The latest example of Canadian politicians' (in)action in regard to real estate prices getting out of control is the recent decision by the B.C. Premier Christy Clark, to reject the idea of raising taxes for overseas investors -- despite a petition from her constituents that attracted some 25,000 signatures. "By moving foreign owners out of the market, housing prices will drop," she reasoned, voicing her concern about the (possible) loss of present homeowners' equity.
Many homeowners in Vancouver and Toronto have become "equity-millionaires" in the last few years due to unusually high appreciation of their homes thanks to persistently strong demand by foreign investors, mostly from China. In their haste to park their money overseas in a hurry, most of them don't even bother to make a trip to view their investments. The Wall Street Journal article, "The Mechanics of Moving Cash Out of China," reveals the clandestine, if not outright illegal ways that wealthy mainland Chinese are bringing their funds to Hong Kong, and from there on to other parts of the world. Most of it ends up invested in their favourite foreign destinations -- the US, Australia, and Canada. It is a crime for any mainland Chinese to bring more than $50,000 out of the country, but many wealthy Chinese are, nonetheless, smuggling out billions.
Transfer of money from Hong Kong to Canada is legal, but no one is really paying attention to its origin. It seems that for the B.C. Premier, our Federal Finance Minister Joe Oliver, and our Prime Minister Stephen Harper, the influx of dubiously obtained money from China is of little concern. In fact, judging from their latest comments, they seem to be quite content with it. A CTV News report from May 14 quoted Prime Minister Harper as saying that limiting foreign investment in housing is not something he is "contemplating at the current time."
One should wonder aloud if our Prime Minister knows that Canada's households now owe a staggering record 1.8 trillion! That in 1990, Canadians owed 85 cents per every dollar of annual disposable income, and today, that number has grown to a record $1.63. Canadians are financially stretched to the limit, barely able to cover their mortgage payments!
In stark contrast to our own politicians, Australians imposed stiff fees and, in some cases, restrictions to foreign investors buying their residential real estate.
UBC professor Paul Kershaw's recent study shows it now takes 25 to 34-year-old Canadians making median full-time earnings ten years to save for a down payment. In the 1970s, it was five years. This fact should be an eye opener to all our leaders, waking them up to the fact that encouraging foreign high bidders to buy our residential real estate is like putting out the fire with gasoline on our already overvalued homes.
Global migration trends are changing demographics on a large scale, so if we do not employ the right political safeguards right now, many middle-class Canadians may find themselves unable to equally co-exist with wealthy newcomers. All true citizens of Canada -- regardless of their colour, race, creed, gender or ethnic identity -- should become proactive. We should insist on getting the assurances of politicians running for any offices that looking after the interest of the traditional Canadian citizen must be the first and foremost thing on their agendas. Assuring our common well-being, and preserving our tradition, culture and heritage, should be of paramount importance for the years to come.
As for the concern about the equity of the owners that became "equity-millionaires" due to foreign demand and local speculation, those owners should realize that their paper equities will start vanishing at the next real estate slowdown or crash, so the only true beneficiaries of foreign monies coming through to buy real estate are mostly developers and to a lesser degree, the construction industry.
Developers in this country are not reinvesting their profits into building more affordable houses. In fact, seeing that ordinary rentals have gone up due to the depletion of traditional apartment buildings, and realizing that the pool of "suckers" buying 400 foot micro condos for several hundred thousand dollars is drying out and fast, some of them have already switched from building ownership-structure-challenged condos to expensive rental apartments. Ordinary Canadians may soon find out that they are not only unable to buy real estate, but they may soon have trouble being able to afford renting apartments.
Instead of assuming a passive role, our leaders should design housing policies that would severely restrict or outright forbid the sale of residential homes to foreigners. Instead of condos, building permits should be granted to developers building more affordable real estate and rental buildings. Their profit margins would not be two or three fold but ten to twenty thousand dollars per unit, a traditional norm. Some "fat cats" amongst them may not be enticed to stay in business but that would be a plus as they could be replaced by new developers and construction companies building on less expensive sites and/or lease-back government owned plots that have still not been sold out. Such new developers would make less profits but remain able to sustain their existence in the long run, maintain the construction industry going, and bring back affordable housing to Canadians.
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The carbon bubble is the idea that if the world’s governments meet targets to limit climate change to 2 degrees Celsius by cutting carbon emissions, there will be a glut of fossil fuels on the market that cannot be burned. The concern is that when investors realize oil companies will have to leave much of the product they own in the ground, oil company stocks will collapse, leading to a crisis in the industry that could affect Canada. Among the people concerned about a carbon bubble is former Bank of Canada governor and current Bank of England governor Mark Carney.
Many in Canada’s oil sector have been holding their breath to see whether the U.S. approves the Keystone pipeline,which would see tarry bitumen from Alberta’s oilsands pumped south for export from the U.S. President Barack Obama did not have very nice things to say about Keystone in his year-end press conference, leading some to believe he’s bent on rejecting it. The lack of a functional pipeline capable of getting the oilsands crude to international markets has held back the price of crude produced there. There’s also massive domestic opposition to homegrown alternatives such as the Energy East Pipeline or Northern Gateway.
This promises to be a big year for elections around the world, with votes at home and abroad. The Conservatives presided over a Canadian recession that was relatively mild compared to much of the world, but after nearly a decade of Conservative rule, voters could be ready for a change. The U.K. is looking ahead to an election in May. If the U.K.'s Conservative Party wins and follows through with its promise to hold a referendum on EU membership, it would be a further blow to the Eurozone. The U.S. is looking ahead to an election in 2016, and the year before an election in that country has proven to be an often interesting, volatile ride.
Weak demand and a glut of supply are keeping prices of commodities low, and it doesn’t just affect Canada’s oil patch. The mining sector, one of the heaviest hitters on the Toronto Stock Exchange, could see a resulting slowdown in investment in projects and hiring.
Canada, along with the U.S., is on track for an interest rate hike in 2015. It would be the first since 2010 and consumers — particularly on this side of the border — have continued to pile on debt loads and take out large mortgages in the years of low interest rates. While any hike is expected to be gradual, it could be a shock to some households who are struggling to pay back debt. A higher interest rate could sink more Canadians into bankruptcy and could cause a slowdown in the housing sector, which has propped up Canada’s economy in the years since the recession.
Economists have been warning consumers for years that debt loads are growing to astronomical levels, and that could be a huge risk if interest rates rise. In Canada, the household debt-to-income ratio rose to a new record high of 162.6 per cent in the most recent quarter. And things are not much better south of the border, where consumer debt is worth a total of $3.2 trillion and where there has been a resurgence in subprime lending, the risky banking practice that helped spark the global economic crisis in 2008.
An increase in terrorism and geopolitical instability doesn’t inspire confidence in investors. Threats from ISIS and other terrorist organizations have dominated headlines in the past year and such political uncertainty could spill over into broader conflicts or destabilize markets.
Russia’s ruble has sunk by about 40 per cent in the past few weeks, and the country could soon find itself in recession, partly due to Western sanctions over its aggressive behaviour in Ukraine. As a G8 country, it is a large source of demand for Canadian exports. The country already slapped retaliatory sanctions on Canada in 2014 and the lack of trade could hit Canada’s overall trade figures.
Chinese growth has been a massive driver of the global economy but is losing momentum, affecting the entire global supply chain. Investors are hoping that China’s GDP growth does not come in worse than the 7-per-cent rate it has predicted. A chain reaction caused by the slowdown in China could be particularly concerning for Canada, which had been protected from the worst of the Great Recession, benefitting from Chinese manufacturing’s demand for commodities. In addition, the unrest in Hong Kong, one of the world’s financial hubs, is not over, posing a risk of more uncertainty in the region.
That’s right, Greece is still causing Europe, and global markets, some serious headaches five years after its sovereign debt crisis was first brought to light. It is again making headlines as the new year approaches, with legislators rejecting Prime Minister Antonis Samaras’s nomination for president, Stavros Dimas, triggering a snap election. Polls favour anti-austerity candidates, which could see the country pull away from its debt obligations under its bailout plan with the Eurozone, stoking concerns for the rest of the continent, which is already struggling with sky high unemployment and a shaky financial system. A slowdown in Europe would have knock-on consequences for Canada.
After five years of relatively stable crude prices, oil prices have dropped nearly 50 per cent since June to their lowest level in five years. The drop is a double-edged sword for the Canadian economy. The IMF says it could boost global economic growth by as much as 0.8 percentage points above the expected 3.8 per cent. It’s also good news for consumers, whose savings at the gas pump could translate into more spending elsewhere. However, if oil continues to hover between $60 to $70 a barrel, it could expose weaknesses in oil-dependent countries and companies and even push some to default on debt obligations. The tanking price is bad for Canada’s oilsands, a major source of domestic economic growth and could push the loonie lower.
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