is often barely readable.

I use the BC Real Estate Association contracts but lawyers have various contracts too. You should use something half decent for a contract template, rather than a napkin with a few things written on it.

Our standard contract covers a lot of issues that have come up over the years...for example, is there an adjustment for the oil in tank? Various stuff like that that a napkin contract probably doesn't lay out.

dasmo said...

Do you have a BRA as part of your standard contract and what are the terms of that?

CS said...

Marko,

Thanks again.

Just Jack said...

The Months of Inventory, Sales to New Listings ratio and Days on Market are all showing that this is a very bullish market for houses in the core.

Yet prices have NOT changed significantly from a year ago! Even with a year over year increase in the number of sales.

Those aforementioned indicators have, in the past, indicated ongoing significant price increases. Similar to what happened right after the recession in 2008 and prices were increasing again.

But it isn't happening this time?

This flip flop is signallying something. I just don't know what it is. And that's why I would rather watch than participate in the market right now.

In summary, demand has improved, supply is short and prices are...

flat?

Introvert said...

And that's why I would rather watch than participate in the market right now.

JJ, I think this will forever be the case for you.

Because there is not likely to be a day when house prices in Greater Victoria revert to three-times average income and unicorns soar across the sky.

Marko said...

Do you have a BRA as part of your standard contract and what are the terms of that?

Not part of my business model. Honestly, if I show someone 30 houses and the buyer switches to a different REALTOR® I was probably doing a poor job, not available for showings, or similar. If after 30 houses someone finds a FSBO and ditches me to buy the FSBO they don't see any value in what I bring to the table, fair enough - you won't see me complaining. Also, I am crazy busy (80+ transactions this year) so I don't contractually want to be tied down to a buyer either if the buyer is being unreasonable.

As a consumer read the fine print in the BRA, they are HEAVILY skewed in the favor of REALTORS® in my opinion -> http://youtu.be/aMHLkjbi3C4

As a consumer you have to ask yourself, "what benefit do I get from signing a BRA?"

dasmo said...

Good to hear Marko!

Introvert said...

Also, I am crazy busy (80+ transactions this year)...

Roughly how many realtors are there in Victoria? 1,100 or so? Marko, whereabouts does 80+ transactions a year put you on the list of most productive realtors in Victoria? Just curious.

Just Jack said...

Since I'm trying to be a better person.

I will not make any comments directed at Intorvert/Ghomeshi or what they can consenually do with their ball gags and butt plugs.

totoro victoria said...

Big ears teddy probably has something to say though.

Introvert said...

7 years, 8 months, since this blog began. 7 years, 8 months, of intimations and predictions of a housing crash. An archive of foolishness, this.

Leo S said...

7 years, 8 months, since this blog began. 7 years, 8 months, of intimations and predictions of a housing crash.

Has it been that long since housing has been a bad investment? I guess so.

totoro victoria said...

Only if you don't have a suite and it costs you more to own than rent and you would have invested the difference if you had rented instead and you would have made money and not lost it...

Marko said...

Roughly how many realtors are there in Victoria? 1,100 or so? Marko, whereabouts does 80+ transactions a year put you on the list of most productive realtors in Victoria? Just curious.

1215 REALTORS® down from a peak of approximately 1320.

80+/year will put someone within the top 1% in terms of transaction volume.

Phil said...

Silver(bitcoin)surfer, didn't you “guarantee” us a “USA lead recession” by now.

US advance Q3 was 3.5%. Just giving you a hard time, but perhaps you should stop frequenting Zerohedge.

Introvert said...

Only if you don't have a suite and it costs you more to own than rent and you would have invested the difference if you had rented instead and you would have made money and not lost it...

totoro, as usual, you're disturbing the vibe of the blog!

totoro victoria said...

The fact that patriotz bought a house was a much greater vibe-shaker.

Just Jack said...

Time for a look back over the month at some of the better deals in real estate that have happened.


The Gulf Islands lead the way with good deals on waterfront.

Such as a 1,500 square foot home on a half acre of waterfront on Pender Island that originally sold 25 years ago for $150,000. After being marketed on and off since 2011, starting at $749,000, the property sold this month for $350,000.

Or how about 23 pastoral acres with a 4,800 square foot home on Salt Spring at $611,000. Thrown into the deal is a riding ring, five paddocks and a 2,200 square foot barn with hay loft.

Then it's off to Saanich West where this month you could have bought an Estate sale at $302,000 near the Gorge Waterway. Almost 2,000 square feet of house on a 6,000 square foot lot.

Or another Estate sale in Saanichton. Basically your typical Gordon Head Box but on a half acre of land at $380,000.

Then into..... Oak Bay!!!! After being marketed for 73 days starting at $720,000, this 2,400 square foot home on a level 7,800 square foot lot in Gonzales sold at $576,000.

How about more watefront along Portage Inlet A 4,000 square foot home that straddles two legal lots sold at $750,000


Why are these such good deals? Because they are just that half step away from what buyers are looking at purchasing today.

These deals are going to buyers that see what the majority of buyers are doing and then do the opposite. They are buying into areas and property types that have already re-acted to the upcoming market correction.

Introvert said...

The fact that patriotz bought a house was a much greater vibe-shaker.

First, HHV drops the bomb that he has left Victoria and bought a house in Area 51. HHV subsequently leaves the blog's caretaking duties to trusted renter Leo S, who not long after decides that he, too, ought to jump in and buy a home. And now patriotz has joined the party. When will the contradictions end?

Introvert said...

...They are buying into areas and property types that have already re-acted to the upcoming market correction.

There's a market correction coming? My goodness! Tell me, is it just around the corner, like it has been for the past 7 years, 8 months?

Just Jack said...

There is affordable housing in Victoria.

It's once more possible for a single parent making a government wage to buy a home.

$125,000 bought a 1,200 square foot leasehold townhome off Admirals road this month.

Life's even got better for empty nesters and those over 55.

Beach Drive condo at $195 a square foot gets you 2-bedrooms. 2-bathrooms all within walker distance to the Marina.

Tired of strata living and having to listen to the Ghomeshis next door. Try a manufactured home with the same square footage for only $110,000 along Cooper Road in View Royal.

Or a 700 square feet condo in Royal Oak at $131,000. Or an 800 square feet in Mt. Tolmie at $136,000. Or along Oak Bay avenue at $146,000.

Or how about almost 1,400 square feet of fourth floor condominium with a partial water view of Oak Bay Marina at $333,000. $245 a foot. It took almost 200 days to find a buyer.

And we haven't even started into the housing recession in the city core yet. Every new condo tower city council announces drags these older condo prices lower and lower.

There are so many new condos being built today, that the rate of depreciation has accelerated on condos. Sell before your condo gets 10 years old as the market dies off quickly after that.

Phil said...

Bottom was 2013 JJ. The deals last year in Vic & OB were mucho better than anything now.
BTW, people don’t own any of the leaseholds and coops you listed. As for the outlying areas, who would want to live on SSIsland? Maybe those who enjoy hash brownies and special mushrooms with their dandelion salad. What else is there to do there? At least in western communities one can enjoy rustic architecture, nightly bar fights, casinos and rodeos.

Just Jack said...

Since today is the cut off date for the Pre-assessment roll to give the cities time to determine what tax rate to apply to home owners. Why not look at the median price of non water view homes in the core districts as at July 1 of each of the last 8 years. Using a 3 month median.

2007 -$520,000 with 708 sales
2008 -$549,900 with 493 sales

2009 -$540,750 with 600 sales

2010 -$575,000 with 405 sales
2011 -$585,000 with 415 sales
2012 -$575,000 with 405 sales
2013 -$550,000 with 484 sales
2014 -$560,000 with 492 sales

Now lets look what happened to the taxes paid each year on the typical house in the core.

2007- $3,283
2008- $3,067

2009- $3,191

2010- $3,446
2011- $3,643
2012- $3,690
2013- $3,889

And this is without a $110,000,000 blue bridge or sewage plant.

In both nominal and real terms housing has been a poor performer for the last 8 years. If housing had been a stock or a bond - you would have sold it a long time ago.

The direction of the city core districts is evident, we are looking at much higher costs to maintain a home every year. Property taxes and city utility rates will be much higher 8 years from now. Perhaps combined taxes and utility fees at $5,000; $8,000 or $10,000 a year for the typical home? No one knows - but the cities haven't even talked about reducing expenses yet.

Buying a home today, is one of the better ways to ensure personal bankruptcy in the future. If you already own a home and you've paid down the monthly payments to a reasonable level thats great. But today's buyer is not likely to have sustained or falling interest rates for the next 8 years or city councils that are not spending tax payers money like a drunk sailor in a whore house or Ghomeshi on lube.

DavidL said...

@Introver
Because there is not likely to be a day when house prices in Greater Victoria revert to three-times average income and unicorns soar across the sky.

I don't remember any unicorns - but in 2002, the average SFH price was about three times the average family income.

totoro victoria said...

"Buying a home today, is one of the better ways to ensure personal bankruptcy in the future."

Next thing we know and you'll have purchased a future bankruptcy too.

Just Jack said...

All land in Canada is "owned" by the Crown. When you buy a fee simple or freehold property you are buying the rights of ownership. The Crown retains the right to tax it, police it, and expropriate it.

And if you die without a successor, the land and all the rights associated with it reverts to the Crown. If you really believe that you "own" your property - stop paying property taxes and see what happens.

A leasehold property also has a bundle of rights associated with it. In some cases the lease can be 99 years which is more than any of us will be living. That makes any leasehold property with a long remaining term equivalent to a freehold property. The shorter the remaining lease the lower the price. But you still have the same property rights in a leasehold town home that you would in a strata town home.

Introvert said...

I don't remember any unicorns - but in 2002, the average SFH price was about three times the average family income.

That's great, DavidL! When can we take a ride in your Time Machine?

Just Jack said...

Making any significant appreciation on real estate in the city is gone. And it will likely stay that way for decades to come.

Without a market correction, the next generation can only create wealth through bonds and equities.

And that's a compelling reason why the real estate market HAS TO correct. Not because of interest rates or vacancy rates its because the attention of future generations will not be towards real estate. Locking up that much capital in a dog of an investment isn't going to be an attractive proposition for the upcoming generations.

Introvert said...

All land in Canada is "owned" by the Crown.

"Owned" certainly should be in quotation marks as most of the land was stolen from Indigenous peoples.

Leo S said...

Only if you don't have a suite

We've covered that. If you want to take on a second job (landlord) and pay the premium for the space then great. That's not a benefit of owning though. You could just as well rent and invest in a rental property at the same time if that floated your boat. Or do some consulting on the side if you were bored.

and you would have invested the difference if you had rented instead and you would have made money and not lost it...

Lost money over that time period? Only possible for the dumbest of investors.

Phil said...

Making any significant appreciation on real estate in the city is gone. And it will likely stay that way for decades to come.

Heard the same thing in 2000, 1985, 1970. Music to my ears. Welcome to the world of Federal printing presses.

caveat emptor said...

"If housing had been a stock or a bond - you would have sold it a long time ago."

If housing was a stock you would call the $30,000 per year of avoided rent a fat tax free dividend

caveat emptor said...

"Lost money over that time period? Only possible for the dumbest of investors."

the TSX is up a whopping 11% since this blog started up - Feb 1 2007 =13145, today = 14613. And there would have been a few percent a year of dividends. So yes investors made money on average over the time period, but they didn't shoot the lights out.

SP500 did better - up 40% in that time period plus exchange rates worked in your favour over that time period

dasmo said...

The only Canadian Stock I own is Bank of Nova Scotia and Rogers Sugar....

totoro victoria said...

"We've covered that. If you want to take on a second job (landlord) and pay the premium for the space then great. That's not a benefit of owning though. You could just as well rent and invest in a rental property at the same time if that floated your boat. Or do some consulting on the side if you were bored."

Seems like we may need to cover it again.

"You could just as well invest in a rental property"

1. Rental properties are subject to capital gains taxes on the entire gain. Primary residences with suites permit at least a partial exemption and perhaps a full exemption.

2. Financing is different for rental properties. You need more down and rates are higher for non owner-occupied units. No home owners grant can be claimed on municipal taxes either. No first-time buyers financing or RRSP withdrawal available.

3. Rental properties plus being a renter has a poor return compared to buying a primary residence with a suite or a duplexed primary residence because of 1 and 2 above and the fact that your overall costs of shelter are subsidized in the second scenario to a much greater degree than the first because rental houses in Victoria currently have a generally poor ROI compared to, say, stocks.

Ex.

In Victoria you are paying $2000 a month to rent a house. It has a legal suite that is rented out separately by the landlord.

Same house is $600,000 to buy. Mortgage and expenses except utilities are $2600 a month. Suite income is $1200 a month no utilities included.

Less the suite income, you pay $1400 a month plus $50 of income tax on net. But $1000 of this goes to principal pay down.

You are effectively paying $450 a month for shelter presuming at some time in the future you can sell for what you purchased for plus the costs of selling.

Then there is the net (after tax) lost opportunity oosts on $120,000 of down payment money. After tax this might be about $500 a month by my estimate.

Renting: $2000 a month
Owing with suite: $950 a month

Of course, if your house appreciates over time this could negate any benefit of otherwise investing the down payment funds.

"You might as well take some consulting hours on the side"

I spend less than one hour a month on rental management for a number of units, including a property not in Victoria. I hire out some tasks.

In the example above you are coming out ahead net $1050 a month. I expect one suite would actually take 30 mins a month to manage. This would effectively put your hourly wage at net $2100 - and it is easy stable work.

Not everyone has the ability to "just take consulting hours on the side" to up their income due to other commitments like having kids or not being a professional or a consultant to start with.

"pay the premium for the space"

Are you referring to the extra $3-6000 down payment on an additional ex. $30,000 for the house with suite? That and the additional mortgage of $120-$130 per month?

If so, the additional purchase price is fully recouped on resale (hopefully with appreciation too) and you will probably be able to sell it quicker. The additional monthly mortgage cost is covered by rental income.

JD said...

Citizenship and Immigration Minister Chris Alexander said on Friday that Canada aims to welcome as many as 285,000 new permanent residents next year, which is the highest planned total “in recent history,” according to the Minister.
http://www.theglobeandmail.com/news/politics/canada-to-open-the-door-wider-to-higher-calibre-immigrants/article21417126/

Leo S said...

>> In Victoria you are paying $2000 a month to rent a house. It has a legal suite that is rented out separately by the landlord.

Not even close. You can rent plenty of entire houses for $2000 without a suite.

Then you forgot that when you rent out the suite you lose access to the space. So buying a 2000sqft house and renting out the bottom needs to be compared to buying a 1000 sqft house to live in. The difference in price is part of your suite costs.

And your 30m/month time completely neglects the time you put into building the suite.

>> This would effectively put your hourly wage at net $2100 - and it is easy stable work.

You're hilarious.

totoro victoria said...

Might be hilarious, but it is a real life example.

It is quite easy to rent out the typically owner-occupied unit in a desirable area in Victoria or Saanich for $2000 a month.

You could rent a whole home in Langford or Esquimalt for 2000, but that is not apples:apples.

OB and FF whole homes are renting for $2200 up to $4500 a month. Average of $2500 a month for a whole house. Just check CL.

My guess is that the suite you now occupy could be rented for $1800-2000 a month if it has 3 or more bedrooms.

Leo S said...

You could rent a whole home in Langford or Esquimalt for 2000, but that is not apples:apples.

I guess it was our imagination that we rented a 1700sqft house for $1850 near the University. It will come to my brother's suprise that the saanich house he rents is actually in Langford. These weren't any special deals either.

Might be hilarious, but it is a real life example.

That's a real life example with heaps of confirmation bias and incorrect assumptions.

So many problems with that example, but it should be obvious that it is impossible that "rental houses in Victoria currently have a generally poor ROI" while at the same time your suite pays you $2100/hr.

When you get weird results, it's a good idea to re-think your assumptions.

CS said...

@Introvert:

most of the land was stolen from Indigenous peoples

That may be putting it a bit strongly, but it is nevertheless said that, taking all claims together, including overlapping claims of different bands, the First Nations of BC seek title to an area equal to or greater than that of the entire province.

In that connection, does anyone know what the First Nations' position is on land already alienated from the crown? In particular, do the First Nations seek to recover such lands, which now total about 9% of the Province?

Introvert said...

"You might as well take some consulting hours on the side"

I spend less than one hour a month on rental management for a number of units, including a property not in Victoria. I hire out some tasks...


Leo, to imply that the work involved in being a landlord is equal or equivalent to the work involved in "consulting" is ridiculous.

When you were renting, did you have your landlord over to fix stuff in your suite almost weekly? Because that's the only scenario by which a comparison between "landlording" and consulting would begin to be fair.

My work as a landlord over the past year comprised three hours. The handle on the kitchen faucet broke off, and since it was an old faucet I elected to replace the unit entirely. Three hours.

How many consultants make the equivalent of one year's worth of rent from a two-bedroom suite in just three hours of consulting?

Introvert said...

CS,

By way of answer, I will refer you to the Royal Commission on Aboriginal Peoples (RCAP), the findings of which were released in 1996.

The final report recommended numerous changes to be implemented over a 20-year period. The recommendations were unanimously agreed to by all members of the Commission. Some of the major recommendations included the following:

(From Wikipedia)

• Legislation, including a new Royal Proclamation stating Canada’s commitment to a new relationship and companion legislation setting out a treaty process and recognition of Aboriginal nations and governments.

• Recognition of an Aboriginal order of government, subject to the Charter of Rights and Freedoms, with authority over matters related to the good government and welfare of Aboriginal peoples and their territories.

• Replacement of the federal Department of Indian Affairs with two departments, one to implement the new relationship with Aboriginal nations and one to provide services for non-self-governing communities.

• Creation of an Aboriginal parliament.

• Expansion of the Aboriginal land and resource base.

• Recognition of Métis self-government, provision of a land base, and recognition of Métis rights to hunt and fish on Crown land.

• Initiatives to address social, education, health (Indian Health Transfer Policy) and housing needs, including the training of 10,000 health professionals over a ten-year period, the establishment of an Aboriginal peoples’ university, and recognition of Aboriginal nations’ authority over child welfare.

In a nutshell, if RCAP's recommendations were ever fully implemented the provincial and federal governments would lose a great deal of economic (and other kinds of) control; therefore, they are extremely unlikely to move on their own. However, some day they may be forced to move.

Most Indigenous people would agree that a dramatic reconfiguration of this kind is what is ultimately necessary. I also happen to agree.

Introvert said...

For those of you who would appreciate thought-provoking tweets on the topic of colonialism in Canada, I suggest you check out or follow Adrian Jacobs (@Ganosono) on Twitter. (And, no, I'm not him.)

totoro victoria said...

If you want a ridiculously high "hourly wage" I bet dasmo has us all beat with some of his better stock picks.

Problem with this kind of wage is it is really ROI and about how well you invest your capital.

The main point is that it doesn't take much time at all to manage a suite.

As for whole house rentals, again you need to compare the same product.

I'm not sure about your slightly cheaper rental or your brothers.

Either they were at market, which means they had some flaws or lack of amenities bringing the price down if they were well-located 3-4 beds 2 baths, or you got unusually good deals.

Market price is pretty easy to check with a CL search.

If you would like to reduce the cost of the rental then just adjust the numbers accordingly - there is a lot of room to play with before renting is better.

You can run these numbers on your own house that does have a suite by assigning market value. You already have the expenses identified. Then compare the bottom line with your prior rent.

As far as "it should be obvious that it is impossible that "rental houses in Victoria currently have a generally poor ROI" while at the same time your suite pays you $2100/hr."

The point we were on was comparing renting vs. owning a home with a suite in Victoria.

Whole house rentals don't have great ROI in Victoria.

Those $2200-$2500 a month whole house rentals in FF and OB are providing negative cash flow for their owners.

Then again, renting is a really cash flow negative proposition - with no principal pay-down buffer zone.

totoro victoria said...

RCAP is worth reading: http://www.collectionscanada.gc.ca/webarchives/20071115053257/http://www.ainc-inac.gc.ca/ch/rcap/sg/sgmm_e.html

Private property is not on the table for land claims negotiations. Alternate lands (meaning other crown lands generally) are offered, or compensation in some cases.

patriotz said...

Market price is pretty easy to check with a CL search.

CL shows the properties that haven't been rented yet, not the ones that have been rented, and thus a search is biased toward those asking above market.

totoro victoria said...

Patriotz, CL on the first of the month shows the new listings.

This is when the majority are posted because this is when people give notice. Yesterday was the first.

My view is that the listings on CL and usedvictoria are an accurate reflection of the market. If they are overpriced they won't rent and you'll see a drop later.

Landlords I know set their market price by reviewing such ads. Just like you would if you were trying to sell a car or a boat.

dasmo said...

Now that I'm a Landlord I can attest to the low effort. I wouldn't discount that money is required to maintain a place but you could always chose to be a slum lord an minimize that expense. Still, I'm an inadvertent landlord. I would have never chose this as an investment. It's stll a lot mor hassle and way less return than the stock market. Stock market feels more risky but their are no liabilities associated with them. RE in Victoria as an investment is only for those who can make projects happen and add value. That is hardly low effort...

CS said...

@Totoro

Private property is not on the table for land claims negotiations.

Not sure what this means. I understand that neither the Government of Canada nor the Government of BC are offering to hand back private property to the First Nations. But what I would like to know is what position has been taken by the first nations, both formally and otherwise.

At least one First Nations leader, has expressed regret they, the Indians, didn't kill all the Europeans when the first showed up, which seems a reasonable attitude. My question, therefore, is to what extent does that attitude affect the thinking First Nations leaders on the question of land claims. If it colors their thinking at all, one would expect they would be ready at any opportunity to put "private property" on the land claims negotiating table.

The fact that "other lands" are offered may not be a satisfactory solution if claims extend to the area of the entire province.

dasmo said...

Hey Marko, what did 1264 faithful go for in the end?

dasmo said...

Why worry about it CS? A stance like that will not win them any progress... They are lucky they didn't kill all the Euro's, if they did their was probably some law that would have allowed an outright slaughter to ensue and the Euro's were much better equipped. As it stands the cultural genocide and suripticious biological warfare didn't do the job intended and now the First Nations can at least rebuild their nation. In the end, it's negotiating 101 to ask for way more than you expect...

patriotz said...

one would expect they (FN) would be ready at any opportunity to put "private property" on the land claims negotiating table.

You always put everything you might want on the negotiating table. Not what you expect to get. Goes for any negotiation - not the least RE sales.

The question is whether the government or courts are going to give it to them. Not going to happen

Marko said...

1264 faithful - $507,000

totoro victoria said...

You need to understand the law as set out in the Tsilquot'in case and others to understand the test for title - which requires exclusive use and occupation.

Hard to prove and private property is not something that will be awarded by a court. There needs to be a willing seller.

Most FNs aren't going to litigate and are left with the still expensive and time consuming treaty process.

I recommend you do the research first so you understand the issues instead of appearing to spread discriminatory rumours.

Google the Tsilquot'in case and read it. Google RCAP and read it. Then google treaty.

You'll find that "The BC treaty process has always been guided by the principle that private property (fee simple land) is not on the negotiation table, except on a willing-buyer, willing-seller basis.

In urban areas where Crown land is limited, private property available from willing sellers will be critical to achieving final treaties. It is important to consider the land issue within the following context:

In most cases, it will be Crown lands and resources transferred under treaties.

Numerous economic studies have concluded that increased control by First Nations will boost their self-sufficiency and result in joint venture and partnership business opportunities for non-aboriginal people as well.

The transfer of land and resources will enable First Nations to develop their own businesses and create taxable revenues."

And yes, way more is claimed than would ever be proven through a title claim or awarded in treaty. Part of the negotiating process.

dasmo said...

Thanks Marko.

dasmo said...

I found this interesting "Although bands currently have considerable control over their reserve land, strictly speaking neither the band itself nor its members owns the land. Rather, the land is held in trust for the band by the Crown" sounds like the FN are a long way of from appropriating private property....

patriotz said...

The opposite actually, since as JJ pointed out ultimate title in all land is held by the Crown.

Is the Crown going to expropriate your property for a land claims settlement? You already have the answer. Legally it's possible, politically it's not.

CS said...

@Toto

instead of appearing to spread discriminatory rumours.

In what way?

Google the Tsilquot'in case and read it.

I read the details of the Supreme Court decision at the time it was made.

My question related to the attitude among First Nations. That obviously has no bearing on what will happen in the next year or two, but what is politically impossible today, might become politically possible at some time in the future.

How after all do you compensate the First Nations of BC for the 1862 smallpox epidemic that killed about 100,000 Indians and which, some say, was the result of a deliberate act of genocide (or rather a sequence of acts that resulted in a deadly smallpox epidemic among Vancouver Island's native population — while most of Victoria's settler population was vaccinated, and legislative actions by the Province that allowed settlers to expropriate unoccupied Indian land). The result was to clear most of the area now occupied by Victoria for settlement by colonists. So one might expect First Nations to argue at some point that "land elsewhere" is not adequate compensation for the territory occupied by Victoria's present-day settler community.

In this connection it is interesting that the Algonquins of Ontario and Quebec, comprising a total of about ten thousand people have made claim to hundreds of thousands of square kilometers of land including the city of Montreal.

dasmo said...

The only way they will progress is in a Nelson Mandela way... Especially since they are still greatly outnumbered...

CS said...

The only way they will progress is in a Nelson Mandela way

Yeah?

According to Australia's National Native Title Tribunal:

"A native title application may, however, be made over freehold land on the basis that freehold was invalidly granted..."

It seems conceivable that, here, a court might some day rule invalidly granted those titles to traditional Indian land abandoned when Indians were expelled under military escort during the 1862 smallpox epidemic.

See:

http://web.uvic.ca/vv/student/smallpox/govt/reaction.html

CS said...

To answer my own question:

George Manuel, the first president of the World Council of Indigenous Peoples wrote:

"We conclude that our People have no desire, under any circumstances, to see our Aboriginal Title and Rights extinguished. Our People consistently state that our Aboriginal Title and Rights can not be bought, sold, traded, or extinguished by any Government under any circumstances" Aboriginal Title and Rights Paper (Union of BC Indian Chiefs, 1978).

Source.

Anyhow, let's hope we do not experience the Mandela solution, with over 70,000 white South Africans murdered since 1974.

dasmo said...

you forgot the next line to your quote "but the chances of this happening are very low."

dasmo said...

You have no idea about Nelson Mandela I guess....

totoro victoria said...

"How after all do you compensate the First Nations of BC for the 1862 smallpox epidemic that killed about 100,000 Indians and which, some say, was the result of a deliberate act of genocide."

You don't. Statute of limitations has long expired. There is no legal claim despite whatever position anyone might want to take. Nothing will happen.

Canada is only dealing somewhat with residential school matters because they are so recent (last residential school closed in 1986).

The only thing there is a claim to is title and rights that were not extinguished because BC failed to enter into binding treaties for the most part despite their promises to do so - unlike most of the rest of Canada.

The legal obligation of the Crown was not met. That is why there are outstanding land claims.

Private property rights are not a political issue imo. They are a legal issue and won't be on the table where there is no willing seller.

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