cdr108
Senior Member
no, there's no deemed disposition where taxes are immediately payable.
however, any capital appreciation from initial cost to the change to personal use would not be tax free.
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- Thread starter simuls
- Start date
no, there's no deemed disposition where taxes are immediately payable.
however, any capital appreciation from initial cost to the change to personal use would not be tax free.
interested
Senior Member
^^^
when would one have to pay the tax...when the property is finally sold? I don't know not being an accountant and not having encountered that situation. I have only encountered it in reverse...using a principal residence later as a rental property. Then it was only a matter of assigning a fair market value at the time of change of usage and tax became due when it was sold about 4 years later.
Anyhow, I don't think ponyboy's wife wants to live in the triplex based on what he has said.
when would one have to pay the tax...when the property is finally sold? I don't know not being an accountant and not having encountered that situation. I have only encountered it in reverse...using a principal residence later as a rental property. Then it was only a matter of assigning a fair market value at the time of change of usage and tax became due when it was sold about 4 years later.
Anyhow, I don't think ponyboy's wife wants to live in the triplex based on what he has said.
James
Senior Member
interested
Senior Member
^^^
Thank you James,
The above would support my initial impression that with the change of use if ponyboy started to use the property for personal use he would have to pay capital gains in the year of the change of use.
Thank you James,
The above would support my initial impression that with the change of use if ponyboy started to use the property for personal use he would have to pay capital gains in the year of the change of use.
ponyboy
Active Member
thanks for the questions and input...
cdr -- it would be an expensive renovation, and possibly also an addition to make it suitable for us, but I don't see it as worthwhile financially and the area isn't our ideal given our changing tastes. We can afford to live in a neighbourhood we desire more now. The triplex (well, it's actually a store plus two apartments, but I simplified in calling it a triplex) is near ossington/davenport. In general I'm weary of doing major renovations -- I've heard multiple horror stories, and my dealings with many trades people suggests that great care and some luck is required to get a good deal and quality work done on your property.
CDR, interested, others -- I did file a deemed disposition with my taxes. This was somewhat complicated because personal use was 1/3, and went to 0 after moving out. I estimated the value of the property when I moved, and then reported that number in calculating how much cap gains were due. The CRA hasn't challenged my estimate, for which I did not hire an appriser (which would have run about $1,000). I used an appraisal that was several years old plus other documentation to project a fair value at time of use change. I did not pay cap gains for my personal residence component of the property, but did so on the other two-thirds (deemed fair value minus purchase price) x 2/3. I'm not an accountant, but read the materials carefully and believed I did a fair and reasonable job with this....
cdr -- it would be an expensive renovation, and possibly also an addition to make it suitable for us, but I don't see it as worthwhile financially and the area isn't our ideal given our changing tastes. We can afford to live in a neighbourhood we desire more now. The triplex (well, it's actually a store plus two apartments, but I simplified in calling it a triplex) is near ossington/davenport. In general I'm weary of doing major renovations -- I've heard multiple horror stories, and my dealings with many trades people suggests that great care and some luck is required to get a good deal and quality work done on your property.
CDR, interested, others -- I did file a deemed disposition with my taxes. This was somewhat complicated because personal use was 1/3, and went to 0 after moving out. I estimated the value of the property when I moved, and then reported that number in calculating how much cap gains were due. The CRA hasn't challenged my estimate, for which I did not hire an appriser (which would have run about $1,000). I used an appraisal that was several years old plus other documentation to project a fair value at time of use change. I did not pay cap gains for my personal residence component of the property, but did so on the other two-thirds (deemed fair value minus purchase price) x 2/3. I'm not an accountant, but read the materials carefully and believed I did a fair and reasonable job with this....
interested
Senior Member
^^^
Sounds like you did do a fair and reasonable job trying to value vairly the residence/rental component.
So long as you took a reasonable estimate, I am sure even if CRA came to you, they would accept it.
Sounds like you did do a fair and reasonable job trying to value vairly the residence/rental component.
So long as you took a reasonable estimate, I am sure even if CRA came to you, they would accept it.
interested
Senior Member
From the Globe and Mail:
http://www.theglobeandmail.com/repo...burst-chinas-bubble-economist/article2438632/
Latest data raises red flags likely to burst China’s bubble: economist
BRIAN MILNER
From Monday's Globe and Mail
Published Sunday, May. 20, 2012 7:00PM EDT
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A little more than an hour after arriving on a flight from London, Albert Edwards cheerfully launches into the bleak vision he has encapsulated in a chart book handed out to a rapt investment audience in mid-town Toronto. The headline on page 2 reads: The Ice Age is Back.
It’s a term the notoriously bearish British economist has used for some time to describe a period of little or no inflation, accompanied by a wide-ranging reduction of financial leverage, sliding bond yields and more volatile and vulnerable markets and economies. If you think times are tough now, they are about to get worse, as China’s “classic credit bubble” bursts, the euro zone comes unglued and the U.S. slides back into recession. And if that isn’t enough reason to lock up the sharp objects, double-digit inflation lurks down the road.
More related to this story
Inflation hawks may get their wings clipped
Forget what you’re hearing: Greece won’t quit euro soon
Dark clouds behind the silver lining in U.S. trade
U.S. President Barack Obama (R) and French President Francois Hollande button their jackets following their bilateral meeting in the Oval Office of the White House in Washington May 18, 2012.
Video
G8 tackles Euro crisis
Nothing should worry market players or policy makers more – or seems to bother them less – than China, says Mr. Edwards, who has 20 per cent of his personal assets in gold, “not to get rich … just to make sure I don’t get poor.”
The latest data from the Asian nation ought to raise some red flags, he says. Home prices are falling, auto inventories are rising and the broadest measure of money supply growth is shrinking faster than in Spain. Industrial production rose 9.3 per cent in April, the lowest in three years. “There is no doubt that the level of activity growth in April is significantly below the government’s comfort zone,” Goldman Sachs’s China watchers said in a report.
“China will end in a very hard landing, which will surprise investors,” Mr. Edwards says flatly. The slowdown will hammer commodities, drive equities below levels reached at the market nadir in the first quarter of 2009, and could pose serious geopolitical risks.
Yet many investors remain focused on the Greek soap opera and the latest stumbles of European policy makers, while giving the Chinese authorities virtually a free ride.
“When you stand back and look at it from the macro level, it is so clear,” Mr. Edwards says later between sips of beer. “It’s the classic behavioural finance thing: It’s overconfidence in a good growth story. It produces the wrong valuations, the wrong credit structures. Of course, these things can carry on for longer than you assume.”
The London-based strategist with Société Générale stands out in the dark-suited crowd in his untucked blue print shirt and khaki trousers. But then why dress up for the apocalypse.
What he finds particularly puzzling about the Chinese story is how so many investors steeped in free-market ideology could have so much faith in the couple of dozen policy makers at the helm of the nation’s economy. The primary goal of China’s leaders is to preserve their lucrative perks and the unchallenged power of the ruling Communists and who have already made some serious blunders. Why should they prove any more adept than Western leaders at engineering a soft landing?
If there’s one positive it’s that these same officials are plainly worried. And they never donned rose-coloured glasses, unlike their counterparts in Europe and the U.S. Who could forget Fed chief Ben Bernanke’s assurance in 2007 that sub-prime mortgages didn’t seem to be affecting the broader mortgage market?
Certainly not Mr. Edwards, who has nothing good to say about any leading central banker. If it were up to him, they would be dragged to the nearest city square and locked in public stocks, where people could throw rotten fruit at them. A former Bank of England economist, Mr. Edwards started an online petition earlier this year to have the central bank’s current governor, Mervyn King, stripped of his knighthood.
As for the Chinese, “they really look as if they are starting to lose control. The next stage will be when they pull the levers, but nothing happens economically.” A decision to restart the pump-priming could trigger a short-term market rally. But once it becomes clear that the policies aren’t having much of an impact, confidence will fly out the window, much as it did in the U.S. in 2008.
“Unfortunately, the world has seemed so reliant on China as a growth engine, I think this will accentuate the disappointment even more when it hard lands.”
Ironically, a Chinese slump – and we’re still talking about annual growth of 5 or 6 per cent – could help the embattled euro zone. “Maybe the best thing for the euro would be if China hard landed and Germany [whose export boom has been powered by Chinese demand] went into a deep recession,” Mr. Edwards muses. “Then they might be far more accommodative or far more reasonable about forgoing austerity.”
But any substantial Chinese slowdown would cause considerable pain for resource producers such as Canada and Brazil and absolutely devastate the Australian economy, whose continuing health depends not only on strong exports to China and other emerging Asian markets but Chinese investment dollars flowing the other way.
Once the bubble bursts, “Canada might be a lightly done muffin, but Australia will be absolutely toast.”
More related to this story
Why you shouldn’t write off the U.S. economy just yet
Spain follows a tired script as bond yields spike
More Economy Lab
Bank of Canada Governor Mark Carney.
Economy Lab
Inflation report will do little to sway Carney’s rate stance
Expect China to hold the line on housing restrictions
Alberta grabs UN well-being index’s top spot in Canada
Bank of Canada fears weak growth in global economy
A secret to social mobility: Inherit your job from Dad
48 comments
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David Rosenberg comments that China has come to a screaching halt with turning away iron ore shipments and electricity consumption which had increased 11% last year being "flat" this year.
Europe unglued. The US with problems.
If we really have stagflation as is suggested here....big big problems. However, real estate will get clobbered and valuations will come back to Earth. However, as the name suggests, if we have inflation as well...real estate is real. Gold may go up.....or not.
Currencies will all be worth less. The stock market and peoples worth and sense of worth....shot. May make us all look like Greece and the social unrest we see will spread.
http://www.theglobeandmail.com/repo...burst-chinas-bubble-economist/article2438632/
Latest data raises red flags likely to burst China’s bubble: economist
BRIAN MILNER
From Monday's Globe and Mail
Published Sunday, May. 20, 2012 7:00PM EDT
48 comments
0
Print/License
Decrease text size Increase text size
Click here to find out more!
A little more than an hour after arriving on a flight from London, Albert Edwards cheerfully launches into the bleak vision he has encapsulated in a chart book handed out to a rapt investment audience in mid-town Toronto. The headline on page 2 reads: The Ice Age is Back.
It’s a term the notoriously bearish British economist has used for some time to describe a period of little or no inflation, accompanied by a wide-ranging reduction of financial leverage, sliding bond yields and more volatile and vulnerable markets and economies. If you think times are tough now, they are about to get worse, as China’s “classic credit bubble” bursts, the euro zone comes unglued and the U.S. slides back into recession. And if that isn’t enough reason to lock up the sharp objects, double-digit inflation lurks down the road.
More related to this story
Inflation hawks may get their wings clipped
Forget what you’re hearing: Greece won’t quit euro soon
Dark clouds behind the silver lining in U.S. trade
U.S. President Barack Obama (R) and French President Francois Hollande button their jackets following their bilateral meeting in the Oval Office of the White House in Washington May 18, 2012.
Video
G8 tackles Euro crisis
Nothing should worry market players or policy makers more – or seems to bother them less – than China, says Mr. Edwards, who has 20 per cent of his personal assets in gold, “not to get rich … just to make sure I don’t get poor.”
The latest data from the Asian nation ought to raise some red flags, he says. Home prices are falling, auto inventories are rising and the broadest measure of money supply growth is shrinking faster than in Spain. Industrial production rose 9.3 per cent in April, the lowest in three years. “There is no doubt that the level of activity growth in April is significantly below the government’s comfort zone,” Goldman Sachs’s China watchers said in a report.
“China will end in a very hard landing, which will surprise investors,” Mr. Edwards says flatly. The slowdown will hammer commodities, drive equities below levels reached at the market nadir in the first quarter of 2009, and could pose serious geopolitical risks.
Yet many investors remain focused on the Greek soap opera and the latest stumbles of European policy makers, while giving the Chinese authorities virtually a free ride.
“When you stand back and look at it from the macro level, it is so clear,” Mr. Edwards says later between sips of beer. “It’s the classic behavioural finance thing: It’s overconfidence in a good growth story. It produces the wrong valuations, the wrong credit structures. Of course, these things can carry on for longer than you assume.”
The London-based strategist with Société Générale stands out in the dark-suited crowd in his untucked blue print shirt and khaki trousers. But then why dress up for the apocalypse.
What he finds particularly puzzling about the Chinese story is how so many investors steeped in free-market ideology could have so much faith in the couple of dozen policy makers at the helm of the nation’s economy. The primary goal of China’s leaders is to preserve their lucrative perks and the unchallenged power of the ruling Communists and who have already made some serious blunders. Why should they prove any more adept than Western leaders at engineering a soft landing?
If there’s one positive it’s that these same officials are plainly worried. And they never donned rose-coloured glasses, unlike their counterparts in Europe and the U.S. Who could forget Fed chief Ben Bernanke’s assurance in 2007 that sub-prime mortgages didn’t seem to be affecting the broader mortgage market?
Certainly not Mr. Edwards, who has nothing good to say about any leading central banker. If it were up to him, they would be dragged to the nearest city square and locked in public stocks, where people could throw rotten fruit at them. A former Bank of England economist, Mr. Edwards started an online petition earlier this year to have the central bank’s current governor, Mervyn King, stripped of his knighthood.
As for the Chinese, “they really look as if they are starting to lose control. The next stage will be when they pull the levers, but nothing happens economically.” A decision to restart the pump-priming could trigger a short-term market rally. But once it becomes clear that the policies aren’t having much of an impact, confidence will fly out the window, much as it did in the U.S. in 2008.
“Unfortunately, the world has seemed so reliant on China as a growth engine, I think this will accentuate the disappointment even more when it hard lands.”
Ironically, a Chinese slump – and we’re still talking about annual growth of 5 or 6 per cent – could help the embattled euro zone. “Maybe the best thing for the euro would be if China hard landed and Germany [whose export boom has been powered by Chinese demand] went into a deep recession,” Mr. Edwards muses. “Then they might be far more accommodative or far more reasonable about forgoing austerity.”
But any substantial Chinese slowdown would cause considerable pain for resource producers such as Canada and Brazil and absolutely devastate the Australian economy, whose continuing health depends not only on strong exports to China and other emerging Asian markets but Chinese investment dollars flowing the other way.
Once the bubble bursts, “Canada might be a lightly done muffin, but Australia will be absolutely toast.”
More related to this story
Why you shouldn’t write off the U.S. economy just yet
Spain follows a tired script as bond yields spike
More Economy Lab
Bank of Canada Governor Mark Carney.
Economy Lab
Inflation report will do little to sway Carney’s rate stance
Expect China to hold the line on housing restrictions
Alberta grabs UN well-being index’s top spot in Canada
Bank of Canada fears weak growth in global economy
A secret to social mobility: Inherit your job from Dad
48 comments
0
Print/License
Decrease text size Increase text size
Sponsored Links
David Rosenberg comments that China has come to a screaching halt with turning away iron ore shipments and electricity consumption which had increased 11% last year being "flat" this year.
Europe unglued. The US with problems.
If we really have stagflation as is suggested here....big big problems. However, real estate will get clobbered and valuations will come back to Earth. However, as the name suggests, if we have inflation as well...real estate is real. Gold may go up.....or not.
Currencies will all be worth less. The stock market and peoples worth and sense of worth....shot. May make us all look like Greece and the social unrest we see will spread.
Riverdale Rink Rat
Senior Member
I thought this was a very interesting brief on what SocGen and Edwards are thinking right now, and he's been more right than wrong (even if he's been very, very bearish through some serious stock market rallies.)
Where did the Rosenberg quote come from? Electricity usage flat in China? Wow. Gary Schilling(sp?) has been bearish on the US for the same reason -- electricity usage flatlining.
However, both of those things don't add up to Canada being in the same boat as Greece. Seriously -- Canada is in a much, much better place than folks seem to wish to admit. Growth second only to Australia through the financial crisis (amongst developed nations). Banks considered by Bloomberg to be the safest and amongst the best run on the planet (every one of them in their Top 20, 3 in the top 5). A very solid mixed economy -- exporters of commodities, manufacturers of goods, consumer spending continuing to grow even as credit growth slows. Even if we have a RE flatline/fall/even a 20% drop, it would be like '91-92 -- not good, bien sur, but not the pain Greece is going to have for years to come.
interested
Senior Member
^^^
A little rosy an outlook in my view RiverRink Rat.
The answer to the David Rosenberg question:
David Rosenberg: "Despair Begets Hope": This is posted in one of the comments to the article.
"Adding to all this fragility is the latest softening in the Chinese data flow. Electricity consumption in April was basically flat from a year ago — it was +7.2% in March and +11.7% in April 2011, so talk about a sudden slowdown. Yikes. The growth in rail cargo volumes has been sliced in half compared to a year ago and residential construction has fallen 4.2% from year-earlier levels. Import growth has vanished —just +0.3% YoY in April versus consensus estimates of +11%.
Again, however, a silver lining — with Chinese growth clearly tailing off, oil prices have come down and with that ... gasoline. Nobody's talking about four or five dollars at the pumps any more." http://tinyurl.com/7zrpcgd
Also, from one of the comments on the globe site in response to the article:
Also, this link this morning from Downtown Josh Brown (@ReformedBroker) China is choking on iron ore, sending ships away and defaulting on contracts. http://tinyurl.com/c2hvf36
With the inter connectedness of financial services (and indeed the global economy) liquidity flows have caused further mal-investment; when what is clearly needed are realistic economic relationships and realignments...
I was not implying Canada is Greece. But we are not in as good a place as you suggest. Australia will get creamed if the China slowdown is true. Also, I understand their real estate market has peaked and is on the verge of decline.
http://www.whocrashedtheeconomy.com/
http://www.propertyobserver.com.au/...ly-2010-levels-christopher-joye/2012032754024 (this paints a slightly rosier picture).
However, Australia exports mainly to China and Asia, so if it slows down...expect the export market of Australia resources to be severely hit.
Banks may be the safest but no one knows the contagion effect if there is a "Grexit" (Greek Exit). How inter related are the banks.
What position are they in now. Also the Canadian consumer was far less in debt in 2008 and hence could continue to spend....less so now with debt / income ratios of 150%. In fact, there are signs Canadians have started to retrench and are spending less. So "very solid mixed economy"....I am not so sure.
Better off than Australia, I would agree.
The problem with a 20% drop in real estate.... OK for those who bought more than 2 years ago SFH or condos more than 3 years ago. Renegotiate with less equity otherwise. If the economy does go for the worse, those at the margin....problems. And then they bring down their neighbours etc. Granted, holding power with 3% interest rates will be better than the 13% that existed around 1991.
Still....
My concern is the social unrest in Greece. Look at the Occupy movements elsewhere. The students in Quebec. And this is all "during a relatively good time", not the case if everything becomes bad.
I am not saying the bears are right. I do believe however that we never solved much since 2008/2009 and we could retest.
As well, if the stock market does swoon like it did in 2008....people feel poorer and act accordingly.
A little rosy an outlook in my view RiverRink Rat.
The answer to the David Rosenberg question:
David Rosenberg: "Despair Begets Hope": This is posted in one of the comments to the article.
"Adding to all this fragility is the latest softening in the Chinese data flow. Electricity consumption in April was basically flat from a year ago — it was +7.2% in March and +11.7% in April 2011, so talk about a sudden slowdown. Yikes. The growth in rail cargo volumes has been sliced in half compared to a year ago and residential construction has fallen 4.2% from year-earlier levels. Import growth has vanished —just +0.3% YoY in April versus consensus estimates of +11%.
Again, however, a silver lining — with Chinese growth clearly tailing off, oil prices have come down and with that ... gasoline. Nobody's talking about four or five dollars at the pumps any more." http://tinyurl.com/7zrpcgd
Also, from one of the comments on the globe site in response to the article:
Also, this link this morning from Downtown Josh Brown (@ReformedBroker) China is choking on iron ore, sending ships away and defaulting on contracts. http://tinyurl.com/c2hvf36
With the inter connectedness of financial services (and indeed the global economy) liquidity flows have caused further mal-investment; when what is clearly needed are realistic economic relationships and realignments...
I was not implying Canada is Greece. But we are not in as good a place as you suggest. Australia will get creamed if the China slowdown is true. Also, I understand their real estate market has peaked and is on the verge of decline.
http://www.whocrashedtheeconomy.com/
http://www.propertyobserver.com.au/...ly-2010-levels-christopher-joye/2012032754024 (this paints a slightly rosier picture).
However, Australia exports mainly to China and Asia, so if it slows down...expect the export market of Australia resources to be severely hit.
Banks may be the safest but no one knows the contagion effect if there is a "Grexit" (Greek Exit). How inter related are the banks.
What position are they in now. Also the Canadian consumer was far less in debt in 2008 and hence could continue to spend....less so now with debt / income ratios of 150%. In fact, there are signs Canadians have started to retrench and are spending less. So "very solid mixed economy"....I am not so sure.
Better off than Australia, I would agree.
The problem with a 20% drop in real estate.... OK for those who bought more than 2 years ago SFH or condos more than 3 years ago. Renegotiate with less equity otherwise. If the economy does go for the worse, those at the margin....problems. And then they bring down their neighbours etc. Granted, holding power with 3% interest rates will be better than the 13% that existed around 1991.
Still....
My concern is the social unrest in Greece. Look at the Occupy movements elsewhere. The students in Quebec. And this is all "during a relatively good time", not the case if everything becomes bad.
I am not saying the bears are right. I do believe however that we never solved much since 2008/2009 and we could retest.
As well, if the stock market does swoon like it did in 2008....people feel poorer and act accordingly.
MarcFromOttawa
New Member
The rental does not generate 8% cap rate. You can't compare the purchase price of 10 years ago vs today's rents to calculate a yield.
He should calculate the cap rate based on today's valuations and opportunity costs for the equity and compare that to other assest classes to see if it's worth selling.
marsh
Active Member
from Today's Globe - OECD Recommending that Canada raise interest rates (dont think it will happen, but still interesting that they are calling for this)
OECD urges Canada to raise rates
KEVIN CARMICHAEL
WASHINGTON— From Tuesday's Globe and Mail
Published Tuesday, May. 22, 2012 4:00AM EDT
Last updated Tuesday, May. 22, 2012 7:34AM EDT
An influential international body is urging Canada’s central bank to raise interest rates in the fall, and continue doing so through 2013 to cool housing prices and contain inflation.
The Paris-based Organization for Economic Co-operation and Development’s prescription for monetary policy will stoke the already hot debate about whether the Bank of Canada’s interest rate stance is inflating a housing bubble.
Slideshow
Governor Mark Carney and other officials say the days of ultra-cheap money are coming to an end, although they so far have declined to be more specific. The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.
That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.
The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.
The OECD called on Canada to raise interest rates a year ago and was ignored.
Canada’s household debt has surged to roughly 150 per cent of disposable income, driven mostly by mortgages. For the better part of a year, Mr. Carney has tried to deflate mortgage lending by warning Canadians they were becoming too stretched. But he has resisted raising borrowing costs because the broader economy remained fragile amid a sluggish economic recovery in the United States and financial volatility caused by the European debt crisis.
Europe remains a threat – and even more so than only a few weeks ago, the OECD says. But the U.S. recovery is gaining traction, a boost for Canadian exporters. As a result, the economic slack in Canada left from the recession is fast running out. “At most, there is a modest amount left,” said Peter Jarrett, head of the Canadian division at the OECD, said Monday on a conference call with reporters.
That spare capacity is what has allowed Mr. Carney to keep the benchmark interest rate at an emergency setting, even as the country’s economy replaced the jobs lost during the recession and domestic demand surged.
The central bank’s policy stance has helped the economy absorb repeated shocks over the past couple of years, including the blow to international trade from Japan’s tsunami and financial turmoil stemming from the European debt crisis.
But there also is little doubt that the interest rate policy has contributed to rising debt levels. Finance Minister Jim Flaherty has attempted to take the froth out of the housing market by tightening lending standards for mortgages backed by government insurance. The OECD’s Mr. Jarrett said he doubts further prudential measures would do much to cool lending in Canada’s hottest housing markets, including Toronto, Ottawa and Montreal. “That’s why we call for the removal of more [monetary] stimulus in the autumn,” he said.
The reason to delay is Europe’s debt crisis. The OECD predicts the gross domestic product of the 17 euro countries will contract 0.1 per cent this year, and the crisis has entered an acute phase because an election in Greece next month could result in that country’s exit from the currency union.
But calamity isn’t the OECD’s base case. It forecasts the combined GDP of its members will rise 1.6 per cent this year and 2.2 per cent in 2013 – not great, but not terrible. The United States, Canada’s largest trading partner, will post growth of 2.4 per cent this year, compared with a previous estimate of about 2 per cent. Big emerging markets such as China and Indonesia will remain strong because governments in most of those can afford economic stimulus programs if necessary, said OECD chief economist Pier Carlo Padoan.
The OECD predicts Canada’s GDP will grow 2.5 per cent next year, compared to about 2 per cent in 2012. That’s faster than most economists think that Canada’s economy can grow without stoking inflation.
Mr. Jarrett acknowledged that higher interest rates likely would cause the Canadian dollar to rise. But the erosion of Canada’s share of global trade has stopped, suggesting exporters have become more competitive.
“Even if there is some further erosion, we feel strength in domestic demand likely will prove to be adequate to keep the economy growing at something like potential through 2013, rather than continue to move beyond full employment and stoke inflation pressures more substantially,” Mr. Jarrett said.
OECD urges Canada to raise rates
KEVIN CARMICHAEL
WASHINGTON— From Tuesday's Globe and Mail
Published Tuesday, May. 22, 2012 4:00AM EDT
Last updated Tuesday, May. 22, 2012 7:34AM EDT
An influential international body is urging Canada’s central bank to raise interest rates in the fall, and continue doing so through 2013 to cool housing prices and contain inflation.
The Paris-based Organization for Economic Co-operation and Development’s prescription for monetary policy will stoke the already hot debate about whether the Bank of Canada’s interest rate stance is inflating a housing bubble.
Slideshow
Governor Mark Carney and other officials say the days of ultra-cheap money are coming to an end, although they so far have declined to be more specific. The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.
That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.
The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.
The OECD called on Canada to raise interest rates a year ago and was ignored.
Canada’s household debt has surged to roughly 150 per cent of disposable income, driven mostly by mortgages. For the better part of a year, Mr. Carney has tried to deflate mortgage lending by warning Canadians they were becoming too stretched. But he has resisted raising borrowing costs because the broader economy remained fragile amid a sluggish economic recovery in the United States and financial volatility caused by the European debt crisis.
Europe remains a threat – and even more so than only a few weeks ago, the OECD says. But the U.S. recovery is gaining traction, a boost for Canadian exporters. As a result, the economic slack in Canada left from the recession is fast running out. “At most, there is a modest amount left,” said Peter Jarrett, head of the Canadian division at the OECD, said Monday on a conference call with reporters.
That spare capacity is what has allowed Mr. Carney to keep the benchmark interest rate at an emergency setting, even as the country’s economy replaced the jobs lost during the recession and domestic demand surged.
The central bank’s policy stance has helped the economy absorb repeated shocks over the past couple of years, including the blow to international trade from Japan’s tsunami and financial turmoil stemming from the European debt crisis.
But there also is little doubt that the interest rate policy has contributed to rising debt levels. Finance Minister Jim Flaherty has attempted to take the froth out of the housing market by tightening lending standards for mortgages backed by government insurance. The OECD’s Mr. Jarrett said he doubts further prudential measures would do much to cool lending in Canada’s hottest housing markets, including Toronto, Ottawa and Montreal. “That’s why we call for the removal of more [monetary] stimulus in the autumn,” he said.
The reason to delay is Europe’s debt crisis. The OECD predicts the gross domestic product of the 17 euro countries will contract 0.1 per cent this year, and the crisis has entered an acute phase because an election in Greece next month could result in that country’s exit from the currency union.
But calamity isn’t the OECD’s base case. It forecasts the combined GDP of its members will rise 1.6 per cent this year and 2.2 per cent in 2013 – not great, but not terrible. The United States, Canada’s largest trading partner, will post growth of 2.4 per cent this year, compared with a previous estimate of about 2 per cent. Big emerging markets such as China and Indonesia will remain strong because governments in most of those can afford economic stimulus programs if necessary, said OECD chief economist Pier Carlo Padoan.
The OECD predicts Canada’s GDP will grow 2.5 per cent next year, compared to about 2 per cent in 2012. That’s faster than most economists think that Canada’s economy can grow without stoking inflation.
Mr. Jarrett acknowledged that higher interest rates likely would cause the Canadian dollar to rise. But the erosion of Canada’s share of global trade has stopped, suggesting exporters have become more competitive.
“Even if there is some further erosion, we feel strength in domestic demand likely will prove to be adequate to keep the economy growing at something like potential through 2013, rather than continue to move beyond full employment and stoke inflation pressures more substantially,” Mr. Jarrett said.
interested
Senior Member
I absolutely agree with you and thank you for pointing it out.
That is why I tried to allow for the doubling of the value; halving it back to allow the calculations to reflect that the absolute amount left would be based on todays valuation. I can see on a reread that the amount should be 1/2 of 8% or 4%. However, it would still have to be correctrd to reflect the residual equity as per my original calculation since equity would disappear. Perhaps less than my original estimate because ponyboy said he has not depreciated it "that much" so perhaps not as large an amount asthe 38% in my original calculation. Still, let's just say he gets 5-6% today.
Given that rents are relatively secure/steady.....I am assuming ponyboy's property is priced to market... a steady 5-6% today is pretty good compared to most other investments.
Still
CN Tower
Banned
SL
Don't sell the cash flowing asset. You'd be nuts. Between transaction costs and the difficulty of re-deploying the capital he'd be scrambling too much.
Does anyone know what units are selling for at the Shangri La or the Four Seasons per square foot today? I am curious to see if the market has been holding up for the high end units. Can anyone track trades?
Don't sell the cash flowing asset. You'd be nuts. Between transaction costs and the difficulty of re-deploying the capital he'd be scrambling too much.
Does anyone know what units are selling for at the Shangri La or the Four Seasons per square foot today? I am curious to see if the market has been holding up for the high end units. Can anyone track trades?
interested
Senior Member
I don't know the prices for 4S.
I believe alot the high end units...over $2 million are encountering some resistance. Since developers have product, I am quite sure they are willing to make some concessions (unofficially if not officially).
See p.m. I sent you.
I believe alot the high end units...over $2 million are encountering some resistance. Since developers have product, I am quite sure they are willing to make some concessions (unofficially if not officially).
See p.m. I sent you.
cdr108
Senior Member
i heard noise from here and the following G&M article that units at the Ritz were sold for under $700 psf
http://www.theglobeandmail.com/life...iew-of-the-blue-jays/article2435912/comments/