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Posthaste: 'The damage is real' — Foreign homebuyer ban causing upheaval in real estate industry – Financial Post
The federal government’s foreign homebuyer ban was designed to improve housing affordability, but a major flaw in the legislation is causing more harm than good, according to the Canadian Imperial Bank of Commerce.
The ban, which blocks non-Canadians from buying residential property — either directly or indirectly — for two years, came into effect on Jan. 1. The Prohibition on the Purchase of Residential Property by Non-Canadians Act, as it is officially known, was meant to take some pressure off home prices amid an affordability crisis only made worse by the rising cost of living brought on by inflation and elevated interest rates. But, there’s a problem: The language used in the Act is causing issues, and it’s stopping real estate development — necessary to boost housing supply and address affordability — in its tracks, Benjamin Tal of CIBC economics said in a note.
“The language of the Act appears straightforward until you show it to a lawyer,” he said.
For one, the words “residential property” legally capture far more property types than lawmakers likely intended. While homes such as detached, semi-detached, row houses and condominiums fall under that category, so does land. Vacant or developed land that doesn’t house a habitable structure, is zoned for residential or mixed use, and located within a metropolitan area, is included under that definition, CIBC said. As a result, any commercial property in such a zone would be banned from being owned by a non-Canadian.
“The entire area of downtown Toronto falls under that category,” Tal said.
Further, the definition of “non-Canadian” is also a source of problems. Corporations are considered non-Canadian under the Act if they have foreign ownership of at least three per cent. But though the Act excludes companies listed on a Canadian stock exchange from being affected, it fails to exclude real estate investment trusts (REITs) — important builders of residential property such as apartments. That means most publicly traded Canadian REITS are therefore considered “foreign entities,” the note said. As a result, many REITs risk being blocked from building much-needed new housing.
Even the word “purchase” is a cause for issues. Because the term includes direct and indirect purchases, the Act effectively bans foreigners from acquiring leases or mortgages on residential dwellings. Buying shares is also included, meaning non-Canadians could be blocked from investing in units of a REIT that owns residential assets.
The end result has brought upheaval to the real estate industry and caused even commercial deals, with no ties to residential homes, to be cancelled or held back.
“The damage is real,” Tal said. “Developers that are partly foreign owned or rely on foreign equity cannot proceed with purpose built developments that, in our view, are the most effective tool to tackle Canada’s housing affordability crisis.”
The implications could even stretch beyond the real estate industry, he warned. For example, companies with a minority non-Canadian investor could be blocked from buying shares in a company that happens to reside on land zoned for mixed or residential use.
Tal urged the government to take action to rectify all the problems the wording in the legislation has unintentionally created.
“Policymakers should immediately take another look and amend the Act in a way that is consistent with what it was intended to achieve — focusing only on single units being purchased by foreigners while exempting development of new supply from the impact of the new legislation,” he said.
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The Canadian economy recorded no growth in the final three months of 2022, massively underperforming expectations, though economic activity likely rebounded with a 0.3 per cent increase in January, Statistics Canada data showed on Feb. 28.
The 0.0 per cent growth reading in fourth-quarter gross domestic product capped five consecutive quarterly increases and missed analysts’ average forecast of a 1.5 per cent rise. It was also well below the Bank of Canada’s forecast for 1.3 per cent annualized GDP growth in the quarter.
That might mean Canada is headed for recession after all, writes Kevin Carmichael. The data will also be welcome news for Bank of Canada governor Tiff Macklem. Read Carmichael’s analysis here.
- Gudie Hutchings, minister of rural economic development; and Randy Boissonnault, minister of tourism, will make an announcement about the National Trade Corridors Fund
- Members of the public are planning to participate in a demonstration of solidarity in Ottawa with the organizations challenging Bay du Nord’s approval. The demonstrators are calling on public officials to stop catering to big oil by approving new oil projects, and start supporting green jobs
- Environment and Climate Change Minister Steven Guilbeault will make a funding announcement for nature-based solutions and freshwater protection projects in Ontario
- Filomena Tassi, minister responsible for FedDev Ontario, will announce support for Ontario manufacturers
- Natural Resources Minister Jonathan Wilkinson; and Viviane Lapointe, Liberal MP for Sudbury, will make an announcement to support electric vehicle infrastructure in Canada
- Enbridge holds its annual investor conference
- Calgary Real Estate Board releases February home sales figures
- Today’s data: Canadian S&P Global Manufacturing PMI, auto sales; U.S. S&P Global Manufacturing PMI, ISM manufacturing PMI, construction spending, auto sales
- Earnings: Royal Bank of Canada, National Bank of Canada, Salesforce Inc., Lowe’s Companies Inc., Snowflake Inc., Tourmaline Oil Corp., Athabasca Oil Corp.
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Vass Bednar: TikTok ban on government devices is a distraction
Tax season is here, and it’s never been easier to file your taxes from home, with a plethora of tax software options to choose from. If you’re having difficulty deciding which one to use, our content partner MoneyWise has a list of the the top choices.
Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from Financial Post staff, The Canadian Press, Thomson Reuters and Bloomberg.
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New York Fed board member warns of commercial real-estate risks – Reuters
NEW YORK, March 24 (Reuters) – An executive who also serves on the board overseeing the New York Federal Reserve warned on Twitter of potentially systemic problems in the real estate finance market and called on the industry to work with authorities to avoid things getting out of hand.
Noting there is $1.5 trillion in commercial real estate debt set to mature in the next three years, Scott Rechler, who is CEO of RXR, a large property manager and developer, tweeted: “The bulk of this debt was financed when base interest rates were near zero. This debt needs to be refinanced in an environment where rates are higher, values are lower, & in a market with less liquidity.”
Rechler said he’s joined with the Real Estate Roundtable “in calling for a program that provides lenders the leeway and the flexibility from regulators to work with borrowers to develop responsible, constructive refinancing plans.”
“If we fail to act, we risk a systemic crisis with our banking system & particularly the regional banks” which make up over three quarters of real estate lending, which will in turn put pressure on local governments that depend on property taxes to fund their operations, Rechler wrote.
The executive weighed in amid broad concern in markets that aggressive Fed rate hikes aimed at lowering high inflation will also break something in the financial sector, as collateral damage to the core monetary policy mission.
The Fed nearly held off on raising its short-term rate target on Wednesday after the collapse of Silicon Valley Bank and Signature Bank rattled markets. The failure of Silicon Valley Bank was linked to the firm’s trouble in managing its holdings as markets repriced to deal with higher Fed short-term interest rates.
The real-estate sector has also been hard hit by Fed rate rises and commercial real estate has also been hobbled by the shift away from in-office work during the pandemic.
Also weighing in via Twitter, the former leader of the Boston Fed, Eric Rosengren, offered a warning on real estate risks, echoing a long-held concern of his dating back a number of years.
Pointing to big declines in real estate investment indexes, he said “many bank lenders will be pulling back just as leases roll, with high office vacancies and high interest rates. Regional bank shock and troubled offices will be negatively reinforcing.”
Real estate woes are on the Fed’s radar, but leaders believe banks can navigate the challenges.
Speaking at a press conference Wednesday following the Fed’s quarter percentage point rate rise, central bank leader Jerome Powell said “we’re well-aware of the concentrations people have in commercial real estate,” while adding “the banking system is strong, it is sound, it is resilient, it’s well-capitalized,” which he said should limit other financial firms from hitting the trouble that felled SVB.
Rechler serves as what’s called a Class B director on the 12-person panel of private citizens who oversee the New York Fed. That class of director is elected by the private banks of the respective regional Feds to represent the interest of the public. Each of the quasi-private regional Fed banks are also operated under the oversight of the Fed’s Board of Governors in Washington, which is explicitly part of the government.
The boards overseeing each of the regional Fed banks are made up of a mix of bankers, business and non-profit leaders. These boards provide advice in running large organizations and local economic intelligence. Their most visible role is helping regional Fed banks find new presidents, although bankers who serve as directors are by law not part of this process.
Central bank rules say that directors are not involved in bank oversight and regulation activities, which are controlled by the Fed in Washington.
Our Standards: The Thomson Reuters Trust Principles.
China's Mysteriously Resilient Real Estate Prices: New Economy Saturday – Bloomberg – Bloomberg
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China’s Mysteriously Resilient Real Estate Prices: New Economy Saturday – Bloomberg Bloomberg
Widow's battle to resell burial space underscores Metro Vancouver's real estate crunch – CBC.ca
A little more than 25 years ago, John Douglas Carnahan bought the rights to two burial plots in the northeast corner of a hilly cemetery in a dense area of Burnaby, B.C.
Back then, they cost $750 each.
As years passed and space grew scarce, the cost of a single plot in the same cemetery surged to more than $10,000.
After Carnahan’s death at 91, his widow decided not to use the plots. Her battle for the right to sell the plots privately to any buyer at market value has now spilled over into B.C. Supreme Court in a case experts say again proves the region’s real estate crunch is also squeezing its graveyards.
“We are running out of space, particularly in the Lower Mainland,” said architect Bill Pechet, who’s worked in cemetery design for roughly 30 years.
“Just like we have a housing crisis for the living, we’re also encountering a housing crisis for those who want to be buried.”
Cemetery blocking resale, widow says
Carnahan bought both plots at Pacific Heritage Cemetery in March 1998. At the time, there was a clause in the purchase agreement saying cemetery directors “may” buy back owner’s plots at the original purchase price.
Carnahan’s widow, Sheila Carnahan, contacted the cemetery after her husband’s death in 2021 to ask how she could go about privately selling the plots she no longer needed to a third-party buyer.
Her claim said staff told her in an email last October that, according to its bylaws, she could only sell her plots back to the cemetery for the original purchase price of $750 each.
Sheila Carnahan has argued the cemetery “misinterpreted” its own bylaws because the clause said cemetery directors “may purchase” plots back — not “must purchase.”
“The claimants say that the position taken by the [cemetery], while invalid in law, effectively prevents a sale to third parties because the [cemetery] controls the ownership record and the operation of the cemetery, including the preparation of the grave for use,” the lawsuit said.
“The [cemetery] could effectively prevent the new owner from using the plot.”
The cemetery has not responded to her claim in court.
In B.C., rights to interment sold in perpetuity
In B.C., buying a plot is just buying the right to interment, meaning a buyer is paying for the right to be buried in the space but not purchasing the land itself. Those rights are sold in perpetuity, so buyers can hold plots for however long they choose — unless a plot has been empty for more than 50 years and the rightsholder is more than 90 years old, in which case a cemetery can launch the complex process of applying to get the space back.
Each cemetery sets its own rules around resales. Some bylaws allow private sales, others don’t.
Most cemeteries in Metro Vancouver are full or nearly full. As the value of real estate has skyrocketed over the last decade, so has the value of that scarce burial space — especially in urban areas. Private plots in Metro Vancouver have been listed on Craigslist or Kijiji for anywhere from $5,000 to $50,000.
Resales are common enough to warrant caution from Consumer Protection B.C., urging buyers to check online ads carefully to ensure whether cemeteries honour private sales.
Limited space, poor planning part of the problem
There’s a shortage of traditional cemetery space in B.C. for the same reason there’s a shortage of space for new homes — builders have nowhere else to go.
“The housing crisis that we’re encountering is a result of our inability to expand horizontally because we encounter the mountains on one side and the ocean on the other,” said Pechet.
“We have a land shortage for housing, and cemetery spaces are a form of housing.”
City planning was also an issue.
“For some reason, the Metro Vancouver area seems to have significantly less cemetery space through some planning than most other municipalities,” said Glen Hodges, who manages Mountain View Cemetery, the only graveyard in Vancouver.
“It’s some magical mystery as to why.”
Some European countries, like Switzerland, Sweden, Italy, France and Germany, limit cemetery leases to anywhere between three and 30 years to free up more plots.
In Spain and the United Kingdom, bones can be moved after a certain period so the plot can be recycled to be sold again. The City of London Cemetery, for example, reuses graves left untouched after 75 years.
In 2019, the City of Vancouver passed a series of bylaws to save space at its only cemetery. Gravesites at Mountain View Cemetery are now allowed to be shared by multiple families, and the cemetery can decide when additional remains can be added to an existing space.
Pechet said B.C. might have to consider vertical cemeteries, like those in Japan, or find a way to tactfully incorporate gravesites into existing public parks. Recycling could also be an option.
“I think it will inevitably have to lead to a lot of invention,” he said.
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