Canadian Real Estate

Commercial real estate is a global concern. A weak commercial real estate market is a drag on economic growth and subtracts from gross domestic product. The state of commercial real estate in a specific region, however, tends to mirror the local economy. Let us take a look at the current state of commercial real estate around the world.

U.S.

Commercial real estate in the US rose to 42.6 (a 1.6% increase) on the index during the 2010 third quarter. Since the index is measured on a scale to 100, these statistics do not indicate a balanced marketplace but the increase is the fourth rise in a row. According to the National Association of Realtors (NAR), the vacancy rate for office space should show a slight increase and come in at 16.7% during the present quarter. The vacancy rate is expected to decline gradually to 16.4% in the last three months of 2011.

NAR's chief economist, Lawrence Yun, points out that signs of stabilization are due to an increased demand for commercial space. Not surprisingly, New York City has one of the lowest vacancy rates. Honolulu is in the same position. Both cities have vacancy rates near 9% while other office markets report rates of more than ten percent.

The NAR says that rent in the retail sector is expected to drop 3.4% from the end of 2010 to the final quarter in 2011. It is believed that rent for industrial property will experience a drop of 7.4%.

NAR predicts commercial vacancies to fall in 2011 as market stabilizes

Canada

If investors have an interest in commercial real estate in Canada, they must be prepared to pay considerable tax. In fact, Canada is the world's most expensive country to invest in commercial property. Investors can be prepared to pay 53% of total income. That figure is 12% higher than the US rate and 44.01% higher than Finland with the world's lowest taxes on commercial real estate. According to a report by Taxand, the average tax rate among the 23 countries in a recent survey fell to 23.5% (a decrease of 0.75%) last year.

High levels of income tax (30%) and real estate (3.6%) combine to create Canada's high tax on commercial property. Yet Canada is not the worst country in every aspect of commercial tax. Canada takes only 14% of sales in tax and that puts it at the world's sixth highest for taxes on sales. With a rate of 21.8%, Norway ranks as the most expensive country in that category.

Canada commercial property tax hit world’s highest

Ireland

Ireland is the world’s most vulnerable commercial real estate market. According to consultants DTZ, Ireland faces the biggest gap in funding relative to its size for refinancing debt. The $6.5 billion shortfall for debt coming due through 2013 equals 16% of the value of Ireland’s commercial real estate investment market. There has been a 60% slump in the value of commercial space and numerous Irish properties are "underwater." Lack of credit in the economy is blamed for low Irish property values.

Irish real estate described as one of the most vulnerable in the world

What Are Your Predictions For Commercial Real Estate In The Coming Year?

Image courtesy of estateagentsaid.co.uk

It's all over the news this week – even on the international scene. This company is coming out of bankruptcy; that company has started to make a profit. What's 'on the go' in business news?

Out of Bankruptcy

General Growth Properties Inc., the second-largest U.S. mall owner, just came out of the biggest real estate bankruptcy in the country’s history. This company was recovering from their bankruptcy filed in April 2009 – and a huge debt of $27 billion. They had been unable to refinance because of the collapse of the commercial mortgage-backed securities market and overall economic downturn.

General Growth Properties Inc. had an extensive restructuring plan. The company provided full recovery for creditors as well as recovery for shareholders. Usually, shareholders are not included in a bankruptcy reorganization.

In the initial restructuring stage, they concentrated on restructuring a mortgage debt of $15 billion tied to 140 properties. Of course, restructuring comes with a cost. The company lost $29.3 million in core funds from operations during the 2010 third quarter compared to a profit of $88.9 million last year. The culprit was restructuring costs. General Growth owns and operates over 183 retail centers in 43 states.

General Growth Exits Biggest Real Estate Bankruptcy

Reporting a Profit

Starwood Property Trust Inc., a significant real estate player, has reported a third-quarter profit. The company raised its dividend as it bought loans in the recent commercial property downturn. Keep in mind that Starwood reported a 2009 loss of $1.9 million. Starwood has made $203 million in new investments during the third quarter including commercial mortgage-backed securities tied to hotels, apartments, shopping centers, offices, and warehouses.

Starwood Property Reports Profit on Real Estate Loans, Increases Dividend

Global Scene

Canada

According to commercial real estate brokerage Avison Young, commercial real estate is rebounding in Canada. The value of commercial property deals is expected to reach $16 billion in 2010. By September, the year's transactions had exceeded 2009 numbers with more than $12 million of commercial real estate in the mix.

Actually, the 2010 figures are a 57% increase over a nine-month period in 2009. Of course, the numbers are not as favorable as in 2007 and 2008. Yet the figures are encouraging for the coming months in commercial real estate. Toronto was the most active market YTD (year to date).

"This is a significant improvement over the $11 billion worth of investment sale transactions completed in 2009, but is still shy of the $21 billion recorded in 2008 and the $30 billion in properties that changed hands at the peak of the market in 2007," says Bill Argeropoulos, Avison Young's Director of Research.

Commercial real estate rebounds

Philippines

The Villar-led property developer, Vista Land & Lifescapes Inc., grew its nine-month net profit by 36% to P2.17 billion. The growth was attributed in great part to revenues from its affordable housing business. Vista Land is expected to achieve its P20-billion sales target for this year.

Sales levels increased by 29% in the first three quarters in 2010. Vista Land senior vice president, Ricardo Tan Jr., says that consumers have confidence in the market. Vista is the holding company of five business units catering to different market segments.

"We expect to see continued strong sales performance in the fourth quarter as we have launched more projects over the last few months. We should comfortably exceed our sales target for the year by just repeating our third-quarter performance," says Vista Land senior vice president Ricardo Tan Jr.

Villar real estate company reports P2-B profit

Are Things Looking Up For You?

Image courtesy of activerain.com

Today's home buyers are facing a different marketplace than home purchasers in past decades. Even if we look at home buyers during previous economic downturns, today's buyer is not living the same reality. Yet a glaring similarity exists between modern home buyers and purchasers in other decades (or even - centuries) in US history. Home buyers have a dream.

Home Buyer Education Programs

Another fairly common thread between home buyers of the past and present is the challenge of turning that dream into a reality. The path is not always as clear as the dream. In fact, more than one financial expert is convinced that many people do not understand the home buying process. A few US and Canadian organizations are addressing this issue with the introduction of Home Buyer Education Programs.

Realizing The American Dream

Beginning in October, Freedom Debt Management, a non-profit in Boca Raton, has partnered with Citi Group to begin a Home Buyer Education Program. This initiative will help South Florida first time buyers. The company hopes to help 100 families within the first year. Appropriately, the education program, consisting of two four-hour courses, is called, "Realizing The American Dream."

Existing Need

Some people may argue the value, or indeed, the need for such Home Buyer Education Programs. Yet online forums alone suggest that many first-time home buyers are not savvy about the process. Organizing these programs is not being condescending towards the first-time home buyer.

The simple truth is that if individuals never traveled a certain path, or doesn't know the way to get there, they cannot arrive at their destination – at least not in the most efficient manner. Yet some observers question how much first-time home buyers can learn in eight-hour sessions. If the program is well-organized and has valuable content, there is, however, no doubt that a home owner comes out with a better advantage.

The Program

The director of the Boca Raton program explains that their initiative enhances people's concept of saving and budgeting. In addition, the program focuses on possible credit traps, scams, and other threats to one's financial future. Class topics include mortgage affordability, understanding credit, getting a mortgage loan, shopping for a home, and keeping a home, as well as other related subjects.

"Strong financial skills can lead our residents to be able to buy homes, be prepared for financial emergencies, and be more comfortable in retirement, which leads to a stronger and healthier community. We are here to help our residents get their financial future in shape!” says Darish Still, Director of Counseling with Freedom.

Freedom Debt Management, Inc. offers homebuyer education program

Educating The Nation

Of course, Boca Raton is not the only city with a Home Buyer Education Program. The courses (or shorter but similar workshops) are in operation across the US in places such as Stockton and Norwalk. Canadian first time home buyers are also attending classes. Tarion Warranty Corporation offers online New Home Buyer Education Seminars online to help Ontario first-time home owners understand the warranty process and coverages with new homes.

Online education available for new home buyers 

Do You See Value In Home Buyer Education Programs?

Depending on your location, home sales experienced a rise or a fall in August. Within the US, California saw an all-time low while British Columbia, Canada, had a temporary increase in home sales. California experienced a drop in many areas of real estate.

California, US – Fall in Home Sales

Home sales in California fell 2.7% from July. That drop in one month seems small compared to other statistics. Home sales fell 20% from June-July 2010 and 14% from August 2009. As well, the median price ($260,000) of California homes dropped 3% in August from July.

San Francisco Bay Area

Within the San Francisco Bay area, the median home price was $385,000. This figure is a 4.2% drop from the median price in July ($402,000). Home sales fell 1.1% in August from July and 10.9% from August 2009. 6,698 homes were sold last month compared to 7,518 homes in the previous August. This drop puts home sales in the Bay area at their lowest point for the month in eighteen years.

Some potential buyers are waiting for prices to fall further and other people are just waiting to be in a position to buy a home. Despite falling prices and low mortgage rates, joblessness is one factor that is having a huge effect on home sales. As well, first-time home buyers no longer have the Home Buyers' Tax Credit to ease the burden.

Foreclosures

While everything else was falling during August in California, foreclosures increased over July's rate. Foreclosures rose from 35.9% to 35.2%. In the San Francisco Bay area, foreclosures accounted for 26.7% of resales in August compared to 25.3% in July. Foreclosures are, however, down from last year during August – down 42.8% on average in California and 24.8% in the San Francisco Bay area.

Home sales in California fall a second straight month

British Columbia, Canada – Rise in Home Sales

Home sales rose (4.1%) in Canada during August compared to the previous month's purchases. July records indicated that it took 7.3 months to sell a home in Canada. August records point to a 6.9 month wait. Yet experts in Canadian real estate do not expect a continued rise throughout the rest of the year.

"Rising interest rates and a projected slowdown in job growth mean that the Canadian housing market is expected to continue to cool," said Georges Pahud, president of CREA.

Although August statistics might be better, sales in July were not high despite the fact that June saw considerable sales. Most buyers in June, however, were trying to purchase before the new HST (Harmonized Sales Tax) regulations came into effect in July.

August sales are probably a throwback to the incredible rate of sales in 2009. During that year, home sales rose by 66% and prices increased by almost 22%. It is hard for any system to maintain that level of activity so things have leveled off somewhat in 2010.

"I don't see the continuation of a dizzying descent in sales activity," says REA chief economist Gregory Klump.

Some changes in Canadian real estate are just marginal improvements. The average price of a Canadian home during August was $324,928. In 2009, the price came in at $324, 843. Demand has increased (1.9%) since last summer but dropped 16% from the peak in April. The Canadian Real Estate Assocaition (CREA) expects home prices to fall but not at any substantial rate.

Home sales rebound, but it won't last long, analyst says

Are Home Sales Rising Or Falling In Your Area?

Image courtesy of jpturnercompany.blogspot.com

"A 15 per cent to 40 per cent crash in prices, depending on the market -- with Vancouver and the Lower Mainland most at risk - is now a certainty," Turner told ctvbc.ca."

Conflicting reports came out recently about the Canadian housing market. Is a real estate bubble about to burst or is there even a bubble in the first place? The answer varies depending on the source. The Canadian Centre for Policy Alternatives (CCPA) believes in the bubble but the University of B.C. business professor, Tsur Somerville, who specializes in real estate, does not agree with that theory.

"I would have thought maybe two and a half years ago this was more of the story," says Somerville.

Somerville suggests that the bubble scenario was more suited to two years ago at a peak in pricing. Actually, Somerville is not alone in his opinion. Cameron Muir, chief economist for the B.C. Real Estate Association, also questions the CCPA report. All major Canadian centres (Vancouver, Toronto, Calgary, Edmonton, Montreal, and Ottawa) are quoted in the report. Vancouver is said to be headed for the worst situation with an expected loss of $200,000.

The numbers in the report (15%-40% crash in prices) are making real estate experts take notice and offer some opposition to the CCPA conclusions. Of course, booms are generally followed by busts and house prices have been high in Canadian cities. The report referred to the model of the 2006 US housing crisis. Yet experts who oppose the CCPA report point out the differences between the Canadian and US real estate markets.

It does not necessarily follow that Canadian real estate will experience the same crisis as its American counterpart. Some experts do not envision the meltdown predicted in the recent report. They can accept the possibility of 'levelling out' in the future or 'correction' in the market. Yet an all-out 'crash and burn' is not in the cards for Canadian real estate – at least not according to some knowledgeable experts.

House prices in Canada are, however, way above median incomes. During the last decade, housing prices were three or four times the median income. Yet in 2010, prices are in the range of 4.7-11.3 times the same amount. The CCPA believes that if there is a rise in mortgage rates then affordability will go out the window. The report indicates that Canadian housing has not been such a state in the last 30 years.

It suggests that the most important factor is not whether or not a bubble exists but what will happen next with Canada's housing. The previous strength of this market served as a type of protection for the banks from financial crisis. The strong housing market contributed to the success of Canadian banks when those around them were in turmoil.

The Canadian Centre for Policy Alternatives points to the fact that Canadian households are carrying considerable debt. When home owners are debt-ridden, even the slightest change can cause a calamity. Job losses or higher rates can impact the prices of homes and the borrowers themselves.

Doom and gloom predicted for Vancouver house prices

A housing market that is out of step can affect the whole economy. Yet it would take something drastic to trigger a huge decline such as the CCPA predicted for Vancouver. We need to keep our eye on this one!

Do You Think The Bubble Is About To Burst In Canadian Housing?

Image courtesy of aboutnwrealestate.com