Tag Archives: financial health
Ripple effect of mortgage changes may slow economy
Tavia Grant, Steve Ladurantaye, Rita Trichur – Globe and Mail
Ottawa’s new mortgage and lending rules are being hailed as crucial to stopping Canadians from drowning in debt, but they come with a downside: slower consumer spending.
Finance Minister Jim Flaherty unveiled measures governing mortgages and home equity lines of credit on Monday, bemoaning the fact that some Canadians are using them to buy “boats and cars and big-screen TVs.”
The changes will create the most headaches for cash-strapped first-time homebuyers and those consumers who are increasingly using their homes as ATMs. Still, experts argue this latest crackdown is for Canadians’ own good.
While the new rules may initially slow the economy, some say they’ll help improve the financial health of households over the long run.
But they will also have ripple effects on many pockets of Canadian business including home builders, real estate agents, renovation industry and retailers.
Homeowners have taken out about $46-billion in equity from their homes, according to the Canadian Association of Accredited Mortgage Professionals.
Mr. Flaherty is concerned that some Canadians are using HELOCs to buy consumer items instead of renovations or building equity in their homes.
“I think that’s particularly risky because some of those loans are not used to create housing in Canada,” Mr. Flaherty said. “They’re used to buy boats and cars and big screen TVs, things like that. And that’s not the business that home insurance was designed for, mortgage insurance.”
Mr. Flaherty and other policy makers are increasingly worried about the Canadian consumer, who drive two thirds of the country’s economic activity. Debt to income levels have now reached U.S. proportions, with Canadians now owing $1.48 for every $1 in disposable income.
A quarter of funds by home equity lines of credit borrowers are used for renovations. The rest is a range of other ways, from vacation to buying cars, daily spending and consolidating debt, according to a FIRM household borrowing survey last year.
Gerald Soloway has witnessed the shift. The head of Home Capital Group Inc., which has about 40,000 mortgages in Canada, says the mortgage-backed lines of credit were originally intended to help people make improvements to their homes. The reality, however, is “it became an ATM for weekend recreation.”
It will become a “little more expensive and there may be a little behaviour modification” among consumers seeking such loans, he says.
Credit-counselling agencies — which have reported a wave of new indebted clients over the past year — welcome the move, saying it may temper debt levels. But some say the measures don’t go far enough.
“Let’s take a step further and show people how to get out of debt,” said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada. People must “live within their means.”
Monday’s move is a “step in the right direction because it means more money in consumers’ pockets,” said Laurie Campbell, executive director at Credit Canada. However, scores of Canadians have already opted for longer-term amortization periods because they didn’t fully realize the extra costs involved — and that will limit their ability to retire, pay for their children’s education or save.
Canada’s $44-billion home renovation will be affected, according to Bank of Nova Scotia. The home reno sector now accounts for a record share of the country’s GDP — at 2.8 per cent — but that could cool. The consequences of a slowing reno market are “far reaching,” Scotiabank cautions, ranging from employment to retail stores and manufacturing.
While winter is typically a slow period for residential real estate agents, some buyers may be tempted to move quickly to get ahead of rising interest rates and to qualify for the longer amortization period.
“We had already said that demand would be pulled forward first half of the year by the threat of higher mortgage rates, and this certainly adds fuel to that fire,” said Phil Soper, president of Royal LePage.
Any cooling in pricing or accessibility to home equity lines of credit may also dampen consumer spending on big-ticket items, like cars, furniture and plane tickets.
But the cooling off may not be a bad thing if it leads to more stable household finances. Craig Alexander, chief economist at Toronto-Dominion Bank, says he’d already factored in slowing consumer spending — to about 2.5 per cent this year from about 3.5 per cent this year.
“Going forward, as the Bank of Canada raises rates and with some tightening in mortgage insurance rules, I don’t think you’re going to see the same degree of strength in consumer spending.”
Graydon Hall, 32, of Toronto has access to a $136,000 credit line that is secured again his two-bedroom detached home — but does not use it.
“I really don’t like paying interest… I just don’t want to give money away,” said Mr. Hall.
But Jakub Abramowicz, a mortgage agent with Mortgage Edge based in Richmond Hill, said clients like Mr. Hall are the norm. “People who have home equity lines of credit are already in a relatively stable financial position where they would not be using it for frivolous things like a TV or a vacation — most of them.”
Others like Nadia, a married mother of three from Amherstburg, Ont., admits her family used both credit cards and two lines of credit to support a lifestyle they could not afford.
The recession pushed their finances over the edge. “We really felt it. There were bills not being paid. There were creditors calling.”
The family owes $186,000 on their mortgage and about $48,000 for five credit cards and a line of credit.
They also have a second line of credit that is secured against their home and is full drawn with a $5,000 balance. But Nadia says money is so tight that she can only afford to pay the interest on that loan, about $50 a month, and is not sure when it will be paid off in full.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Condo living is not for everyone
Don’t ignore concerns about the building, the lifestyle or the way the complex is managed
By Inst. of Chartered Accountants
There are as many reasons for choosing condominium living as there are people who buy them. For some, it’s the location. Others want the amenities condos can offer, like exercise rooms, pools or tennis courts. Then there’s convenience – home ownership without the snow-shovelling, lawn-mowing or upkeep of a private residence.
But whatever the reason – convenience, location or facilities – it’s important to know what you can and cannot expect when you buy a condo … and what constitutes value in today’s real estate market.
Chartered Accountant Alenna Morresi-Emer is chief financial officer with Morrison Financial Services Limited. It’s a Toronto firm that provides CondoCorp Term Financing to condominium corporations who, due to unforeseen expenses, require assistance in repairing or maintaining their common elements. She’s had a great deal of experience assessing the physical and financial health of condos.
Here are Emer’s top seven tips to help ensure your decision to buy that condo is one you won’t regret.
1. Purchase a property that suits your needs and goals. Those will differ, Emer says, depending on whether you plan to live there for five years, 20 years, or to rent it to someone else.
2. Location, location, location. As with any real estate, it’s only as good as the neighbourhood. Is it convenient, safe, close to schools, transportation and services? It’s no bargain if no one wants it.
3. Convenience comes at a price. Condo owners pay monthly fees to maintain common elements, like the underground garages, hallways and lobbies and exercise facilities. There can be “special assessments” too. These are often substantial extra amounts that unit owners must pay for repairs or upgrades should the corporation not have sufficient reserve funds put aside to pay for them. Condominiums are run by an elected board of directors, Emer points out, and this board has the authority to impose such assessments if deemed necessary.
4. Yours, mine and ours. Know where the condo corporation’s financial responsibility ends and yours begins. Who pays for new windows if your unit needs them? If your townhouse has a backyard patio, where does your “exclusive use” end and the community’s begin? Can you build a fence or put in a rock garden?
5. Do your homework. Before a condo can be sold, it must have a “status certificate” that your lawyer can request. It will identify any liens against the property, current legal matters or upcoming increases in condo fees. Ask to see the financial statements. These will tell you if the corporation is financially sound, and if the unit owners are likely to face an increase in monthly maintenance fees or a special assessment. A reserve-fund study, which provides a 30-year projection of estimated repairs to the complex, will also follow the financial statements. Emer suggests you tour the property and speak to actual unit owners, too. Find out what issues they’re dealing with, how they make decisions and who the key players are.
6. Know the rules, and be prepared to abide by them. Condo by-laws will tell you if you can lease out your unit, use a barbeque or install a satellite dish on the outside wall. Even the out-facing colour of your drapes or window coverings is often regulated.
7. Condo life is community life. You’ll have to deal with different types of people, often in close proximity and in many different circumstances. Know what you’re prepared to live with, and for how long.
“Condo living is not for everyone,” Emer says. Don’t ignore concerns about the building, the lifestyle or the way the complex is managed. It’s far better to walk away than invest your money, time and energy in a situation that can bring you years of unhappiness.
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Contact the Jeffrey Team for more information - 416-388-1960
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Canadian hoteliers see gap in luxury market
More than 1,000 such hotel rooms are slated to open in Toronto and Vancouver over the next 12 months. But hoteliers aren’t worried about oversupply: They insist the five-star market is underserved
Steve Ladurantaye – Globe and Mail
During the darkest days of the recession, one thought kept going through Tony Cohen’s mind: Better to be building a luxury hotel through the downturn than to be opening one.
Mr. Cohen, who with partner Peter Freed is putting the finishing touches on the 102-room Thompson hotel in the western part of downtown Toronto, isn’t worried any more about filling rooms when the doors open in May. The economy is recovering, business travellers are slowing returning, and the market is far from saturated. Toronto and Vancouver, Mr. Cohen believes, have long suffered from a lack of luxury in the hotel sector.
That’s about to change. Within the next 12 months, more than 1,000 luxury hotel rooms are slated to open in each of those cities – a huge expansion that was planned before the recession hit, and one with uncertain consequences for an industry that was hammered during the downturn.
“This all may be happening at a crazy time, given what’s been happening in the economy over the last couple of years, but I maintain this market has been underserved,” said Mr. Cohen, who also operates a small luxury boutique hotel in Toronto called Le Germain. “This is a long time coming, and we really feel it’s all coming together at the right time.”
The past couple of years have been anything but the right time for Canada’s hotel industry. Revenue per available room, a key measure of the sector’s financial health, plunged 12%, according to data from Colliers International.
Insiders suggest that even that number flatters the truth, because many chains have kept room rates stable but offered free nights and other upgrades to attract guests. PKF Canada, a market research firm, estimated in its annual review that profitability at the nation’s hotels declined by 33% in 2009.
But there are hopeful signs emerging. Figures from STR Global, which tracks occupancy and rates week-by-week, show that life is slowly returning to the market. The average daily rate was up 0.3% at the end of March, to $118.77. Occupancy rates climbed 1.7% to 58.2%.
Hotels such as the Thompson, Trump, Four Seasons and Ritz-Carlton in Toronto and the Shangri-La, Fairmont Pacific Rim and Hotel Rosewood Georgia in Vancouver could help drive a renaissance for the embattled industry, said analyst Lyle Hall, managing director of HLT Advisory Inc. in Toronto.
“There is still some ugliness out there as the convention and meetings markets see softness,” Mr. Hall said. “But these brands have certain standards and price thresholds. Having them come in and push rates up should help. It’s the thing about rising tides lifting all boats.”
There are 12,000 hotel rooms within walking distance of Toronto’s Union Station, while the Olympic-fuelled boom in Vancouver has pushed the number of rooms in its downtown to 13,000. But both markets have been short on truly high-end offerings, industry analysts say.
There is no formal definition of what constitutes a five-star hotel. It generally refers to properties with a high staff-to-patron ratio and luxury restaurants and amenities. Colliers International executive managing director Bill Stone said the lack of such inventory has cost the cities financially, as large trade shows and upscale events opt for markets with higher-end facilities.
“You are going to see new business coming to these cities because they haven’t had this calibre of offerings before,” Mr. Stone said. “This is going to be better than people anticipate – people like to be at these places in a way that is different than more traditional hotels, and that attracts the corporate clientele.”
For the Ritz, the results are already evident. Though it won’t open until midsummer, advance bookings are already in place for weddings and bar mitzvahs. Site tours have been available for a year, and most of its 400 employees have been hired.
“Having these hotels will attract groups that would otherwise go to Chicago or San Francisco that already have them in the market. That is a certainty,” general manager Tim Terceira said.
While paying guests are the cornerstone of survival for any hotel, several of the developments have another advantage built into their business plans – they aren’t only hotels, they are also condominiums. With hundreds of property owners sharing the same space as vacationers, amenities such as restaurants and cleaning services have a built-in source of alternative revenue.
At the Ritz, for example, 135 condos will share the downtown Toronto location with 267 hotel rooms. The suites range from $700,000 for a standard condo up to an estimated $11-million for the penthouse.
“They’ve offered condo buyers a high level of services that don’t normally come with an independent building,” Mr. Stone said. “This helps with financing out of the gate, and the hotels also like it because it creates a feel that goes beyond the scope of a traditional offering.”
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Contact the Jeffrey Team for more information - 416-388-1960
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