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Last Updated: Oct 04, 2016




Canada’s housing market continues to grow stronger, despite repeated market-cooling measures and an economy that is struggling.

House prices in Canada’s eleven major cities rose by 11.42% during the year to August 2016 (10.21% inflation-adjusted), up from a modest 5.39% y-o-y growth during the same period last year, based on figures from Teranet – National Bank of Canada.

This is the highest annual house price growth in six years.

The central bank has taken action repeatedly, but the house prices still spiral up, as if nothing can stop them. Serious people who understand these things have been issuing dire warnings. The Canada Mortgage and Housing Corporation (CMHC) recently made clear that it felt that Canadian major cities’ housing markets are mostly overvalued. 

“A downside risk to our outlook stems from the recent detection of overvaluation in nine major Canadian centres, and uncertainty over how these imbalances will unfold in specific housing markets,” said the CMHC.

According to the Canadian Real Estate Association (CREA):
  • The average price of a two-storey single family home increased by 16.3% y-o-y to August 2016.
  • The national average price of a one-storey single family home rose by 14.4% during the year to August 2016.
  • Townhouses / row houses prices also increased by 16.3% in August 2016 from a year earlier.
  • Apartment prices increased by 11.7%, on average, over the same period.

The national average home price stood at CA$456,722 (US$347,899) in August 2016, according to CREA.  The figure is pushed up by Greater Vancouver and Greater Toronto, Canada’s most active and expensive housing markets, and when these two are excluded the annual average price is reduced by around CA$100,000 (US$76,173) to CA$357,033 (US$271,963).

There have been big regional variations:
  • Tight housing supply in Greater Toronto Area (GTA) and Greater Vancouver, plus low interest rates, pushed their house prices upward
  • The oil price slump hit oil-producing areas such as Calgary, dragging house prices down

Of Canada’s eleven major cities, eight experienced house price rises during the year to August 2016. Vancouver’s house prices recorded the biggest rise of 25.75%, followed by Victoria (17.55%), Toronto (14.59%), and Hamilton (12.96%).

House prices rose less in Winnipeg (3.08%), Halifax (1.06%), Ottawa (0.99%), and Montreal (0.55%).

House prices fell in Calgary (-4.48%), Quebec (-3.18%), and Edmonton (-0.34%).

Nationwide house prices are expected to continue rising this year, following a strong start led by British Columbia and Ontario.  CREA projects that in 2016 the national average price will rise by 10.1% to CA$487,800 (US$371,572).
According to CREA:
  • British Columbia will see a house price increase of 9.2% in 2016 to reach an average of CA695,000 (US$529,403).
  • Ontario’s house prices are expected to rise by 12.7% to CA$524,600 (US$399,604) during 2016.
  • In Prince Edward Island, house prices are also expected to rise by 9.3% y-o-y in 2016.
  • House prices are projected to increase by 1.6% in Manitoba and by 2.1% in both Quebec and New Brunswick.
  • House prices in Alberta, Saskatchewan, and Nova Scotia are expected remain largely steady this year.
  • Newfoundland and Labrador’s house prices are forecast to ease by 6.4% this year.

Home sales are projected to increase modestly this year.

Housing starts in Canada are expected to moderate in 2016 as compared to last year. Lower housing starts are forecast in oil-producing regions such as Alberta, Saskatchewan, ad Newfoundland and Labrador, partly offset by higher starts in other provinces.

Canada house pricesCanada's economy shrank by an annualized rate of 1.6% in Q2 2016, the biggest decline since Q2 2009, amidst a decline in exports, especially for energy products, according to Statistics Canada. Battered by the oil price decline Canada's economy grew just 1.2% last year, less than half the 2.5% growth seen in 2014. The economy is expected to expand by 1.5% this year and by 1.9% in 2017, according to the IMF.

Analysis of Canada Residential Property Market »


RENTAL YIELDS
Last Updated: Mar 23, 2016



"Situation normal" for rental returns in Canada - returns on apartments in Montreal outpace those in Toronto. What is perhaps more surprising is how well these rental yields are holding up, remaining firmly in the satisfactory range. If you own a small apartment of 60 sq. m. in Montreal and rent it out, you are likely to make a return of around 7%. In this low-return era, in a low-risk country such as Canada, that is a really acceptable, not to say enticing, yield.

Even on a largish 120 sq. m. apartment in Montreal, you are likely to earn a gross rental return of 5.4%.

In Toronto, gross rental yields are lower, at between 4.4% to 5%. Taking account of the fact that we give gross figures - a guess might be that net yields would be 2% lower - then obviously the difference in returns between Montreal and Toronto is really significant.

If you are looking for rental returns, Montreal is the city that you want.

Meanwhile, we continue to find it hard to collect yields figures for Vancouver, because of the strange habit, common in the Anglo-Saxon world but hopefully on the way out, of classifying listings per number of rooms, rather than by the size of the apartment.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Nov 24, 2015



Rental Income: Gross rental income is subject to a fixed 25% tax, withheld by the tenant.

However, nonresidents can elect to pay under the section 216 of the Income Tax Act, wherein they will be liable to pay tax on their net income at progressive federal rates. Nonresidents electing under section 216 are also liable to pay 48% surtax.

Capital Gains: Only 50% of the capital gains are liable to tax. Capital gains are computed by deducting the costs incurred in selling and purchasing the property, capital expenditures, and such costs as additions and improvements in the property.

Inheritance: There is no inheritance or estate tax in Canada.

Residents: Canadian residents are subject to Canadian income tax on their worldwide income. Income is taxed at the federal level and at the provincial level.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Nov 24, 2016



Total costs and taxes for buying properties amount to around 4.7% to 11% of the value of the property. Transfer Tax differs in each province, ranging from 0.5% to 2%. Typically, real estate agent's commission is 7% on the first CAD100,000(US$88,495) of the sale price and 3% on the remainder, plus 6% Goods and Services Tax (GST). Total roundtrip costs are higher for new and renovated houses because of the additional 6% GST.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Feb 06, 2008



Canadian tenancy institutions are pro-tenant.

Rent: The initial rent can be freely negotiated in all provinces, except in some provinces like Quebec, where initially negotiated rents can be appealed if they are higher than a rent charged by the same landlord for the same apartment within the previous 12 months.

Tenant Security: The contract cannot be terminated by the landlord within the duration of the fixed-term lease (usually one year), except for cause (e.g., tenant's non-payment of rent, tenant conducting illegal activity, and so on).

Subleasing needs a written permission from the landlord but this permission may not be unreasonably withheld. However, the landlord can insist on screening the prospective new tenants and may reject them on the basis of financial risk.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Oct 04, 2016


Budget deficit swells on stimulus spending

Canada gdp inflationIn Q2 2016, Canada's economy shrank by an annualized rate of 1.6%, the biggest decline since Q2 2009, amidst a decline in exports, especially for energy products, according to Statistics Canada. Exports of goods and services fell by 16.7% in Q2 2016 from a year earlier.

However the economy is expected to expand by 1.5% this year and by 1.9% in 2017, according to the IMF.

In an effort to boost economic growth, the government has increased spending on infrastructure, cut some taxes, and increased child benefits, among others.

The downside is that budget deficit is now swelling, without any dramatic rise in economic growth. In July 2016, the country posted a budget deficit of CA$1.76 billion (US$1.34 billion), in sharp contrast with a surplus of CA$150 million (US$114 million) during the same period last year.

Four months into the 2016-17 fiscal year, the country is now running a deficit of CA$2.76 billion (US$2.1 billion) compared to a surplus of CA$5.16 billion (US$3.93 billion) a year ago.
The country’s annual inflation rate stood at 1.1% in August 2016, the lowest in two years, amidst lower fuel prices, according to Statistics Canada.

In August 2016, unemployment edged up slightly to 7%, from 6.9% in the previous month.

In an effort to fill the gap left by retiring baby boomers, last year Canada liberalized its immigration regulations. As a result, Canada took in 321,000 immigrants in the 2015-16 fiscal year, the largest number since 1910, according to Statistics Canada. The record number of immigrants and refugees caused the population to grow by 1.2% during the year. As of July 1, 2016, Canada’s official population reached 36,286,425, the biggest annual increase since 1988.

“Canada is an aging country, so we are in need of new blood,” says Canadian Immigration Minister John McCallum. “Canadians aren’t having enough babies and so the labour force growth depends very much on the entrance of immigrants.”

The immigrants are expected to reignite the economy - and boost the housing market further.







  • Strong rental market for immigrants
  • Low transaction costs
  • Strong and stable economy
  • No estate or inheritance tax
  • Low to moderate rental income tax
  • Pro-tenant rental laws
RESIDENTIAL PROPERTY FACTS
Price (sq.m): $5,544 For a 120 sq. m. property, usually an apartment.
Rental Yield: 4.43% For a 120 sq. m. property, usually an apartment.
Rent/month: $2,458 For a 120 sq. m. property.
Income Tax: 25.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 13.55% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 25.00% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice.

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