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For some, a real estate market in balance; for others, a time to buy

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This semi-detached house at 75 Coady Ave. in Leslieville, listed for sale last week with an asking price of $899,900. Two bullies attempted to pre-empt the scheduled offer date this week but the sellers did not bite.

D’Arcy McGovern/The Globe and Mail

These are halcyon days in the Toronto-area real estate market – with the exception of those days and nights reserved for offers on semis in Leslieville. Most everywhere else, there’s a pervasive calm.

“Toronto and Vancouver are now balanced,” Marc Pinsonneault, senior economist at National Bank of Canada, said as the latest Teranet-National Bank House Price Index was unveiled this week.

Mr. Pinsonneault says he’s not expecting market conditions to deterioriate significantly in the two major markets. “Sales seem to have stabilized lately.”

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The national house price index, comprising 11 major markets, edged up 0.2 per cent in April from March. The Toronto index also rose 0.2 per cent in the same period.

Compared with April of 2017, the Toronto index rose a slim 1.9 per cent.

Prices have jumped in some pockets of downtown Toronto because inventory is very limited and lots of young families want to live in such neighbourhoods as High Park, the Junction and Leslieville.

But in surrounding areas, prices are flat or down.

One buyer and two bungalows illustrate the market dynamics. The buyer of side-by-side properties in Scarborough is an investor who purchased the second house at a 13 per cent discount to the price she paid for the first in March of 2017.

Real estate agent Patrick Devine of Union Realty Brokerage Inc., who represented the buyer, says the two houses are nearly identical but the pace of this year’s purchase was measured compared with the mayhem of 2017.

“It was right at the height of the market frenzy,” Mr. Devine says of the 2017 deal. As he sat in his car on Roseglor Crescent that evening, agents were still arriving at 9:30 and 10 p.m. with offers in hand. “It was pretty insane on offer night.”

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Eleven or 12 parties were competing through the evening for the house with an asking price of $849,000 he recalls. After two rounds of bidding eliminated most of the pack, the two highest bidders were sent for a final round. Mr. Devine’s client prevailed with an offer of $1,039,000, or $190,000 above the asking price.

The investor has had no trouble renting the three-bedroom bungalow and its basement apartment in the family-friendly neighbourhood near Lawrence Avenue East and Brimley Road, Mr. Devine says. When the house next door arrived on the market with an asking price of $799,000 in April, she told Mr. Devine she might be interested in buying that one as well.

But this time the investor took her time. The second house is also fully-renovated with a basement apartment, he says. After 12 days, it was still sitting on the market so he called to arrange a viewing.

When he called, he was notified an offer was on the way. He and the investor had a quick look and prepared their own offer. The client purchased the house with an offer of $905,000.

Mr. Devine refers to the opening months of 2017 – when Toronto-area real estate prices were rising at a pace of 31 per cent or more a year – as a micro-bubble.

“A lot of people got caught by buying in March and April and trying to sell again a month later,” he says. “It was pretty dicey. Deposits were lost.”

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This year, he says, buyers throughout most of the GTA are more cautious. While there are signs the market is stabilizing, many are wondering if prices have farther to fall.

“The entire market is sitting back. Prices may be going down. They may be creeping up.”

As for the investor, Mr. Devine says the rent she is able to charge covers her mortgage payment and taxes with some left over. “The rents are reflecting the condition of the home.”

The buyer considers the condition of the second house even better, he adds. “My client was thrilled that there were two offers and she paid $905,000. She feels she got a deal.”

Mr. Devine says other areas that were hot last year have cooled down. Houses listed for $699,000 are often selling around that mark, he says. Last year at this time, a house listed at $699,000 in the same area would typically go for $905,000.

By comparison, “$899,000 is the sweet spot where everything is selling over,” he says. People buying in that price range are typically paying around $1.1-million in hot neighbourhoods, he adds.

He’s somewhat mystified that the lower price points have cooled so significantly. His theory is that potential buyers who were looking to buy a house at around the $699,000 mark were pushed down to the $625,000 range when the mortgage rules were tightened at the beginning of 2018.

Many are holding off purchasing in order to save more money, he says. Others may be waiting to see if prices soften farther.

People looking to buy around the $1-million mark or higher are likely trading up from a condo or starter home, he says, and many have help from the older generation.

Last week, Mr. Devine and his Union Realty colleague Rick DeClute listed a semi-detached house at 75 Coady Ave. in Leslieville for sale with an asking price of $899,900.

Two bullies attempted to pre-empt the scheduled offer date this week but the sellers did not bite.

“They were intent on seeing an offer day,” Mr. DeClute says.

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How the New Tax Law Affects Your Real Estate Business

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Tax reform should have a positive impact on the real estate sector. Make sure your business is prepared for these major changes.


4 min read


The Tax Cuts and Jobs Act (TCJA) brings big tax changes to the real estate sector, the likes of which haven't been seen since the Tax Reform Act of 1986.

Fortunately, the impact on real estate businesses should be mostly positive. That said, there are some crucial changes that business owners and entrepreneurs in the real estate sector should look out for moving forward.

Related: The New Tax Law Has Made It a Great Time to Invest in Real Estate. Here's How to Get the Most From Your Investment.

Pass-through entities

You have probably heard about the 40 percent reduction in the corporate tax rate to 21 percent under the TCJA. However, if you operate as a sole proprietor, or in a pass-through entity such as a partnership, LLC or S Corporation, the TCJA also contains a significant change to how you will be taxed.

A deduction of up to 20 percent of qualified business income is now permitted. This deduction is limited to the lesser of:

  • 20 percent of qualified business income
  • The greater of 50 percent of W-2 wages, or 25 percent of W-2 wages plus 2.5 percent of the unadjusted basis of qualified depreciable property

Congress and the IRS need to issue new rules to further clarify and explain some of the nuances of this provision, but real estate businesses should clearly benefit from it.

Related: How to Avoid the Common Pitfalls of Real Estate Investing

Depreciation

Real estate depreciation rules were already favorable, but the TCJA improved them even further. Qualifying property — including, for the first time, used property — acquired after Sept. 27, 2017 is eligible for 100 percent bonus depreciation in the year it is placed in service.

Eligible assets are those with a depreciable life of 20 years or less. This encompasses personal property, and was intended to include "qualified improvement property" defined as work done to the interior of a commercial building excluding costs related to enlargement, elevators and escalators or the internal framework. Because of a drafting error, however, it was not assigned the correct class life, so this is an important provision requiring Congressional remedy.

Remember that bonus depreciation will begin to wind down in 2023. The rate will drop by 20 percent per year beginning in 2023 until it is eventually eliminated in 2027.

Additionally, Section 179, which permits the expensing of assets for commercial properties, has been expanded. The annual limitation has increased from $500,000 to $1 million, with a phase-out beginning at $2.5 million for qualifying assets. For the first time, this provision now includes roofs, fire protection and alarm systems, HVACs and security systems.

Related: 5 Reasons Why Real Estate Is a Great Investment

Limitations on business interest and losses

The way the losses and gains from your real estate business are taxed is also impacted by the new law. For example, debt-financed real estate operations should note that any business with more than $25 million in average annual gross revenue over the prior three years will be limited in its interest expense deduction to interest income plus 30 percent of adjusted taxable income. Rental property owners and others in real property businesses can, in some cases, opt out of this rule and claim the full interest deduction, but that comes with certain trade-offs.

If you're on the opposite side of the scale with an overall tax loss, a new loss limitation rule allows only $500,000 for joint filers ($250,000 for single) to be used to shelter non-real estate income such as wages, interest, dividends and capital gains. These provisions will likely have the largest impact on qualifying real estate professionals.

Related: Sell a House and Pay $0 in Taxes With This Tip

Final points

There are many other pieces of the tax law that could affect real estate companies and investors. Section 1031 like-kind exchanges for real estate (but not for personal property) remained intact, but the taxation of carried interests, doubling of the estate and gift exemption and changes to some popular tax credits could affect your real estate holdings, taxes and financial planning.

In order to ensure you're getting the most out of your corporate and individual taxes — in real estate and elsewhere — make sure to work with a tax professional well-versed in these changes. The sooner you review these changes with a professional, the less likely you will be caught off guard when the 2018 tax filing season rolls around.

Opinions expressed by Entrepreneur contributors are their own.

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Ottawa real estate firm Minto looks to create real estate trust

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One of Ottawa's biggest landlords is looking to convert to a real estate investment trust, a move that would allow investors to cash in on the rent it charges for suites across the city.

Minto Properties announced Wednesday it's seeking to create the trust, which will include 22 properties across the country, including 14 here in Ottawa.

Other properties are in Toronto, Calgary and Edmonton.

Real estate trusts allow investors to essentially buy shares in residential properties, giving them a cut of the rent payments the company receives from tenants.

Carleton business professor Ian Lee said this is a chance for Minto to take the buildings, which are valuable assets, and get some money to potentially move in another direction.

"It appears they have decided to focus on a different part of the real estate market," he said. 

"Usually, when you're selling off your entire portfolio, as they announced they are today, that suggests a change in strategic direction."

No changes likely for renters

In their prospectus to investors, Minto claims its properties are 98 per cent occupied and charge an average monthly rent of $1,358.

Lee said this isn't really going to change anything for renters.

"It's just as if the name of the company collecting your rental cheque every month has changed and you're indifferent," he said.

The move still has to be approved by regulators, but in a release Minto said it could eventually add more units to the 4,279 included in the initial offering.

CBC reached out to Minto CEO Michael Waters, but he declined to comment as the process unfolds.

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Toronto Real Estate Leads The Country In Average Price Declines, Saint John Pops Higher

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The average sale price of Canadian real estate is falling, and fast. Canadian Real Estate Association (CREA) numbers show the average price of a home is down 11.3% in April 2018. Most of the declines are being attributed to the country’s largest and fastest falling real estate market – Toronto. Yeah, I haven’t heard of it either.

Average Prices

The rumors are true, average prices aren’t great for determining how much you’ll pay for a home. When the range of distribution for sales is normal, the average price is a very effective measure. However, when the range of distribution is wide, it will tend to skew higher and lower, depending on extremes. That is, extremes to the high and low of prices can skew the number in either direction. It’s still a useful indicator if you know what you’re looking for.

The average price can be a useful proxy for dollar volume, and upgrade flow. After all, CREA only deals with resales. Usually people that sell will be upgrading, buying a more expensive home as well. This typically sends the average higher. If people are selling, but have no plans on buying again in this market, you’ll see the average slide. Who sells and doesn’t plan on buying again you might be asking? At least a quarter of people planning to sell in Toronto this year.

Vancouver Has The Highest Average Sale Price In Canada

Vancouver, Toronto, and Fraser Valley are still the priciest markets in the country. Vancouver has the highest average sale price at $1,067,266. Toronto comes in second with an average sale price of $804,584. Fraser Valley is in third with an average sale price of $780,736. These markets have remained in the same order for quite some time.

Average Sale Price of Canadian Real Estate (April)

The average sale price of all homes in Canada by major CREA regions. In Canadian dollars.

Source: CREA. Better Dwelling.

Toronto Has The Fastest Dropping Average Sale Price

Saint John, Saguenay, and Victoria had the fastest rising average sale prices compared to last year. Saint John had an average sale price of $199,136, an increase of 22.9%. Saguenay had an average sale price of $202,729, a 15.8% increase. Victoria had an average sale price of $703,592, an 11.9% increase. The first two cities are seeing huge growth, but are still cheaper than the national average. Victoria has been on a tear, but it also has one of the biggest drop in sales-to-new listings in the country.

Toronto, Thunder Bay, and Hamilton regions are the fastest falling compared to last year. Toronto saw the average sale price drop to $804,584, a 12.6% decline. Thunder Bay had an average sale price of $217,745, an 11.9% decline. Hamilton – Burlington saw the average sale price drop to $569,490, an 11.3% decline. Toronto and Hamilton-Burlington saw huge gains last year, so a drop was expected.

Canadian Real Estate ASP Percent Change (April)

The percent change of the average sale price (ASP) of all homes in Canada by major CREA regions.

Source: CREA. Better Dwelling.

The average decline in prices across the country is being attributed to B-20 Guidelines. The Guidelines subject uninsured mortgage borrowers to undergo a stress test. This reduced the maximum size of a mortgage people could borrow. Some have claimed the stress will have minimal impact on borrowers. However, the Bank of Canada estimates over 81,000 buyers last year would have been impacted by the new rules.

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