December 2009

GST Rebates & Investing in New Construction Rental Property

In January, a number of our clients are closing on new construction rental properties, mainly in Cambridge Ontario’s Maple Grove community (355 Fisher Mills Road, north of 401, at Hespeller Rd). A few of these clients are new Real Estate Investors, and were not aware that you could apply for a GST Residential Rental Property Rebate (link goes to the Revenue Canada site hosting the rebate application).

Most people know that there is no GST payable on residential resale properties, and that there are rebates when buying new construction to live in, but not that they may be eligible to claim a GST/HST rebate when buy a newly constructed rental property, or “substantially renovate” a residential rental.   The property must be under $350,000 , and there is a partial rebate available if the fair market value falls between $350,000 and $450,000

From the Governement’s form:

“Use this form if you purchased or built a new residential rental property, substantially renovated a residential rental property, made an addition to a multiple unit
residential complex, converted a commercial property into a residential rental property, or leased land for residential purposes.
You have to send appropriate documents with your application (we accept photocopies). See the guide RC4231, GST/HST New Residential Rental Property
Rebate, for details. We may audit your rebate claim.”

You can find the form here: GST Residential Rental Property Rebate

Waterloo Vacancy Among Canada’s Lowest

Waterloo’s vacancy rate is among the lowest among Canada’s real estate rental markets, according to a recent Canada Mortgage and Housing Corporation (CMHC) report (which we covered here: Vacancy rate in Waterloo falls to 1%), “thanks to a crush of high-tech workers and university students looking for short-term housing.” (via The Record)

The one-per-cent vacancy rate in Waterloo also means that city has the highest average rents in the region, according to the fall 2009 rental market report complied by Canada Mortgage and Housing. The data looks at the Kitchener census area, including all of Waterloo Region except Wilmot and Wellesley townships.

For example, (average) two-bedroom units go for $937 a month in Waterloo, compared with $835 in Kitchener, $850 in Cambridge and $709 in Woolwich and North Dumfries townships.

Nationally, the highest average rent for a two-bedroom apartment was $1,169 in Calgary, where the vacancy rate was 5.3 per cent. Toronto was second at $1,099, with a 3.1 per cent vacancy rate. The lowest nationally was $518 in Saguenay, Que., with a vacancy rate of 1.5 per cent.

“It’s more than the availability; it’s the cost of it,” said Trudy Beaulne, executive director of Kitchener-Waterloo Social Planning council.

High-tech workers and student housing are king in the city of Waterloo, creating a challenge for low-income families looking for options to live there. They may have to move to Kitchener to find an affordable apartment, she said.

“It’s different housing stock, too. If you’ve got a pretty high income, you have more choice . . . it’s not like if you’re on Ontario Works (social assistance).”

…

“[High Tech Workers] typically move to the area, rent for a year or two before they buy… you have a market where if they were in another area, they just buy a house.”

Kitchener is more of a balanced rental market, but there’s an “upscale pocket” growing downtown around the new satellite university. “It kind of mirrors Waterloo.”

In Cambridge, tenants are eager to rent within a few minutes drive of Highway 401 [emphasis added], because it makes for an easy commute to work in Mississauga. Move away from the freeway and the rental market is soft, Traschel said.

A one-per-cent vacancy rate in Waterloo doesn’t surprise Mike Belanger, director of residential services for students attending Wilfrid Laurier University.

That’s the usual fall vacancy rate for apartments to serve the 50,000 post-secondary students in Waterloo. The vacancy rate jumps to about eight per cent in mid-winter as students take out-of-town work placements. In summer, when school’s out, the student vacancy rate bounces to 30 per cent.

In the early 1980s, Belanger remembers student housing vacancy rates as low at 0.5 per cent. That student housing crisis eased long ago — just look at all the student lodging built along Columbia Street — but Belanger wonders if another crunch is looming.

As Laurier and the University of Waterloo continue to expand to help fight the recession, bank financing for new student housing projects has “dried up,” Belanger said.

“There is some anxiety if the universities grow and the private accommodation does not.”

The note about being close to the 401 in Cambridge is spot on.  We just bought, along with a number of our clients, in a new construction Cambridge development just off the 401, on Fisher Mills Rd (which turns into Maple Grove which turns into Sportsworld Dr and connects up with the Kitchener Expressway), and we’re seeing very healthy rents there (between $1250 and $1399 a  month plus utilities)

If you have any questions about the current conditions in the rental market or how you can take advantage of investment opportunities in Kitchener Waterloo & Cambridge, Ontario you can email me or call me at 519-772-4376.  You can also follow me on http://twitter.com/BenjaminBach for up to the minute updates

Kitchener Waterloo’s Centre Block Condo Development Moving Forward

(image of proposed Centre Block development from City of Kitchener)

The Kitchener Waterloo Record is reporting that the long awaited Centre Block development in downtown Kitchener is moving forward:

A Brampton-based developer says he will sign an agreement next month with the City of Kitchener for a project that will add 385 condos to the core.

Peter Smith, president of Andrin Homes, said an agreement should be in place by mid-January for the redevelopment of the city-owned half of Centre Block, which is bounded by King, Young, Duke and Ontario streets.

The City of Kitchener has a lot of information about this development on their website, including these details about the proposed development:

Andrin envisions a dynamic, inspiring, sustainable and engaging redevelopmentconcept for the Centre Block, consisting of a mixed-use complex, combining:

• A total of up to 401 residential units, offering a range of residential suite types, including lofts, affordable condominiums, larger family oriented dwellings, live/work units and penthouses.
• Vibrant new retail spaces along King Street.
• A multi-level underground parking structure for up to 714 spaces, with public parking and parking for the retail users at the first level and secure residential parking on the lower level(s).
• A boutique hotel and spa in the restored and renovated heritage structures at the corner of Duke and Young Streets.
• A public/private courtyard with linkages from Duke Street, Young Street and the underground public parking structure. A linkage from King Street to the courtyard will be provided through a public galleria.
• A design that will strive for architectural excellence and be:
  • Compatible with the existing physical, heritage and social context of the site, including restoration and redevelopment of the existing heritage structures into a boutique hotel and spa;
  • Responsive to angular planes to minimize shadow impacts;
  • Address positively the existing City Hall to the west;
  • Enhance the main street qualities of the three street frontages;
  • Provide opportunities for outdoor animated uses such as cafés on King Street West; and
  • Overall safety and security within the site will be an important element of design considerations

The land was sold to Andrin by the City of Kitchener earlier this year for $3.1 million, after spending $13 million & 9 years to acquire the land.

What do you think about this development? Personally, I’m glad to see more well planned developments coming to the downtown Kitchener core.

Flaherty talks more about Canadian Real Estate & Mortgage Markets

Yesterday we looked at reports from Ottawa that Finance Minister Jim Flaherty was looking at tightening up mortgage regulations, specifically increasing the minimum down payments and reducing the maximum amortization periods (currently 5% and 35 years).

This morning Bloomberg has more from Flaherty (but still no specific proposals):

Flaherty, in an interview today, said recent price increases for homes in Canada are due to a “confluence” of factors including low interest rates, an improving economic outlook and a stabilizing job market.

“We always watch the housing market to make sure that we do not see the development of an asset bubble,” Flaherty, 59, said during an interview in his office in Ottawa. “There would have to be clear evidence of an asset bubble in residential real estate in Canada, which there is not right now,” for the government to take steps.

The lowest mortgage rates since the Korean War have helped fuel a 67 percent jump in existing home sales in November from their January low, with the average price up 19 percent from a year ago to C$337,231 ($317,335), according to data from the Canadian Real Estate Association.

Bank of Canada policy makers Dec. 10 cautioned that rising debt levels will make Canadian households more vulnerable when interest rates rise. Households have kept adding debt this year while other countries such as the U.S. and U.K. have seen reductions in debt-to-income ratios, leaving more Canadians at risk when interest rates rise, the Bank of Canada’s report said.

…

“There are very low interest rates of course, the Canadian economy is showing signs of recovering, although it has not yet recovered, the job market has stabilized, so there are some encouraging signs for Canadians,” Flaherty said.

Canada last year tightened mortgages rules. Home loans insured by the government through the Canada Mortgage and Housing Corporation were limited to a maximum term of 35 years and required a minimum down payment of 5 percent, up from zero.

Were the government to eventually consider new measures for the housing market, they would likely be similar to the changes implemented in 2008, Flaherty said today.

“What we have done before can be done again,” Flaherty said.

In other news out of Ottawa, Prime Minister Stephen Harper says that “the government is "optimistic that 2010 is going to be a year of recovery," he also cautioned that Canada’s record-breaking low interest rates will come to an end.”

CIBC World Markets just released a report stating that Canadians need to manage increasing debt levels, but that there are several factors that should ‘buffer Canadian homeowners from being saddled” with loans more expensive than they can afford:

These include the fact that some mortgage-holders have substantial home equity, even if home prices drop. Some also have high debt payments that could be reduced, because the high payments are meant to accelerate the paying down of the mortgage principal.

The report said that history suggests many Canadians will jump from variable to fixed mortgages in time to avoid the full brunt of a variable mortgage rate shock. Also, Canadian financial institutions generally issue variable rates only to customers who quality for a three-year fixed-term rate, which is well above current variable rates. So, while variable rates will likely rise, most will be able to absorb the rate increase and remain within a qualification threshold.

"The result is that [the] number of Canadians truly at risk could be substantially less than the Bank of Canada’s estimate," said Avery Shenfield, CIBC World Markets chief economist.

If you have any questions about how the current economic conditions relate to your real estate investment holdings, email me or call 519.772.4376 to set up a complimentary consultation. 

You can follow me on http://twitter.com/BenjaminBach for up to the minute updates about real estate investment opportunities & news in Kitchener Waterloo

Ottawa hints at tighter mortgage regulations

From the Globe & Mail today:

Hints by Finance Minister Jim Flaherty that Ottawa may tighten mortgage eligibility rules to avert a possible housing bubble sent ripples through the industry Monday, with analysts urging a cautious approach to avoid damaging the economy.

Mr. Flaherty told CTV’s Question Period that one thing the government will likely do is increase the minimum down payment on residential mortgages from 5 per cent “to a higher figure.”

The government may also reduce the amortization period from a maximum of 35 years “to something less,” he said.

…

The effect of any move to reduce the maximum amortization period would be difficult to judge. The last time that happened, when the period was reduced from 40 years to 35, “was probably not significant because not a lot of people were going to 40 and we hadn’t had it that long,” Mr. Siegle said.

Meanwhile, Mr. Tal took some comfort from the fact that Mr. Flaherty was not specific as to the size of the increase in down payment and reduction in amortization period the government was considering.

“The trend (on consumer debt) is not extremely positive but the situation is not alarming,” he said.

“I think they’re concerned about the next 12 months and where we will find ourselves a year from now. So they’re trying to be pre-emptive here and basically start to make sure the inflow of new business is of a higher quality.”

“Therefore I don’t expect this to be a huge increase (that would have) … an unreasonable and unnecessary impact.”

I’ve spoken to some other investors today who are a little annoyed that Flaherty isn’t speaking in specifics – i.e. raising minimum downpayments from 5% to 7,5% or 10%, or taking amortization terms from 35 to 30, or 25 – and I concur with them. I would like to see the government give some certainty when they start speaking about changing the rules for buying and investing in real estate, as opposed to speculating about possible changes.

If you are looking at a condo or home that is $200,000, a 5% downpayment is $10,000.  If the minimum downpayment required goes up to 7.5% or 10%, the minimum initial investment required would be $15,000 or $20,000 at 10%. 

If you are looking at buying real estate, whether to live in or as an investment to rent out, I recommend talking to your mortgage professional immediately to lock in loan terms.  Contact me by email or phone (519.772.4376) to discuss finding the right opportunity for you right now.

Illegal Real Estate Investments in Kitchener Waterloo

What they are and how to avoid buying them & losing money

By and large, most of the investors we talk to about real estate opportunities in Waterloo Region want to invest in quality properties that they can own and profit from for the long term.   They don’t have to worry about buying an illegal rental property (well, as long as they are using the services of a professional REALTOR [like me!] who has experience in the local investment market they’re buying in); if this is you, this article will just be a reminder to you of why you want to do things above board.  If you might own one of these, or a dozen, pay attention!

A minority of the people we speak to are trying to ‘game the system,’ by fitting more rental units into a property than the city will allow, or by renting a unit legal for 3 lodgers (in town, you need a Lodging License if you’re renting most units out to 3+ non related people. Typical in the Student Rental market, for properties 3 units and under) to 5 etc.  When I explain to them the danger they are putting themselves in, they typically assure me that they ‘know what they’re doing’ and that ‘this is how all the big guys got started’ or some derivation of that theme.

In this video, I lay out what an illegal rental property is, what to do if you have one, and the consequences you are exposing yourself too if you continue to operate illegal real estate properties.

If you do have a property in Kitchener Waterloo or surrounding area that you are unsure of the legality, contact me at 519-772-4376 or email me, or find me on http://Twitter.com/BenjaminBach or http://Facebook.com/KitchenerWaterloo

Operating illegal rental properties means you are likely violating the terms of your mortgage covenant, as well as the terms of your insurance.  In Waterloo, for example, there are hefty fines that can be levied against owners – even without an incident to prompt this (i.e. if your tenant, or any member of the public tips the City off, you can face a large fine). 

If you are violating the terms of your insurance (i.e. your property is a legal duplex, and insured as a duplex.  You ‘were smart’ and converted the basement to a third separate unit, and now rent out the property to three different tenant groups.) and there is ever an insurance claim (fire, flood etc), your insurance company is likely going to discover that you are running the property contrary to what they believed when they insured it, and they’ll probably stick you with the bill.  No fun!  The consequences can be even worse – a claim against you that isn’t covered by your insurance can bankrupt many people – dont let this be you!

When in doubt, and before you invest your hard earned cash in a property, consult the professionals.  A lawyer, a REALTOR who deals with investments, the necessary people in Zoning or By-Law enforcement at the City or town you’re investing in etc. Better safe than sorry, and finding out before you buy is always better than finding out there is a problem once you own the place.

Vacancy rate in Waterloo falls to 1%

Canada Mortgage and Housing Corporation (CMHC) just released their Rental Market Report for the Kitchener and Guelph CMAs.  This report outlines the vacancy rates, average rents, availability rates etc., and breaks the information down by category – i.e. vacancy rate for 2 bedroom apartment vs 1 bedroom apartments, or comparing rates in new apartment buildings vs older ones.

The vacancy rate in the City of Waterloo fell slightly to 1%, the tightest rental market in the entire region. 

The vacancy rate for Kitchener City went up to 3.4%, and the Cambridge City rate was the highest at 5.6%.  CMHC does not break Cambridge CMA down at all, so we don’t get to see the differences between the older core and the newer areas.

CMHC speculated that the higher rate in Cambridge was caused by “two factors: completion of a 133-unit rental apartment building in July and the movement of renter households to newly completed homes in the City of Cambridge.”

CMHC attributed the increase in the vacancy rates to a number of factors, including young many people becoming home owners (the cost of ownership decreased with mortgage interest rates staying near historic 60 year lows), as well as lower income renters moving home or taking on a roommate to save money on housing due to the downturn in some sectors of the economy.

 

The report reinforced something our investor clients already knew.  Newer properties, those built after 1990, have the lowest vacancy rate, and the highest average rent.  Buildings built prior to 1960 have the highest vacancy rates.  Most of our clients are buying newer properties, for a few reasons including this.

If you have any questions about the real estate market in Kitchener Waterloo, or about buying or selling investment property, you can call me at 519 772 4376 or email me.  You can find me on twitter at www.twitter.com/BenjaminBach

Commercial Real Estate news heard on Twitter

Not familiar with Twitter? Twitter is a communication platform where posts are limited to 140 characters; it’s like ‘micro-blogging.’

In case you are not following me on twitter (you can go to twitter.com/BenjaminBach to sign up and ‘follow’ me), here are some commercial real estate news stories you will find interesting, that I ‘tweeted’ about this past week.  Some are about the local real estate market in Kitchener Waterloo and Cambridge, Ontario, while other’s are about other markets in Canada, and a few are about the US commercial real estate market.

• A great Waterloo Region company! RT GHarrisCCIM: Keep the good news rolling….Toyota adds second Woodstock shift http://viigo.im/1KdW

Toyota Motor Manufacturing Canada Inc. (TM-N83.58-0.44-0.52%) will hire more than 800 workers and add a second shift of production at its plant in Woodstock, Ont., providing another shot in the arm for the Ontario economy and another sign that a recovery in the battered auto sector is under way.

• Just took a real estate investor to view a condo rented for $2k+ /month, for sale under $220k -gotta love Kitchener Waterloo!

(We’re involved in multiple offers on the above property.  As of last night, there were ‘7 or 8 offers’ competing to buy this investment property!)

• TD and RBC lowering mortgage rates (as per the Kitchener Record) http://bit.ly/4y1j7d -if you need a *great* investment mortgage pro, msg me
• Housing Starts up in Kitchener Waterloo area http://bit.ly/7URBZj – another important metric for real estate

WATERLOO REGION — Led by the construction of single family homes, housing starts rose by 16.2 per cent in Waterloo Region in November compared to the same month last year. Foundations were poured for 273 housing units in the region, up from 235 a year ago, according to figures released today by Canada Mortgage and Housing Corp.  November’s total was the second highest of the year, trailing only October when 344 homes were started.

• Kitchener Waterloo just featured in Fox news report as a strong economy. That’s 1 reason real estate investors buy rentals here – FOX News discovers Waterloo Region’s tech sector employment needs: http://bit.ly/796MBy
• Bank of Canada keeps overnight rate at historic low of 0.25%, saying it will stay there til mid-2010. Some say ‘rates won’t chng til 4Q ‘10′
• Moody’s says US & Britain may "test" triple-A credit ratings. Canada considered safe, w ‘resistant’ ratings due to ’strong fiscal position’
• Globe & Mail – Housing starts hit 2009 high http://bit.ly/53Gd1s

Housing starts hit their highest level this year in November, more proof that Canada’s real estate market has clawed out of recession. Starts rose 0.7 per cent to 158,500 units on a seasonally adjusted basis, as single-home construction outweighed a drop in multiple home activity, Canada Mortgage and Housing Corp. said Tuesday.

Record low interest rates are fuelling a rebound in Canada’s real estate market, spurring rising prices and a flurry of buying activity. The Bank of Canada today reiterated its expectation that rates will stay low until the middle of next year.

• Kitchener Waterloo real estate update: construction starts up for 2nd month in a row, over 2008. YTD Cambridge starts up 87.5% (as per CMHC)
• More info @ http://BenjaminBach.com RT @creanews: Real Estate Sales in Kitchener-Waterloo reach monthly high for 3rd cons. month in Nov
• CMHC spring 09 report says Kitchener CMA’s vacancy rate under 3% (& below province’s avg)
• Invest in what you understand or you can lose a fortune! These smart ppl lost millions in areas they didn’t know about http://bit.ly/7uPUDc
• Just spoke w/ real estate investor who owns 2 investment condos in Toronto; he thinks TO market is peaking & time to sell-what do u think? The investor from Toronto thinks their equity will make more $$ in Kitchener Waterloo & Cambridge, so they’re investing in real estate here
• RT @gregboutin: Guelph-Kitchener-Waterloo region might become silicon valley of Canada (I’m talking solar PV silicon) http://bit.ly/7wbiqK

Waterloo Region is on the list as a potential site for a solar module plant that could employ as many as 500 people, says the president of Kitchener-based Canadian Solar Inc.   The company announced today that it plans to build a $24-million plant to produce solar modules for the Ontario market. It said it expects to make "definite decision" about the location in the first quarter of 2010.

• Real Estate Investors: good article (pdf) on how largest multi-family, apartment & investment sales in the US were financed in 2009http://bit.ly/5m6wGi

Includes details of how sales between $2.3 million and $109,500,000 have been financed this year in the States – Very interesting read!

• RT @creanews National Post – HOUSING RECORDS TO FALL; Red-hot Vancouver and Toronto drive totals http://is.gd/5caOl

November housing sales across the country are set to reach new highs based on fresh data from the country’s two most expensive markets.

The national numbers from the Ottawa-based Canadian Real Estate Association are not due out until mid-December but the Toronto Real Estate Board said yesterday it had its best November on record. Toronto’s news came on the heals of a Wednesday release from the Real Estate Board of Greater Vancouver that said sales activity in the city rocketed up 252.7% in November from a year ago.

What the latest numbers will likely mean is an improvement in the national average sale price, which was up 20% in October from a year ago – the largest such increase in two decades. The two cities tend to skew the national average price up or down, based on levels of sales activity.

For daily updates, follow me on twitter.com/BenjaminBach

High Volume and Sales Prices seen in Kitchener Waterloo

Some interesting reports about the national real estate market in Canada

Via Learning from Canada by Richard Florida I read this report by the Cleveland Fed:

Despite their many points of similarity, housing markets in the United States and Canada have fared quite differently since the onset of the financial crisis. Unlike the U.S., Canada has not experienced a dramatic increase in mortgage defaults, nor has any Canadian bank required a government bailout. As a result, observers such as The Economist have pointed to Canada as “a country that got things right.” …

But while subprime lending also increased in Canada, the subprime market remains much smaller than in the U.S. The most cited estimate is that subprime lenders had a market share of roughly 5 percent in 2006—compared to 22 percent in the U.S. (Mortgage Architects, 2007). Moreover, the Canadian subprime market never expanded significantly into newer products, such as interest-only or negative-amortization mortgages, whose popularity grew rapidly in the U.S. from 2003 to 2006. Instead, the Canadian subprime market mainly offered products popularized in the U.S. during the 1990s, such as longer amortization periods for loans (from 25 to 40 years), and mainly targeted near-prime borrowers.

Securitization has also been less common in Canada than in the United States, with roughly 25 percent of Canadian mortgages securitized in 2007 versus nearly 60 percent in the U.S. The Canadian securitization market has grown rapidly over the past decade, rising from roughly 5 percent of mortgages in 1998 to over 25 percent in 2008  …

Perhaps the simplest story is that Canada was “lucky” to be a late adopter of U.S. innovations rather than an innovator in mortgage finance. While the subprime share of the Canadian market was small, it was growing rapidly prior to the onset of the U.S. subprime crisis. In response to the U.S. crisis, some subprime lenders exited the Canadian market due to difficulties in securing funding. In addition, the Canadian government moved in July 2008 to tighten the standards for mortgage insurance required for high LTV loans originated by federally regulated financial institutions. This further limited the ability of Canadian banks to directly offer subprime-type products to borrowers.

Locally, it was another hot month for the Kitchener Waterloo Real Estate Board. In November 2009 there were 422 residential sales in Kitchener Waterloo (MLS areas 01,02,03,04), compared to 240 in November 2008, a 75% increase in number of sales over the same month last year.  The 422 residential sales accounted for $113,097,894 in volume.

The average sale price is up for Single Detached homes (8.7%), semi-detached houses (1.2%), townhouses (5.2%), and condominiums (4.2%), when compared to the average sales prices in November 2008 .

For full MLS statistics, email me or message me @benjaminbach on twitter