May 7, 2017

Hot Spots For Unsavoury, Tax-Evading Speculators

A report from Global News in Canada. “Many on the ground are feeling it, the real estate market in Montreal is in an upswing. ‘I’ve been very busy, I’m about to learn Chinese because I’m getting a lot of people outside of the country calling me,’ said Alexander Sabouri, a realtor with the Londono Group.”

From CBC News. “Real estate prices in the Fraser Valley have jumped significantly over the last year, making it a challenge to break into the market. The biggest price increases were for townhouses and apartments, the prices for those increased nearly 30 per cent since last year. ‘Townhouses are selling up into the $500,000’s now. If I told someone that a year ago, they would’ve thought I was crazy,’ said Kevin Rolland, a realtor based out of Abbotsford.”

From CHNW AM 980. “A Vancouver man whose company helps foreign buyers avoid the 15 per cent property tax is firing back at claims that what he is doing is illegal. Zheng Zhao has advertised a business that would allow foreign buyers to purchase property without paying the foreign buyer tax. Zhao says because the foreign buyers tax only applies to ‘foreign individuals, foreign corporations and taxable trusts,’ he is able to skirt the 15 per cent fee. ‘It doesn’t apply to partnerships. It doesn’t apply to Canadian persons. A partnership is a legal structure.’”

From News 1130. “Whether you’re at a dinner party, work or at the coffee shop it won’t take long before the topic of the cost of housing in Vancouver comes up. A new film at the DOXA Documentary Film Festival tackles that subject from several perspectives. Charles Wilkinson is the director of ‘Vancouver: No Fixed Address’ and has been examining the housing situation for years. He says while commercial exploitation plays a certain role, ‘it’s more than that, it’s that our system is somehow being ‘gamed’ that housing has been turned from a basic human need into a commodity.’”

“Wilkinson claims proof of that at is when 90 per cent of the condos being built are not being bought by people who want to live here and raise a family. ‘When you hear that, you know it’s not just the people who live here, it’s that you can make 30 to 40 per cent on real estate,’ he says.”

The Vancouver Sun. “Canada has had a reputation as an open, transparent, trustworthy society, which operates on the principles of ‘peace, order and good government.’ But when it comes to stopping billions of dollars of illicit money funnelling into Canadian real estate, our elected officials don’t deserve their status. The governments of Canada and B.C. have consistently failed to protect Canadians from unsavoury, tax-evading speculators in real estate, who have made Metro Vancouver and Toronto housing unaffordable.”

“Vancouver-based financial researcher Adam Ross makes clear Metro Vancouver and Toronto have become hot spots for shady global real-estate deals. Because of lax rules in Canada and B.C. it is easy for rich investors in real estate to hire accountants and lawyers to hide their identities. Even though the illicit money transfers could be greatly reduced, elected officials have turned a blind eye. The problem is worse than most think, suggests Ross, who consults for Transparency International, a renowned anti-corruption organization.”

“Attempts by police or immigration authorities to track down illicit financial transactions in Vancouver, Toronto and other parts of Canada consistently lead to ‘dead ends,’ says Ross. This week more evidence of hidden wealth emerged when it was revealed the B.C. Liberals have for years handed mysterious tax breaks to foreign investors in the province, including in real estate. ‘We know it is dead easy to bring dirty money into Canada. Canada is being touted abroad as a great destination to park money out of the reach of the taxman and local authorities,’ he says.”

From Macleans. “In February 2016, Gerald Soloway announced he was stepping down as CEO of Home Capital Group, a mortgage provider he co-founded 30 years ago. Home Capital, based in Toronto, is an alternative or non-prime lender, issuing mortgages to people generally turned away by traditional banks, such as the self-employed or new Canadians with a limited credit history.”

“Since then, the company’s share price has plummeted 78 per cent, the deposits it relies on for funding are quickly evaporating and Home Capital’s future is in doubt. The problems started in July 2015, when the firm disclosed it had cut ties with 45 mortgage brokers after an internal investigation revealed that borrower income and employment information had been falsified in order to obtain loans. In April, the Ontario Securities Commission accused the company and three executives, including Soloway, of misleading investors for failing to disclose the impact of the investigation for months.”

“The upshot is the improper conduct of the 45 brokers disqualified them from working with Home Capital—but apparently not with other institutions. ‘I’m disappointed, but not surprised,’ says Bruce Joseph, principal broker at Anthem Mortgage Group in Barrie, Ont. ‘There’s not enough punishment or enforcement to scare people out of engaging in this,’ he says.”

“Goosing incomes or fudging employment details to secure a mortgage is often seen as a victimless crime, which Joseph says is a false assumption. For one thing, the practice can artificially inflate home prices, making the affordability problem worse in some markets.”

“This kind of behaviour is not limited to Home Capital. ‘It’s an industry-wide problem,’ says Mike Rizvanovic, a financial services analyst at Veritas Investment Research. ‘When you have a hot market where people are reaching more and more just to get that home that next month they can’t afford, then they’re going to get more creative.’”

“A recent notice of action issued by the Financial Institutions Commission in B.C., which regulates mortgage professionals in the province, shows how creative people can be. The commission accused one broker of submitting false financial information for six different borrowers, and failing to verify the accuracy of documents for 22 other mortgage applications. In one case, the broker is alleged to have submitted altered Canada Revenue Agency documents to show a borrower was a self-employed fish ‘trader’ with an annual income of more than $75,000. In reality, the borrower worked as a fish filleter and earned just $30,000 per year.”

From Blackburn News. “Fewer houses were on the market and fewer sold for not as much money. That describes April, according to statistics from the Windsor-Essex County Association of Realtors. When comparing April 2017 with the same month in 2016, the association says there were 814 listings, a drop of 14%. WECAR does say, however, that listings have recently spiked to 1,096. The Association says it saw a 10% drop in houses sold year-over-year, from 679 in 2016 to 607. The average sale price was around $227,000 in April, while in 2016 that number was $283,000.”