Toronto's Condo King declares Canadian economy solely dependent on foreign buyers

Meet Brad Lamb. Faithful readers will recognize Lamb as Toronto's version of the Rainforest's Bob Rennie - aka 'the Condo King' of their respective cities.

If you haven't been keeping up, the centre of the universe has been awash in Lotusland Asian money overflow since the imposition of Krusty's 15% foreign buyers tax last September. Panic buying has gripped Toronto and suddenly there are calls from all corners for the Big Smoke to take BC style action and implement their own foreign buyers tax.

Of course all of this is curious since, just like Vancouver pre-tax, the local real estate industry has been adamant that Toronto house prices are not fuelled by foreign funds. In fact as recently as Jan 31, 2017 the Toronto Star newspaper noted the following denial by the Toronto Real Estate Board:

Don’t blame overseas investors for the high price of housing in the Toronto area, says the city’s real estate board. 

The Toronto Real Estate Board (TREB) released new research Tuesday showing only 4.9 per cent of the 113,133 residential real estate transactions in the Toronto region last year involved foreign buyers.

Now you would think that if only 4.9% of the market is impacted by foreign money, any discussion of a foreign buyers tax would be inconsequential to the industry.

But as political momentum gathers to implement just such a tax, the Condo King of Toronto comes out with a claim that utterly shreds the 4.9% narrative.

Today BNN reported that Lamb is publicly warning that "taxing foreign home buyers in the skyrocketing Toronto real estate market could trigger a national recession."

In an email sent to unit owners in his 17 buildings late Tuesday, Brad Lamb railed against the long-debated idea of a 15 per cent surcharge on buyers of Toronto properties who are not Canadian citizens or permanent residents; similar to the one imposed in Vancouver in August 2016. Boasting of having “eaten, drank, and slept the Toronto real estate marketplace for 30 years,” the CEO of Lamb Developments argues such a tax would be “an egregious error in policy.” 

“In Toronto… it could also precipitate a Canada-wide recession,” Lamb wrote near the start of his roughly 1,300-word note. 

“Kill the new condo market, kill the Ontario economy. Kill the Ontario economy and Canada falls too,” Lamb wrote.

The Toronto Real Estate Industry now joins their Vancouver counter parts in trying to move heaven and earth to politically intervene in public policy dealing with the massive malinvestment created by the worldwide excess credit epidemic.

In the process we get another glimpse at how the Real Estate Board's claims about the impact of foreign money is completely detached from what their members on the ground know all too well.

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Richmond Realtor says Lower Mainland houses overpriced by at least 30% in terms of viable economic investments

Our last post documenting Toronto condo king Brad Lamb's incredulous investment advice ("If you’d rather not eat cat food in your retirement, you’d better invest in condos") generated significant debate with numerous pro-side comments from some industry players.

With that in mind, we offer you Richmond realtor James Wong's most recent take on real estate as an investment.

Wong starts out by comparing Metro Vancouver with Seattle (click on image to enlarge):

Says Wong:

The factors affecting Metro Vancouver detached home prices are not the same as those in Seattle. The graph above illustrates the relative price gains for Metro Vancouver and Seattle from 1994 to 2012. Seattle gained 2 times, while Metro Vancouver gained almost 3 times in value over the same period.

Metro Vancouver suffered short one year drop in home sales and prices during the credit crunch of 2008. Home sales and prices recovered within a year, and moved higher when interest rates were slashed and kept at ultra-low level around 3% until today.

Wong then asks 'what's the future for Vancouver home prices?"

Average older detached homes in Richmond, Burnaby and East Vancouver are currently selling between $740,000 to $850,000.

The current rental income from a older detached home with around 2,300 sq ft living area is approximately $2,300 a month. With a mortgage of $400,000 at 3.15%, amortized over 25 years, an investor is at beak-even point with his/her real estate investment paying $1,925 a month principal and interest. The balance $375 a month from the rent barely covers property tax and routine repairs. Any big ticket item repairs will have to be met with the investor’s own savings.

Wong lays it all out and states emphatically that current home prices in Metro Vancouver are out of whack with rental returns.

In the above example, an investor after providing $135,000 (25%) down payment, and financing his purchase with $400,000 mortgage, his investment will break-even at a purchase price of $535,000. Current home prices are way higher than the above figure. 

Home prices in Metro Vancouver are reversing the gains made the past 6 years. A drop in price of 30% is required before a home in the above areas is economically viable for long term investment.

So Wong's advice to you is that houses have to collapse at least 30% in price before they are economically viable to buy for long-term investment purposes.

Guess he missed out on Lamb's seminar. Either that or he's smart enough to see it for what it is.

Are you?

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Words fail us... Toronto's Condo King Brian Lamb's latest sales pitch.

"If you’d rather not eat cat food in your retirement, you’d better invest in condos."

- Developer Brad J. Lamb.

Toronto condo developer Brad Lamb says inadequately funded pension plans and limp RRSP returns will not meet Canadians’ retirement needs. So unless you want to eat cat food in your retirement, you'd better invest in condo's.

Yes, we're not making this up. This is the message Toronto's Condo King has for the masses as he presented a free workshop on real estate investing to some 340 people at The Westin Saturday in Ottawa, as reported in the Ottawa Citizen.

Of course Lamb's development company is constructing the Gotham and SoBa condo towers in Ottawa, which is what brings him there to hold the "free workshop".

His investment advice?

Factoring in inflation, he says that someone retiring 30 years hence will need $2.1 million for a pension of $50,000 a year in today’s dollars.

To get there he recommends you buy, rent and re-sell urban condos in a market that, based on the past 30 years of real estate performance in Ottawa, Lamb believes has nowhere to go over the long term but up.

Lamb’s strategy?

Scrape together $20,000 (that’s your down payment on a small condo that is also your own residence) and using what he called conservative projections of 4% annual growth in real estate values, Lamb says you’re soon able to use the equity in your unit to buy a second one. You rent that out for enough to cover its mortgage, condo fees and other costs and eventually sell it for a profit.

You continue buying, renting and re-selling units — all the while upgrading the one you live in — until you have a portfolio of five rental condos.

Lamb figures it will take you 12 years to do this.

Once you have achieved this nirvana, you then sit on the properties, with your tenants paying off your mortgages, for another 13 years. Twenty-five years after making your initial investment, you have enough assets to retire.  At least according to Lamb.

After the workshop he confided to the Ottawa Citizen newspaper that it annoys him that:

“our education system doesn’t teach (retirement planning)."

Which, presumably, is why Lamb was holding the 'free workshop.' Of course Lamb added:

"Also, it doesn’t hurt that I own properties, and some people (here) will buy some units."

What is that phrase, "past performance is not an indication of future results." Isn't there a valid reason that securities law requires that disclaimer?

You have to wonder if each workshop attendee also received a free bottle of snake oil as they left the seminar with Gotham and SoBa condo brochure in hand?

(hat tip Ben Rabidoux)

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