The death of Canada's controversial investor visa scheme will have an immediate effect on Vancouver's high-end housing market and could be the first step in a move to restrict real estate speculation by offshore buyers, according to real estate insiders.
In Tuesday's federal budget, Canada announced it is scrapping the program, which has allowed waves of wealthy Chinese (and others) to immigrate to Canada – mostly to Vancouver - since 1986.
The announcement was made in Finance Minister Jim Flaherty's federal budget, which was delivered to parliament February 11. Tens of thousands of Chinese millionaires in the queue will reportedly have their applications scrapped and their application fees returned.
"It will have a definite impact on the market," said Jackie Chan, an agent with Dexter Associate Realtors on Vancouver's tony West Side, who once worked with Canada Immigration in Hong Kong.
Chan said end of the program will cool sales at the higher-end of the Vancouver market, "anything over $7 million."
The federal government had frozen applications to the immigrant investor program in 2012.
The day before Flaherty's budget announcement, a South China Morning Post investigation revealed there was a backlog of more than 45,000 rich Chinese waiting for approval of their applications to move to British Columbia as of January 2013. They were estimated to have a minimum combined wealth of $12.9 billion.
Census data shows 96% of all recent Chinese immigrants to British Columbia live in Metro Vancouver and the proportion among the wealthy is even higher.
Under the former Canadian rules, principal applicants worth a minimum of $1.6 million had to loan the Canadian government $800,000, interest-free, for five years. They and family members could then apply for citizenship.
According to Flaherty's statement, "In recent years, significant progress has been made to better align the immigration system with Canada's economic needs. The current immigrant investor program stands out as an exception to this success. For decades, it has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require," it read.
Vancouver real estate consultant Ozzie Jurock, former president of the Canada-Taiwan Trade Association, was not surprised by Flaherty's decision to kill the program. Jurock believes it is just the first shoe to drop in a federal move to curb foreign speculation in Canadian real estate. "This is the first shot," Jurock said, "The second will be some sort of tax on foreign real estate investment, or outright ban or restrictions on foreign investment like in Australia
The most effective way to avoid the stress of making an RRSP contribution by the March deadline is to contribute monthly. It eliminates the need to come up with a large sum of money all at once. By making regular contributions throughout the year, you benefit from market volatility by buying more units when markets are down and securities are less expensive. This is called dollar cost averaging. In addition, you may be able to reduce the tax you have withheld at source from your employer if you can prove you are contributing regularly to your RRSP.
Whether you're topping up your RRSP before this year's contribution deadline, or planning a strategy for the coming year, below are a few traps to avoid when making your RRSP contribution. By spending a few minutes now and avoiding these common mistakes, you make your retirement planning more effective.
Trap 1: Being fooled by misleading
As the wise lady in the B.C. Securities Commission TV ads warns, there is no such thing as risk-free investments that promise a high return. Read the fine print. Use of the words “guaranteed” and large return promises attract attention, but they often have a catch and the actual return can be much lower than expected or the cost of the guarantee can be very high.
Trap 2: Assuming that what performed best last year will be the leader this year.
Don’t base your investment decisions on the vehicle that had the best return last year. It is highly unlikely you’ll see those returns this year. Always make your investment decisions after carefully considering your investment objectives, time horizon and risk tolerance. An asset class or security that had a phenomenal year in 2013 probably won’t be the market leader in 2014.
Trap 3: Parking your money in cash until you can invest it sometime later.
If you have waited all year to make your contribution and you put your money in cash or a money market fund in order to get the tax receipt, you might end up leaving your money there longer than anticipated. If you are investing in your RRSP for the long term, cash is not an appropriate asset class. Take a few minutes now to invest the funds in a way that gives you a suitable asset mix.
Trap 4: Ignoring fees.
Fees matter! Many mutual funds have high annual fees (known as the Management Expense Ratio or MER) that are charged to the fund directly. But, some funds also have additional fees that limit your ability to sell or transfer out without incurring large charges. Know what the costs are upfront. Is there a fee to buy or sell and how much are you paying annually including any administration costs? High fees will have a significant impact on your long-term returns.
Trap 5: Failing to ensure your advice is objective.
You’ve worked hard to earn the money that is in your RRSP. Make sure your advisor has your best interests in mind when making a recommendation for your portfolio. Ask how your advisor is compensated. If your advisor is paid a commission by a mutual fund company to sell its products, is that advice objective?
Trap 6: Lumping your RRSP with your TFSA.
Don’t assume you have to choose to invest in an RRSP or a TFSA. RRSPs and TFSAs are both great vehicles that provide tax-sheltered growth of earnings. Both should be part of your investment strategy. RRSPs provide a tax credit upon contribution and amounts withdrawn need to be included in income at that time; TFSAs don’t provide a credit but withdrawals are not taxable. Ideally, both should be part of your portfolio.
Depreciation reports now required for most stratas
A strata depreciation report is an important document which provides valuable information to strata owners, buyers, mortgage providers and insurers.
A strata depreciation
• an on-site inspection and inventory of the common property and
• a schedule of anticipated maintenance, repairs and replacement costs
for common expenses projected over 30 years; and
• a financial forecast which includes costs and cash-flow funding models for the contingency reserve fund.
Depreciation reports required
Strata corporations with five or more units must now provide the most recent depreciation report as part of the new Information Certificate (Form B).
Depreciation reports not required
Strata corporations of four or fewer strata lots are not required to provide a depreciation report.
How can a strata be exempt?
A strata corporation can exempt itself from the obligation to obtain a depreciation report by passing a resolution with a 3/4 majority vote at an annual general or special general meeting.
The strata corporation then has 18 months from their last exemption vote to either hold another vote providing for a further exemption or obtain a depreciation report.
“A strata corporation not wanting a depreciation report will have to waive its requirement at each annual general meeting, according to Ed Wilson, a partner with Lawson Lundell law firm.
“In practice, this means that, if votes to exempt are being held annually at annual general meetings, there would still be about six months left to get a depreciation report done if the 3/4 vote did not pass in a given year,” says Wilson.
Who prepares a depreciation report?
Someone qualified such as an architect or engineer with errors and omission insurance.
How often is a depreciation report updated?
Every three years.
For information read the Office of Housing and Construction Standards’ Guide 12: Depreciation Reports -www.housing.gov.bc.ca/pub/stratapdf/Guide12.pdf