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Los Angeles Approves Tax Increase on Real Estate Deals Over $5 Million

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(Bloomberg) — Los Angeles voters approved a tax on the sale of mansions and other multimillion-dollar real estate transactions to raise money for affordable housing in the second-largest US city.

The measure, known as Proposition ULA, boosts the one-time transfer tax to 4% for property deals between $5 million and $10 million, and 5.5% for transactions of $10 million and above. The current rate on all sales is 0.45%. The increase takes effect on April 1, and will raise an estimated $600 million to $1.1 billion a year.

The ballot measure received support from almost 58% of voters, according to certified results released late Monday by Los Angeles County officials.

Los Angeles faces worsening wealth inequality that several ballot initiatives have failed to quell. While mansions in tony Beverly Hills and Bel Air sometimes sell for more than $100 million, roughly 42,000 people sleep on the city’s streets, inside cars or temporary shelters each night — up about 2% since the pandemic hit.

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Los Angeles County residents need 120% of the area median income to rent a typical two-bedroom apartment, according to a report this month by the California Housing Partnership. That’s the highest rent-to-income ratio of any county in the state.

Creating affordable housing and reducing homelessness are top priorities for Mayor-elect Karen Bass, who takes office Dec. 12 and has promised to declare a homelessness emergency on her first day. Despite that, neither Bass nor her opponent in the mayor’s race, billionaire real estate developer Rick Caruso, supported Proposition ULA.

The tax increase would affect about 4% of real estate deals annually in Los Angeles, with 72% of its revenue coming from properties that sell for more than $10 million, according to an analysis by the UCLA Lewis Center for Regional Policy Studies.

The measure was backed by trade unions and housing advocates, including advocacy group United to House LA, the Southern California Association of Non-Profit Housing and the Los Angeles County Federation of Labor. Critics argued the transfer tax could make housing, including rental units, less affordable due to the potential higher buying costs for landlords.

In 2016, LA city taxpayers approved Measure HHH, a $1.2 billion bond measure to finance more than 10,000 housing units for the homeless. The measure has so far financed 3,420 completed units and 5,446 homes are under construction, according to the Los Angeles Housing Department.

Proposition ULA will dedicate 70% of funding for affordable housing projects and the rest to homelessness prevention.

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The Realtors' Big Defeat – The New York Times

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A settlement in the real estate industry is a case study of a central flaw in free-market economic theory.

Free-market economic theory suggests that the American real estate market should not have been able to exist as it has for decades.

Americans have long paid unusually high commissions to real estate agents. The typical commission in the U.S. has been almost 6 percent, compared with 4.5 percent in Germany, 2.5 percent in Australia and 1.3 percent in Britain. As a recent headline in The Wall Street Journal put it, “Almost no one pays a 6 percent real-estate commission — except Americans.”

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If housing operated as an efficient economic market should, competition would have solved this problem. Some real estate brokers, recognizing the chance to win business by charging lower commissions, would have done so. Other brokers would have had to reduce their own commissions or lose customers. Eventually, commissions would have settled in a reasonable place, high enough for agents to make a profit but in line with the rest of the world.

That didn’t happen. Instead, an average home sale in the U.S. has cost between $5,000 and $15,000 more than it would have without the inflated commissions. This money has been akin to a tax, collected by real estate agents instead of the government.

The situation finally seems to be ending, though. On Friday, the National Association of Realtors, the industry group that has enforced the rules that led to the 6 percent commission, agreed to change its behavior as part of an agreement to settle several lawsuits.

The settlement is important in its own right. Americans now spend about $100 billion a year on commissions. That number will probably decline by between $20 billion and $50 billion, Steve Brobeck, the former head of the Consumer Federation of America, told my colleague Debra Kamin.

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Allied REIT buys out Westbank on two building projects, the Home of the Week and more top real estate stories – The Globe and Mail

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Home of the Week, 80 John St., Upper Penthouse 1, TorontoJohn Lee/John Lee/Soare Productions

Here are The Globe and Mail’s top housing and real estate stories this week and one home worth a look.

Take The Globe’s business and investing news quiz

Canadians’ wealth is bolstered by stock rally amid housing slump, Statscan says

In the fourth quarter, households saw their net worth rise by $290-billion, or 1.8 per cent, to roughly $16.4-trillion, Statistics Canada said in a report Wednesday. But many homeowners have yet to face the full brunt of higher interest rates until they renew their mortgages, writes Matt Lundy. Others have variable-rate mortgages with fixed payments, which means that as rates have increased, more of their bill is going toward the interest portion rather than paying down the principal. The looming renewals, among other factors, led Canadians to stay cautious about taking on new debt — financial liabilities only rose by 3.4 per cent in 2023.

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Allied REIT takes control of two towers co-developed with Westbank

Allied Properties REIT AP-UN-T is buying out its partner, Westbank Corp., on two office skyscrapers as the Vancouver-based real estate developer faces rising costs and legal claims at projects in Toronto and Seattle, writes Rachelle Younglai and Shane Dingman. The deal, which is expected to close in early April, will significantly cut the amount of debt Westbank owes Allied — giving them an infusion of cash in the process. In November, The Globe and Mail reported that Westbank faced legal claims for $25-million in unpaid work at the Mirvish Village development in Toronto.

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Advertised rents for purpose-built rentals were up 14.4 per cent nationwide in February, compared with the same month in 2023. An apartment rental building in Toronto’s Beach neighbourhood on Mar 11.Fred Lum/The Globe and Mail

Why rent inflation is much higher for rental apartments than for condos

In Canada’s overheated rental market, tenants are increasingly gravitating toward purpose-built rentals, experts say – demand that is driving up rent for these units much faster than for condos, writes Erica Alini. Advertised rents for purpose-built rentals, also called rental apartments, were up 14.4 per cent nationwide in February, compared with last year— rents for condos, on the other hand, grew by just 5 per cent in the same timeframe. A severe supply shortage, affordable prices and the allure of rent control in older buildings is driving up the prices in purpose-built rentals.

Renters have harder time accumulating wealth than homeowners, RBC report says

According to the report, homeowners have seen their net worth grow from nine times household disposable income to 13 times since 2010, while for renters, net wealth grew from three to 3.5 times over the same period. The gap has widened even though renters’ incomes have risen at the same pace as homeowners. Meanwhile, homeowners are also accumulating home equity with their housing payments. The tightening of renters’ incomes will make it even harder to save up for a down payment, economists say.

Home of the week: Festival Tower penthouse with an interior designer touch

  • Home of the Week, 80 John St., Upper Penthouse 1, TorontoJohn Lee/John Lee/Soare Productions

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80 John St., Upper Penthouse 1, Toronto

The 46th-floor penthouse sits right above the TIFF Lightbox theatre, which is home to the Toronto International Film Festival. When you first enter the two-bedroom-plus-den condo, you’re greeted by 11-foot-tall ceilings leading you into the living room. The previous owners had white-lacquered book cases installed on the wall separating the living area from the kitchen — which frames the spacious room — and the primary bedroom has its own hotel-style bathroom attached. The 180-degree view from the penthouse features a panoramic view of the city’s downtown. and stretches across Lake Ontario.

What do you think is the asking price for the property?

a. $2,999,000

b. $3,875,000

c. $4,195,000

d. $4,500,000

c. The asking price is $4,195,000.

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At Real Estate's Biggest Conference, Property Crisis Denial Shifts to Acceptance – Bloomberg

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Welcome to The Brink. I’m Jack Sidders, a reporter usually based in London but this week I’ve been in Cannes where about 20,000 real estate professionals gathered for the annual Mipim conference. We also have news on German giant Bayer, crypto exchange FTX and Swedish debt collector Intrum. Follow this link to subscribe. Send us feedback and tips at debtnews@bloomberg.net or DM on X to @JackSidders.

Mipim is supposed to be a time for developers to show off their grand visions for projects of the future, with cities built in miniature hoping to lure pools of capital that will turn them into full scale realities.

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