Toronto Real Estate Blog

Ontario rings in new year with HST consumer confusion

By Maria Babbage – Canadian Press

Touted as a panacea for Ontario’s ailing economy but condemned by others as the biggest cash grab in the province’s history, the harmonized sales tax will likely have more than a few people scratching their heads when it takes effect next July.

Merging the 8% Ontario sales tax with the 5% federal GST will increase the cost of many items that were previously exempt from the provincial levy: from gasoline to internet bills, haircuts and real estate fees.

It’s also part of a larger package that includes one-time relief cheques, new credits and income tax cuts, which makes the math more complicated. So who will be the winners and losers?

Lower and middle-income earners, as well as anyone buying a home for less than $500,000, will benefit the most from the changes, experts say.

Wealthy people will end up being taxed more because they tend to spend more money, and First Nations say they’ll be worse off because they can’t keep their point-of-sale exemption from the provincial portion of the new 13% tax.

Ontario’s move toward the merged tax, bitterly opposed by the Progressive Conservatives and New Democrats, sees the province join Quebec, New Brunswick, Nova Scotia and Newfoundland and Labrador in the national HST club. British Columbia is also set to harmonize its tax on July 1.

Ontario’s opposition parties point to the cost hike of items like gasoline in arguing the HST is going to kick people when they’re already down because of the recession.

But if you look at how the HST will make businesses more competitive, the argument could be made that everyone will end up a winner, said TD economist Don Drummond.

Many businesses that have long advocated for harmonization say it will slash costs by reducing red tape and will eliminate goods being taxed multiple times at different stages of production.

Instead, businesses would get a rebate on the taxes paid at each stage along the supply chain, which would lower the costs and pre-tax prices of many goods.

“It will boost capital spending, particularly in machinery and equipment, and that will raise productivity and that will come back to higher wages and more jobs for everybody,” Drummond said.

“It’s a bit more of an indirect route, but I would argue that would end up as a win-win for not just business, but for households as well.”

TD predicts businesses will likely pass the majority of the tax savings on to consumers. It could take a while in some cases, as businesses with over $10 million in annual sales can’t claim the credits for five years.

But those reductions won’t be enough to fully offset the impact of the tax, which will apply to a broader array of goods and services. As a result, the effective tax rate on consumption will rise by 1.5% and the overall level of consumer prices in Ontario will increase by 0.7%, he said.

Consumer prices in Canada have increased 1% in the 12 months to November, according to the latest data from Statistics Canada.

While businesses figure out how to adjust their prices, consumers can receive government cheques of up to $1,000 for families and $300 for individuals in the first year of the HST to offset the pain, said Revenue Minister John Wilkinson.

The cheques will be funded primarily by the $4.3 billion that Ottawa is kicking in over two years to ease the transition.

But there’s a caveat: you must file a 2009 tax return.

“Under the law, if you don’t owe any income tax, you don’t have to file,” Wilkinson said. “But if you don’t file, then you can’t get the credits.”

It’s particularly important for low-income individuals and families to file their tax returns and get the relief cheques, even if they don’t make enough money to pay income taxes, he said.

The benefit gets scaled back for singles who make more than $80,000 a year and families who earn more than $160,000 a year.

Residents will also get a personal tax cut starting Jan. 1, when the provincial rate on the first $37,106 of taxable personal income will fall from 6.05% to 5.05%.

For low-and middle-income adults, there’s a permanent sales tax credit that will provide a maximum of $260 per person annually, and a property tax credit that will maintain existing benefits and extend it to more people.

Still confused? There’s a government website (www.rev.gov.on.ca/en/taxchange) that tries to explain the tax package, and even includes a calculator designed to help consumers figure out how much money they could get back.

Overall, Ontario residents will receive $10.6 billion in tax relief over the next three years, Wilkinson said.

But the HST will help replenish provincial coffers once economic conditions improve, said one tax expert.

“I think it’s a huge revenue engine, potentially,” said Brian Pel, a tax lawyer with McCarthy Tetrault law firm in Toronto.

“That’s got to be the reason why they’re doing it. Why would they brave the clearly obvious downside of introducing a tax like this if there isn’t going to be a huge windfall for the government over the longer term?”

The governing Liberals, who were quick to react to criticism about the HST, deserve credit for bringing in measures to offset its impact that B.C. wasn’t willing to do, said David Docherty, a politics professor at Wilfrid Laurier University.

But that may not be enough to save Premier Dalton McGuinty from paying a political price in the 2011 election.

“If some of my friends who are very bright and work in economics departments think it’s tax grab, he’s lost that battle,” Docherty said.

“I’m not too sure if it’s going to really haunt him or be the cause of his downfall, but that was one I don’t think he saw coming.”

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Mary Teresa Bitti, Financial Post

Peter Menkes thinks a lot about the future and the next generation. It is a mind set that has taken his family’s 50-year-old-plus business, Toronto-based Menkes Developments Ltd., from a developer of single-family homes to a fully integrated real estate company involved in construction, ownership and management of office, industrial and residential properties, and to its recent accomplishment: a new, state-of-the-art office tower built to the highest of sustainable and environmental standards at 25 York St. in downtown Toronto.

“For me, sustainability is about building something that will run itself through its lifetime in a very efficient way,” says Mr. Menkes, president of the commercial/industrial division of Menkes Developments. “It will work with the environment, not against it. Companies are always mindful of their employees and keeping their people happy and healthy, of providing a comfortable, safe work environment. To know you are working in a healthy building gives everyone good peace of mind and lets them know they are doing their part for the next generation.”

That is what 25 York St. is all about. The 30-storey tower features 780,000 square feet of premium office space next door to Union Station, the transportation hub of the city, where some 60 million commuters walk through its doors each year. That location, Mr. Menkes says, made it ideal to build it to Leadership in Energy and Environmental Design (LEED) standards.

LEED is a building rating system originally developed by the U.S. Green Building Council and adapted by the Canadian Green Building Council to set a recognized standard for the construction industry around environmental sustainability and design. It is not a building code; rather, it is aspirational. Based on a series of 70 points that are earned for going above and beyond code and building requirements with the environment emphasis, there are four performance levels: certified, silver, gold and platinum.

LEED is divided into six areas: sustainable site development, water efficiency, energy efficiency, materials and resources, indoor environmental quality, and innovation and design. The hallmark of LEED is that there is a third-party certification. Twenty-five York Street is awaiting LEED Gold certification – one of the first office buildings in Toronto built to this standard.

“It’s quite an achievement to build a LEED Gold building,” Mr. Menkes says. “It makes a great statement about what you are creating in the city and what you can do when your focus is on environmental sustainability.”

This is Menkes Developments’ first LEED building but it has long been focused on energy conservation in its existing buildings. It has been instituting recycling initiatives and energy and equipment retrofit initiatives since the 1990s.

“We are always trying to be leading-edge, to create an efficient work space – be it an office building, industrial warehouse building, or residence,” Mr. Menkes says. “We recognize that buildings are part of the environment and that being energy-efficient is important.”

So, when the opportunity arose to purchase the site at 25 York St. and build a new office tower downtown – the first since the 1990s – he knew he would take advantage of all the sustainable building materials and technologies available to create a showpiece that was leading-edge and sensitive to the environment. From the design through to the final finishes, Menkes Developments took a holistic approach to construction.

“When you build a building there is a lot of construction waste that typically gets put into landfill sites,” Mr. Menkes says. “In this case, 95% of all the construction waste from our site has been recycled, which is to say it was diverted from landfill. At peak times, we were generating 100 tonnes of waste a month and we were able to recycle 95% of it.”

The building was also designed to allow for an optimal amount of natural light. Each floor has 11-foot floor-to-ceiling glass.

“As a complement to the natural light, we have indirect lighting that lights up and down and creates a nice ambient light throughout the floor,” Mr. Menkes says. “Our light fixtures take their cue from the natural light flowing into the space at any given time and dim automatically, reducing energy consumption by 25%.”

25 York St. also features an 18-inch raised-floor distribution network that houses advanced heating, ventilating and cooling systems that will reduce the cost of energy to heat and cool the building by up to 60%. “It allows the tenants to have optimal control of their heating and cooling because each tenant controls the air flow and temperature in their space,” Mr. Menkes says.

“We also have a stormwater management system that allows us to collect and recycle rainwater for non-drinking water systems. When it rains, the water is collected on the roof and the terrace and stored in a cistern in the garage. That water gets filtered and is used in the flush toilets and urinals as well as for outdoor irrigation, reducing demands on municipal water and waste treatment facilities.”

The building is part of EnWave, the City of Toronto’s chilled-water system, where cold water from Lake Ontario is used to cool buildings in the downtown core. “As a result, we don’t have big chillers on the rooftop releasing CFCs into the air,” Mr. Menkes says.

Perhaps the greatest green aspect of 25 York Street is its downtown waterfront location. Its direct connection to Union Station offers tenants easy access to public transit. “It lessens the demand for automobile use, and, from a LEED perspective, that means less traffic congestion and pollution,” Mr. Menkes says.

Equally important was strong public interest and demand for green buildings. “You read about increasing vacancy rates but in our case, we had great demand from tenants wanting to be in this building,” Mr. Menkes says. “When we opened the doors last month, we were 85% leased. For a brand new building, that is quite an accomplishment.”

Telus occupies just under 60% of the building and Kinross Gold moved from King and Bay to lease 85,000 sq. ft. within the building. “They bought into all the attributes of what a LEED building is,” Mr. Menkes says. “Like-minded companies see a product like this coming up, and that’s where they want to be. I think going forward, everyone in the downtown core will be building LEED buildings. The technology is here.”

And so is the business case. Menkes Developments anticipates a 25% to 30% energy savings compared with traditional buildings. “It’s huge,” Mr. Menkes says. “This is a competitive advantage we can pass on to tenants. We are $5 to $8 a square foot more economic than traditional downtown core office buildings. And we are providing them the latest and greatest of the new thing. Telus is in the process of moving in and they are hearing from staff excited to come work there because they love the building.

“We were very sensitive when it came to design, because it is such a landmark location. That view is the post card of Toronto, so we wanted to design something that would be elegant and enhance that postcard view of the city. I take a fair bit of pride in the design of the building that is timeless and really adds to the beauty of the downtown core. I wish I had another site next door to do another one.”

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Contact the Jeffrey Team for more information  -  416-388-1960

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Jeremy Torobin – CTV

When the Canadian dollar topped 95 cents (U.S.) last week, approaching a three-week high toward the end of a year that has seen the currency gain 16% against the U.S. dollar, it deftly illustrated the biggest influence on what will be Mark Carney’s most crucial decision of 2010.

As economists and investors debate with increasing vigour about when the Bank of Canada will raise interest rates from their current rock-bottom level, the effect such a move could have on the loonie may mean borrowing costs have to stay where they are well into the recovery. The central bank chief pledged last April to keep his main interest rate at the record-low level of 0.25% until at least June, 2010, in order to stimulate enough borrowing and spending to solidify the economy’s recovery. The resulting ultra-cheap mortgages spurred a buying spree in housing, and by the fall, Mr. Carney was stick-handling around endless talk – from just about anywhere other than the central bank – of a potential asset bubble in residential real estate.

While saying the white-hot market was a result of pent-up demand from Canadians who had put off purchases during the worst days of the recession, Mr. Carney finished the year warning people to avoid taking on more debt than they would be able to handle when interest rates go up again, as they inevitably will.

Finance Minister Jim Flaherty, albeit indirectly, poured some cold water on the notion that Mr. Carney would raise borrowing costs before mid-2010 to cool the housing market; in interviews last week, Mr. Flaherty noted he is prepared to take steps of his own if necessary, such as increasing the minimum down payment on a home and shortening the maximum length of mortgages.

But even as the central bank characterized its concerns about Canadians’ debt loads as a low risk to spread through the financial system, Mr. Carney emphasized throughout December that his commitment to wait until next June before tightening monetary policy was very much conditional on the outlook for the bank’s 2% inflation target.

“I’m not worried that we’re in a box, because if things change we would change policy as appropriate,” Mr. Carney told BNN in a year-end television interview that aired Dec. 17. “We have the flexibility to adjust it, either by shortening or lengthening [the waiting period], if that’s what’s necessary to achieve our mandate.” And that’s where the loonie comes in.

To keep the housing sector in check, Mr. Carney can do little more than manage expectations for a rate hike that will come eventually, at a time of his choosing. That’s in part because inflation is still below the bank’s target.

It’s also because with borrowing costs so low in most of the world’s major economies, raising interest rates would make Canada a more attractive place for international investors seeking higher yields, which could send the Canadian dollar soaring. That would further complicating life for exporters trying to regain a footing in global markets that are still smarting from the downturn.

“Given the remarkable homogeneity of monetary policy around the world, you really do risk being that tall poppy and getting hit quite hard by the currency,” said Eric Lascelles, a strategist at TD Securities in Toronto. Mr. Lascelles pointed to the recent example of Australia, another commodity-based economy, where the currency soared against the U.S. dollar after that country’s central bank became the first in the Group of 20 nations to raise interest rates in early October.

Last Thursday, the Canadian dollar appreciated 0.8% in part because investors had started to become more convinced the central bank was merely considering a rate hike before mid-2010 or, at the very least, before the U.S. Federal Reserve, which many investors see keeping rates near zero into 2011. That has helped the loonie outperform its major counterparts this month.

The Bank of Canada, which will update its forecasts during the week of Jan. 18, currently maintains it could even take until the third quarter of 2011 for inflation to return to 2% and for the economy to be running at full tilt, largely because of the currency’s drag on sales of Canadian goods abroad.

Some analysts are painting Mr. Carney’s assessment as too cautious.

“Both growth and inflation risks lie north of the Bank of Canada’s current forecasts,” Yilin Nie and David Cho, strategists at Morgan Stanley in New York, wrote in a recent research report. “We believe the bank will need to hike before its conditional commitment to keep rates low until June, 2010, and before the Fed. Our forecasts show the first Bank of Canada rate hike in April, 2010.”

Most Canadian economists, meanwhile, remain in wait-and-see mode.

Michael Gregory of BMO Nesbitt Burns in Toronto wrote in a Dec. 18 note to investors that he sees “increasing risk that the policy rate renormalization process will kick off soon after Canada Day, with a small but not small-enough-to-ignore possibility that the first action could occur even earlier.”

At the opposite extreme, however, are those who believe Mr. Carney will wait until late next year, or even later, to tighten – not least because the effect on the currency could be too severe should the Bank of Canada’s benchmark rate be lower than the Fed’s for more than a few months.

“The Bank of Canada will think very, very hard before raising interest rates ahead of the Fed,” said Benjamin Tal, a senior economist at CIBC World Markets in Toronto, who predicts a slow U.S. recovery will keep the Fed on hold and force Mr. Carney to wait until the first quarter of 2011, when the rate will jump to 1%. “To an extent, not fully but to an extent, monetary policy in Canada is being highly influenced by developments in Washington.”

Mr. Lascelles of TD Securities said the Fed won’t abandon its unprecedented stimulus until early 2011, with the Bank of Canada therefore waiting until the fourth quarter of 2010, even though Canada’s economy is poised to heal more quickly than that of the United States. The bank “can and probably should hike rates before the Fed because of stronger fundamentals, but it really is quite restricted in terms of how much sooner it can go.”

While the image of the central bank being held captive to the Fed might bring shudders to Canadian nationalists, Martin Coiteux, an economist and professor of international business at HEC Montreal who has tracked monetary policy in both countries, said the notion is overblown.

First, the effect on the currency of the difference between Canadian and U.S. borrowing costs are, historically, just a few months, he said. And even as Mr. Carney worries about hurting exporters any more than they’ve already been hurt, if the domestic spending he has stoked in the housing sector catches on enough to raise prices throughout the economy, he’ll have no choice but to raise rates, regardless of the Fed.

“[The Bank of Canada's] main objective is to keep inflation between 1 and 3% per year, with the target being at 2%,” Mr. Coiteux said. “We might be going up very gradually toward 2%, but as we move there, in order to keep their credibility, they’ll have to move, too.”

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Contact the Jeffrey Team for more information  -  416-388-1960

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Federal Finance Minister Jim Flaherty said late last week that the government is ready to make changes in mortgage requirements if the current boom in housing sales starts turning into a bubble.

By Derrick Penner, Vancouver Sun

The mere hint that federal Finance Minister Jim Flaherty might step in to tighten mortgage requirements to cool an overheated real estate market has sparked a lobby urging him not to do it.

Steps to raise down-payment requirements and shorten mortgage amortization periods could do more damage than the problem Flaherty is trying to stem, the Mortgage Brokers Association of British Columbia (MBABC) said Wednesday.

Late last week, Flaherty, in an interview with Canwest News Service, said the government is watching and remains ready to make changes in mortgage requirements if the current boom in real estate sales becomes a bubble.

Low mortgage rates, Flaherty said, were helping to push home prices up, and he is ready to act on down payments and mortgage amortization periods if that trend gets out of hand.

However, MBABC president Joe Santos cautioned Wednesday that much of the heat Flaherty is seeing in the market has already been spent and that the finance minister should wait before making any decisions on mortgages.

“We feel the market is going to self correct,” Santos said, “just because the affordability [of housing] isn’t there anymore, and really, the economic news isn’t that strong.”

Santos said the pent-up demand for real estate from the buyers who fled the market during 2008’s sales collapse, combined with buyers jumping into the market sooner than expected to take advantage of record low mortgage rates, that have driven the buying binge and driven prices up over the last half of 2009.

“But we’re into December now, and things have slowed considerably,” Santos added.

Going into 2010, Santos said the association’s expectation, in keeping with forecasts from the B.C. Real Estate Association and Canada Mortgage and Housing Corp., is for sales to ease off, supplies of new listings to increase and prices to edge up more modestly.

Santos said one fear in the industry is that if Flaherty were to step in too soon and clamp down on mortgage qualification criteria, that would put an unnecessary dent in the market.

“There are a lot of things that could happen to soften up the economy,” he added, “and [a slowdown in real estate sales] is one of them, because real estate and construction have a big impact on the economy.”

However, the concern on Flaherty’s side is that the recent surge in real estate sales, fuelled by rock-bottom mortgage rates, is encouraging Canadians to take on levels of debt that they won’t be able to maintain once rates rise.

That is the warning Bank of Canada Governor Mark Carney has sounded on a couple of occasions in December.

Carney, in a regular Bank of Canada discussion document and in a speech to an elite Toronto business audience, noted that the amount of debt that Canadians are taking on is increasing just as the economy is coming out of recession.

That amount of debt, he added, makes consumers more vulnerable to a financial squeeze once interest rates, set at low levels to try and stimulate the economy, rise.

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Contact the Jeffrey Team for more information  -  416-388-1960

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Cringe-worthy details best left out of your home reno plans

Globe and Mail

People make a lot of mistakes, avoidable mistakes, when they’re building or renovating a home. Those mistakes begin at the planning phase – when the homeowners are developing the layout with a designer or architect.

I recently looked over several floor plans for next spring’s reno and construction season, and I have to tell you, some things continue to pop up that make me grind my eyeteeth in frustration. Here are five things that I would ban from all blueprints.

Corner fireplaces

Oh, they rake the eyes. Why would anyone put a fireplace in the corner of a room? This rookie mistake starts a domino effect of ugliness that’s nearly impossible to stop. Developers are fond of doing it because it’s an easy way to parachute in a prominent feature they haven’t adequately planned for.

The problem is focal points. A fireplace is a natural centre of attention, and a room is most comfortable when the furniture aims at it. But when you put the fire in the corner of a room it’s almost impossible to do anything but place the furnishings at odd angles to the walls, which misaligns the room with the structure of the home. (Conversely, if you ignore the fireplace as a focus, people in the room become disoriented and don’t know where to put their eyes.) Fireplaces are best located on a long run of wall. There, they’re easy to centre in the room, making them an effortless focal point around which to plan.

Spiral staircases

Cinematic grandeur is what people have in mind when they attempt to shoehorn a spiral staircase into their floor plan. But more often than not, the stairs come off like clumsy plotting – superfluous of detail and disruptive of flow.

The reason is simple: Spiral stairs are a circle, and most homes have walls that intersect at right angles – that is, they’re squares. And when you drop a circle into a square, everything feels off.

One of the few places spiral stairs feels right is in a home with a grand entrance – picture the 1,000 square foot foyer of a colonial mansion in the Deep South. There, fanciful spindles and expansive treads blend effortlessly with the majesty of the home. There, not here.

The problem is the same as with the corner fireplace: The alignment feels off. A home without room for its spiral staircase feels like a series of circles and squares mashed together. Odd angles proliferate, creating spaces that are difficult to furnish and a house that is challenging to resell.

Getting a spiral staircase to integrate seamlessly into a floor plan demands an investment in good architecture and exceptional craftsmanship. Unless you’re willing to go to the expense, you’d best forgo spiral stairs altogether.

My advice: Stick to straight runs – they’re efficient and much easier to construct. If you want to jazz them up, spend your money on quality materials, finishes that are consistent with the rest of the home.

Grecian columns

Used properly, Grecian columns are a nod to outstanding architecture and engineering, and an implicit statement of affluence. And it’s that savour of affluence people are after.

But in the average house – with flat, eight-foot ceilings and six-inch crown mouldings – a Grecian column looks as natural as a tuxedo in a honky-tonk. It’s foolishly trying to elevate the occasion.

To support the Grecian columns, homeowners often deploy empurpled regal furnishings and many-layered draperies – touches that only draw attention to the original sin. They’re trying to make their home something it’s not.

Regardless of its size, play to your home’s strength, whether it’s a nice floor plan, beautiful wood floors or well-chosen finishes. Structural elements like posts should integrate with the other finishing carpentry (baseboard, window trim and crown).

Superfluous French doors

Good quality French doors are beautiful – solid wood with a thick frame enclosing a grid of bevelled glass. But their appeal leads to frequent misuse.

French doors should be reserved to the entrances of formal rooms, like the living or dining room – spaces intended to impress, where the act of sweeping open two glass doors is a dramatic gesture.

There was a time when the library would have been a room that deserved French doors. But yesterday’s library is today’s home office, and its mishmash of Office Depot furnishings and HP hardware is no enticing thing to see through the glass.

The general rule of French doors should be: Use quality doors with beautiful hardware, and use them sparingly for rooms that you intend to decorate beautifully and share with others.

Avoid slapping French doors on rooms that require privacy – you’ll only end up curtaining the glass.

Pork chop countertops in bathrooms

I’m amazed that this dated detail still finds its way onto floor plans. I’m talking about that odd ledge that extends from the vanity over the toilet in the bathroom. At the best of times it housed a vase with dried twigs in it; at the worst, dingy collections of half-used perfumes and aging soaps.

If space is a concern, then glass or floating shelves over the toilet are far more useful. If covering up the unsightly toilet is the rationale, buy a nicer toilet – there are too many beautiful plumbing fixtures on the market these days to go down that road.

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Contact the Jeffrey Team for more information  -  416-388-1960

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