Tag Archives: upward spiral
Daniel Muzyka and Lawrence Weiss – Globe and Mail
On the roof,
it’s peaceful as can be
And there the world below
can’t bother me
– from Up on the Roof
We need to listen to this sage advice from Carole King and Gerry Goffin: It is time to gain some altitude and perspective.
Watching the past few months unfold in the financial economy, then the real economy, and now in the press, you would think that everything that is happening is unprecedented. It is not.
For starters, economic cycles have had some pretty nasty twists and turns over the past century. It is just that our money managers and brokers – who are generally in their 30s and have only seen the market for the past decade – just don’t have it in their collective memory. The relative lack of massive swings over the past few years has led us into a comfortable lull, with a false belief that “risk” only has upside.
A friend recently noted that a client of his was outraged that his investment had declined in value. The client argued that the high-risk instrument he bought had a “guaranteed track record” of high returns. Hmmm.
Second, greed, “self-dealing” and frauds have been with us for time immemorial. Have we learned nothing from the tulip bulb mania (1637), Charles Ponzi (1920), Tino’s salad oil scandal (1963), Equity Funding Corp. (1973), the Hunt Brothers and Silver Thursday (1980), Enron and WorldCom (2001) … to name just a few of the most spectacular ones? (And as 2008 winds down there is the alleged fraud committed by Wall Street’s Bernard Madoff through a Ponzi scheme.)
During good times, people get greedy and stop doing proper due diligence. When markets turn down, we panic, thinking all the self-dealing will bring on an economic Armageddon. It won’t. The ebbing economic tide is likely to expose more of the rocks that have always been there as well as those that were tossed in during the bubble. We must modify Gordon Gekko’s comment: Greed may be good, but only with some common sense and care.
Third, the economic woes of some industries, such as the North American auto industry, are neither new nor fully caused by the economic conditions today. The industry has been having difficulties since the 1970s when the consumer markets told them they were building the wrong automobiles and foreign competition started to take considerable share.
Fourth, our world of instant communication permits media not only to report information, but to focus on a continuing series of negative reports. Reading some of the reports about value destruction in real estate might make you forget that most of the “value” now lost was only created in the past five years, during a bubble. Balance and perspective is important.
All of this leads up to the point that it is time to start thinking positively. We need to get back on an upward spiral.
The world has problems, the economy will have some twists and turns, but we have made some significant progress. Unemployment may reach 8 per cent, but realize that 92 per cent are employed. Yes, some industries will get hit, but the resources unleashed will make new opportunities and renewal possible. Our lives are better than those of our parents in so many ways. We have the capacity to feed much of the world and the power to conquer diseases that made our ancestors live much shorter lives just 50 years ago.
Whatever you do, don’t simply cut off spending. Reacting to trends and issues is important, but try to keep balance in your actions. Cancelling projects may make sense, but put them in perspective. Stretching them out, modifying them or pushing forward with the realization that new capacity will likely come when the markets turn up is often better for you and the economy.
In the end, we wish you peace, health and prosperity during this holiday season. Enjoy your family and friends and count all of the good things you have. And please, take heed of Carole King’s lyrics and get “up on the roof.” We can become part of the problem or part of the solution. We prefer the latter.
Daniel F. Muzyka is dean of the Sauder School of Business at the University of British Columbia, where he is RBC Financial Group professor of entrepreneurship. Lawrence A. Weiss is a visiting professor at McDonough School of Business at Georgetown University.
The condo market forces buyers to make quick decisions, often on dwellings they have never seen
By Derek Raymaker – The Globe and Mail
Buying your first home is stressful enough, what with finding the perfect place to match your budget, lining up financing and inspections, and untangling the many tentacles of a household move.
But first-time condo buyers in Canada’s surging urban cores face another level of anxiety — the prospect of making a quarter-million-dollar purchase based on architects’ plans and the possibility that their new condo might not be ready when the developer says it will.
Nevertheless, condo ownership is by far the most affordable purchase option for first-time buyers who want to live near the centre of the action in Toronto, Vancouver, Calgary and many other booming cities. Even developers of traditional suburban tract housing are shifting to downtown high-density projects, noting the many customers drawn to them: young singles and couples taking advantage of historically low interest rates, recent immigrants, and retirees downsizing from detached houses.
While the prices of new condos are climbing across Canada, they’re still far more affordable than resale detached homes in most cities. But the upward spiral is forcing many new-condo buyers to make quick decisions to save themselves tens of thousands of dollars down the road.
Claire Munroe and her boyfriend, Josh Alter, both 26, are renters in the trendy Vancouver neighbourhood of Kitsilano, which is chock-a-block with organic health-food stores, yoga studios and casual bistros.
The couple wanted to remain in “Kits,” as it is commonly known, but that would have meant a $400,000 or $500,000 purchase for a very basic condo.
“Josh said, ‘For the amount of money that I have, I’m not going to get anything of quality [in Kitsilano],’ ” recalls Ms. Munroe, a consultant at National Public Relations. “He started looking as far east as Burnaby, but I really wanted to stay close to the city. We compromised on the Main Street area.”
In March, 2006, the couple made a deposit on a 675-square-foot, one-bedroom-plus-den condo in The Sophia, a new high-rise on Main Street and East 11th Avenue, which until recently was considered a less-desirable part of town. The price was $336,000, a bargain for a condo in central Vancouver.
The condo boom in the area, which is close to the SkyTrain mass transit system, will change the face of Main Street, the unofficial boundary between central and outlying Vancouver. Whether the area will ever acquire the cachet of Kits remains to be seen. “I don’t know if we would even want that,” Ms. Munroe adds.
Their new condo was supposed to be ready last month, but the developer, the Eden Group of Companies, has delayed occupancy until November.
Ms. Munroe thinks even that is optimistic, and predicts she’ll finally move in some time in early 2008. But she is not feeling any buyers’ remorse or frustration about the wait. “If we continued to wait [to purchase], it would have been that much more difficult to get into the market,” she says. “If you find something good, you really have to jump on it.”
Mitchell Purdy is a first-time buyer in Vancouver on the outside of the market looking in. The 24-year-old technology recruiter for TEKsystems figures he has looked at more than 70 condos since last September but still hasn’t nailed down a purchase.
He has made two offers on condos in the past six weeks, both of which came up short compared with competing offers, including one that was $20,000 above the list price. “If I can spend anything less than $420,000, I’ll be a happy man,” Mr. Purdy says ruefully.
Mr. Purdy also rents in Kitsilano, and is having a hard time finding something outside the area. “I’m looking at condos almost every weekend, and I’ve seen so many that it’s a very easy decision for me to make because I know exactly what I want,” he says. “The problem is that a lot of other people have, too.”
Mr. Purdy is looking for a two-bedroom condo expressly for the purpose of getting a roommate to help him pay what will no doubt be a hefty mortgage for someone in his mid-20s. Luckily, he has secured financial help from his father to put down 25 per cent of the purchase price, thus avoiding the need for mortgage insurance.
Ms. Munroe and Mr. Alter also say they would have a tough time making the purchase without help from their parents, who are ponying up funds to reduce the pain of the mortgage. One of the good things about the construction delay of their condo, in fact, is that it has allowed them more time to save for the down payment.
When buyers sign an agreement to purchase a new condo, they make a deposit that is held in trust against the purchase price. When construction is finished to the point where the unit is safe for occupancy, the condo is registered with the provincial land registry. After this, the deal can be closed; the buyer must deliver to the developer (or seller) the down payment, the balance of the purchase price in the form of a mortgage, and other closing costs, before moving in.
In Toronto, condo construction has been in such a prolonged boom that there isn’t the same supply crunch as in Vancouver. Thus, prices are more affordable, relatively speaking, and first-time condo buyers don’t feel the need to jump into the market quickly for fear prices will rise at a rapid pace.
The pressure in Toronto, in fact, is on the developers. Unless they are able to self-finance construction without backing from bankers, they must sell at least half the units in their projects before a finance syndicate will approve construction costs and shovels hit the ground.
In this type of real estate market, consumers often see new developments promoting incentives such as free parking spots, appliances or upgraded finishes as well as reduced maintenance fees to secure a deal.
Torontonian Lorna Johnson bought her first condo in early 2004 and moved in last July when it was completed. Her 1,118-square-foot loft in the five-storey Broadview Lofts at Broadview and Eastern avenues cost $250,000, but she added $38,000 worth of upgrades including a parking spot and balcony.
Ms. Johnson, a 43-year-old account director at an advertising firm, had been living in an east-end house with her teenage daughter but found that it was just too much for a single mother to take care of.
“The house had a lot of outside maintenance and my knees couldn’t handle going down to the basement to do laundry,” she says.
The biggest challenge for her in buying her new loft was making the purchase off blueprints, rather than seeing the completed unit.
“The challenge was not knowing what you’ll be getting,” Ms. Johnson says. “Trying to decide what to buy without knowing what it was going to look like was new to me.”
Handing over the deposit on your new condo is just the first of a long list of cash outlays, many of which may be unfamiliar to first-time buyers.
Development charges: Most municipalities levy a charge on developers for service upgrades, such as sewer and water connections. For a high-density project that needs to service 100 residents on a site that used to service only 20, these costs can be considerable — up to $5,000 a unit, says Toronto lawyer Sandy McIntyre.
Equipment leasing: Builders can lease everything from water heaters to elevators, and pass on the costs to buyers.
Land transfer tax: In Ontario, this is a provincial levy calculated on the size of the property at the time ownership changes hands. The land transfer tax applies to all home purchases, whether new or resale, house or condo.