Family Feud

Parents purchased properties 30-50 years ago when they came to Ontario.  These properties are now in the hands of the elderly or their children.   Strange things happen in family dynamics when the potential to sell comes calling.  Last year I worked with a family to sell their property but we could never get to a point of agreement. There was too many agendas and no trust between parties.  I have become wary of discussing a sale unless all the members who have an interest are on board.  This can be quite difficult.  In one instance a family member wished to develop the property while others wished to sell.  Discussions went from this is a viable project to it is dead in the water.   In another there is now too many parties involved – who makes the decision?  There is nothing like money to split a family, ask any Family Lawyer or Trustee of an Estate.

Some keys to consider:

  • Selling a property so that all members proportionately benefit from the sale.  One member should not have a hidden agenda to benefit.  Transparency is not easy.
  • If the one part of the family agrees to sell to the other then they need fair market value.  this may be easy with a home but with land or commercial property there needs to be a point of reference.  The only sure way of getting fair market value is to put the property on the market.
  • Avoid lawyers until you have a general agreement.  Lawyers skill is to interpret the law,  write contracts etc.  Without clear instructions they may suck ten of thousands of dollars from the asset sale.  Come to a mutual agreement and have the lawyers write it up.
  • Have agreement on triggering the sale transaction.  Be clear on what you will agree to and if possible have mechanism to come to a decision.
  • Have a professional facilitate discussion who will help you find common ground. Trust is key to success and a third party can make that happen

In my profession experience defining objectives, building trust and then working to ensure a win for the parties is critical to a successful sale.

 

February Residential Market

February produced a dramatic year over year increase in both residential and condo sales in the Toronto and Mississauga markets   Although February 2016 was just the beginning of this round of market growth, 26% year over year in leads to discussions of a bubble.  A bubble requires market speculation that prices will keep going up.  In this market price increase is caused by a lack of supply as sellers needing somewhere to move do not list.  We are down to 13 days on market which can only lead to bidding wars for property.  People want to live in the city which has finite properties.  A warning from Doug Porter Economist at BMO in the NP on February 17 higher homes prices will impact the economy and is leading to much higher debt ratios.  Much as been placed on foreign buyers in the market but as reported today in the NP a recent survey indicates most foreign buyers are buying for educational housing or personal use.  In the Star today Mark Rezoni of CBRE indicated at there annual conference that prices are in line with other major cities such as London and New York.  Although housing starts are up 13% its is not keeping up with demand.

It is well documented the governments efforts to restrict access to money but it does not solve the demand problem.  In Ontario the provincial government needs to free land for development, stream line the environmental restrictions, approvals and development guidelines.  Cities need to also adjust zoning and speed up the approval process.  The Province and the Feds need to free up money for highways, subways and rail.

Market information is provided by Royal LePage Signature and sourced from the Toronto Real Estate Board.

Infographic_February_Stats_Mar6_2017_MISS

Infographic_February_Stats_Mar6_2017_DM

 

 

Foreign Buyers Not a Factor in the GTA

The Financial Post Reported the A Foreign tax in the GTA (real estate), ill advised, following the release of a survey conducted by TREB.  TREB commissioned IPOS to survey members on foreign transactions (I did participate in this survey) and the results show that approximately 4.9% of transactions were to foreign buyers.   We should keep tabs on foreign buying it is becoming clear that price increase in residential properties is related to demand, limited product supply, land availability to build and the cost and time to get product to the market.  TREB yesterday stated between 104,500 and 115,500 home sales are expected this year, with a point forecast of 110,000 – down slightly from 113,133 sales reported by GTA REALTORS® in 2016.  The growth rate for the average selling price will be between 10 and 16 per cent with an average price range between $800,000 and $850,000. TREB’s point forecast for the average selling price is $825,000.

Another busy year for home sales.

Bob

CMHC Market Warning

CMHC reported last week House price growth remains elevated in key housing markets in Canada notably the GTA and Hamilton in Ontario. There is not doubt that the current real estate home market has become heated.

TREB Market Stats

TREB Average Price Change 1980-2016

TREB stats showing the sales trend since 1980 support the view that the market may be moving into a bubble but is it? We can look at the late eighties where demand, cheaper money, market speculation in particular in the condo market, price inflation and excessive government debt created conditions for a market correction. Canada entered into a free trade agreement with America which started the closing of many branch plant operations in Ontario along with commodity price correction. The recession that started by 1990 resulted in house price collapse lasting for half the decade. Today we have a market that is low inflation, low interest rate, modest economic growth and growing demand  as well as some speculation. Is the precursor to the popping of a market bubble?

Markets run on supply and demand. Current supply is low and demand is high. If supply to the market changes via a economic slow down, much high cost of money, or an market changing event then prices will go down. In the GTA we continue to experience organic demand as noted by  Gary Marr Financial Post August 4 2106  Millennials are not giving up on there dream for a detached home with 51% hoping to own within the next two years.  Millennials also see home ownership as solid investment.  The Federal Finance Minister has changed mortgage rules to make it more difficult to get a high ratio  mortgage but in fact they are only attacking a part of the problem.pricing-trend

The CBC in a piece on Foreign Ownership (Sep. 23 2016) TREB President Larry Cerqua and OREA president Ray Ferris wrote that a foreign buyers tax will do “little to address the growing affordability challenges facing many Ontarians and may have negative consequences for our broader economy.”    CIBC economist Benjamin Tal said Ontario will have little choice but to implement a tax similar to that of British Columbia. Tal said the main reason behind higher prices around Toronto is a policy-driven lack of land supply, leaving a tax as one of the only levers available to influence the market.

So is it foreign buyers,  domestic demand or cheap money?   As I have mentioned before a big part of the problem is the Ontario government policies on land use, environmental and planning policies have added cost, restricted usage and greatly increased the time to market for new product.  In end there is a supply problem and I do not see how taxing or money restrictions will fix the product issue.   How it will get corrected will impact demand and real estate prices.

The anti-scientific climate model (National Post – (Latest Edition), Jan 20 2017, PageA9)

In real estate there is ongoing pressure to build energy efficient homes with much thought to living in a warmer climate.  What if we are on the verge of a great cooling period (2060) as suggested recently by a Russian think tank.  John Robson article reminds us that the earth heats and cools.  In real estate we need to consider the impact of such change.


The anti-scientific climate model
John Robson
National Post – (Latest Edition)
Jan 20 2017

To say it’s unpleasantly cold might be dismissed as banal small talk. Of course it’s cold. It’s a Canadian winter. And we all saw it coming. Except we didn’t. For decades alarmists have said man- made global warming is about to end winter as we know…read more…

Supply shortage driving Toronto housing prices (National Post – (Latest Edition), Dec 23 2016, PageFP4)

Just a confirmation from the builders association with regard to the GTA housing shortage. Not enough low density homes were built in 2016 to meet market needs. This is a problem that will not go away until the Ontario Government does a major change in land use policies. Even then it will take years to bring balance back to the market.
Bob

Supply shortage driving Toronto housing prices
Garry Marr Financial Post gmarr@nationalpost.com Twitter. com/dustywallet
National Post – (Latest Edition)
Dec 23 2016

TORONTOâ€� There hasn’t been such ad earth of housing in November in the Greater Toronto Area in almost 16 years, and it’s pushing prices to new highs. The Building and Land Development Association said Thursday that a critical shortage of supply is…read more…

No sign of December lull in Toronto housing (National Post – (Latest Edition), Dec 22 2016, PageFP3)

Another example of failed Liberal land use policies. A made in Ontario housing shortage by the Wynn government.  if you artificially restrict product the consumer wants prices go up.  the government needs to take economics 101 again.


No sign of December lull in Toronto housing
Garry Marr Financial Post gmarr@ nationalpost. com Twitter. com/dustywallet
National Post – (Latest Edition)
Dec 22 2016

â€� It won’t exactly fit under the tree but holiday shopping this year appears to include real estate in Canada’s largest housing market. Sotheby’s International Realty Canada says the first couple of weeks of December have not seen any type of slowdown…read more…

Hot San Francisco Market

Costar News reported that China-based company has agreed to sell 123 Mission Street to another Chinese investor for $255 million in cash, more than 30% higher than it paid for the 28-story office building in late 2013. As interest rates continue to stay low  CAP rates will continue to be compressed.   The San Francisco market is similar to Toronto and Vancouver with the influx of investment funds seeking real estate assets.

Continue to see appreciating real estate prices this year in the GTA.

Land Prices

I was recently involved in a bid for a parcel of land in Oakville which we priced at $1.66 million per acre of developable vacant land.  The zoning provided for 50 units per hectare or in lay terms allowed for town houses.   The bid we calculated to reflect the value of the homes in the neighbourhood and what can be built without changes to the official plan.   The winning bid I understand to be 60% higher.  So how is that possible that two parties come up with a different valuation for a property.

How much risk is the buyer prepared to take is always a good question.  There is a direct correlation between the value of the end product and what a buyer is willing to pay for the land.  Current zoning will allow 20 town homes per acre which gives a unit land price of $130,000.   This means that homes will need to list for $650,000 plus for the buyer to make a profit. Although towns can sell for more does this neighbourhood support such a price?

If buyer is an investor or new entry into the building game they may be willing to pay more if they believe that they can sell a higher priced product or get a higher density.  They may calculate that they can get the planning department, the council and the neighbourhood to agree to an official plan  amendment for a multi story product. The factors to consider when requesting an increase in density such as traffic, noise, shadowing of existing properties and does existing services for water, sewer, roads support the proposed development.

With less green field land in the GTA, infill land is becoming more expensive.  As people are prepared to pay more for a home the value of changing the current use of a land becomes greater, however at the end of the day the math needs to work or the developer will not be able to get financing to complete the project or a reasonable profit.  Getting land for the right price for the seller and buyer is important to the success of a project.