Who can you trust?

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Push-back? You bet. A bunch of realtors and condo-floggers were unhappy with me days ago when I pointed out the average SFH detached house in 416, the hotbed of Canadian real estate lust, has declined in value by 16.7% over the last five months.

But it’s true. At least as far as the official real estate board stats are concerned (yup, the ones they inflate monthly). What was just over $1 million in April was $843,138 last week. That’s a reduction of about $169,000, or darn near 17%. And while prices normally decline seasonally (making August a great time to buy), this year the plop’s been more than double the average.

Why? Simple. Ever since the feds punted CMHC insurance on houses over $1 million, sales have been quietly and steadily eroding, with prices now in the follow. Gone are the days when a high-income, cash-poor ditsy lawyer could waltz into Leaside and buy a boring $1.4 million faux baronial anorexic house with $70,0000 grand down on his gold card, adding the $48,200 in land transfer tax to the mortgage. Now that house takes $300,000 in cash.

In fact we have a million-dollar line in the sand, as far as most markets are concerned. On one side are the riff-raff, hipsters, minivan, kid-popping middle-class climbers, and on the other those who wonder where the buyers went, sitting on massive gobs of uncomfortably-illiquid net worth.

In the middle is the real estate cartel, deceiving as usual with no useful market analysis, plus broad statements like this: “Sales were up strongly for all major home types across the GTA through the first two weeks of August. During the first 14 days of August, the number of home sales grew at a faster pace year-over-year compared to the number of homes listed for sale. This means that competition between buyers increased relative to the same period last year, which explains the continuation of very strong average price growth in the GTA.”

See what I mean? Strong sales “for all major house types” and “competition between buyers” – it suggests anyone not jumping in immediately will be paying more. But the facts are buyers now, at least in a category where there are 2,800 listings in this one region, will be paying less. A helluva lot less.

Nor is this just a Toronto thing. Former realtor and housing watchdog Ross Kay has also seen this trend forming for some time. As of the middle of this month, he says, there was “a clear and measured change” in the market for houses which remain CMHC-insurable (below a mill) and those no longer eligible.

“While those sellers under $1,000,000 have increased their selling prices 4.91% since July,” he says, “when the homes over $1,000,000 are included in the average we recorded a 6.87% decrease.” Kay also claims that 75% of all houses listed on the MLS system nation-wide will end up selling for less than their listed prices.

So there ya go. A 17% drop in the average 416 detached house since April. And almost a 7% decline in national prices in the last 45 days. Seasonality plays a role, without a doubt, but if this trend continues unabated into the key autumn selling season, it is simply more evidence that peak house is behind us.

Now to Australia, where houses are sold by auction, and this anguished young man.

More than a week ago, as I dreamt of goats, I wrote about independent Aussi senator Nick Xenophon and his showboating campaign to create a Canadian-style Home Buyer’s Place down under. Here we call state-assisted retirement savings “RRSPs”, and (as you know), lusty young first-time virginal homebuyers can pluck up to $50,000 from their plans for a real estate down payment, on the condition they eventually pay it back. Sadly, a huge number do not – likely because they bought so much house with such bloated debt they have no money.

In Australia, such savings are called “superannuation” and Senator Nicky wants kids to be able to raid it the same way, because that country is also plagued with seminal horniness and houses people can’t afford. But, as I explained here, the HBP doesn’t work. All we have done is transfer $30 billion from savings and investments into real estate, allowing 2.5 million more sales, and helping jack prices to the point where we are the second-most-unaffordable country on the planet.

Suddenly (since my blog post) a movement of sane, mostly young people in the land of the billabong has erupted to stop Nicko, because they fear the plan would (as here) simply goose values more. They also suggest the senator, who owns eight investment properties may be working in his own naked self-interest. Imagine. Shocking, I tell you.

Well, here’s the petition, and I didn’t see anywhere that northern hosers are excluded from adding their voices. By the way, the young ‘roo warriors credit me with creating the HBP here in Canada. I did not. Too busy inventing trouble.

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Legally sad

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Here’s a cautionary tale for you. Sadly, you won’t read about this in the mainstream media (at least not until after this blog post), even though it involves alleged deception, disappointment, bankruptcy, flight and fraud. Over 90% of the victims are Chinese-Canadian families. Draw your own conclusions.

Four years ago it was just another Toronto condo mega-project that buyers were willing to lap up in the heavily Asian district around Yonge Street north of the 401. This one had two towers, a 150-suite hotel and 258 condos in the heart of a district now bristling with spires and clogged with traffic. Centrium was a joint project of a local firm and a Korean builder. The units sold in a cloud of pre-construction frenzy.

Now there’s $12.1 million in deposit money missing, an apparently bankrupted and disgraced lawyer, two hundred devastated buyers and allegations all those dollars are sitting in a Korean bank. The cops are involved. The law society is being bombarded. The jilted buyers are organizing and have been trying for weeks to get the attention of CTV, or CityTV, the Toronto Star – anyone.

Last year rumours swirled the site had been sold at least once and a new developer become involved. By this March it became apparent to many this puppy was in serious trouble. Construction was cancelled, along with communications. Worried buyers started looking to get their deposits back – from the developer, from lawyers and the new home warranty agency, Tarion.

At the centre of this was one Meerai Cho, a lawyer acting for the developer, into whose trust account a mess of depositors’ money flowed. By last month dozens of Centrium buyers had found each other through chat rooms and were barraging Cho’s office. By all accounts, she refused to respond. Frustration was building. As one buyer posted: “At the moment all I care about is that my money is safe. Can anyone at least confirm that our money is safe and that it hasn’t been stolen by these f*cking builders?”

Said another: “Meerai Cho had given away our money to the developer Joseph Lee, who had already fled to Korea. Meerai Cho as a trustee should not have done this, and this is considered illegal. This money, which is more than 15 million (possibly twice of this amount) dollar, should be paid to Joseph Lee after the construction completed. Meerai Cho shouldn’t have done this.”

Last week came the bad news, as online forums and the local Chinese media reported that lawyer Meerai Cho had gone bankrupt. This statement was attributed to her: “I was retained to act as the solicitor for a builder/developer (“Developer”) of a condominium project in Toronto. In that capacity I received, in trust, deposit monies for commercial, hotel and condominium units totaling approximately $12.1 million. In error I released these funds to the Developer who absconded with the funds.”

Yikes.

Worse, Cho’s bankruptcy and the inability of buyers to track down Centrium’s current owner/developer meant getting deposit money back was turning into a nightmare. According to Robert Charles, trustee in bankruptcy, Cho’s total debt on the day of collapse was $13.2 million, with only $863,000 of that secured. My calls to Cho’s office, by the way, have gone unanswered so I cannot independently verify these numbers. But, if true, they’re staggering.

Toronto fraud cops are investigating. In the matter of Cho’s missing trust account millions, there is a court hearing scheduled for September 2nd, but unlikely to be little more than procedural. The Law Society of Upper Canada has been fielding complaints, and the jilted, confused and abandoned buyers are trying this week to get attention. They got mine.

By the way, it’s not at all clear if these folks will get their money back, how much, or when. The Tarion warranty program does not necessarily cover a lawyer going bust. Instead the conditions for refund are (a) the bankruptcy of the builder, (b) a breach of the agreement by the builder or (c) the buyer proving they have the statutory right to treat the deal as terminated – which is a lengthy legal process. In any case, the maximum deposit covered is just $20,000, a fraction of what many in this instance handed over.

Lessons?

I will say it again. If you buy a condo in a pre-construction attack of hormonal delirium, you’re taking a big chance. It’s a futures contract, laden with risk. Centrium was supposed to be built a year ago, and is still a pile of dirt. Realtors flogging the project, collecting their commissions when agreements were signed, apparently felt no obligation to tell clients when material changes occurred. Lawyers obfuscated and dragged. Ultimately, as far as anyone knows, the unknown and unproven principal developer just took off.

Buyers were screwed, without a doubt. These buildings will never rise. A lot families will suffer. And there’s so much blame to go around.

Update Aug 22 9 am: CTV and CITYtv are now pursuing this story. Many jilted owners are planning to meet this Sunday afternoon to organize, and Tarion is telling folks to start processing their claim documents. No word from Korea.

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