Monthly Archives: March 2017

Leverage Turns Bad – ‘Vancouver homebuyers lost almost 50 per cent on their down payments in 1 year’ – Global News

“Once considered Canada’s hottest locale for real estate, home values in Vancouver took a beating over the course of a year, with the average home price dropping from over $1.1 million in February 2016 to $995,583 a year later. …
Zoocasa calculated the loss (or gain) of return by taking the year-over-year change in average home prices and then dividing it by the down payment buyers would have had to make in February 2016.
By this measure, Vancouverites lost 49 per cent of the return on their down payments.”

– excerpt and image from ‘Vancouver homebuyers lost almost 50 per cent on their down payments in 1 year’, Jesse Ferreras, Global News, 28 March 2017

Yeah, it’s called ‘leverage’ – bliss on the way up, a real bummer on the way down.
Along with other factors such as no capital taxes on primary residences, it’s why RE speculating has, superficially, seemed like such a no-brainer in Vancouver for the last 17 years.
But it is on the descent where the piper gets paid… the ‘virtuous’ cycle turns ‘vicious’.
It’s noteworthy that the downside of leverage is now getting headline news.
At the time of posting, the only comment on the Global site was from a realtor complaining that the article was too negative, and suggesting that it’d be preposterous to suggest that there was high risk in RE. If this market crashes the way it very well could, many are going to be surprised. If a 10% swoon costs you 50% of your ‘investment’, what will a 30% drop cost you? Or a 50% drop? Not pretty.
– vreaa

‘Game Changer’ BC Court Ruling Extends Capital Gains Tax Risk To Buyers And Realtors

A B.C. Supreme Court ruling will send shock waves through the arm of the Canadian real-estate market that is powered by foreign capital, say immigration lawyers.
The ruling targets a weakness in Canadian laws that often leads foreign owners of real estate in cites such as Metro Vancouver and Toronto to claim they are “residents of Canada for tax purposes” when they are not.

The landmark B.C. decision requires notary public Tony Liu to pay his client more than $600,000 because Liu failed to adequately determine whether the Vancouver house his client was buying for $5.5 million had been owned by a tax resident of Canada.
As a result, the Canada Revenue Agency did not get paid, at the time of the sale, the 25 per cent capital gains tax it charges non-resident sellers of Canadian property on any profit they make on the sale.
So the CRA later demanded the buyer pay the $600,000 in tax. The buyer, in turn, sued Liu, arguing Liu failed to discover the seller was not a tax resident of Canada.

The CRA considers people who don’t live in the country at least six months a year and don’t pay income taxes here to be foreign property investors and speculators and thus subject to capital gains taxes.
Three Canadian immigration lawyers said the CRA tax-residency rule is often not enforced, even in over-heated housing markets in Vancouver and Toronto that are in part fuelled by offshore money.

The complex ruling published this month by B.C. Supreme Court Justice Kenneth Affleck strikes to the heart of a gaping hole in Canadian tax, immigration and property-transfer law, say the immigration lawyers.
The B.C. decision is a stark warning to real estate agents, notaries and lawyers who fail to ensure that sellers of properties are truly tax residents of Canada, said David Lesperance, a tax and immigration lawyer based in Toronto.
“This truly is a game changer,” said Vancouver immigration lawyer Richard Kurland.
“It’s a precedent. Real estate agents can now get a knock on the door from the taxman, asking for the (capital gains) taxes that should have been collected by Ottawa, because the agent failed to make adequate inquiries.”

Sam Hyman, a Vancouver immigration lawyer, said the judge’s decision alerts purchasers to “the dire consequences” of making offers on properties sold by people who may be trying to avoid capital gains tax by falsely declaring they are tax residents of Canada.
Many buyers and their agents, Hyman said, are not being diligent in making sure the seller is a physical or tax resident of Canada, while others are being “cavalier” or “engaging in wilful blindness” about it.

– from ‘House buyer beware: Landmark B.C. court ruling will shake real-estate industry’, Douglas Todd, Vancouver Sun, 25 March 2017