Thursday, August 29, 2013

Perfect Storm?

Yesterday we talked about the Globe and Mail warning you about rising interest rates in an article that suggested ignoring that threat might be the 'biggest financial mistake you might make.'

Today's good news stories come from Business in Vancouver who tell us about a BMO report that says 'Canadian baby boomers  are significantly short on retirement savings'
Baby boomers across Canada have an average shortfall of $430,000 when it comes to their retirement savings, according to BMO Wealth Institute data released August 28.
This is followed up with the wonderful news that 'B.C. consumers still owe the most as personal debt levels rise again.'
The average Canadian consumer’s debt, excluding mortgages, increased in 2013’s second quarter to $27,131, according to a TransUnion report released this morning (August 28).
High debt? No savings for retirement?  Good thing many of us have been playing the real estate lottery, eh?

Which brings to mind our post back in March 2012 warning about Boomer's dumping their overvalued real estate to fund retirement and subsequent posts from Macleans and BMO who ruminated on similar concerns.

But Flippers don't have to worry about that (unless they've ignored the warnings and are currently caught holding), right?

Not so fast.

We also find out today that Tax auditors have targeted condo sellers in the hunt for ‘flippers’.

Seems that anyone who bought a condo unit pre-construction, then sold for a profit without actually moving in, is liable for capital gains tax, and must also repay the GST/HST refund that residents receive.
Folks who’ve sold condos or houses less than a year after taking possession seem to be the prime focus of CRA auditors so far, but tax lawyers are advising clients they could be at risk of a tax bill for at least 50 per cent of any gains made if they’ve sold before living in the property 18 months to two years.
Isn't that special?

Toss in the array of changing mortgage regulations, the weak global economy and the absence of HAM and surely the logical person can see the perfect storm forming.


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  1. Rare and violent thunderstorms in Vancouver tonight, you may be on to something here!

  2. omg, most of greater van condo owners are completely screwed.

  3. Good to see you back with regular posts. Thanks. I hope you had a good summer.

  4. Just like the trend of kids staying home way past 18, we'll likely see baby boomers passing their house to a kid and then staying there.

  5. Tank you for starting to post again! :)

  6. As someone commented on another blog.

    The CRA wouldnt even THINK of doing this without direction from above. One wonders if this is part of a multi pronged approach to finally slow down the "flipper and spec'er" insanity that seems to be all pervasive in the "unreal" estate industry.

    Reduction in Homeowner Insurance eligability.
    Slow increase in interest rates.
    Increase down payment minimums.
    CRA auditing owner/ flippers.

    Gotta love it if you're a renter.......

    1. When I moved to Vancouver five years ago, I nearly bought a condo. But now I'm so glad I didn't. Since I'll be moving elsewhere in a year or two for career reasons, I reckon not buying a condo has saved me at least $10k and that's not counting the opportunity costs of not being able to invest the money that would have been used for the downpayment.

  7. Welcome back Whisperer.

    Check out the top line in both of the following data tables from the Bank of Canada.

    Latest household credit numbers in Canada to the end of July 2013

    Latest business credit numbers in Canada to the end of July 2013

  8. The credit situation is abysmal. How quickly it has all fallen apart. Some will point to those numbers and try to say that more credit is an expression of confidence in the economy. I however think it represents people running out of savings though and trying to keep a lifestyle afloat with other peoples money. With China's economy again being pressured lower we should expect trouble in BC and Vancouver eventually. Tapering is coming as a shock to emerging markets as we are learning. China GDP is currently at (a falsified) 7.5% and most likely will decline to below 7% next year meaning it has dropped several years running (past high was near 12%. Not that long ago). I have a theory meanwhile that war with Syria will create a flight to security situation driving up Crude, Gold, US Dollars and Bonds. The outcome will see the ten and thirty year rates again in decline and this will give cover for the Fed to exit its bond buying program. More interesting is that a war with Syria may be an imperative to permit a Fed exit as markets that fall BEFORE any announcement of a taper on the 17th of September will create the conditions for an equities bounce despite a Fed taper announcement (Eg...the worst outcomes will have been already priced in but Syria will be to blame and not the Federal Reserve). On that basis I predict a sharp market correction to commence between September 9th and the 17th as a short burst US attack gets underway to provide Fed exit cover. Yes, I know that sounds outlandish but that is my prediction. Interest rates therefore will again decline. In fact they have many years to go before we see a meaningful rise so pretty much everyone needs to relax......except the Syrians.

  9. Oh.....and by the way.....brace for a Syria attack to begin on September 11th which is just two short days after Congress returns from summer recess on the 9th.

  10. Isn't that special.

    I can just see Dana Carvy dressed as the Church Lady saying "Isn't that special".


  11. when condo's in Coquitlam British Columbia are more expensive than Midtown Manhattan you're probably in a bubble or i could be wrong and metro Vancouver is an economic powerhouse a global financial command centre and super super desirable place to live which makes it more expensive than New York City

  12. Welcome back Whisperer.
    With regard to the point about the CRA targeting "flippers" or those who do not move in to their newly acquired condo units, the distinction must be made between capital gains and gains on account of income.
    I do not think it is the capital gain that the CRA is after. To be capital property, the property must be acquired for "a lasting and enduring benefit".
    Listing a property immediately after completion signifies a selling intention, not a holding intention and I believe a disposition arising from this kind of fact pattern will trigger a gain on account of income, if there actually is a gain. In that case, not just 50% of the disposition profit will be taxed, but the entire gain will be taken into income by the taxpayer.
    Real estate investors, and flippers, should take pains to ensure that their position for claiming a capital gain if it arises is buttressed by the facts and that there is no evidence of a "secondary intention" to flip the property.
    It is the greatest real estate/taxation misconception, that 1) the sale of real estate generates a capital gain 2)that the principal residence exemption will automatically apply to shield a taxpayer from that capital gain.
    The first thing that has to be determined is whether the property is in fact capital property. If it isn't...the whole enchilada of the gain is taxed in the year of disposition.
    For details on the latest approach and policy position of the CRA on the Principal Residence Exemption, check out: