Business
Vancouver real-estate Tax Pushes Demand to Toronto, Seattle Markets
Just a few days after Vancouver announced a tax on foreign property investors, Seattle real-estate broker Lili Shang received a WeChat message from a wealthy Chinese businessman who wanted to sell a home in Canada and buy in her area.
After a week of showings, he purchased a $1-million (U.S.) property in Bellevue, across Lake Washington from Seattle. He soon returned to buy two more, including a $2.2-million house in Clyde Hill paid for with a single cashier’s check.
Shang says she’s been inundated with similar requests from China and Hong Kong after Vancouver’s provincial government enacted a 15-per-cent tax on foreign homebuyers in August to help cool soaring real estate values. With Chinese investors — the largest pool of foreign capital — looking for a place to put their cash, the unintended consequence of the fee has been to push demand to cities such as Seattle and Toronto.
“The tax was the trigger of this new wave of investment now coming to Seattle,” Shang said. “Why pay more for the same thing?”
Vancouver, which has seen detached-home prices double in a decade, joined areas including Australia and Hong Kong in taking steps to slow housing demand after an unprecedented surge of foreign investment. Chinese buyers, in particular, are accelerating purchases overseas, spurred by a weakening yuan, rising prices at home and the perceived safety of real estate. They’re also venturing farther afield as costs soar in some of their favoured markets.
Home-purchase inquiries from China have jumped in Seattle and Toronto since the Vancouver tax was announced, according to Juwai.com, the country’s largest overseas property website.
For Vancouver investors, Seattle is a lure because it’s a waterfront city just a few hours away by car. It’s also more affordable than other West Coast destinations. Toronto, as one of the world’s financial capitals, already has an established base of foreign investment in condominiums and a large Asian population.
“Chinese money isn’t going to sit and wait,” said David Ley, a Vancouver-based professor at the University of British Columbia’s Department of Geography, who focuses on housing. “Investors are going to find another city,” and Toronto and Seattle are the top two contenders, he said.
Rising sales
While there are no figures specifically showing purchases made by offshore buyers, brokers say demand in Seattle and Toronto has been robust, particularly for the high-end properties Chinese investors tend to favour. In Seattle, about 12 per cent of all homes this year sold for at least $1 million, double the share over the last decade, according to brokerage Windermere Real Estate. Single-family home prices in King County, where the city is located, jumped almost 15 per cent in October from a year earlier, data from the local Realtors association show.
The average price of a Greater Toronto home rose 23 per cent in November from a year earlier to $776,684 Canadian while sales soared almost 17 per cent, the local real-estate board reported Dec. 2. In Vancouver, meanwhile, sales have plunged since July and were down 37 per cent last month compared with the prior year.
Dean Jones, chief executive officer of Realogics Sotheby’s International Realty, which specializes in high-end properties and has a unit that caters to Asian buyers, estimates that about half of the homes his firm sells in Seattle’s suburbs are going to Chinese purchasers, with many of the transactions requiring the use of interpreters, international banks and multiple escrow deposits. That’s up from about 30 per cent last year, he said.
“This is Vancouver 2.0,” said Jones, who lived in the Canadian city about two decades ago, when the capital flow from Asia started to accelerate. “A lot of the same motivations and goals are being replicated in Seattle.”
Relative value
The Seattle metropolitan area has already seen a 50-per-cent jump in house prices in the past five years, thanks in part to a booming technology industry and growth in companies such as Amazon.com Inc. and Microsoft Corp. Still, the median home value is $409,900 (U.S.), less than in San Francisco and Los Angeles, according to Zillow Group Inc. In Vancouver, the benchmark home price is $919,300 Canadian, or $1.06 million with the tax.
Carrie Brown, a broker at Ewing & Clark Inc. in Seattle, says she has received roughly six calls a night from Taiwan, Hong Kong and even local Chinese residents looking for more real estate to store their wealth.
“Most of my Chinese investors, 60 to 70 per cent, compare Vancouver and Seattle,” Brown said. She currently has two clients living in Vancouver who are actively looking for Seattle real estate, and many others in China, with an average budget of about $2 million (U.S.) for a home.
There are other dynamics at play boosting home prices in the area, such as limited supply, according to Svenja Gudell, chief economist at Seattle-based Zillow. She said it’s not necessarily the Vancouver tax bringing in buyers.
“I can easily buy the story that we’re seeing a ton of foreign buyers here, I just don’t think they’re all from Vancouver,” Gudell said.
Toronto dinner
In Toronto, the Vancouver tax has also rippled through the market, said Hunter Milborne, chief executive officer of Milborne Real Estate Inc. His team is responsible for about 15 per cent of sales of new condo units in Toronto each year, advertising through many Mandarin and Cantonese-speaking brokers to reach Chinese buyers across the globe.
The week that the government announced Vancouver’s foreign tax, Milborne was dining in Yorkville with about a dozen Chinese bankers. Conversation over the lobster and dim sum dinner was consumed by the tax, he said. The diners mentioned that a handful of clients were closing their Vancouver accounts and planned to sell homes to move investments to Toronto.
One of the brokers Milborne works with is Ding Li, who runs JDL Realty, a closely held Toronto company offering services for Chinese investors, including advising on real-estate investments, giving seminars on the education system and helping to manage finances. Li sells about 500 pre-construction condo units a year to Chinese investors looking to rent them out for a monthly income, or as a home for their children attending nearby universities.
“The Toronto market is stronger, healthier, than Vancouver,” Li said. But demand from Chinese investors, including some of his clients, likely will return to Vancouver once prices soften, he said.
Regardless of where the unprecedented flow of money out of China and Hong Kong goes, it’ll find a home as Asian investors look for a safe place to invest their growing wealth.
“The key point for Chinese investors is still, ‘Let’s move that money out of China, you never know what will happen to it, ’” said Gordon Houlden, director of the China Institute at the University of Alberta. “So they’ll go to Seattle or Toronto.”
It is that time of the year for you to renew your mortgage and all you want to do is sign the papers and get done with it. However, you shouldn’t be in a haste to renew your mortgage without doing a little research.
A good fraction of Canadian homeowners—about 27 per cent of them—who carry a mortgage have automated their renewal process, according to a survey by Angus-Reid. While the aim is most likely to avoid any penalties or stress that comes with missing a renewal, this approach can prove costly. Automatically renewing your mortgage means you lose out on great opportunities to save money and take further advantage of any new products and features on your mortgage that may be advantageous to you.
Typically, mortgage renewals occur at the end of your existing mortgage term and the most popular period is usually 5 years—though it can range from 1 to 10 years. Depending on your mortgage type, with a fixed rate mortgage calculator, you can easily estimate your monthly mortgage payment and know how much you’re due on your next payment.
However, before you make your next mortgage payment, here are some important tips that would help you get the most out of your mortgage renewal.
1. Review your current goals
It is possible that your financial needs must’ve changed since you first applied for a mortgage. Therefore, before your sign that renewal slip, you may want to take another look at your financial goals.
For instance, if you’re currently on a five-year fixed mortgage, your renewal would likely come with another five-year fixed mortgage. If you’re certain you would be staying in your home for that amount of time, then renewing it would be great. However, if you have plans of relocating to a different city in a couple of years, then a shorter mortgage term would be best.
Other financial goals that you may want to consider is whether you want to refinance your mortgage or access some equity with Home Equity Line of Credit (HELOC).
2. Ask for better rates
Before your mortgage renewal is due, your current lender would most likely try to get you to renew early. Typically, you will receive a renewal letter from your lender 6 months and 4 months before your renewal date. While they may offer you a rate that is lower than what you currently pay, it is often not the best rate you can get.
The renewal offer given to you by your lender is often not the best deal and in an increasing rate environment, negotiating your renewal rate is even more important. Signing the renewal letter right away because of some discount offered by your lender might seem tempting but you are potentially losing out on a lot of savings by not considering other available options.
3. Shop early for better rates
Rather than just accepting your current lender’s renewal offer immediately, you can start searching early for other providers and comparing their rates to see which one is most favourable for you. If you begin at least four months before your renewal due date, you will be giving yourself enough time to make a switch, if necessary.
While there are no major penalties if you choose to switch providers, there are some charges incurred that are typically covered by your new mortgage provider. You may not be able to change your mortgage provider until the actual renewal date, but this would give you enough time to find the right product and sort out every required paperwork.
4. Take advantage of a renewal rate hold
A mortgage renewal rate hold allows you to lock in a particular mortgage rate before your renewal is due. Normally, rate hold can last for about 90 to up to 160 days, protecting you from increases in interest rates.
During this time, you can comfortably compare rates months before your renewal date just to find a better deal. If the interest rates increase during your rate hold period, you would have nothing to worry about. Also, should the interest rates decrease, you can still negotiate for a new lower rate with your lender.
5. Switch mortgage lenders
Cutting ties with your current lender can be difficult—at least that’s the impression most lenders give to home buyers. But don’t be afraid of switching lenders, especially when you’ve found a better rate elsewhere.
Remember, getting a better deal on your mortgage can save you few thousands of dollars. Switching providers might mean you have to go through requalification but that is not a problem as long as you begin the process early enough before your renewal date.
6. Add some extra on your principal
If you’re looking for the best time to make a bigger payment on your mortgage, then renewal time is the best since there are no limits on pre-payment.
Making a lump-sum payment can put a huge dent in your mortgage amortization and you would be saving a lot of money on your total interest cost.
7. Consider switching to a broker
If you’re not already using a mortgage broker, then renewal time might be the best time to consider making the switch. According to a study by the Bank of Canada, most homebuyers who used a broker got a much lower mortgage rate than those who used one of the big banks.
Mortgage brokers are a better alternative because they have access to several lenders who offer different competitive rates, unlike the bank. Therefore, if you’re looking to get the best deal on your mortgage, switching to a broker might be a great move.
The path to buying a house isn’t the cheapest nor the easiest. Since the COVID-19 pandemic began last year, there has been several opportunities and challenges for first-time home buyers in the Canadian real estate market.
For some, sudden changes to their lifestyle created better opportunities to improve their savings plan while for others, such plans were halted due to the economic impact of the pandemic and rising home prices in real estate markets across Canada. According to the Canadian Real Estate Association, over 550,000 properties were sold in Canada last year, a new record for the country’s real estate market and a huge boost for the Canadian economy.
If you are a prospective buyer, looking to purchase a home within the year or just planning for the future, having access to the right information, resources and support can be crucial during your home-buying process. Many people—especially first-time home buyers—easily fall into home debt due to a lack of proper research into the market.
There are some important factors to consider in ensuring that your mortgage works best for you by not only saving you time but money. However, before you start searching for a home to buy, you should have a good idea of just how much you’re able to afford for one.
Checking your credit score using a Canadian mortgage calculator before applying for a mortgage, would give you a realistic price range and equally inform you of your chances of getting your mortgage approved.
Here are some important mortgage tips to help you save time and money while house hunting:
1. Know the penalties on your mortgage
There are several reasons why anyone would want to sell their property. From changes in your financial or marital status to getting transferred to a new location due to either school or work. However, these circumstances could lead to you selling your home and breaking the terms of agreement on your mortgage.
If you’re on a variable-rate mortgage with one of the major banks in Canada, to successfully break your mortgage, you would need to pay about 3 months’ worth of interest. For a fixed-rate mortgage, the cost is much higher than 3 months of interest and there’s also the option of an interest rated differential (IRD). This is typically based on your remaining mortgage balance and current mortgage rates.
To avoid penalties on your mortgage, apply for a portable mortgage that allows you to transfer your existing mortgage to a new property and even combine it with another loan, if necessary. There’s also the option of an assumable mortgage, where you can transfer the mortgage to a qualified buyer instead of breaking it.
2. Inquire about pre-payment privileges
When buying a home, you need to understand how rising interest rates would affect your mortgage. Without having any pre-payment privileges, the larger portion of your monthly mortgage payment would go towards the interest against the principal—making it harder to complete your mortgage.
Once you have pre-payment privileges, you’re offered enough flexibility to repay a percentage of the principal on your mortgage before the amortization period is over—and without any penalty. In fact, some lenders may even offer you their best rate to avoid giving you the option of pre-payment over a fixed period of time. Therefore, it is important to ask your lender the specific kind of pre-payment privileges you enjoy on your mortgage.
The amount of money you save by taking advantage of pre-payment privileges is quite substantial. For example, if you took a $300,000 mortgage at a fixed rate of 3.29% over five years and is amortized over 25 years. By making a pre-payment of $2,000 annually, you would save about $21,787 in interest and finish paying off your mortgage almost 4 years faster—assuming the interest rate was fixed throughout the amortization period.
You can always use a mortgage calculator to check much you would be saving by making extra mortgage payments annually.
3. Know the benefits of making a less than 20% down payment
Typically, when house hunting, the recommended amount of down payment you need to make is 20% of the property cost. However, you mustn’t always pay that high to get the best deal.
Surprisingly, lenders offer the best interest rates to those who want high-ratio mortgage because they have less than the recommended 20% down payment. This because a high-ratio mortgage borrower has a low risk against losses.
Default insurance makes it a lot cheaper for lenders to easily fund the mortgage loan, allowing them to transfer some of the savings—in form of lower rates—back to the borrower.
It is important to always carry out thorough research before applying for a mortgage to know what the best rates are, if a broker is more advantageous than a bank, or simply how you can get the best credit scores.
BENGALURU (Reuters) – The outlook for major global housing markets is brighter than previously thought due to expectations for a broad based economic recovery and easy monetary policy, with only a low risk that a COVID-19 resurgence will derail activity, Reuters polls showed.
Over 100 million people have been infected by the coronavirus, leading to a healthcare crisis and deep economic recessions, but fiscal and monetary stimulus, and the rollout of vaccines, mean the global economy is set to recover this year.[ECILT/WRAP]
While already high unemployment caused by the pandemic is expected to rise further, the Jan. 15-Feb. 1 poll of over 130 property market analysts showed average home prices would rise this year and next in most countries polled.
That compares to largely pessimistic predictions made in September.
An economic rebound, loose monetary policy, government stimulus, pent-up demand and tight inventories were expected to boost housing market activity to varying degrees in Australia, Britain, Canada, Dubai, India and the United States.
“A solid economic recovery bolstered by more fiscal stimulus, still-low mortgage rates, and unmet demand should continue to prop up home sales and construction in 2021,” said Gregory Daco, chief U.S. economist at Oxford Economics.
“We expect some gradual moderation in price growth over the course of 2021 as home sales cool, but sparse inventory will keep a solid floor under home prices.”
Reuters Poll: Major housing markets outlook https://fingfx.thomsonreuters.com/gfx/polling/bdwvkybkqvm/Reuters%20Poll%20-%20Global%20housing%20markets%20outlook%20-%20Feb%202021.PNG
Three-quarters, or 77 of 102 analysts, said in response to an additional question that the risk of a COVID-19 resurgence derailing housing markets this year was low.
Although the U.S. economy on average contracted last year at its sharpest pace since the Second World War due to the pandemic, it had little bearing on housing market activity, an immunity the sector was expected to carry this year.
Despite the recent surge in coronavirus infections and renewed restrictions imposed in the United States, house prices there were forecast to rise over the next two years and activity was expected to continue on a strong course. [US/HOMES]
“The recent COVID-19 surge has not had any noticeable impact, with transactions near record high levels despite record high case growth,” said Brett Ryan, senior U.S. economist at Deutsche Bank.
“Pent-up activity from COVID-19-shutdowns earlier in the year will soon start to wane and transactions will likely normalize. More housing supply will come online as vaccination picks up at the same time that base effects will start to roll off.”
Reuters Poll: Global house prices outlook – Feb 2021 https://fingfx.thomsonreuters.com/gfx/polling/xklpylyqbvg/Reuters%20Poll%20-%20Global%20house%20prices%20outlook%20-%20Feb%202021.PNG
When asked about the primary driver of housing market activity this year, over 55% of respondents, or 57 of 101, chose an economic recovery and easy monetary policy.
Of the remainder, 20 analysts named a desire for more living space and 18 said a successful vaccine rollout, while six chose fiscal stimulus.
Australian and Canadian house prices were expected to rise significantly this year and next, helped by low mortgage rates and massive fiscal spending. [AU/HOMES][CA/HOMES]
When asked what was more likely for housing market activity, 58 of 100 respondents said an acceleration. The others expected a slowdown.
Those views were swayed by a somewhat modest outlook for the British, Dubai and Indian housing markets compared to the rest.
Indian house prices were expected to barely rise this year despite an economic recovery and supportive policies, and Dubai house prices were predicted to fall at a slower pace this year and next compared to the previous poll. [IN/HOMES][AE/HOMES]
British house prices were forecast to flatline this year.[GB/HOMES]
“While we expect a strong start to the year, we expect momentum to wane following the end of the stamp duty (property sales tax) holiday in April. Towards the end of the year the housing market should settle,” said Aneisha Beveridge at estate agents Hamptons International.
