‘Why would you want to do that?’ I asked. Henry wasn’t expecting a question. He’d called my cell phone late on an Alberta afternoon to get some advice on an offer. We had never spoken before, but in two minutes I learned he’s in the oil business, wisely sold a condo in Edmonton, has cash burning a hole in his bank account, and just went firm on a vacant chunk of land across the line in BC that a bank repo’d and is selling at 50% of last year’s price. Yes, and he reads this blog.
‘You payin’ cash?” I continued. He is. ‘You building on this land?’ Eventually, maybe, he said. Not sure. ‘Then, why?’ And Henry let it all hang out. “I’m buying for peace of mind, to have something, It’s emotional. For my wife.”
So I explained a few things. A non-producing chunk of mountain dirt, even bargained at $300,000, is a dramatically expensive purchase. That money, now dying a painful death in his 1% bank account could just as easily be chunked into the same bank’s preferred shares and yield 5.25%, with a dividend tax credit cutting the taxes in half. The dividend never changes and preferreds have been as stable as Justin Bieber’s libido. It’s just an example – but in this case he’d have almost $16,000 in tax-efficient income.
‘That’s what this land will cost you,’ I said. ‘Add in a grand for property taxes and it’s $17,000 a year to carry something that’ll never earn you a dime. Besides, BC real estate is doomed. It’s half-price for a reason.’
I’d heard a faint click. She was listening in. ‘What’s more, with that $17,000 a year you could take your wife to Europe for three months every year and treat her with the respect she deserves. Or, go and have a picnic in your field with the bugs.’
Hank has now asked me how to get out of a firm deal. I told him. I think we should cover this a blog topic soon, eh?
Speaking of pathetic blogs, on Friday I shared with you the latest numbers from the Toronto new condo scene, which finally made it into the mainstream media on Monday. They are an unmitigated disaster. Moreover, they come from Urbanation, which is the undisputed industry for accurate builder/developer/sales data. More on that outfit in a moment.
To recap, in the first 90 days of this year, condo sales were crushed by 55% year/year and fell by a third from the last three months of 2012. There has never been as precipitous a decline. Developers are scrambling to cancel projects which have been in the development and design process for years. Unsold inventory in new projects has climbed to almost 19,000 units, which is 21% higher than this time last year. Crane operators, formers, drywall dudes and plumbers are now looking at a lean summer, with little prospect of recovery in the next year or two.
Already the GTA unemployment rate is 8.2%, which now exceeds that of the US, which every doomer on this blog moans about. We’re soon to see the impact of an economy which has allowed itself to become too dependant on a single sector, which in turn depends on horny twentysomethings without any money.
Meanwhile prices start to retreat. For the past decade new condos have added an average of 6.4%, and now that advance has fallen by two-thirds. Soon – for the first time – there will be year/year declines. In fact, at $533 a foot, there’s no longer any premium commanded by new condos over resales (of which there are 9,000 in the GTA). Resale prices, by the way, are falling in absolute numbers.
This is a sick market. Keep your adult children in the basement!
Speaking of sick, it’s time to vote. Yes, again.
I know I recently asked you to vote in the BuzzBuzzHome survey of who the most trusted source is when it comes to Toronto real estate (BuzzBuzz sadly did not include me in the Vancouver version, which a pooch won). And the results had consequences. Not only did I win that with 80% of the ballots cast, but it was a career-killer for the boss of Urbanation (mentioned above) who was also a contestant.
Industry insider Jenn, one of my deep sources, just passed this along:
“How’s this for a chuckle? Last month I was sending in Q1 numbers to Urbanation and found out Ben Myers had left Urbanation to join Fortress Real Developments. People come and go so I didn’t really read much into that. Then I was talking to our VP of high rise that word has it that Ben left as soon as he lost the BuzzBuzz poll to you, saying he wasn’t going to hang around if his opinion wasn’t credible. I thought that was a little extreme, don’t you? Haha…”
You bet, Jenn. But not as extreme as the guy who runs a blog called ‘Modest Money.’ Months ago he started a contest to determine the Top Canadian Finance Blog with more than 80 entrants. I asked you to vote. You buried him. But this irritating little Vanna White-wannabe just won’t quit.
“After about 3 months of voting, the first round of voting ended with a total of 4,793 votes from 3,829 voters. Amazingly one blog had 84% of the voters selecting them as one of their 5 favourite Canadian finance blogs. And no it wasn’t the blogger who dominated the 2012 poll.”
Looks like the weasel is having a second round of balloting. Apparently 84% isn’t enough to elect this blog. I smell Conservatives.
“For this poll the 1st round of voting does not carry over though. That way everyone can vote among the most popular blogs instead of just voting for their closest blogging friends. With this format the top 3 blogs should be much more accurate.”
Now, you see what he’s doing? By asking you to vote for three blogs without giving a preference, he’s hoping the ravenous, yelping pack of GreaterFool blog dogs will pump up numbers for the Jar Lady or that limp Potato thingy.
I cannot in conscience tell you how to vote. So let’s set aside morality. Just vote for GreaterFool.