Thursday, December 31, 2009

Intrawest Misses Loan Payment

Several newspapers in the past week or so including the Toronto Star, Globe and Mail and locally the Enterprise-Bulletin have run stories detailing Intrawest's inability to make a scheduled $524 million loan payment. The payment was due just prior to Xmas on a $1.4 billion dollar (U.S.) loan, the payment of which was due after Intrawest had already been given a 60 day extension.

The problem lies perhaps not so much with Intrawest as it does with Intrawest's parent owner, Fortress Investment Group LLC which bought Intrawest in 2006 for $2.8 billion of which 60% of the purchase price was borrowed. As with any leveraged buyout wherein a large percentage of the purchase price is financed, there is little room for a financial miss-step. Loan payments must be made and any significant drop in cash flow as is being experienced in the current economy can be a disaster. I know. I worked in such an environment back in the 90's where "cash was king." Sales had to be generated not just to ensure a profit, but more importantly to pay down debt.

Little known here locally is that 1 year after the purchase of Intrawest, Fortress, a private owned equity fund went public with an initial public offering (IPO) that instantly made the 5 principals of Fortress billionaires. By the end of the first day of trading on the New York Stock exchange, Fortress shares had climbed from $18.50 to $35.00 giving the 5 principals a combined worth of $10.7 billion U.S. Now just 3 years later, one of Fortress' investments (Intrawest) can't make a half a million dollar loan payment. Notwithstanding the fact that they too have taken a hit, maybe the 5 Fortress principals need to reach into their own pockets to help out a bit?

Check Google Finance and you will see that as of today's date, Fortress shares are now worth $4.47 U.S. The pitch of their stock's decline matches that of a black diamond ski run at an Intrawest Resort. This is just one of the countless stories that have help to create the financial meltdown we have witnessed over the past year.

Intrawest's woes will not likely be reflected here locally at Blue Mountain. It's business as usual, all runs are open and the resort has been packed through the holidays. That's a good thing as cash is indeed King!

Wednesday, December 30, 2009

New Homes and HST

When the new HST kicks in on July 1st 2010, new homes in Ontario that are currently subject to the 5% Goods and Services Tax will now have the 13% HST applied. How does this affect new home pricing?
Most developers currently list their newly built homes for sale with GST “included in” the purchase price as psychologically, it’s better than hearing the price is $350,000 + GST which adds another $17,500. Further to this new homes purchased as the buyer’s principal residence offer a partial rebate of GST where the maximum sale price of a property does not exceed $450,000. Typically, builders have this rebate factored into their profit margin on the home and the GST rebate is assigned to the builder by the buyer on closing. The HST treatment of real estate transactions including new homes will generally follow the current GST format. Sales of new residential housing will be subject to and will qualify for a rebate(s). Further, the rebate will now be available whether the new housing is to be owner occupied or rented which is an advantage to buyers over the current program.
Under the new format, new homes in Ontario will be eligible for a rebate of 75% of the PST component of the HST paid to a maximum of $24,000. In some other provinces where the PST and GST have been harmonized, there is no provision for a portion of the PST to be rebated back. In reviewing various examples of new home sales both before and after the July 1st 2010 HST implementation date, new home prices should marginally decline. This stems from the fact that there is currently no provision for a builder to obtain a rebate on the PST paid on materials that go into the home. Example: a $300,000 home (GST included) purchased before July 1st 2010 with the GST rebate applied and assigned to the builder means the buyer pays a net purchase price of $290,698. If the same $300,000 home (HST included) is purchased after July 1st 2010 the builder receives a larger rebate amount thus resulting in a net purchase price to the buyer of $285,171 and difference or portential saving of $5,527. Hopefully this type of saving gets passed onto the purchasers of new homes.
The final taxation rules and implications have not yet been finalized so only time and human nature will dictate what really happens.

Monday, December 28, 2009

Real Estate Commissions and HST

Further to my prior posting re: the forthcoming implementation of HST in July 2010, here are some points that consumers need to be aware of regarding how the HST will affect real estate transactions.
When the HST becomes effective July 1, 2010, real estate commissions which are currently subject to the 5% Goods and Services Tax will transition over to the new HST meaning that real estate commissions will now be subject to the new 13% tax rate. From the consumer seller's perspective, this will increase their tax burden by 8%, the current rate of provincial sales tax in Ontario. As an example, on a $250,000 sale with a 5% selling commission, the HST payable will increase from $625 to $1,625.
While REALTORS® will continue to be responsible for the collection of HST on the closing of a transaction as we currently are for GST, the new HST offers a distinct advantage. As a GST registrant, REALTORS® get to claim the 5% GST we pay on business related expenses while the 8% PST we pay on eligible expenses is lost. Under the new format, REALTORS® will claim an HST input tax credit of 13% not the current 5% which will result in cost savings for us. By rights, this cost savings should be passed on to our clients and I for one plan on incorporating this saving into my seller commision plans for 2010 onward.
Consumers need to be aware that real estate commissions are completely negotiable. From a consumer's perspective, REALTORS® often fail to demonstrate a level of service and overall value commensurate with the commission (fee) charged on a given transaction. The arrival of HST will no doubt present a further challenge to those REALTORS® that both fail to deliver a level of service, knowledge and value for the fee charged as well as those that fail to acknowledge the cost savings that we as HST registrants will realize with the new tax. The same applies to lawyers, home inspectors and others involved in the real estate sale process.
If you plan on selling your home in the latter half of 2010, make a mental note to ask the REALTORS® you interview how they have adjusted their commission structure to compensate for the tax savings they will now be realizing as an HST registrant.

Monday, December 21, 2009

Residential Housing and HST

Thus far I have not commented on the pending harmonization of the provincial sales tax and the federal GST which will bring forth HST on July 1st 2010. Frequently I am asked by clients what impact this is going to have on the housing market and despite all of the negative media doom and gloom this latest tax grab is causing, my thoughts are as follows:

As Canadians we live in one of the most heavily taxed nations there is. Between high rates of personal income tax, ever increasing property taxes, provincial sales taxes, the GST, excessive taxes on gas, booze, cigarettes and so on, it seems that there is always another hand(s) in our pockets. There was a great hue and cry when the GST was first introduced but did we stop spending? Yes we bitch and complain about our taxes but ultimately life goes on and our standard of living doesn't suffer too badly.

The Ontario Real Estate Association has lobbied strongly to no avail against the province of Ontario over the implementation of HST claiming that it will add between $1,400 to $1,500 to the average real estate transaction in Ontario. This is expected to perhaps cause a flurry of buying activity in the first 6 months of 2010 after which who knows where the market will go. My thought is will $1,400 or $1,500 really impact a person's ability or mindset to purchase a home?

The average house price in the Georgian Triangle to the end of November is $286,000. An additional $1,500 in taxes on that purchase represents 1/2 of 1% of the purchase price. In many cases people are paying more for 1 month's rent.

So is the real estate market going to collapse after July 1st next year? Somehow I doubt it. As Canadians we'll suck up yet another tax and life will go on. Canadian real estate has historically appreciated in value at such a rate that another tax will hardly impact the rate of return most of us have come to realize. One aspect of real estate that may feel the impact is new housing and I will cover that in my next posting.

Monday, December 14, 2009

Collingwood'$ Debt Load to Double in 2010

As Canadians, we all gripe about taxes. Whether its our personal income tax, the GST or the forthcoming HST, they are all hot topics for discussion. Nonetheless, we begrudgingly accept them, our spending habits continue, life goes on.
Property taxes however seem to draw the greatest level of ire. Maybe it's getting that annual "assessment notice" or the "interim tax bill" or the fact that your bagged leaves never got picked up on time. Whatever it is , property taxes tend to infuriate us more than any other form of government cash grab.
Over the past few days I have heard numerous comments from Collingwood residents pertaining to an article in last week's Connection entitled "Municipal debt will almost double."
The crux of the article is that Collingwood's debt load will double to approximately $48.5 million by the end of 2010. Based on an estimated population of 24,600 including seasonal residents, every man woman and child in town owes $1,971. There goes my Xmas gift budget! Arguably some of the projects mentioned in the article are worthy ones. Others like a $3 million wellness centre? Well I'm not so sure they would stand the financial rigors of justification in the private sector world at least not the one that I came from.
The new library at $6 million is the largest project mentioned up for debenture in 2010. Sure a new library would be nice but when you have the likes of "Google" currently in the process of digitizing every book ever written, it really makes you wonder if spending money on bricks and mortar to house books is the way to go. I know one thing is certain, if libraries in the past had been run as private enterprise profit centres, the threat of books no longer being required in traditional print for people to borrow would be causing the ACME Library Company (if one existed) to close their doors for good or at least to revise their business model to search out sources of revenue elsewhere.
Regardless of where the money is spent, debt payments needs to be made. Spending money within their limits because it is "comfortable " as one Councillor put it hardly puts taxpayers minds at ease. Collingwood has the second highest tax rate in the southern Georgian Bay area second only to the Town of Meaford. The accompanying chart reflects what the 2009 property taxes would be on a house assessed at $350,000 in the area's various municipalities compared to a similar value house in Toronto. Admittedly, Toronto has a much larger tax base to draw from but what happened to the concept of moving to a small town because the cost of living is lower?
As 2009 draws to a close, 2010 will bring with it a municipal election year. The subject of taxes will no doubt be a hotly debated one amongst the various candidates. So the question on my current poll (above) pertains to how happy are you with Collingwood Council's current level of municipal spending?"

Wednesday, December 9, 2009

Site 41 is Dead - Now Another Land-Use Threat Emerges

A couple of year back, stories persisted that many of the potato farms between Shelburne and Singhampton had been purchased allegedly for the gravel deposits that were thought to exist below. According to a recent article in the Toronto Star entitled "Limestone quarry threatens price farm land" the stories would appear to be true.
Allegedly the party in question began accumulating farms along the County Rd 124 corridor paying $8,000 per acre over market value under the pretense of becoming the largest potato farmer in Ontario. According to the aforementioned article, approximately 7,500 acres of land has been acquired with a plan to develop a 2,400 acre quarry to extract the limestone that lies below. As would be expected, many people felt duped by the scheme. Considerable public outrage has resulted stemming from the threat many people see to not only the environment but also to the way of life many of the local farming families have engaged in for years.
In addition to the loss of highly productive agricultural land, critics argue that a large quarry operation could have a significant impact on groundwater sources in the area. The same general area has already been subject to a considerable amount of development as a wind energy producer with literally dozens of wind turbines that dot the landscape.
Initiatives such as these will continue to threaten this area as we know it. Opponents to the Site 41 dump site north of Elmvale were successful in their bid to stop that controversial landfill. Hopefully those fighting this latest threat will be as successful in their efforts to what could pose a real threat to not only the agricultural production of the area but to the water deposits below and the aesthetic appearance of the countryside as well.

Friday, December 4, 2009

The Blue Mountains Leads Area Real Estate Sales Rebound

While Georgian Triangle real estate sales overall continue to make a strong comeback in 2009, MLS® sales activity in the Blue Mountains in particular is showing the greatest strength.
Through the end of November, unit MLS® sales are up almost 20% in the Blue Mountains from last year with a total of 152 properties having sold as compared to 127 last year. Recreational property sales have come back quite strongly especially at the upper end of the market. In a "distant" second place is Collingwood with a 3% unit sales increase. All other area municipalities are either unchanged from last year or are still showing decreased unit sales year-over-year.
Unit sales for the first 11 months of 2009 ranked in order are as follows:

1. The Blue Mountains 19.7%
2. Collingwood 2.9%
3. Clearview unchanged
4. Wasaga Beach -0.3%
5. Grey Highlands -8.1%
6. Municipality of Meaford -20.8%

Pricing across the entire Georgian Triangle area has shown no significant decrease over the past several months with only those properties that were over-priced to start with showing a reduction. As I have maintained in the past, average residential sale prices tend to mask significant shifts necessitating that a more detailed look be taken at specific areas and or neighbourhoods. Nonetheless, the 12-month average residential price for our area overall now stands 2.5% higher than it was this time last year at $286,445. In fact, Clearview Township is the only area municipality where the 12-month average price has declined from where it was one year ago and this number is affected more by the mix of sales.
The Georgian Triangle continues to draw strong buyer attention from the Greater Toronto Area both in terms of recreational property buyers and those looking to retire here. This bodes well for real estate demand and pricing in our area helping to ensure that your investment in Georgian Triangle real estate is a sound one.

Tuesday, December 1, 2009

November Real Estate Sales Show Continued Strength

November real estate sales throughout Collingwood and the surrounding area continue to show impressive gains over the same months last year.
Unit sales for the month as reported through the MLS® system of the Georgian Triangle Real Estate Board totaled 165 properties sold versus the 87 sales that traded in November 2008, an increase of 90%. Sales revenue for the month was $47.7 million as compared to just $21.9 million a year ago.
Listing activity in 2009 continues to run at a decreased rate from last year, down 3% year-to-date with 182 fewer properties listed in the first 11 months of 2009 compared to the same period last year. This is starting to tip the scale between inventory and sales but despite strong sales activity, we still have a long way to go before market conditions favour sellers. Expired listings continue to reflect a year-over-year increase, up 10% year-to-date from last year. Year-to-date there have been 2,783 expired listings compared to 1,749 sales with the results being a ratio of 1.6 to 1 properties unsold versus sold. When expired listings exceed the number of properties sold, I feel this is a very telling statistic. Many sellers aided by their REALTORS® are failing to realistically list their homes at prices that reflect current market value. More on this in a future posting.
Overall we continue to see strength in our market and this trend will certainly continue through to the end of 2009. In my next posting I will provide details on sales in the various municipalities around the area. Tune in Thursday.

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