Archive for the ‘Condominiums’ Category

Does Canada have a real estate bubble?

March 9, 2013

Knowing what happened when it burst in the US, Ireland and other countries, one question is whether Canada has a real estate bubble in its urban markets. Carney and others say (hope) no, but he keeps interest rates low, encourages spending and warns people not to go into debt.

“The Economist thinks Canadian housing is overvalued by a third relative to income. The Fitch ratings agency pegs the overvaluation at 20 per cent.

To be sure, Mr. Carney no longer sounds as worried about a housing bubble as he did last year. On Wednesday, he indicated that repeated warnings by him and Mr. Flaherty may be scaring Canadians straight, curbing their appetite for debt. But both men are up against history. When property prices get this frothy, pendulum swings are more likely than soft landings.

Such is the pickle in which Mr. Flaherty and Mr. Carney…find themselves. Their risky experiment in guiding Canada through the recession by stoking housing demand is threatening to come undone. Household debt (largely the result of ever bigger mortgages) remains much higher in Canada than it was in the U.S. just before the 2008 crash. It wouldn’t take much to turn a vulnerability into a calamity.”

When a financial bubble bursts, wealth decreases with the fall in expenditure on real estate and other products, and a general recession. What are the facts about housing prices in Canada?  The source is

The index for Canadian cities shows that, from mid 2005 to the present, real estate prices have risen:

Approx av.per annum %

Toronto       46%        6.6

Ottawa        41%         5.9

Calgary        61%         8.7

Vancouver   62%         8.9

If that was the annual rate of inflation for all goods and services since 2005, it would be cause for concern. Should it be for housing?

Looking outside of Canada, when times get tough, foreigners put their money in gold, Swiss bank accounts and real estate in a number of countries. This is especially the case for buyers from developing countries and places where there is less security. North America and in the past Europe have acted as depositories for such foreign funds.

Is this the case now? And are Chinese and other foreign investors inflating the Canadian real estate market? There is plenty of wealth in the Middle East, India and other parts of SE Asia besides China. Australia appears to think that there needs to be some control on foreigners buying real estate if they don’t intend to live there. So far Canada has made no such moves. Should they?

China’s Potemkin cities, built for several million inhabitants, but remaining empty or ghost cities, provide an example of the vagaries of real estate investing, which may have some relevance for Canada. These cities, which the Chinese government finances in order to maintain investment spending, are to westerners the result of unusual policies. Chinese however appear willing to invest in ghost cities without much (any) hope of renting, selling or living in their properties. If they buy under these conditions, why would they not invest in Canadian real estate also?

Well, according to their own government they are not allowed to, but this appears to do little to curb the ways found to circumvent these rules. Add to that the wealth of investors in India, the Middle East and other parts of Asia and the real estate buying pressure from foreigners is added to that of already free spending Canadians.

My strong impression is that we do have the makings of a real estate bubble, and the cocktail circuit in Canada confirms it. There people are boasting about buying condos as investments even though rental rates don’t cover the costs at present, and will be even harder to justify when interest rates rise and prices fall. Foreign buying adds to this upward pressure on prices.


Condo Living 3

August 14, 2011

The previous two postings gave some people the impression that condominium ownership is not great. That is a misleading conclusion and contradicted by the increasing percentage of households in Canada which are condos. The pros and cons of condo ownership and living need to be compared with the alternatives. These include ownership of a single family home and rental of a home or apartment. Time sharing and hotel living are other alternatives but I will not discuss these here.

When living in a high rise condominium unit (town and row house configurations would be somewhat different), typical favourable comments are that a person is living on one floor with no staircase, easy to lock up and leave the unit, good security, indoor parking, no gardening or snow clearing to do, freedom to decorate inside the unit as the owner pleases, and payment of a modest monthly condo fee (if that is the case).

Since condominium refers not to the physical layout of the unit but to the ownership arrangement, most of the above comments apply to rental of a similar unit. Two differences are that condo owners can decorate the inside of their units as they wish, and they own the unit and a share of the building. If persons wish to remain invested in the real estate market for whatever reason, then condo ownership provides this in contrast to renting, where the building owner invests in the real estate and takes responsibility for the insurance and the upkeep of the building and its units. With a condominium, the board of directors of the condo corporation acts as building owner on behalf of the individual unit owners. This works well with an attentive board of directors often assisted by a management company and in some cases a live-in superintendent who deals with day-to-day matters.

I would be interested in what others think are the benefits of condo ownership as opposed to renting similar space.

Condo Living 2

August 10, 2011

My thanks to those who commented on an earlier posting. Here I focus on a few issues about condo ownership and management. More detailed information is found at
Many of the owners to whom I have spoken are unaware of the contractual obligations when they purchase a condo, and what they agree to when they are elected a board member. Board members act as caretakers for their own property and that of fellow condo owners, property which may account for a large share a person’s total assets.

As I see it, a main problem is that many of the contracts involve the provision of services where the supplier or seller has more information than the buyer and where it is difficult or costly for the buyer to acquire the necessary information. Condo purchasers only become aware of what they have purchased and their rights and responsibilities after they have parted with their money. Board members only become aware of their responsibilities and liability after they have agreed to serve on the board.

For example, services are provided by real estate agents, developers, lawyers for buyers, condo management firms, and condo board members. As is the case with all services, some providers are more knowledgeable than others, some are more forthright than others, and in almost all cases they know more than the buyers. In addition, most buyers do not do the necessary research or spend the time to learn the details of their purchases. Economists call these transaction costs which can be high where it is necessary to collect and evaluate information about a contract. Many buyers do not do a thorough job of searching for and evaluating the necessary information. We rely on so-called experts whose interest is completing the transaction, although they have some concern for maintaining a reputation for honesty and reliability.

A starting point is to become familiar with the available documentation, much of which is legally required for a transaction and for condo management by a board of directors. The wording of these documents is often opaque, at least to the layperson, and that sometimes (often?) includes those providing services to the buyer.


There is a series of documents which describe what a person owns and the rules and procedures which affect their ownership and living conditions in their condo unit.

1. The Ontario Condominium Act stipulates in general how a condominium corporation in the province has to be organized and governed. There is no one responsible for overseeing compliance with this act like an ombudsman, unlike the case of rental properties.
2. The Condo Declaration is the constitution for each particular corporation with details subject to the provincial act. It is often drawn up by the developer of the condo building and outlines what each person owns and what are common areas and expenses. At the time a unit is sold, a Status Certificate is issued in conjunction with the Declaration outlining the financial and other conditions of the building at that time.
3. By-laws are drafted and passed by the condo board of directors dealing with matters such as the standard unit and insurance. They become additions to what is required by the Declaration.
4. Rules may also be passed by the board to determine the conditions for living in a condo. Rules exist to promote the safety, security or welfare of owners and their property as well as the corporation’s assets. Rules also exist for the purpose of preventing unreasonable interference with residents’ use and enjoyment of their units and common elements.
5. For information purposes a corporation may provide owners with helpful suggestions for living in their units and making use of common areas. This information has no legal standing, but may be used to welcome new owners to a building.
A buyer needs to have copies of these documents and to understand the implications of the wording of each document. This is not an easy task for the typical buyer but vital to their understanding of what is being purchased. The real estate agent and buyer’s lawyer should do this but may not. I am aware of a situation where a number of units were sold in a building when the declaration was not in conformity with the amended provincial legislation and there was no standard unit bylaw in existence. I suspect there are other such cases. Agents and lawyers are interested in completing sales and collecting commissions rather than spending their time explaining the meaning of legal documents. Buyers are often content to remain unfamiliar with their purchases.

Board membership

Many of us agree to serve on a condo board of directors with limited understanding of the commitment being made and the personal liability involved. Some of the liability may be covered by insurance paid for out of condo fees. Residual liability is the responsibility of the individual. On joining a board, a person should learn about their responsibilities and ask to see the documentation listed above, even though they may already be owners and think they are familiar with these materials.
As owner of a single family home, a person has responsibilities and obligations. Some of these may be the same for condo board members (non-owners may be board members), but some will differ as you are dealing with single ownership of a condo unit but joint ownership of a building. Information can be obtained from existing board members and from board members of other condo corporations. You are pretty much on your own in learning about the responsibilities for the unit whose board you are joining.

Some may view these caveats as a deterrent to condo ownership. This is not the case and not suggested by the data. In 2006, 913,000 households or 10% of total households in Canada were condominiums, up from 4% in 1981. For Vancouver the 2006 figure was over 30%. I expect the 2011 census will report more recent figures.