Entries from April 2019 ↓

So done

It’s like watching a slo-mo train wreck. Or a speeding autonomous Tesla headed for a cliff. Or the federal Libs on their way to October. You just know what’s gonna happen. Guts everywhere.

And so real estate in Vancouver quietly, painfully, slowly implodes. The slow melt this blog has forecast for so long approached, arrived, now deepens. Even a developer who’s famously  offering avocado toast for a year to condo-buying moisters can’t stem the tide. This thing currently has four paws in the air, despite cheap mortgages, falling prices and spring hormones.

Little more than a year ago 94% of pre-con condos were snapped up by hungry Mills. They lined up in sales pavilions. They flooded online reservations. They unblinkingly coughed up whatever outrageous prices the developers asked.

That 94% has now dwindled to about 15%, which means the developers and sellers are desperate, not the kids. Prices have dropped 6% in a year with more to come. Sales levels have crashed to the lowest point in 18 years. The number of assignments is soaring as recent buyers scramble to get out prior to closing. As local realtor Steve Saretsky points out, the unsold condo inventory across the region has mushroomed 184%.

“Developers are facing difficult times as they navigate the shifting landscape,” he blogs, “with increasing risks that some existing buyers may simply walk away from contractual obligations. These risks have been heightened through lower prices, tighter financing, and an illiquid assignment market which has seen new monthly listings growing at levels we haven’t seen in over a decade.”

And look at the house porn quotes now filling the Van media:

Geller, who has worked in the real estate industry for 45 years, said this market is the worst he’s ever seen — and that includes downturns in the early 1980s and the 2008 financial crisis. Jason Soprovich, a realtor who has worked in the West Vancouver market for 26 years, echoed that assessment: “It has truly been the worst downturn I’ve seen in my career.” From stratospheric highs that peaked in early 2016, Metro Vancouver’s real estate market has slowed, and prices have dropped, in all areas and housing types.

House prices in West Van are down 15% to 30%. But that’s not the bottom. How could it be when there are virtually no buyers? Now realtors are dumping Audis. Brokers are laying off support staff. Marketing is kaput. It’s hang-on, survival time for people who were godly rockstars with sexy rides three years ago.

And remember the cautions this blog made about credit unions and their unholy alliance with mortgage debt? Right again.

Look at the Sandy Cove mansion that BlueShore Financial unwisely funded. The North Van credit union with 40,000 members handed over more than the current assessed value to a guy and his stepson to reno and flip a six-bathroom single home. After a long sojourn on the market the price crashed from $6.5 million to $3.98 million. Blueshore went to court for the right to dump the place as a foreclosure. Still for sale. Everybody loses, save the guys who worked on the property and were paid with credit union funds.

Formerly the North Shore Credit Union, Blueshore has over $3.8 billion in outstanding mortgages and commercial loans and has taken  in $3.9 billion in deposits to fund them. Last year its net income declined to $18.2 million from $20 million in 2017. Of total assets, 85.7% are in real estate-related loans.

Blueshore and all of the other house-heavy lenders in BC (and Ontario) may be okay. Let’s hope so. But we should also be realistic. If real estate topples, Canada’s provinces could face something along the lines of the S&L (savings and loans) disaster which befell the United States. That mess happened when rates rose, real estate values withered and credit union-type outfits faced insolvency. Between 1986 and 1995, 1,043 out of 3,234 savings-and-loans organizations failed.

The bottom’s nowhere in sight at the moment. The tone-deaf BC government’s suite of anti-real estate taxes took a natural market correction and turned it into a rout. At first people looked at the anti-Chinese tax, the anti-specker tax, the empty house tax and the uber property tax and concluded demand and prices would fall. So they stopped buying. The prophesy was self-fulfilling. The worse it feels, the worse it gets.

And the worse it shall be.


There was a time I dreamed of earning in a year what I have to remit to the CRA on Tuesday. And that’s just the final installment for 2018. Taxes in Canada have reached a point where many doctors, for example, have decided to work less, cut back their practices and enjoy life more – since working those extra hours isn’t worth it. Not since Justin created a new high-income tax bracket, quashed corporate income-splitting and gutted TFSA contributions. Perhaps this is why 16% of Albertans can’t find a family doctor, 26% of Quebec residents are without one or that NS cancer patient’s vid  last week gripped so many hearts.

There’s more to come from the current government. The Department of Finance has been mandated to examine raising the threshhold for capital gains tax, significantly increasing the rates, while reducing the dividend tax credit. All aimed at the same target.

As mentioned here already, four in 10 families under the current Liberal administration pay no net tax. They receive more in government benefits (especially the breeding premium) than they remit in federal and provincial income tax. Indeed the 2015 platform forecast a $3 billion extra fleecing of the wealthy to finance a $3 billion ‘middle class’ tax cut. That small tax cut happened but the tax revenues did not materialize (docs and others reduced their incomes), so the deficit went up.

The top 1% of tax filers (making about $220,000 or more) take home 10% of all income but pay about 18% of all taxes. The top 20% of income-earners (family incomes over $120,000) earn 49% of income yet pay 65% of taxes. Families with a couple of kids earning $80,000 or less get the free ride – no net contribution for health care, education, defence, coast guard, food safety etc.

Whether this system is just or not is moot. More important, what are the effects? Will taxing the 1% more make life better for all? Or will it lead to wealthy people adjusting their lives to avoid the extra pain?

Seems that’s exactly what is happening. As rates creep higher and deductions wither, tax avoidance blossoms. The Trudeau eat-the-rich bracket has therefore collected only a fraction of what was anticipated. Human nature is breaking out all over, and now Ottawa’s decided to rein it in with a fat increase in the CRA’s enforcement budget.

Just to be clear, tax avoidance is legal. Tax evasion is a crime. Every person has the right to arrange their affairs in order to attract the least amount of tax. The courts have confirmed that. But the feds have something called GAAR on their side – the general anti-avoidance rule. That says the CRA can invalidate any savings flowing from actions that had no commercial purpose other than to reduce tax. Now law firms that help clients craft such schemes are being routinely fined, along with accountants and tax-preparers. In fact, legislative change over the years has turned accountants into de facto CRA employees. They answer to Ottawa first, then advise you. Only tax lawyers avoid this conflict-of-interest.

The Libs promised to turn the CRA into a toothy, taxpayer-chomping pitbull. And that’s happened. In the last three years alone it has audited close to 40,000 real estate deals in the GTA and YVR and assessed over $70 million in penalties. Caught in the net have been renovators, speckers, flippers and people who think they can avoid capital gains by declaring every property they own as a principal residence.

Small business owners and professionals with corps now face a minefield of rules and enhanced CRA scrutiny. It’s aimed at preventing people from retaining money in a company instead of being taxed on it personally. The premise is that a guy taking daily risks to be an entrepreneur should be taxed the same as a pensioned employee. Flawed logic.

Meanwhile untold numbers of Canadians Airbnb their houses, and pay nothing. In Toronto last year the average host rented out space 87 nights of the year and pocketed about ten grand. How many of these people filed the T776 form and declared their rental income? If they collected more than $30,000, did they register for, collect and remit HST?

The CRA also seems to have a blind spot when it comes to rental suites – meaningful, since Vancouver has the highest proportion in North America.  People renting their basements are legally required to report this as income, adding it to other earnings and paying tax at the marginal rate. Plus, if they alter their houses to accommodate a renter, they will lose a hunk of their capital gains exemption.

At least, that’s the theory. But how many comply? So far there’s no evidence the CRA has gone after this massive pot of untaxed moolah. That could be because there are 270,000 1%ers in Canada, and 36.79 million who are not. Of those, 25,669,742 are registered voters.

Taxes are a fact of life. Equity? Not so much.