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COVID-19 'uncertainty' puts shackles on Ottawa real estate market in Q2, report says – Ottawa Business Journal

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The volume and value of real estate transactions in the Ottawa region plummeted in the second quarter of 2020 compared with a year earlier as cautious investors stayed on the sidelines during the COVID-19 lockdown, a major research firm says.

A total of 50 office, retail, industrial, apartment and hotel properties changed hands in Ottawa in April, May and June, a 37 per cent decline from the same period in 2019, Altus Group said in its Q2 investment transaction report released earlier this month.

Those deals were worth a combined $399 million, meaning the total value of second-quarter real estate investments was down 43 per cent from a year ago. The first half of 2020 saw a total of 132 transactions amounting to $820 million, down from $1.1 billion in 2019 as the pandemic took its toll on the city’s investment market.

The COVID-19 crisis “has naturally led to great uncertainty for investors and the global economy, affecting many potential sales,” the report said.

“Overall, the lack of significant transactions was a major story in the second quarter, with only four transactions closing for over $30 million,” Altus’s analysts added, highlighting “disappointing results” in the industrial sector ​– which saw investment volumes drop 74 per cent ​– and the apartment segment, in which volumes fell 72 per cent.

The office sector held up strongest in the second quarter, thanks largely to BentallGreenOak’s $97.5-million acquisition of a 240,000-square-foot office building at the Ottawa Train Yards from a local developer. A total of $204 million worth of office properties changed hands in Q2, representing just over half of the city’s total investment tally.

“In the first half of 2020, the office sector remained steady and the land sectors continued to be in demand as the Ottawa market continues its growth and developers look to add sorely needed commercial and residential space to the area,” the report said.

Other notable investment transactions in the second quarter included:

  • Crown Realty Partners’ $56.4 million acquisition of a range of office space in Ottawa, Nepean and Gloucester from CanFirst Capital Management;
  • Broccolini’s purchase of 64 acres of development land at 222 Citigate Dr. in Barrhaven – the future site of a 2.7-million-square-foot Amazon distribution centre – from Regional Group for $44.8 million; and
  • The $33-million acquisition of a five-storey, 63,000-square-foot office building at 126 York St.

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Real estate confidence barometer resets from Q2 – REMI Network – Real Estate Management Industry Network

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Canada’s commercial real estate confidence barometer offered a more positive reading in July 2020 than it registered three months earlier, with comparatively more upbeat signalling than could be found in the United States. Nevertheless, newly released third quarter results from the REALPAC/FPL Canadian Real Estate Sentiment Survey reveal senior executives typically looking forward more hopefully, while reflecting on last year’s better times.

Drawing from those executives’ responses to questions about general market conditions, asset values, and access to debt and equity capital, analysts with FPL Advisory Group conclude: industrial and multifamily assets continue to hold favour; limited deal activity is complicating valuations; there are more obstacles to borrowing; and investors are slower to commit capital. Ultimately, too, Canadian executives link their outlook to broader social and health forces.

“Real estate trends have been accelerated by the pandemic,” the report submits. “The duration of this downturn will be directly correlated to the timing of a vaccine.”

The overall index score of 46 on a scale of 100 demonstrates a drop in confidence from the 60+ range measured in the third quarter of 2019. Looking solely at perceptions of current conditions, a score of 32 shows that the majority of Canadian respondents see Q3 2020 as somewhat or much worse than Q3 2019. In contrast, a score of 61 for future conditions reveals the majority expects Q3 2021 will be somewhat better.

Q3 readings for the U.S. Real Estate Roundtable Index — which the Canadian report provides for comparison — shows similar trends, but with more disparate results contributing to the overall index score of 42. Real estate executives in the U.S. were both gloomier about current market conditions, reflected in a score of 21, and more optimistic about 2021, generating a future conditions score of 63.

Just 13 per cent of Canadian respondents deemed third quarter market conditions “much worse” than one year earlier — a marked improvement from Q2 when 36 per cent of respondents offered that opinion. Sixty per cent called it “somewhat worse” and 15 per cent gauged it as about the same as Q2 2019. Meanwhile, 59 per cent expect conditions to be somewhat or much better by Q3 2021.

U.S. respondents were more inclined to negativity, with 39 per cent calling Q3 2020 much worse than the equivalent three months of 2019. They were also modestly more positive about next year, with 62 per cent projecting somewhat or much better market conditions.

Although 72 per cent of Canadian respondents report asset values have dropped since Q3 2019, that pales beside the 91 per cent of U.S. respondents confirming that outcome. They were also more apt to call those values “much lower” — 16 per cent — than the 6 per cent of Canadian participants who delivered that judgement.

Almost a third of U.S. respondents predict asset values will continue to decline during coming year versus 18 per cent of Canadian participants. About a third of Canadian respondents expect asset values will increase somewhat from current levels, while 48 per cent expect they will remain relatively static into next summer.

Canadian responses show debt and equity capital became easier to obtain in Q3 than in Q2. More than three quarters of surveyed executives reported lenders were less obliging in Q2 than they had been in the previous year, but that proportion shrank to 57 per cent in Q3. “Construction financing still holds strong for borrowers with strong track records in promising asset classes,” FPL analysts note.

That experience was not mirrored in the U.S., where 81 per cent of respondents reported it was more difficult to secure debt financing. However, by Q3 2021, the majority of executives in both countries expect access will have improved.

On the equity capital side, 53 per cent of Canadian respondents reported it was less readily available than in Q3 2019, but that compares favourably with Q2 when 83 per cent said it was more difficult to obtain. Again, U.S. respondents tended to be more frustrated, with 64 per cent reporting the availability of equity capital was somewhat or much worse.

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Canadian Real Estate Is Becoming More Bubbly According To The US Federal Reserve – Better Dwelling

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The world’s largest central bank is seeing the warning signals for Canadian real estate get brighter. US Federal Reserve (US Fed) updated their exuberance indicators for Q2 2020. Their measures for Canada show recent acceleration over the past two quarters. There was a brief period in the data where it appears Canada almost came back to reality. In the first quarter of this year though, buyer’s became more exuberant. 

Exuberance Is Not A Fundamental

First, let’s quickly run through the concept of exuberance. Exuberance is the state of being excited. When used in economics, it means emotion and excitement is the driving mechanism. If a buyer is said to exuberant, they are buying not based on any fundamental reason – but rather their emotional reasoning. In other words, they’re paying more based strictly on the fact they think they should be paying more. Not because any fundamental basis is driving the valuation higher. 

Exuberance doesn’t mean markets can’t or won’t go higher. Markets driven by an emotional state are more vulnerable to correction though. If buyers aren’t using fundamentals, then a sudden change in emotion means they need to discover the actual price floor. That’s sometimes a ways down.  

Canadian Real Estate Becomes More Exuberant

Canada is seeing exuberance accelerate over the past few quarters. The indicator reached 1.89 in Q2 2020, up from 1.56 during the same quarter last year. The market has seen two consecutive quarters of acceleration. 

Canadian Real Estate Buyer Exuberance

An index of exuberance Canadian real estate buyers are demonstrating, in relation to pricing fundamentals.

Source: Federal Reserve Bank of Dallas, Better Dwelling.

Canadian real estate has been consistently in this level for years, but not as many as some people want you to think. It first breached the critical threshold in Q1 2015, and hasn’t fallen below that level since. There’s been a few periods where it almost has, which have been followed by policy moves to prop up the market. Technically the market has only been exuberant for half a decade. Although that may feel like forever, it’s not really that long. 

The Federal Reserve warns this indicator doesn’t tell us when we’ll see a correction, just the likelihood of one. After 5 quarters above the critical threshold, the Reserve believes markets will require a correction. The longer this trend persists, the further detached the market is from fundamentals. This means a larger correction will be required, whether in terms of falling prices or inflation that kills the real value. 

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Changing The Landscape For Real Estate Brokers And Salespeople In Ontario: Personal Real Estate Corporations – Real Estate and Construction – Canada – Mondaq News Alerts

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Canada:

Changing The Landscape For Real Estate Brokers And Salespeople In Ontario: Personal Real Estate Corporations

To print this article, all you need is to be registered or login on Mondaq.com.

On October 1, 2020, the Government of Ontario announced the
first phase of regulatory changes affecting the Real Estate and
Business Brokers Act
(“REBBA“)
which will soon be renamed as the Trust in Real Estate Services
Act
, 2020 (“TRESA“). These changes
address a number of important issues in Ontario’s real estate
industry. Most notably, the changes allow real estate professionals
to structure their business using a Personal Real Estate
Corporation (a “PREC“).

Personal Real Estate Corporations

As a result of the amendments, real estate brokers and
salespeople regulated by TRESA are now permitted to conduct their
business and pay themselves through a PREC. For many years, a wide
array of regulated professionals have provided services through
personal corporations and enjoyed tax planning and other benefits
associated with personal corporations. Real estate brokers and
salespeople are now among those permitted to use a corporation as a
means to structure their business. Of course, there are a number of
benefits to incorporation and real estate brokers and salespeople
should analyze these with their advisers. However, when considering
the suitability of a PREC, real estate brokers and salespeople
should be aware of the restrictions that apply to this type of
corporation. We summarize the most notable restrictions imposed on
PRECs as follows:

  1. No federal corporations: PRECs must be
    incorporated under Ontario’s Business Corporations
    Act
    ;
  2. Controlling the Board of Directors: The
    corporation may only have one director and that director must be
    the controlling shareholder (a broker or salesperson);
  3. Officer of the Corporation: The corporation
    may only have one officer and that officer must be the controlling
    shareholder (a broker or salesperson);
  4. No non-registered voting shareholders: All of
    the voting shares of the corporation must be owned (legally and
    beneficially) by a broker or salesperson;
  5. Non-voting Shareholders to be Family Members:
    Non-voting shares of the corporation may only be owned by the
    controlling shareholder, by one of its family members, or by
    trustees in trust for one or more children of the controlling
    shareholder who are minors as beneficiaries;
  6. Inability to Limit Sole Director’s Powers:
    There is no agreement or other arrangement that restricts or
    transfers in whole or in part the powers of the sole director to
    manage or supervise the management of the business and affairs of
    the corporation.

For real estate brokers and professionals considering the
benefits of incorporating a PREC, understanding the regulatory
environment in which it will operate is crucial.

Read the original article on
GowlingWLG.com
.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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Real Estate Double Tax Trap

Goldman Sloan Nash & Haber LLP

Here is an interesting case study I wanted to share regarding potential tax issues during estate planning.

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