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Assessing whether 2020 will bring a Canadian property tumble: Don Pittis – CBC.ca

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According to fresh data, the Canadian real estate market is booming again.

In a world where interest on your savings account is in the two-per-cent range and secure investments such as locked-in guaranteed investment certificates aren’t paying a whole lot more, houses are once again feeling like the best place for ordinary Canadians to keep their money.

The question being asked by many young Canadians, who are considering buying their first home and many boomers at the other end wondering when to sell, is whether those house price increases will continue in 2020, or will it all come crashing down.

Most commentators from the real estate industry have been upbeat in their outlooks for the coming year.

While not the 30 per cent increments Vancouver saw at the peak of the boom, new figures from the Canadian Real Estate Association (CREA) out on Monday suggest that if you bought a house in November a year ago, that house was worth 8.4 per cent more in November this year.

As a return on a safe investment in the current market, that’s astounding. And the tax advantage makes it even better.

Covering your assets

For most Canadians who only own one home, Canadian tax law means that the entire eight-odd per cent increase — about $40,000 on CREA’s average priced home and $80,000 on the average million-dollar homes of Toronto and Vancouver — is entirely income-tax free.

Not only that, but the CREA prediction for next year shows prices will rise another, tax free, 6.2 per cent. What is not to like about such staggering returns?

Well, as usual, if making-money were easy, we’d all be multimillionaires. Details matter. And for another thing, if you want to cover your assets, you can’t just look at the bright side.

Is now the time to rent or buy? One expert Hilliard MacBeth is still advising young people to avoid the condo market where he thinks prices have become detached from the land value they represent (Don Pittis/CBC)

Over the longer term, Canadian property prices are in all likelihood a safe bet. While prices dip periodically, they almost always recover again. But that can take a decade or more.

In fact, a closer look at that 8.4 per cent rise in prices, according to CREA economist Gregory Klump, tells us that until just the last few months prices have not been doing so well. Effectively, the big percentage increase is based on comparing a high point in November this year with a low point in November a year ago.

Overall, comparing all of 2018 to all of 2019 shows prices are only expected to rise 2.3 per cent by the time this year is over. So that is a detail to remind you that it depends on exactly when you buy and when you sell. And not only when,  but where.

“There was an almost even split between the number of local markets where activity rose and those where it declined,” said the CREA report. “Higher sales across much of British Columbia and in the Greater Toronto Area offset a decline in activity in Calgary.”

Too much euphoria? 

If you are ever worried that you are feeling a bit too euphoric about the state of the property market and your enthusiasm needs damping down, one useful option is to talk to Hilliard MacBeth, or better yet read his book When the Bubble Bursts.

There aren’t a lot of people who say the Canadian housing market remains overvalued and is heading for an inevitable fall, but MacBeth is not the only one. Swiss bankers at UBS recently put out their latest Global Real Estate Bubble Index, and Toronto had the honour of second place between Munich and Hong Kong. Vancouver came in at No. 6.

“The people who are really suffering in the residential side are the new home builders who have built too much product on the outskirts of Edmonton and Calgary,” said MacBeth, on the phone from Edmonton at the end of last week. “I think the term is ‘immediate availability’ — code for ‘we’re desperate.'”

Canadian Real Estate Association figures are based on resale homes, but in Calgary and Edmonton new home builders who have too much product in the pipeline are really suffering, MacBeth said. (CBC)

He says there are bargains to be had, so long as you don’t think prices are going to go down further yet.

As MacBeth points out, under priced new-builds are not included in the CREA numbers, nor are mortgage defaults, which are often sold quietly by the foreclosing banks. He said that houses withdrawn from the market because the seller is dissatisfied by offer prices also don’t make it into the data.

In some ways, MacBeth says the property market in Alberta and Saskatchewan — currently suffering from a continued downturn in the oil and gas sector — represents a foretaste of what could happen if the wider Canadian economy were to go into recession.

It is something Stephen Poloz in his Bank of Canada year-end speech and news conference last week said he had taken into account. While the central bank sees the large pile of mortgage debt accumulated by Canadians as sustainable, it remains the principal vulnerability for Canada and its financial system.

‘A nasty shock’

“If a nasty shock came along and unemployment in Canada rose significantly … the effect of that shock would be magnified,” Poloz told business reporters. “So we would have a bigger and more prolonged recession than if that debt was not there.”

Poloz was in no way predicting a global or Canadian economy shock this coming year, but he said Bank of Canada modelling shows that even in the worst case, the country’s banking system would remain sound.

Having studied the central bank’s predictive scenarios, MacBeth is not so sure. But of course gloom, especially in the property market, is one of his specialities.

He is still advising young people to avoid the condo market where he thinks prices have become detached from the land value they represent. He is advising people to rent, and notes that construction companies working on purpose-built rental properties will continue to do well, selling them to pension funds for the reliable stream of future income they represent.

“So will 2020 be the year of recession in Canada? I suspect it will, and if that’s the case, then it will be a particularly challenging time for Canadians because we’ve never gone into recession with private-sector debt levels — both corporate and household — at such high levels,” said MacBeth.

That may be the minority view, but now you’ve been inoculated. It’s safe to go back and read some real estate optimism about how property has nowhere to go but up in 2020.

Follow Don on Twitter @don_pittis

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G7 demand action from Russia on cybercrimes and chemical weapon use

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The Group of Seven (G7) wealthy nations on Sunday demanded Russia take action against those conducting cyber attacks and using ransomware from within its borders.

The rebuke came in a communique issued after a three-day summit of G7 leaders in Britain that also called on Moscow to “stop its destabilising behaviour and malign activities” and conduct an investigation into the use of chemical weapons on Russian soil.

The communique said Russia must “hold to account those within its borders who conduct ransomware attacks, abuse virtual currency to launder ransoms, and other cybercrimes”.

The issue is in the spotlight after a cyber attack on Colonial Pipeline, the largest fuel pipeline in the United States, and another that disrupted the North American and Australian operations of meatpacker JBS USA.

Britain has previously said Russia is a leading proponent of cyber attacks.

The G7 statement called for wider action against ransomware attacks, describing the practice of encrypting victims’ data and demanding payment for its return as an “escalating shared threat”.

“We call on all states to urgently identify and disrupt ransomware criminal networks operating from within their borders, and hold those networks accountable for their actions,” it said.

The call for an investigation into chemical weapon use comes after Kremlin critic Alexei Navalny was treated in Germany for what German doctors said was poisoning with a military-grade nerve agent. He accused Putin of ordering the poisoning, which the Kremlin denies.

“We call on Russia to urgently investigate and credibly explain the use of a chemical weapon on its soil,” the G7 document said.

 

(Reporting by William James; editing by Michael Holden)

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G7 chides China on rights, demands COVID origins investigation

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Group of Seven leaders on Sunday scolded China over human rights in its Xinjiang region, called for Hong Kong to keep a high degree of autonomy and demanded a full and thorough investigation of the origins of the coronavirus in China.

After discussing how to come up with a unified position on China, leaders issued a highly critical final communique that delved into what are for China some of the most sensitive issues, including also Taiwan.

The re-emergence of China as a leading global power is considered to be one of the most significant geopolitical events of recent times, alongside the 1991 fall of the Soviet Union that ended the Cold War.

China’s rise has also unnerved the United States: President Joe Biden casts China as the main strategic competitor and has vowed to confront China’s “economic abuses” and push back against human rights violations.

“We will promote our values, including by calling on China to respect human rights and fundamental freedoms, especially in relation to Xinjiang and those rights, freedoms and high degree of autonomy for Hong Kong enshrined in the Sino-British Joint Declaration,” the G7 said.

The G7 also called for a transparent, expert-led Phase 2 COVID-19 Origins study including in China, to be convened by the World Health Organization (WHO). Reuters earlier reported the finalised version of the draft communique.

“We haven’t had access to the laboratories,” Biden told reporters.

Biden said it was not yet certain whether or not “a bat interfacing with animals and the environment… caused this COVID-19, or whether it was an experiment gone awry in a laboratory”.

Before the G7 criticism emerged, China pointedly cautioned G7 leaders that the days when “small” groups of countries decided the fate of the world were long gone.

The G7 also underscored “the importance of peace and stability across the Taiwan Strait, and encourage the peaceful resolution of cross-Strait issues”.

“We remain seriously concerned about the situation in the East and South China Seas and strongly oppose any unilateral attempts to change the status quo and increase tensions,” they said.

FORCED LABOUR

Biden said democracies were in a global contest with “autocratic governments”, and that the G7 had to deliver viable alternatives.

“We’re in a contest, not with China per se, … with autocrats, autocratic governments around the world, as to whether or not democracies can compete with them in a rapidly changing 21st century,” Biden told reporters.

“As I’ve told (Chinese President) Xi Jinping myself, I’m not looking for conflict. Where we cooperate, we’ll cooperate; where we disagree I’m going to state this frankly, and we are going to respond to actions that are inconsistent.”

The G7 – comprising the United States, Japan, Germany, France, Britain, Italy and Canada – said it was concerned about forced labour in global supply chains including in the agricultural, solar, and garment sectors.

Beijing has repeatedly hit back against what it perceives as attempts by Western powers to contain China. It says many major powers are still gripped by an outdated imperial mindset after years of humiliating China.

U.N. experts and rights groups estimate that more than a million people, mainly Uyghurs and other Muslim minorities, have been detained in recent years in a vast system of camps in Xinjiang in northwest China.

China denies all accusations of forced labour or abuse. It initially denied the camps existed, but has since said they are vocational centres and are designed to combat extremism. In late 2019, China said all people in the camps had “graduated”.

(Additional reporting by Kate Holton, Elizabeth Piper, William James, Michel Rose and Michael Holden; Editing by Raissa Kasolowsky, Andrew Heavens and Gareth Jones)

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G7 agrees to end new gov’t support for coal power by end of 2021

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The Group of Seven nations on Sunday pledged to rapidly scale up technologies and policies that accelerate the transition away from unabated coal capacity, including ending new government support for coal power by the end of this year.

The countries, in a communique following their summit in Britain, confirmed pledges to increase climate finance contributions as part of efforts to reduce emissions that contribute to climate change and help a move toward cleaner energy, although climate groups said firm cash promises and other details were missing.

“Coal power generation is the single biggest cause of greenhouse gas emissions,” the seven nations – the United States, Britain, Canada, France, Germany, Italy and Japan – said, adding “continued global investment in unabated coal power generation is incompatible with keeping 1.5°C within reach.”

“We stress that international investments in unabated coal must stop now and we commit now to an end to new direct government support for unabated international thermal coal power generation by the end of 2021,” they said.

U.S. President Joe Biden, speaking after the summit, noted a commitment of up to $2 billion “to support developing countries as they transition away from unabated coal-fired power.”

The nations, in their statement, vowed to focus on other technologies, including carbon capture, to help speed up the transition away from coal.

“We will focus on accelerating progress on electrification and batteries, hydrogen, carbon capture, usage and storage, zero emission aviation and shipping, and for those countries that opt to use it, nuclear power,” the communique said.

 

(Reporting by Elizabeth Piper and Susan Heavey; Editing by Michael Holden and Daniel Wallis)

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