Wednesday, December 29, 2010
Monday, December 20, 2010
Our housing market to side step U.S. style bubble
Written by Mark Weisleder or the Toronto Star
As Bank of Canada Governor Mark Carney tries to talk Canadians out of piling up too much debt, the comments have led to a lot of speculation about whether Canada faces a U.S.- style housing meltdown.
Nothing could be further from the truth. The factors that led to the US housing crisis were unique to their market. Next year should see strong growth in prices and sales, especially in the GTA, and I plan to write about why in the next few weeks.
The differences between the U.S. and Canada can be summarized as:
American politicians encouraged banks to make it easy for consumers to buy a home. The banks ended up lending to people who never would have legitimately qualified for a mortgage. Basically, if you had a pulse, you got approved.
Government programs allowed buyers to get a down payment from the government as well. In other words, many bought properties with none of their own money.
These mortgages came with very low interest payments, but after a few years, the home owner had to make a large lump sum payment. Many couldn’t afford the payment and so these mortgages were called ‘sub-prime.’
The U.S. lets homeowners deduct interest paid on their home mortgage from their income tax. Thus, whatever was paid by the borrower to carry the mortgage was taken as a deduction on their income tax returns. You can’t do that here.
Many states in the U.S. have non-recourse mortgages. This means that if you default on a mortgage loan, the only remedy for the bank is to take back the property. They cannot sue you for any loss suffered. This also doesn’t apply in any province except Alberta?
When you put this together, there was no incentive for home owners to pay down the mortgage principal. They just kept remortgaging and taking out the equity. Wall Street figured out a way to sell these sub-prime mortgages by convincing others about the great profits they would make on these balloon payments. Unfortunately, none of these balloon payments were made and most of these loans were worthless. Currently, besides the hundreds of thousands of properties still in foreclosure in the US, it is estimated that almost 20 per cent of the remaining mortgage loans are “under water,” meaning that the homes are worth less than what is owing on the mortgage debt.
While it may be true that Canadian household debt may be increasing, but with less than 1 per cent of mortgages under water, this is not the basis for any kind of housing collapse.
Here are the main differences between the Canadian and U.S. markets:
Banks have made sure over the last few years that even if you qualified for a 1-year mortgage rate of 2.5 per cent, you had to have the ability to pay the 5-year rate, which was closer to 5.5 per cent, in order to qualify for the mortgage. Thus, even if interest rates rise, as the Governor has warned, most Canadians will still be able to absorb the increased payments.
Banks have been much stricter in requiring evidence of real down payments before lending any money. There are no free down payment programs in effect in Canada.
In Canada, because you cannot deduct interest from your home mortgage on your tax return, you are encouraged to pay down the principal on your mortgage. American lawmakers want to go the Canadian way and remove the home mortgage interest deduction from the US tax code, but can’t for now as this may cause millions more to lose their homes.
Most Canadian mortgages, except in Alberta, are recourse mortgages, so if you don’t pay, you can be sued by the lender for any shortfall.
Mortgage insurance companies are working proactively with borrowers who may be having difficulty making their mortgage payments to find solutions before the mortgage goes into long term default.
The Governor of the Bank of Canada has to walk a very fine line, looking at inflation on one side, interest rates and he overall economy. There is a reason that the Canadian economy is now the envy of most of the G20 countries. It is also a reason for continued optimism for 2011. Enjoy the ride.
Real estate lawyer Mark Weisleder is the author of Put the Pen Down! What homebuyers and sellers need to know before signing on the dotted line.
As Bank of Canada Governor Mark Carney tries to talk Canadians out of piling up too much debt, the comments have led to a lot of speculation about whether Canada faces a U.S.- style housing meltdown.
Nothing could be further from the truth. The factors that led to the US housing crisis were unique to their market. Next year should see strong growth in prices and sales, especially in the GTA, and I plan to write about why in the next few weeks.
The differences between the U.S. and Canada can be summarized as:
American politicians encouraged banks to make it easy for consumers to buy a home. The banks ended up lending to people who never would have legitimately qualified for a mortgage. Basically, if you had a pulse, you got approved.
Government programs allowed buyers to get a down payment from the government as well. In other words, many bought properties with none of their own money.
These mortgages came with very low interest payments, but after a few years, the home owner had to make a large lump sum payment. Many couldn’t afford the payment and so these mortgages were called ‘sub-prime.’
The U.S. lets homeowners deduct interest paid on their home mortgage from their income tax. Thus, whatever was paid by the borrower to carry the mortgage was taken as a deduction on their income tax returns. You can’t do that here.
Many states in the U.S. have non-recourse mortgages. This means that if you default on a mortgage loan, the only remedy for the bank is to take back the property. They cannot sue you for any loss suffered. This also doesn’t apply in any province except Alberta?
When you put this together, there was no incentive for home owners to pay down the mortgage principal. They just kept remortgaging and taking out the equity. Wall Street figured out a way to sell these sub-prime mortgages by convincing others about the great profits they would make on these balloon payments. Unfortunately, none of these balloon payments were made and most of these loans were worthless. Currently, besides the hundreds of thousands of properties still in foreclosure in the US, it is estimated that almost 20 per cent of the remaining mortgage loans are “under water,” meaning that the homes are worth less than what is owing on the mortgage debt.
While it may be true that Canadian household debt may be increasing, but with less than 1 per cent of mortgages under water, this is not the basis for any kind of housing collapse.
Here are the main differences between the Canadian and U.S. markets:
Banks have made sure over the last few years that even if you qualified for a 1-year mortgage rate of 2.5 per cent, you had to have the ability to pay the 5-year rate, which was closer to 5.5 per cent, in order to qualify for the mortgage. Thus, even if interest rates rise, as the Governor has warned, most Canadians will still be able to absorb the increased payments.
Banks have been much stricter in requiring evidence of real down payments before lending any money. There are no free down payment programs in effect in Canada.
In Canada, because you cannot deduct interest from your home mortgage on your tax return, you are encouraged to pay down the principal on your mortgage. American lawmakers want to go the Canadian way and remove the home mortgage interest deduction from the US tax code, but can’t for now as this may cause millions more to lose their homes.
Most Canadian mortgages, except in Alberta, are recourse mortgages, so if you don’t pay, you can be sued by the lender for any shortfall.
Mortgage insurance companies are working proactively with borrowers who may be having difficulty making their mortgage payments to find solutions before the mortgage goes into long term default.
The Governor of the Bank of Canada has to walk a very fine line, looking at inflation on one side, interest rates and he overall economy. There is a reason that the Canadian economy is now the envy of most of the G20 countries. It is also a reason for continued optimism for 2011. Enjoy the ride.
Real estate lawyer Mark Weisleder is the author of Put the Pen Down! What homebuyers and sellers need to know before signing on the dotted line.
Tuesday, December 14, 2010
Cambridge: The little town that grew
Taken from yourhome.ca December 3, 2010
Pat Brennan
SPECIAL TO THE STAR
Deep in space, a navigation satellite is peering down on earth and scratching its head in confusion.
Its sophisticated instruments indicate it’s looking at its birthplace, a factory in Cambridge, Ont. But its powerful lens feels it is admiring a charming little town in Germany, maybe France, possibly England.
It shouldn’t feel bad. Humans down on the ground get that same sense when they arrive in Galt, the small limestone city that forms the heart of the expanded, regional city of Cambridge, 100 kilometres west of Toronto.
The city core has the look and feel of a small European city and that image is going to be enhanced over the next couple of years with a variety of commercial firms proposing downtown rehabilitation projects.
But it’s not just businesses that are finding Cambridge attractive. Homebuyers are also making their way west along the 401 corridor from the GTA. House prices are certainly a major draw, but Cambridge’s charm also has allure.
House prices in Cambridge are on average 15 per cent below prices in nearby Guelph, says Bob Peace, president of Cambridge Real Estate Board. “Most of the new homes being purchased in the northeast quadrant of Cambridge are bought by people who work in Toronto and Mississauga. A lot of them drive to Milton and jump on the GO Train.
“Next year, there’ll be regular GO service to Guelph and Kitchener and I imagine that is going to further stimulate new homes sales in our area,” said Peace.
For the greater Kitchener area, which includes Cambridge, the Canada Mortgage and Housing Corp. measured a 68.3 per cent increase in total housing starts in the first quarter of 2010, compared to the first quarter in 2009.
During that same period, average prices on MLS re-sale homes increased 13.3 per cent to $284,475.
New home construction in Hespeler — one of three communities amalgamated in 1973 to create Cambridge — triggered the construction of two new interchanges with Highway 401 at Franklin Blvd. and Townline Rd.
Mattamy Homes advertised its Mill Pond project in Hespeler as “the gentle side of Cambridge.”
Hespeler has maintained its original village atmosphere, while Hespeler Rd (Highway 24), leading into central Cambridge from Highway 401, has become the commercial big box corridor for the region.
Galt and Preston were the other two communities married to Hespeler and although they are now officially Cambridge, their names will live on in a 173-year-old flour mill sitting on the edge of the Grand River, which flows majestically through the downtown core.
Leanne Ciancone, of the Landmark Group of Companies, will be applying their names to various dining rooms in her $6 million refurbishing of the old mill into an upscale restaurant. The Hespeler Room, Preston Room and Galt Room together will accommodate up to 500 diners in the new Cambridge Mill Restaurant scheduled to open in April 2011.
Ciancone and her brothers Aaron and James are the newest generation of the family to get into the restaurant business. Their grandfather, and subsequently their father, operated major restaurants in the Golden Horseshoe. They own the Ancaster Old Mill on Hamilton Mountain and Spencer’s at the Waterfront in Burlington.
Because she’ll be operating the Cambridge Mill restaurant, Ciancone is moving from Burlington to the Waterscape, a new condominium being erected beside the restaurant on the east bank of the Grand.
She’ll be one of the few out-of-towners to purchase a suite there. Developer Paul de Haas says most of his buyers are coming from the large family homes across the river in Galt’s prestigious Victoria Park neighbourhood.
“They didn’t want to leave downtown Galt when they were ready to move out of their large homes, but until we brought The Waterscape to market, there was nowhere in the city for those people to find a new, spacious condominium suite,” says de Haas.
The Waterscape site was for more than half a century one of the most attractive riverfront parcels of land in Waterloo Region, but developers shied away from it due to excessive de-contamination costs.
It was the site of a coal oil production plant early in the last century and had left a nasty heritage. De Haas specializes in converting old industrial sites in city cores to upscale residential projects. He won tax incentives from the province and Cambridge to offset the heavy costs of cleaning the site.
Greg McDonnell, a retired Kitchener firefighter, lives in a large home across the river from downtown Galt and is hoping to move into his Waterscape suite in time for Christmas.
From the high vantage point of his future home, he can watch traffic on the river plus traffic rumbling across the high trestle carrying the main CNR line over the valley.
Watching trains and ships is more than a hobby for this firefighter. He has more than a dozen photography books published about trains, ships and western grain silos.
“I’ve been up to my unit and when I look through the lens of my camera at Galt’s downtown, it’s like looking at the centre of a small European city,” said McDonnell.
Drayton Entertainment, which operates six theatres for the performing arts in southwestern Ontario, is getting a new theatre and company headquarters in downtown Galt.
With $6 million each from Ottawa, Queen’s Park and the city, the $18 million theatre will be owned by the city and Drayton Entertainment will lease the office and the theatre support facilities, which includes rehearsal halls, prop and set building, wardrobe creations, etc.
Performances are expected to bring 75,000 people downtown each year.
The University of Waterloo’s school of architecture moved into a former riverfront textile mill in the city’s core in 2004. Mayor Doug Craig says that creative presence has had a significant influence on the resurgence of restoration projects and new developments downtown.
Cambridge is home to many high-tech research and manufacturing firms, plus a close neighbour to three of Canada’s leading universities — Guelph, Waterloo and Wilfred Laurier.
The satellite looking down at Cambridge is one of dozens in space that were designed and built by Com Dev International, a Cambridge high-tech firm. Stephen Hawking, one of the world’s best known scientists, signed on this summer to be a professor and researcher at the Perimeter Institute for Theoretical Physics.
A new rapid transit system is proposed for Waterloo Region to tie Kitchener-Waterloo and Cambridge together, but Greg Durocher, president of the Cambridge Chamber of Commerce, believes it’s short-sighted to spend $800 million to $1 billion for a regional rapid-transit system.
“I know what their researching at Com Dev and someday we are going to come out our front door, get in our private vehicle, push a button and then sit back to drink coffee and read the Star on a screen in the dash, while a computer talking to a satellite directs our car hands-free to our job or shopping or church — whereever we’ve asked it to go.
“I might not live to see it, but my daughter will,” said Durrocher.
MAIN STREET
David Gibson has developed commercial and residential projects all over North America, but rarely has he seen a more attractive small town core than in downtown Galt.
That’s why he has spent nearly $4 million acquiring old buildings on Main St. in Galt’s core, which he is now renovating to create a residential/commercial village within the core.
The seven buildings are on both sides of Main Street in the same block between Water St. and Ainsley St.
“We are expecting the municipality to make the streetscape more pedestrian friendly along that block and we’re gutting the buildings down to their bare walls to create fresh, new retail outlets and new residences that will be mostly rental,” said Gibson.
“We are working closely with the city’s heritage committee to maintain the character of the neighbourhood. We love the stone structures along Main St. They create much of the charm of the area and we’re hoping the city will be finishing the street surfaces in brick or cobblestone.”
In the Perimeter plan, sidewalks will be widened, trees planted and benches installed. “We want to make it an attractive people friendly place,” said Gibson. He said two large municipal parking lots behind the buildings fronting on to Main is another of the neighbourhood’s attractive features to the developer.
He expects other downtown property owners will be stimulated by his renovations to upgrade their own properties.
Gibson was chairman and one of the founding partners of First Gulf Developments, a firm that specializes in creating office, commercial and industrial properties. First Gulf is a spin off from homebuilder Great Gulf Homes, which became the Great Gulf Group of Companies.
Most notable among Great Gulf’s residential projects are 1 Bloor St. and Parkside, a $200 million waterfront condo on Queen’s Quay at Sherbourne St.
Gibson said he sold his shares in First Gulf late last year to launch Perimeter Group and concentrate on redeveloping small commercial/residential properties in the central core of Ontario towns and cities.
Pat Brennan
SPECIAL TO THE STAR
Deep in space, a navigation satellite is peering down on earth and scratching its head in confusion.
Its sophisticated instruments indicate it’s looking at its birthplace, a factory in Cambridge, Ont. But its powerful lens feels it is admiring a charming little town in Germany, maybe France, possibly England.
It shouldn’t feel bad. Humans down on the ground get that same sense when they arrive in Galt, the small limestone city that forms the heart of the expanded, regional city of Cambridge, 100 kilometres west of Toronto.
The city core has the look and feel of a small European city and that image is going to be enhanced over the next couple of years with a variety of commercial firms proposing downtown rehabilitation projects.
But it’s not just businesses that are finding Cambridge attractive. Homebuyers are also making their way west along the 401 corridor from the GTA. House prices are certainly a major draw, but Cambridge’s charm also has allure.
House prices in Cambridge are on average 15 per cent below prices in nearby Guelph, says Bob Peace, president of Cambridge Real Estate Board. “Most of the new homes being purchased in the northeast quadrant of Cambridge are bought by people who work in Toronto and Mississauga. A lot of them drive to Milton and jump on the GO Train.
“Next year, there’ll be regular GO service to Guelph and Kitchener and I imagine that is going to further stimulate new homes sales in our area,” said Peace.
For the greater Kitchener area, which includes Cambridge, the Canada Mortgage and Housing Corp. measured a 68.3 per cent increase in total housing starts in the first quarter of 2010, compared to the first quarter in 2009.
During that same period, average prices on MLS re-sale homes increased 13.3 per cent to $284,475.
New home construction in Hespeler — one of three communities amalgamated in 1973 to create Cambridge — triggered the construction of two new interchanges with Highway 401 at Franklin Blvd. and Townline Rd.
Mattamy Homes advertised its Mill Pond project in Hespeler as “the gentle side of Cambridge.”
Hespeler has maintained its original village atmosphere, while Hespeler Rd (Highway 24), leading into central Cambridge from Highway 401, has become the commercial big box corridor for the region.
Galt and Preston were the other two communities married to Hespeler and although they are now officially Cambridge, their names will live on in a 173-year-old flour mill sitting on the edge of the Grand River, which flows majestically through the downtown core.
Leanne Ciancone, of the Landmark Group of Companies, will be applying their names to various dining rooms in her $6 million refurbishing of the old mill into an upscale restaurant. The Hespeler Room, Preston Room and Galt Room together will accommodate up to 500 diners in the new Cambridge Mill Restaurant scheduled to open in April 2011.
Ciancone and her brothers Aaron and James are the newest generation of the family to get into the restaurant business. Their grandfather, and subsequently their father, operated major restaurants in the Golden Horseshoe. They own the Ancaster Old Mill on Hamilton Mountain and Spencer’s at the Waterfront in Burlington.
Because she’ll be operating the Cambridge Mill restaurant, Ciancone is moving from Burlington to the Waterscape, a new condominium being erected beside the restaurant on the east bank of the Grand.
She’ll be one of the few out-of-towners to purchase a suite there. Developer Paul de Haas says most of his buyers are coming from the large family homes across the river in Galt’s prestigious Victoria Park neighbourhood.
“They didn’t want to leave downtown Galt when they were ready to move out of their large homes, but until we brought The Waterscape to market, there was nowhere in the city for those people to find a new, spacious condominium suite,” says de Haas.
The Waterscape site was for more than half a century one of the most attractive riverfront parcels of land in Waterloo Region, but developers shied away from it due to excessive de-contamination costs.
It was the site of a coal oil production plant early in the last century and had left a nasty heritage. De Haas specializes in converting old industrial sites in city cores to upscale residential projects. He won tax incentives from the province and Cambridge to offset the heavy costs of cleaning the site.
Greg McDonnell, a retired Kitchener firefighter, lives in a large home across the river from downtown Galt and is hoping to move into his Waterscape suite in time for Christmas.
From the high vantage point of his future home, he can watch traffic on the river plus traffic rumbling across the high trestle carrying the main CNR line over the valley.
Watching trains and ships is more than a hobby for this firefighter. He has more than a dozen photography books published about trains, ships and western grain silos.
“I’ve been up to my unit and when I look through the lens of my camera at Galt’s downtown, it’s like looking at the centre of a small European city,” said McDonnell.
Drayton Entertainment, which operates six theatres for the performing arts in southwestern Ontario, is getting a new theatre and company headquarters in downtown Galt.
With $6 million each from Ottawa, Queen’s Park and the city, the $18 million theatre will be owned by the city and Drayton Entertainment will lease the office and the theatre support facilities, which includes rehearsal halls, prop and set building, wardrobe creations, etc.
Performances are expected to bring 75,000 people downtown each year.
The University of Waterloo’s school of architecture moved into a former riverfront textile mill in the city’s core in 2004. Mayor Doug Craig says that creative presence has had a significant influence on the resurgence of restoration projects and new developments downtown.
Cambridge is home to many high-tech research and manufacturing firms, plus a close neighbour to three of Canada’s leading universities — Guelph, Waterloo and Wilfred Laurier.
The satellite looking down at Cambridge is one of dozens in space that were designed and built by Com Dev International, a Cambridge high-tech firm. Stephen Hawking, one of the world’s best known scientists, signed on this summer to be a professor and researcher at the Perimeter Institute for Theoretical Physics.
A new rapid transit system is proposed for Waterloo Region to tie Kitchener-Waterloo and Cambridge together, but Greg Durocher, president of the Cambridge Chamber of Commerce, believes it’s short-sighted to spend $800 million to $1 billion for a regional rapid-transit system.
“I know what their researching at Com Dev and someday we are going to come out our front door, get in our private vehicle, push a button and then sit back to drink coffee and read the Star on a screen in the dash, while a computer talking to a satellite directs our car hands-free to our job or shopping or church — whereever we’ve asked it to go.
“I might not live to see it, but my daughter will,” said Durrocher.
MAIN STREET
David Gibson has developed commercial and residential projects all over North America, but rarely has he seen a more attractive small town core than in downtown Galt.
That’s why he has spent nearly $4 million acquiring old buildings on Main St. in Galt’s core, which he is now renovating to create a residential/commercial village within the core.
The seven buildings are on both sides of Main Street in the same block between Water St. and Ainsley St.
“We are expecting the municipality to make the streetscape more pedestrian friendly along that block and we’re gutting the buildings down to their bare walls to create fresh, new retail outlets and new residences that will be mostly rental,” said Gibson.
“We are working closely with the city’s heritage committee to maintain the character of the neighbourhood. We love the stone structures along Main St. They create much of the charm of the area and we’re hoping the city will be finishing the street surfaces in brick or cobblestone.”
In the Perimeter plan, sidewalks will be widened, trees planted and benches installed. “We want to make it an attractive people friendly place,” said Gibson. He said two large municipal parking lots behind the buildings fronting on to Main is another of the neighbourhood’s attractive features to the developer.
He expects other downtown property owners will be stimulated by his renovations to upgrade their own properties.
Gibson was chairman and one of the founding partners of First Gulf Developments, a firm that specializes in creating office, commercial and industrial properties. First Gulf is a spin off from homebuilder Great Gulf Homes, which became the Great Gulf Group of Companies.
Most notable among Great Gulf’s residential projects are 1 Bloor St. and Parkside, a $200 million waterfront condo on Queen’s Quay at Sherbourne St.
Gibson said he sold his shares in First Gulf late last year to launch Perimeter Group and concentrate on redeveloping small commercial/residential properties in the central core of Ontario towns and cities.
Wednesday, December 8, 2010
Planning ahead key to getting top value when selling
Written by: KATE ROBERTSON
Special to Globe and Mail Update
Published
As with every exit strategy, experts advise owners to plan early if they think they will eventually sell their business.
According to the business monitor survey published for the first quarter of this year by the Canadian Institute of Chartered Accountants and Royal Bank of Canada, the top two challenges business owners believe they will face in selling are getting the right value for their company and finding the right successor.
Lawrence Wilder, a corporate lawyer with Cassels Brock, said that companies can get a start long before the actual sale date by staying on top of financial reporting and other bits of housekeeping.
“You certainly will get a better value if you have your ducks in a row than if you don't,” Mr. Wilder said.
Business owners who already have comprehensive financial and tax reports completed by third-party advisers will have a leg up on the due diligence process that eventually comes in an acquisition.
Once a business owner has decided to sell, he or she will have to hire an auditor, legal counsel, a business valuator (who does not take a commission on a sale) and, sometimes, a mergers and acquisition adviser (who does take a commission).
The team completes a company review, Mr. Wilder said. Everything from sales projections to employee and intellectual property agreements inform both the sales memorandum document that is used to market the company and the valuation of the business.
Some work with a business broker to market the company, but many owners want to maintain confidentiality during the process. Often, they rely on their adviser's networks to look for potential buyers.
“Most accounting firms have divisions that will assist in finding a buyer,” Mr. Wilder said. “They'll quietly market it around the street, and, very often, they won't name the company. They'll just say it has approximately x…revenues, and to please contact the accounting firm to get the name of the person who's selling.”
Interested buyers can then begin to negotiate the terms of the sale agreement to see if a deal can be made.
Even though the economy will have an effect on M&A activity, there are key factors every business owner should consider to maximize value when they sell, said Farley Cohen, a certified business valuator.
For one, it's important to have developed a business plan that goes beyond the owner's final day. said Mr. Cohen, chair of the board of the Canadian Institute of Chartered Business Valuators and a principal with Cohen, Hamilton, Steger & Co.
“The key thing to keep in mind is that value is prospective,” Mr. Cohen said. “It's looking into the future.”
Along with having comprehensive tax returns and financial statements that put the company in good standing, business owners must have answers for questions about how the company will continue to grow.
What assets and liabilities does the company have today and what are its prospects for the future? What is the value of the real estate and the equipment? How are sales expected to grow? Are there any unusual expenditures coming up?
Secondly, a business valuator will measure the internal risks of the company, which include how it is structured, how it is operated and by whom.
Whether or not a management team has a chief financial officer and a vice-president of sales and marketing will affect how much value he or she can ascribe to the company.
The valuator will also look at how competitive a business's pricing is, the level of customer satisfaction and a company's awareness of its competitors.
“You have to know what's going on in your industry and act accordingly,” Mr. Cohen said. “If there's new machinery that everybody's using, you should have that. I don't want to buy last year's way of doing things. I want to buy this year's – or, even better, next year's.”
Lastly, Mr. Cohen will look at the external risks to the business, which are largely outside of most owners’ control. But any owner would be wise to ask himself or herself the same questions a business valuator will be asking.
“It's sort of like a house,” Mr. Cohen said. “When you're selling your house, you'll look to find out what your neighbour sold their house for.”
Special to The Globe and Mail
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