December 17, 2015

The Time To Intervene Was Years Ago

The Globe and Mail reports from Canada. “Vancouver-area banks reported suspicious transactions involving Mainland Chinese clients 17 times more often than those tied to citizens of any other outside country in recent years. Despite the legal requirement to disclose such transactions, Canadian banks can still process them and do not have to shut down the accounts. An earlier Globe investigation quoted a court case that showed at least one Canadian bank helped clients wire-transfer money out of China. Christine Duhaime, a lawyer and expert witness on international financial transactions, said the numbers add weight to suggestions that international cash is having a trickle-down effect on the affordability in Greater Vancouver’s real estate market, where the average price of a detached home reached $1.58-million in November.”

“Ms. Duhaime said only the banks ‘know for sure’ if these transactions bring money into Vancouver’s housing market, but added that she can ‘only surmise pretty accurately that if the funds are from China and involve large volumes, they are for real estate purchases, because there is not much else foreign nationals from China buy in Canada that would trigger a [suspicious transaction report].’”

“‘There’s no accountability, there’s no deterrence,’ said financial crimes specialist and former RCMP investigator Kim Marsh, who is based in Vancouver and has worked with Chinese institutions to recover laundered assets. ‘If you’re talking about Chinese nationals buying property here, you can’t tie it to a crime because you don’t know what happened back in China and how they got the money,’ he said. ‘You can determine if it’s suspicious or not, the guy was a pig farmer 10 years ago and now he’s a multimillionaire.’”

The Alaska Highway News. “If you’re looking for an apartment in Dawson Creek, there’s plenty to choose from. Nearly 15 per cent of apartments here are sitting vacant—the highest rate in B.C.—according to the Canada Mortgage and Housing Corporation (CMHC). Dawson Creek has an apartment vacancy rate of 14.6 per cent, up from 5.3 per cent from this time last year. Fort St. John, meanwhile, came in second in B.C. with a vacancy rate of 12.1.”

“Vacancy rates may actually be higher than they appear in the CMHC data, said Li-Car property management group partner Lita Powell. Powell, a former CMHC employee, said the data doesn’t take into account some small rental units. As well, rooms only count as vacant if they’re move-in ready. ‘(The CMHC asks) ‘is this unit ready to move into today? If we respond ‘no it needs to be cleaned’ or ‘no it needs steam cleaning,’ then they don’t count it,’ she said. In Fort St. John, Powell estimated there are ‘approximately 600 rental units that were not included in that survey.’ If those 600 or so rental units were included, the vacancy rate would be much higher, she said.”

“On the other hand, she believes rents are likely lower than the CMHC figures. Her company has lowered rents in response to declining employment in the oilpatch. ‘In the fracking industry, the drilling, the pipeline, those jobs have really shrank,’ she said. ‘So the effect it has on the rentals is there are no longer the $38 to $45 an hour jobs out there that are going to pay the high rents.’”

From Fort McMurray Times. “New federal rules setting higher minimum down payments for mortgages more than $500,000 will not have a great effect on Fort McMurray’s real estate sector, local experts say. Federal finance minister Bill Morneau announced Dec. 11 that minimum down payments for new insured mortgages will increase from five per cent to 10 per cent on the portion of the mortgage above $500,000. The average price of a single detached home in Fort McMurray this November was about $690,000.”

“Before the rule change on Feb. 15, a minimum down payment of 5 per cent would be about $34,500. After Feb. 15, the portion of that mortgage above $500,000, ‑ $190,000 - would require a down payment of 10 per cent.”

“The increase in the minimum down payments is meant to ‘contain risks in the housing market, reduce taxpayer exposure and support long-term stability,’ a government press release said. ‘This is just not the right timing for the government to have done this,’ said Lynn Edwards, president-elect of the Fort McMurray Real Estate Board. ‘They’re going by Toronto and Vancouver and not taking into consideration other areas.’”

The Calgary Herald. “The crash in oil prices this year is hitting Alberta’s residential real estate market hard these days with Fort McMurray in particular feeling the pain – and a report released by the Canadian Real Estate Association forecasts continued volatility in 2016. New data by CREA indicates Fort McMurray, in the heart of the oil patch in the province, saw a 27.7 per cent year-over-year decline in MLS sales in November with the average sale” price plunging by 19.1 per cent to $519,193, which is down from $642,003 in November 2014.

“In November, MLS sales in Alberta were down 21.1 per cent from a year ago while the average sale price fell by 5.3 per cent to $385,430. The biggest decreases in sales were in Lloydminster (49.1 per cent), Grande Prairie (34.7 per cent) and Alberta West (34.4 per cent). Significant year-over-year average price declines were also felt in Lloydminster (14.5 per cent) and South Central Alberta (12.7 per cent).”

From CBC News. “I guess it’s not much use saying that something should have been done sooner. To some extent, you have to give the new federal government credit for making an attempt to put a lid on what so many experts fear is a Canadian property bubble. The debate now is what impact the move to increase down payments on houses worth more than $500,000 will have. Unlike other parts of the country, in the two most overpriced Canadian real estate cities, Toronto and Vancouver, homes priced over half a million aren’t just for the very rich.”

“Even for houses listed for more than $1 million, sellers offer deals that seem to be aimed at first-time buyers.”

“Just days ago the C.D. Howe Institute, a Canadian economic think-tank, warned that many first-time buyers are so overextended that they are teetering on the edge of ruin. ‘The share of households that have no financial buffer has been going up. There’s more financial vulnerability now than there was before,’ said C.D. Howe economist Craig Alexander.”

“CREA has repeatedly insisted that the Canadian housing market is not in bubble territory. If that’s true, the government’s attempt to take a little heat out of the market will merely discourage a future bubble from growing. On the other hand, if the many critics and international bankers are right about the Canadian property market, that it has already inflated into a bubble ready to pop, then the time to intervene was years ago. But we can hardly blame the current government for that.”

Bits Bucket for December 17, 2015

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