SAY NO TO WAR

Most Canadians would balk at bidding war
Sheila Dabu Nonato
Postmedia News Apr 19, 2012

About a quarter of Canadians say they are willing to enter into a “bidding war” in Canada’s housing market and pay up to 120% of the asking price, according to a BMO report released Thursday.

The BMO Buying Report said Canadian respondents in the Prairies, Ontario and Alberta are more willing to enter into a bidding war than those in Quebec and Atlantic Canada.

In the survey, 22% of Canadians said they were willing to enter into a bidding war when making an offer on a home.

“Of those prepared to fight, half would pay up to 110% of the asking price, while a quarter would be willing to bid up to 120%,” the report said.

Those surveyed in Manitoba/Saskatchewan ranked first in eagerness to enter into a mortgage bidding war (32%). They were followed by respondents in: Ontario (28%), Alberta (25%), B.C. (23%), Atlantic Canada (13%) and Quebec (10%).

The study also noted that 52% of Canadians surveyed said they’re willing to pay between 100 and 110% of the asking price, with Quebec ranking first at 62%. It was followed by: Alberta and B.C. (53%), Ontario (51%), Manitoba/Saskatchewan (48%) and Atlantic Canada (44%).

Meanwhile, 27% of Canadians said they would pay between 100 to 120%, with the highest in Atlantic Canada (33%), then Ontario and B.C. (30%), Quebec (25%), Manitoba/Saskatchewan (22%) and Alberta (17%).

John Pasalis, broker owner of Realosophy Realty Inc., a Toronto-area real estate brokerage, cautioned that the bidding wars may not be as lucrative as they seem.

“One thing to keep in mind is the houses that are getting pretty crazy bidding wars are underpriced anywhere from five to 10%,” he said. “The list prices aren’t always an indication of what they’re actually worth.”

Pasalis said his company has seen “multiple offers almost non-stop for years now,”including as much as 10 or more buyers bidding on a house.

“You just get these spikes and valleys in the market where things get a little bit more heated and demand starts outstripping supply as things get faster,” he explained.

However, the mortgage wars may backfire on owners if the bank’s appraisal of the home is lower than what a buyer pays for the home, he said.

To avoid this, Pasalis cautioned that homeowners need to know the actual market value of the property they want to buy as opposed to its listing price.

Nationally, the average home sale price is $369,677, the report said. The average home prices across Canada are “rising modestly,” it said, except in Toronto ($504,117) and Vancouver ($761,742).

“Toronto prices have risen 11% over the past year, while Vancouver’s have fallen 3%,” said Doug Porter, deputy chief economist for BMO Capital Markets.

The survey was completed online by Leger Marketing from March 19-22 with a sample of 1,000 Canadian home or condo owners. The margin of error is plus or minus 3.1%, 19 times out of 20.

Photo By: Kamilerner

WANT TO GO STEADY?

Canada property results improve on deals, leasing
Reuters August 5, 2011
By Ka Yan Ng and Amruta Sabnis

TORONTO/BANGALORE — Canada’s biggest office and retail landlords reported strong quarterly results on Friday, boosted by acquisitions and long-term leasing renewals.

Brookfield Office Properties and RioCan Real Estate Investment Trust REI said funds from operations, the most closely watched performance measure for REITs, rose in the three months to the end of June.

Even so, activity for the Canadian companies could slow if a flagging global economy makes it more difficult to raise capital and complete deals. “We’ve had a ton of acquisition activity and capital raising going on over the last two years,” said Karine Macindoe, an analyst at BMO Capital Markets.

“This market environment is probably going to slow some of that down because … share prices are far more volatile and declining.”

Canada’s resilient economy, rising rents and easy borrowing are fueling a buying spree among real estate investment trusts, highlighted last month by the largest office property deal ever by a Canadian REIT.

STEADY EXPANSION

The second quarter revealed few signs of weakness. Brookfield, a major office landlord in Manhattan and other North American cities, reported a 23 percent jump in leasing activity. It leased 1.6 million square feet of space, compared with 1.3 million square feet leased a year earlier.

FFO rose to $166 million, or 30 Canadian cents a unit, from $156 million, or 30 Canadian cents, a year earlier. FFO strips out the effects of depreciation and other factors from the earnings of property companies, giving a more telling quarterly reading. RioCan REIT, Canada’s largest landlord of retail space, also turned in a strong performance.

FFO rose 12 percent to $93-million, or 36 Canadian cents a unit, from $83-million, or 34 Canadian cents, a year earlier. RioCan has steadily expanded its portfolio in Canada, while looking for opportunities for growth in the United States for more than a year. “RioCan’s acquisition platform remains on track to meet our objectives for the year,” Chief Executive Edward Sonshine said in a statement.

“RioCan has been able to take advantage of historically low interest rates to generate solid growth through acquisitions, development, and increased occupancy and rents.” It renewed 1 million square feet during the quarter at an average rent increase of 13.9 percent, or $1.99-per square foot. It also added five properties in the quarter. In July, Dundee Real Estate Investment Trust said it is buying 29 properties from U.S. private equity giant Blackstone Group for $831.8-million. It was the largest deal ever for a Canadian REIT.

RioCan’s units were up 0.6 percent at $25.05 on the Toronto Stock Exchange. Brookfield shares were off 0.3 percent at $16.80 on the Toronto Stock Exchange, but its New York-listed shares were up 1.35 percent to $17.26.

Photo By: mb17chung

THE RACE IS ON...

Housing crisis 'inevitable' if prices outpace income
Kim Covert, Financial Post
Thursday, Mar. 3, 2011

Canada’s hot housing market should cool down somewhat this year, according to a new report from BMO Capital Markets, which says the kind of correction some observers have been warning about is unlikely — though not impossible, given the right circumstances.

The question of a correction comes down to whether increases in household incomes can keep up with rising home prices. If price rises outpace incomes, said BMO senior economist Sal Guatieri, “a correction would be inevitable.”

While incomes and average home prices kept pace with each other over most of the last three decades, both rising 5.7% a year, Guatieri said in the report that prices more than doubled in the decade to late 2007, and grew twice as fast as incomes from 2002 to 2007.

“Even after sliding 13% through the recession, prices quickly rebounded and are now 10% above their 2007 peak,” Guatieri said. “The ratio of average resale prices to personal incomes is currently 14% above its long-run mean, suggesting the national market is moderately overvalued.”

BMO expects gains in income to outpace advances in housing prices for the next 18 months — during which time the bank expects interest rates to rise by two percentage points.

“If incomes climb eight per cent and prices stabilize, as we expect, the current over-valuations would fall to 6%, hardly the stuff of corrections.”

Growing incomes are also expected to offset costs associated with rising interest rates.

While new homebuyers are told housing costs — such as mortgage, taxes, insurance and heating — shouldn’t consume more than 32% of household income, Guatieri said the current rate is about 35%, and if incomes and interest rise as expected, affordability would “deteriorate” to 40% of disposable income. That alone would not trigger a correction, Guatieri said, noting that during corrections in 1989 and 2008, affordability exceeded 45%.

“The risk of a correction would increase, however, if prices rose alongside rates and incomes (that is, by eight per cent) — in which case the affordability measure would reach 43% and approach the threshold of prior corrections.”

Currently, the housing market is relatively balanced, according to Guatieri. New-home construction has fallen back and there are about two new listings for every sale. Average resale prices rose five per cent over the past year, but excluding Vancouver that increase would have been less than two per cent, and new home prices rose just two per cent, while land sales are flat, Guatieri added.

Tighter mortgage rules, which come into effect March 18, along with higher interest rates, lower affordability and elevated household debt, “should keep house prices on a tight leash,” Guatieri said.

According to the bank’s calculations, housing markets could be considered pricey in six provinces: Saskatchewan, Newfoundland and Labrador, British Columbia, Manitoba, Quebec andNova Scotia. Guatieri notes that unlike many other regions, Alberta could see an increase in house prices this year “in response to solid economic growth, high oil prices and in-migration.”