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Baby, we got a bubble!?
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interested
Senior Member
From the National Post:
http://opinion.financialpost.com/20...ms-of-hot-money-behind-canadas-condo-bubbles/
Taxpayers also victims of ‘hot money’ behind Canada’s condo bubbles
Diane Francis May 4, 2012 – 2:38 PM ET | Last Updated: May 4, 2012 3:01 PM ET
National Post
National Post
There are three times more condo high-rises being built in Toronto than in New York City and seven times’ more than in Chicago.
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inShare4
The condo bubbles in Toronto and Vancouver are caused by foreign speculation and are making housing unaffordable and creating financial risk for the country in terms of government-insured mortgages. But there’s another issue of vital concern to taxpayers.
There are three times more condo high-rises being built in Toronto than in New York City and seven times’ more than in Chicago. This boom is not the market at work, but is manipulation by “hot money” from abroad.
“I have come across something that I find astonishing, and which amounts to systemic tax fraud by investors, mostly foreign, on a massive scale,” wrote an investor involved in the industry.
Related
Diane Francis: Taming Toronto’s housing ‘bubble’ requires ban on foreign buying
Diane Francis: Foreign control of Canada’s great companies not in national interest
Toronto housing market still on fire as sales jump in April
Why Toronto’s overheated housing market is unsustainable
He explained how it works:
1. Foreigners sign an agreement of purchase for a condo unit, or for 50 at a time, and put down a 5% deposit. This buys a right to buy the unit in future at a fixed price. In financial markets, this is known as a derivative.
2. Many developers include in the agreement of purchase the right to “assign” this right to buy at a fixed price. In financial markets, this is called creating a futures market. This assignment of a right to buy at a fixed price turns buyers into speculators (unless they want to move in or rent out the unit) who are set up to flip the units for a profit as prices are pushed upwards.
The Australians were victims of the same shenanigans and shut it down and now Canada must too
3. Some developers, and intermediaries, are in the business of helping speculators flip their rights and pocket a fee for doing so. For instance, Mr. X from Asia pays $15,000 for the right to buy a $300,000 condo, then, when the price of similar units rise to $400,000, he can assign the right, get his deposit back and make the $100,000 difference. There is a frenzy of this speculation going on which makes prices escalate so rights can be bought and resold over and over again before a building is completed.
4. The paperwork for these agreements is kept in-house and my source said one intermediary told him that there are no T-5s issued to the speculator or to the Canada Revenue Agency, something that stock and futures market intermediaries must do so that taxes can be paid on the $100,000 trading profits. Instead, the profits vanish, possibly along with the paperwork, and taxes paid will be by the end user if they buy, rent out the unit and make a capital gain down the road.
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“[Condo] brokers tell me I can flip my assignment and pay no tax and there is no paper trail. They say we do it all day long,” said the investor who asked to remain anonymous.
Under CRA rules, foreigners making Canadian-sourced income are fully taxable by the federal and provincial governments. In Ontario or BC, the total tax bill would be 46% or $46,000 in tax for $100,000 profit.
The unpaid taxes could be staggering, said a real estate agent. In Toronto, 20,000 condo units have been sold each year for the past five years. Let’s assume one-quarter were sold to foreign speculators who flipped the assignment and made $100,000 profit without paying taxes. Their Canadian-sourced income would total $500 million a year, and they would owe 46% of that in taxes or $230 million.
Most condo developers may not be involved in this game, but a few – notably developers with Asian and Middle East owners or backers and buildings located in downtown areas – certainly are.
So this is what must happen. As I argued last week, Ottawa must forbid the purchase by foreigners of any residences in Canada as Australia did in 2010 after foreign speculation and tax evasion damaged its housing market.
The Canada Revenue Agency should send in auditors to the lawyers and intermediaries and developers who have the lists of those who signed agreements of purchase. If they did not close on those deals, and the deals sold for more money than the agreements, then auditors must work backwards and assess income taxes.
The Ontario and other securities commissions should get involved because what is happening, if these reports hold true, is that an unregulated financial futures market is being created using and abusing Canadian residential properties as vehicles. Likewise, the federal and provincial government tax collectors should get involved.
If speculators who owe taxes are long gone – many of them are offshore funds that buy out entire buildings then sell units abroad – then the intermediaries and developers should pay the taxes.
This frenzy is forcing prices upwards. Meanwhile, condos in the suburbs often take months to sell because buyers want them as homes, not as convenient money machines to flip.
The investor who described the tax shenanigans took his information to several politicians and called the CRA hotline, but got nowhere. Tax officials said they needed specific names and addresses to investigate, but this is beyond a simple case. This requires a task force to look into this.
A realtor said ordinary foreigners are buying from “funds” that are bundling units in Toronto and promising huge returns.
“Foreigners have been lured into so-called investment products, property units, with promises of high yields,” wrote this real estate professional. “They are often small investors who go to property seminars overseas. Many of these buildings do not allow Canadians to buy these units, obviously because of the tax implications.”
The Australians were victims of the same shenanigans and shut it down and now Canada must too.
Posted in: Diane Francis Tags: condos, Housing bubbles
This is really frightening to me as a long term investor. If true, and a large enough scale, the Toronto market will not be a bubble because of price rises that exceed inflation but essentially down right fraud.
The government absolutely should pursue the "non tax payment". Developers who sell to off shore "groups/investors" should have to take a payment equal to an anticipated tax or some deposit. The developers are winning because they don't care. The agents are winning and if they know this is happening are accessories to a crime as well.
There has to be a system set up which ensures that all foreign investors cannot remove their capital from a sale. In the US if you sell a property to a non resident that is over $300K the buyer must with hold 10% of the price.
The suggestion here to go back and track the sales can be done at a fraction of the cost compared to what the Canadian government can get back.
Why are we so stupid that we have to reinvent the wheel? If the US and Australia and other countries have figured this out, why do we have to start from scratch. Just put it in place. My suspicion is the government of the day is scared to trigger anything that may stop the real estate market (despite statements of warning from Minister Flaherty) and hence would rather not bring it up.
http://opinion.financialpost.com/20...ms-of-hot-money-behind-canadas-condo-bubbles/
Taxpayers also victims of ‘hot money’ behind Canada’s condo bubbles
Diane Francis May 4, 2012 – 2:38 PM ET | Last Updated: May 4, 2012 3:01 PM ET
National Post
National Post
There are three times more condo high-rises being built in Toronto than in New York City and seven times’ more than in Chicago.
Comments
inShare4
The condo bubbles in Toronto and Vancouver are caused by foreign speculation and are making housing unaffordable and creating financial risk for the country in terms of government-insured mortgages. But there’s another issue of vital concern to taxpayers.
There are three times more condo high-rises being built in Toronto than in New York City and seven times’ more than in Chicago. This boom is not the market at work, but is manipulation by “hot money” from abroad.
“I have come across something that I find astonishing, and which amounts to systemic tax fraud by investors, mostly foreign, on a massive scale,” wrote an investor involved in the industry.
Related
Diane Francis: Taming Toronto’s housing ‘bubble’ requires ban on foreign buying
Diane Francis: Foreign control of Canada’s great companies not in national interest
Toronto housing market still on fire as sales jump in April
Why Toronto’s overheated housing market is unsustainable
He explained how it works:
1. Foreigners sign an agreement of purchase for a condo unit, or for 50 at a time, and put down a 5% deposit. This buys a right to buy the unit in future at a fixed price. In financial markets, this is known as a derivative.
2. Many developers include in the agreement of purchase the right to “assign” this right to buy at a fixed price. In financial markets, this is called creating a futures market. This assignment of a right to buy at a fixed price turns buyers into speculators (unless they want to move in or rent out the unit) who are set up to flip the units for a profit as prices are pushed upwards.
The Australians were victims of the same shenanigans and shut it down and now Canada must too
3. Some developers, and intermediaries, are in the business of helping speculators flip their rights and pocket a fee for doing so. For instance, Mr. X from Asia pays $15,000 for the right to buy a $300,000 condo, then, when the price of similar units rise to $400,000, he can assign the right, get his deposit back and make the $100,000 difference. There is a frenzy of this speculation going on which makes prices escalate so rights can be bought and resold over and over again before a building is completed.
4. The paperwork for these agreements is kept in-house and my source said one intermediary told him that there are no T-5s issued to the speculator or to the Canada Revenue Agency, something that stock and futures market intermediaries must do so that taxes can be paid on the $100,000 trading profits. Instead, the profits vanish, possibly along with the paperwork, and taxes paid will be by the end user if they buy, rent out the unit and make a capital gain down the road.
Advertisement
“[Condo] brokers tell me I can flip my assignment and pay no tax and there is no paper trail. They say we do it all day long,” said the investor who asked to remain anonymous.
Under CRA rules, foreigners making Canadian-sourced income are fully taxable by the federal and provincial governments. In Ontario or BC, the total tax bill would be 46% or $46,000 in tax for $100,000 profit.
The unpaid taxes could be staggering, said a real estate agent. In Toronto, 20,000 condo units have been sold each year for the past five years. Let’s assume one-quarter were sold to foreign speculators who flipped the assignment and made $100,000 profit without paying taxes. Their Canadian-sourced income would total $500 million a year, and they would owe 46% of that in taxes or $230 million.
Most condo developers may not be involved in this game, but a few – notably developers with Asian and Middle East owners or backers and buildings located in downtown areas – certainly are.
So this is what must happen. As I argued last week, Ottawa must forbid the purchase by foreigners of any residences in Canada as Australia did in 2010 after foreign speculation and tax evasion damaged its housing market.
The Canada Revenue Agency should send in auditors to the lawyers and intermediaries and developers who have the lists of those who signed agreements of purchase. If they did not close on those deals, and the deals sold for more money than the agreements, then auditors must work backwards and assess income taxes.
The Ontario and other securities commissions should get involved because what is happening, if these reports hold true, is that an unregulated financial futures market is being created using and abusing Canadian residential properties as vehicles. Likewise, the federal and provincial government tax collectors should get involved.
If speculators who owe taxes are long gone – many of them are offshore funds that buy out entire buildings then sell units abroad – then the intermediaries and developers should pay the taxes.
This frenzy is forcing prices upwards. Meanwhile, condos in the suburbs often take months to sell because buyers want them as homes, not as convenient money machines to flip.
The investor who described the tax shenanigans took his information to several politicians and called the CRA hotline, but got nowhere. Tax officials said they needed specific names and addresses to investigate, but this is beyond a simple case. This requires a task force to look into this.
A realtor said ordinary foreigners are buying from “funds” that are bundling units in Toronto and promising huge returns.
“Foreigners have been lured into so-called investment products, property units, with promises of high yields,” wrote this real estate professional. “They are often small investors who go to property seminars overseas. Many of these buildings do not allow Canadians to buy these units, obviously because of the tax implications.”
The Australians were victims of the same shenanigans and shut it down and now Canada must too.
Posted in: Diane Francis Tags: condos, Housing bubbles
This is really frightening to me as a long term investor. If true, and a large enough scale, the Toronto market will not be a bubble because of price rises that exceed inflation but essentially down right fraud.
The government absolutely should pursue the "non tax payment". Developers who sell to off shore "groups/investors" should have to take a payment equal to an anticipated tax or some deposit. The developers are winning because they don't care. The agents are winning and if they know this is happening are accessories to a crime as well.
There has to be a system set up which ensures that all foreign investors cannot remove their capital from a sale. In the US if you sell a property to a non resident that is over $300K the buyer must with hold 10% of the price.
The suggestion here to go back and track the sales can be done at a fraction of the cost compared to what the Canadian government can get back.
Why are we so stupid that we have to reinvent the wheel? If the US and Australia and other countries have figured this out, why do we have to start from scratch. Just put it in place. My suspicion is the government of the day is scared to trigger anything that may stop the real estate market (despite statements of warning from Minister Flaherty) and hence would rather not bring it up.
marsh
Active Member
The article, if true, is disturbing. I don't think we should restrict ownership to foreigners but we should be collecting the appropriate taxes. The difficulty is that we just don't know how much foreign investment is in the condos- I've read articles claiming anywhere from a low of 30% to a high of 80%.
I think the other thing that is potentially disturbing is how much of this off shore money is "clean". I remember reading about Quadaffi's son having a condo here. I also recall an article in the Globe and Mail about a study which concluded that billions of dollars had been taken out of China illegally (basically by corrupt government officials and their cronies).
I think the government doesn't know what to do - on the one hand i think they really are concerned about rising household debt and a potential housing crash - but on the other they can't raise interest rates in todays current global economic environment and the housing/condo development market provides hugh amount of jobs in constructuction/development/banking. I think they are loathe to do anything that would weaken job creation at the moment. Hence trying to "engineer" a "soft" landing and lots of scolding by Carney about too much household debt. But we shall see.
I think the other thing that is potentially disturbing is how much of this off shore money is "clean". I remember reading about Quadaffi's son having a condo here. I also recall an article in the Globe and Mail about a study which concluded that billions of dollars had been taken out of China illegally (basically by corrupt government officials and their cronies).
I think the government doesn't know what to do - on the one hand i think they really are concerned about rising household debt and a potential housing crash - but on the other they can't raise interest rates in todays current global economic environment and the housing/condo development market provides hugh amount of jobs in constructuction/development/banking. I think they are loathe to do anything that would weaken job creation at the moment. Hence trying to "engineer" a "soft" landing and lots of scolding by Carney about too much household debt. But we shall see.
interested
Senior Member
^^^
I have seen that people are reporting it at 3% foreign ownership but I too have seen 30% thrown around. The point is we don't keep statistics whereas these other countries do.
Ignoring it with an ostrich in the sand approach is surely not the answer. At least there should be an intelligent discussion about this.
I have seen that people are reporting it at 3% foreign ownership but I too have seen 30% thrown around. The point is we don't keep statistics whereas these other countries do.
Ignoring it with an ostrich in the sand approach is surely not the answer. At least there should be an intelligent discussion about this.
rbt
Senior Member
Yeah, I'll be waiting. I'm contractually committed to being in Toronto for a few more years.
Otherwise I'd probably sell my primary residence (condo), travel for a couple of years, and see what I can buy when I got back.
Last edited:
brockm
Active Member
Limiting foreign ownership is a form of capital control which does nothing but chase away investment. Oh, wait ... http://en.wikipedia.org/wiki/Investment_Canada_Act
interested
Senior Member
^^^
OK Brockm,
I accept capital control is not a good thing.
But surely you are not suggesting if the article referred to if true is a reasonable event to be allowed to occur/continue. These "investors/speculators" from abroad if true are not paying taxes, driving up shelter costs for Canadians, and are effectively subsidized by the Canadian taxpayer in a Ponzi scheme and it will be the Canadian tax payer who will be left holding the bag if there is a significant market downturn. Then the foreign investors/speculators go off and do this elsewhere, except that elsewhere...Australia and US for e.g. have put up some controls. Look at Spain with the massive overbuilding which occurred because "foreigners were buying". Look at the residual mess. I am not saying they are solely or even majorly responsible, but do we need to wait for the same thing to play out here because we don't wish any form of capital control or at least assurances that people can not play the derivative market with our housing stock without assuming their fair share (or one could argue 100% of the risk) from their behaviour?
They should get 100% rewards only if they also get 100% of the risk and the article at least to me makes sense and suggests this is not happening.
OK Brockm,
I accept capital control is not a good thing.
But surely you are not suggesting if the article referred to if true is a reasonable event to be allowed to occur/continue. These "investors/speculators" from abroad if true are not paying taxes, driving up shelter costs for Canadians, and are effectively subsidized by the Canadian taxpayer in a Ponzi scheme and it will be the Canadian tax payer who will be left holding the bag if there is a significant market downturn. Then the foreign investors/speculators go off and do this elsewhere, except that elsewhere...Australia and US for e.g. have put up some controls. Look at Spain with the massive overbuilding which occurred because "foreigners were buying". Look at the residual mess. I am not saying they are solely or even majorly responsible, but do we need to wait for the same thing to play out here because we don't wish any form of capital control or at least assurances that people can not play the derivative market with our housing stock without assuming their fair share (or one could argue 100% of the risk) from their behaviour?
They should get 100% rewards only if they also get 100% of the risk and the article at least to me makes sense and suggests this is not happening.
rbt
Senior Member
Aside from which, these people are't buying real-estate in Toronto. At no time are they registered as holding title on a Canadian property. They're essentially buying an opportunity to sell real-estate in Toronto.
It could work just as easily to write up a commission agreement with the developer, where commission is any value over $FIXED. So when they get a buyer to pay $FIXED_PLUS, the developer takes $FIXED and this person get $PLUS.
marsh
Active Member
The ghost houses of Ireland: Foreclosure and eviction
Published On Sat May 5 2012
Ireland's blossoming economy sparked a housing boom, but more homes were being built than could be occupied.
CATHAL MCNAUGHTON/REUTERS
By Rick Westhead Staff Reporter
DUBLIN—In Mairead Harold’s Irish childhood, there were no rugged mountains, stone-built cottages or seaside cliffs.
Harold grew up poor in Dublin’s derelict Finglas neighbourhood, where rows of gritty semi-detached houses and parks have long been regarded as a haven for drug dealers and their clients.
A 1987 marriage to Stan Harold hardly improved her fortunes. Within weeks of their wedding, he was laid off and she had to use a modest family inheritance to pay down most of the $24,000 mortgage on their new three-bedroom home.
It wasn’t long before Stan left.
Almost 20 years later, he came back, announcing in 2005 that he wanted roughly $130,000 to surrender his claim to the house. Mairead Harold couldn’t raise the cash on her own. She earned $13 an hour working for a bookmaker, her unemployed adult son lived with her and her heroin-addicted daughter was constantly asking for money.
During her second meeting with a loan officer at Allied Irish Bank — after explaining she needed cash for her husband and to pay off some legal fees and $8,000 worth of debt — Harold’s loan application for $162,500 was approved and she walked out with a cheque. At most, she said she spent 10 minutes with bank officials.
“I didn’t need a loan, I needed a divorce lawyer,” Harold recalled on a recent afternoon, her eyes welling with tears as she smoked a cigarette.
Now Harold is battling the bank. At 46, she is struggling to find even part-time work and can’t afford the monthly mortgage payments of about $1,300 on a home she estimates is worth $79,000. The bank wants to evict Harold, her son and the 4-year-old daughter she had with a recent boyfriend.
Harold’s story shows how easy it was to get credit during Ireland’s roaring heyday of the last decade, when its hard-charging economy won the island nation the nickname the Celtic Tiger.
The roots of Ireland’s rags-to-riches-and-back-again story began more than 20 years ago.
During the early 1990s, with a young, English-speaking, low-cost workforce, low interest rates and government grants, Ireland’s export-oriented economy blossomed, growing by an average 6.5 per cent from 1990 to 2007.
By 2000, unemployment had plunged to 3.8 per cent, the lowest in Europe, from 16 per cent in the mid-1990s. Irish expats and new immigrants alike flocked to the country. In 2005, 100,000 immigrants arrived in Ireland, more than triple the 30,000 who came annually in the mid-1990s.
The newcomers and newly employed needed places to stay and Ireland’s bullish housing market was supercharged. Bank loan officers, anxious to boost commissions, encouraged many borrowers to take out loans far larger than they needed.
“A certain newfangled confidence began to emerge,” columnist Jody Corcoran wrote in 2010 in Ireland’s Sunday Independent newspaper. “We Irish, we had it cracked. . . Everybody wanted to own their own house, but many also wanted a second property, a holiday home; or an investment or two, an apartment in Bulgaria, a villa in Croatia or a mock-Tudor pile halfway up a mountain, half an hour’s drive from Lisbon.”
Even Ireland’s government seemed to relish the “greed is good” mentality. “The boom is getting boomier,” said then-Prime Minister Bertie Ahern, who suggested doomsayers should consider suicide rather than “talking down the economy.”
But Ireland’s bull market was, indeed, too good to be true. More houses were being built than could be occupied. In County Leitrim, for instance, housing supply from 2006 to 2009 outpaced demand by 401 per cent.
In September 2008, the U.S. bank Lehman Brothers collapsed. Days later, the stocks of Irish banks went into free-fall as investors and analysts came to grips with the fact that the country of 3.8 million was vastly overextended.
Stories of reckless lending and borrowing abound.
In 2010, Dublin lawyer Vincent Martin and his colleagues were contacted by a man who was at loggerheads with the Irish Nationwide building society, a local bank. After obtaining the bank’s files on his account, the man had discovered the bank, which has since merged with Anglo Irish Bank, had created a new version of him for their credit committee.
So they could lend him more money during Ireland’s bull market, banking officials had changed the man’s occupation, inflated his roughly $39,000 annual salary to $78,000, and forged both his and his employer’s signature. Martin wouldn’t reveal the man’s name because of ongoing litigation. He also declined to say whether police were involved in the case.
To help that man, and others such as Harold, Martin and his colleagues started a legal aid group called New Beginning, which specializes in helping people who are at risk of losing their homes.
It’s a growing worry, despite government assurances that new laws are coming to help shield mortgage delinquents.
As many as 250,000 Irish homeowners are at risk of being evicted for falling behind on their mortgages, Martin said. In the last three months of 2011, banks started 12,000 new court proceedings that may lead to evictions.
While there have been few actual evictions — banks have repossessed 1,177 residential properties since July 2009 — that seems poised to change. After the Lehman Brothers collapse four years ago, when several of Ireland’s banks seemed likely to follow suit, the Irish government agreed to guarantee $572 billion worth of loans at six financial institutions. Now, the head of Ireland’s central bank says it’s time for banks to get tougher about collecting from debtors. The alternative is defaulting on its payments to the E.U. and IMF.
For years, Ireland has clung to the ideal of the family home as sacrosanct. It has remained one of the few developed countries that for decades never levied property taxes, so evictions could stoke the kind of unrest that Greece has experienced.
“The Irish are mad about property ownership,” says Matthew Kerby, an expert on Irish politics at Memorial University in St. John’s, Newfoundland. “The idea of repossessions isn’t popular for good reason. The last people to do them on a widespread level here were the English, and you’d typically see them kicking a family of 12 out of their home and burning their barn.”
Foreclosure dominates radio talk-shows and television, sparked, some say, by the case of one family that surfaced after the Irish Times newspaper published a letter last August from a desperate father in Kerry, in the southwest.
“I have found myself and my loved ones having to cope with a new torment — hunger,” wrote M.P. MacDomhnaill, signing his letter with his initials. “Today I have had nothing to give my children, only bread and cereal. The wolf that I have been keeping from the door has finally moved in.”
MacDomhnaill, who lost his job as a civil servant last June, told the newspaper in an interview that his family had a running joke about what has more calories, cornflakes or the box they come in. His 7-year-old daughter had actually started eating parts of the box.
MacDomhnaill said he bought a home in 2003 for $170,000 and still owed $105,000 . While he received about $1,350 a month in social assistance, he said he continued to make his monthly payments of $1,020 because he worried about being evicted, leaving his family with $330 for food and other expenses.
His story created an outcry, with many suggesting that MacDomhnaill and others stop paying their mortgages. Banks are starting to establish legal cases for eviction against thousands who have done that, lawyers said.
The legal battles play out in a Dublin courtroom where each Monday, a judge deliberates over dozens of new and continuing civil cases related to mortgage defaults. The Irish Times has started assigning reporters to the hearings and recently covered one case where a bank sought a repossession order against a man who had recently suffered a stroke, and another against a single mother of five children who owes about $43,000.
During one recent hearing, Mairead Harold sat in the back row of the crowded courtroom, her hands folded in her lap, waiting for her case to be called.
“I’ve struggled all my life,” she said. “This is just a terrible thing. Someone will come along and pay the bank 60,000 (euros) and I’ll be out on the street with my kids.”
Nearby, 38-year-old John Larkin rubbed his balding head.
The father of five is locked in a fight with a bank that is trying to foreclose on two pubs he owns in his hometown of Donegal. In 2006, Larkin borrowed $2 million to buy and upgrade the pubs, but business has since soured.
“My wife asks me if will we lose everything and I don’t know what to say to her,” Larkin said.
Larkin recently ran into the bank officer who helped him secure his loan. The two recalled negotiations for Larkin’s loan: the banker, who has since been laid off, had tried to coax him to accept a loan worth $1.3 million more than Larkin needed.
“He was standing to make 17,000 (euros) in commission, but that’s how it was,” Larkin said. “Money was there for the taking. You almost can’t believe it now.”
From his office in the corner of an automotive park, Dublin county sheriff John Fitzpatrick, 68, has an intimate view of Ireland’s pain. For the past 32 years, it has been Fitzpatrick’s job to enforce foreclosures and debt collections, and he has never been busier.
Last year, his office handled 4,920 court orders for foreclosures and debt collections, nearly five times as many as the 1,035 in 2006.
“I don’t like it but what can you do?” Fitzpatrick said.
One case involved a man who threatened to commit suicide as sheriff deputies were repossessing his home. Fitzpatrick phoned the bank.
“They told me to forget it, to just walk away, and I think they left him alone,” he said. In another case, he was given a court order to evict a woman who was battling terminal cancer.
“I called the bank and just told them we weren’t doing it,” he said. “I think it just fizzled out.”
Ireland is debating legislation to allow those facing eviction to forfeit ownership, but to continue living in the home as a renter. That discussion is taking place even as the government introduces Ireland’s first-ever property tax, a $130 household charge that is being levied on the country’s 1.6 million households.
On March 31, 5,000 protesters marched through central Dublin to denounce the new charge and at least 1 million households refused to pay the tax before a March 31 deadline.
Meantime, mortgage delinquency is getting worse, said Martin, the Dublin lawyer. A recent Ireland central bank report shows 70,911 mortgages are in arrears of more than 90 days. That’s up from 62,970, or 8.1 per cent, in September.
“No one wants to run away from these debts, they’re just looking for a bit of breathing space,” Martin said. “It’s an amazing thing to see. These big banks are bailed out with taxpayer money and the next thing you know, they’re using that money to hire lawyers to try to evict people.”
Martin said his group now offers free legal advice to clients such as Harold, who also face an uncertain future because of Ireland’s unforgiving bankruptcy law.
Declaring bankruptcy makes it nearly impossible to own a home or borrow money for up to 12 years. A bankruptcy can also restrict the ability to travel internationally.
“In the U.S., filing for bankruptcy almost seems like a badge of honour, like at least you’ve tried,” Martin said. “Not here. You file for bankruptcy, and they might as well put you in the graveyard.”
Published On Sat May 5 2012
Ireland's blossoming economy sparked a housing boom, but more homes were being built than could be occupied.
CATHAL MCNAUGHTON/REUTERS
By Rick Westhead Staff Reporter
DUBLIN—In Mairead Harold’s Irish childhood, there were no rugged mountains, stone-built cottages or seaside cliffs.
Harold grew up poor in Dublin’s derelict Finglas neighbourhood, where rows of gritty semi-detached houses and parks have long been regarded as a haven for drug dealers and their clients.
A 1987 marriage to Stan Harold hardly improved her fortunes. Within weeks of their wedding, he was laid off and she had to use a modest family inheritance to pay down most of the $24,000 mortgage on their new three-bedroom home.
It wasn’t long before Stan left.
Almost 20 years later, he came back, announcing in 2005 that he wanted roughly $130,000 to surrender his claim to the house. Mairead Harold couldn’t raise the cash on her own. She earned $13 an hour working for a bookmaker, her unemployed adult son lived with her and her heroin-addicted daughter was constantly asking for money.
During her second meeting with a loan officer at Allied Irish Bank — after explaining she needed cash for her husband and to pay off some legal fees and $8,000 worth of debt — Harold’s loan application for $162,500 was approved and she walked out with a cheque. At most, she said she spent 10 minutes with bank officials.
“I didn’t need a loan, I needed a divorce lawyer,” Harold recalled on a recent afternoon, her eyes welling with tears as she smoked a cigarette.
Now Harold is battling the bank. At 46, she is struggling to find even part-time work and can’t afford the monthly mortgage payments of about $1,300 on a home she estimates is worth $79,000. The bank wants to evict Harold, her son and the 4-year-old daughter she had with a recent boyfriend.
Harold’s story shows how easy it was to get credit during Ireland’s roaring heyday of the last decade, when its hard-charging economy won the island nation the nickname the Celtic Tiger.
The roots of Ireland’s rags-to-riches-and-back-again story began more than 20 years ago.
During the early 1990s, with a young, English-speaking, low-cost workforce, low interest rates and government grants, Ireland’s export-oriented economy blossomed, growing by an average 6.5 per cent from 1990 to 2007.
By 2000, unemployment had plunged to 3.8 per cent, the lowest in Europe, from 16 per cent in the mid-1990s. Irish expats and new immigrants alike flocked to the country. In 2005, 100,000 immigrants arrived in Ireland, more than triple the 30,000 who came annually in the mid-1990s.
The newcomers and newly employed needed places to stay and Ireland’s bullish housing market was supercharged. Bank loan officers, anxious to boost commissions, encouraged many borrowers to take out loans far larger than they needed.
“A certain newfangled confidence began to emerge,” columnist Jody Corcoran wrote in 2010 in Ireland’s Sunday Independent newspaper. “We Irish, we had it cracked. . . Everybody wanted to own their own house, but many also wanted a second property, a holiday home; or an investment or two, an apartment in Bulgaria, a villa in Croatia or a mock-Tudor pile halfway up a mountain, half an hour’s drive from Lisbon.”
Even Ireland’s government seemed to relish the “greed is good” mentality. “The boom is getting boomier,” said then-Prime Minister Bertie Ahern, who suggested doomsayers should consider suicide rather than “talking down the economy.”
But Ireland’s bull market was, indeed, too good to be true. More houses were being built than could be occupied. In County Leitrim, for instance, housing supply from 2006 to 2009 outpaced demand by 401 per cent.
In September 2008, the U.S. bank Lehman Brothers collapsed. Days later, the stocks of Irish banks went into free-fall as investors and analysts came to grips with the fact that the country of 3.8 million was vastly overextended.
Stories of reckless lending and borrowing abound.
In 2010, Dublin lawyer Vincent Martin and his colleagues were contacted by a man who was at loggerheads with the Irish Nationwide building society, a local bank. After obtaining the bank’s files on his account, the man had discovered the bank, which has since merged with Anglo Irish Bank, had created a new version of him for their credit committee.
So they could lend him more money during Ireland’s bull market, banking officials had changed the man’s occupation, inflated his roughly $39,000 annual salary to $78,000, and forged both his and his employer’s signature. Martin wouldn’t reveal the man’s name because of ongoing litigation. He also declined to say whether police were involved in the case.
To help that man, and others such as Harold, Martin and his colleagues started a legal aid group called New Beginning, which specializes in helping people who are at risk of losing their homes.
It’s a growing worry, despite government assurances that new laws are coming to help shield mortgage delinquents.
As many as 250,000 Irish homeowners are at risk of being evicted for falling behind on their mortgages, Martin said. In the last three months of 2011, banks started 12,000 new court proceedings that may lead to evictions.
While there have been few actual evictions — banks have repossessed 1,177 residential properties since July 2009 — that seems poised to change. After the Lehman Brothers collapse four years ago, when several of Ireland’s banks seemed likely to follow suit, the Irish government agreed to guarantee $572 billion worth of loans at six financial institutions. Now, the head of Ireland’s central bank says it’s time for banks to get tougher about collecting from debtors. The alternative is defaulting on its payments to the E.U. and IMF.
For years, Ireland has clung to the ideal of the family home as sacrosanct. It has remained one of the few developed countries that for decades never levied property taxes, so evictions could stoke the kind of unrest that Greece has experienced.
“The Irish are mad about property ownership,” says Matthew Kerby, an expert on Irish politics at Memorial University in St. John’s, Newfoundland. “The idea of repossessions isn’t popular for good reason. The last people to do them on a widespread level here were the English, and you’d typically see them kicking a family of 12 out of their home and burning their barn.”
Foreclosure dominates radio talk-shows and television, sparked, some say, by the case of one family that surfaced after the Irish Times newspaper published a letter last August from a desperate father in Kerry, in the southwest.
“I have found myself and my loved ones having to cope with a new torment — hunger,” wrote M.P. MacDomhnaill, signing his letter with his initials. “Today I have had nothing to give my children, only bread and cereal. The wolf that I have been keeping from the door has finally moved in.”
MacDomhnaill, who lost his job as a civil servant last June, told the newspaper in an interview that his family had a running joke about what has more calories, cornflakes or the box they come in. His 7-year-old daughter had actually started eating parts of the box.
MacDomhnaill said he bought a home in 2003 for $170,000 and still owed $105,000 . While he received about $1,350 a month in social assistance, he said he continued to make his monthly payments of $1,020 because he worried about being evicted, leaving his family with $330 for food and other expenses.
His story created an outcry, with many suggesting that MacDomhnaill and others stop paying their mortgages. Banks are starting to establish legal cases for eviction against thousands who have done that, lawyers said.
The legal battles play out in a Dublin courtroom where each Monday, a judge deliberates over dozens of new and continuing civil cases related to mortgage defaults. The Irish Times has started assigning reporters to the hearings and recently covered one case where a bank sought a repossession order against a man who had recently suffered a stroke, and another against a single mother of five children who owes about $43,000.
During one recent hearing, Mairead Harold sat in the back row of the crowded courtroom, her hands folded in her lap, waiting for her case to be called.
“I’ve struggled all my life,” she said. “This is just a terrible thing. Someone will come along and pay the bank 60,000 (euros) and I’ll be out on the street with my kids.”
Nearby, 38-year-old John Larkin rubbed his balding head.
The father of five is locked in a fight with a bank that is trying to foreclose on two pubs he owns in his hometown of Donegal. In 2006, Larkin borrowed $2 million to buy and upgrade the pubs, but business has since soured.
“My wife asks me if will we lose everything and I don’t know what to say to her,” Larkin said.
Larkin recently ran into the bank officer who helped him secure his loan. The two recalled negotiations for Larkin’s loan: the banker, who has since been laid off, had tried to coax him to accept a loan worth $1.3 million more than Larkin needed.
“He was standing to make 17,000 (euros) in commission, but that’s how it was,” Larkin said. “Money was there for the taking. You almost can’t believe it now.”
From his office in the corner of an automotive park, Dublin county sheriff John Fitzpatrick, 68, has an intimate view of Ireland’s pain. For the past 32 years, it has been Fitzpatrick’s job to enforce foreclosures and debt collections, and he has never been busier.
Last year, his office handled 4,920 court orders for foreclosures and debt collections, nearly five times as many as the 1,035 in 2006.
“I don’t like it but what can you do?” Fitzpatrick said.
One case involved a man who threatened to commit suicide as sheriff deputies were repossessing his home. Fitzpatrick phoned the bank.
“They told me to forget it, to just walk away, and I think they left him alone,” he said. In another case, he was given a court order to evict a woman who was battling terminal cancer.
“I called the bank and just told them we weren’t doing it,” he said. “I think it just fizzled out.”
Ireland is debating legislation to allow those facing eviction to forfeit ownership, but to continue living in the home as a renter. That discussion is taking place even as the government introduces Ireland’s first-ever property tax, a $130 household charge that is being levied on the country’s 1.6 million households.
On March 31, 5,000 protesters marched through central Dublin to denounce the new charge and at least 1 million households refused to pay the tax before a March 31 deadline.
Meantime, mortgage delinquency is getting worse, said Martin, the Dublin lawyer. A recent Ireland central bank report shows 70,911 mortgages are in arrears of more than 90 days. That’s up from 62,970, or 8.1 per cent, in September.
“No one wants to run away from these debts, they’re just looking for a bit of breathing space,” Martin said. “It’s an amazing thing to see. These big banks are bailed out with taxpayer money and the next thing you know, they’re using that money to hire lawyers to try to evict people.”
Martin said his group now offers free legal advice to clients such as Harold, who also face an uncertain future because of Ireland’s unforgiving bankruptcy law.
Declaring bankruptcy makes it nearly impossible to own a home or borrow money for up to 12 years. A bankruptcy can also restrict the ability to travel internationally.
“In the U.S., filing for bankruptcy almost seems like a badge of honour, like at least you’ve tried,” Martin said. “Not here. You file for bankruptcy, and they might as well put you in the graveyard.”
rbt
Senior Member
What is a typical mortgage in Ireland?
http://www.mortgages.ie claims you can get a 35 year amortization at 4.35% interest rate which works out to $804 per month. A typical term seems to be very short (2 to 3 years).
This fellow must be 25 year amortization at 5.75%.
How come he hasn't been able to refinance in the last couple of years to a lower interest rate and possibly longer term. Targetting $920/month for housing payments would make a big difference to them.
http://www.mortgages.ie claims you can get a 35 year amortization at 4.35% interest rate which works out to $804 per month. A typical term seems to be very short (2 to 3 years).
This fellow must be 25 year amortization at 5.75%.
How come he hasn't been able to refinance in the last couple of years to a lower interest rate and possibly longer term. Targetting $920/month for housing payments would make a big difference to them.
CN Tower
Banned
I have another shocking tale to tell. Here's how it goes:
-guys car breaks down so he goes to local garage and ask mechanic to repair it
-mechanic, a hard working Canadian fellow, looks at the car and tells the owner that he needs a new catalytic converter and it I'll cost $1000
-guy says can I give you $800 in cash instead?
-the deal is consummated
Call the RCMP on all independently owned garages Diane! Better yet ban all body shops not owned by the Provincial government!
Point is Diane's tale is monsterly heresay, the condo market is far from out of control, units are not lying vacant or heaven forbid foreclosed and abandoned so why take any measures to severely punish a giant industry that is responsible for probably hundreds of thousands of jobs across the country and easily hundreds of millions per year in property taxes? If the problem she suggests is widespread and accurate call the RCMP in on the tax fraud perpetrated by the buyers. They've clearly got jurisdictional power to prosecute foreign criminals or at least freeze their assets.
interested
Senior Member
CNTower,
I think Diane Francis eludes to that. She says the investor who is honest tried to do something:
From the article:
The investor who described the tax shenanigans took his information to several politicians and called the CRA hotline, but got nowhere. Tax officials said they needed specific names and addresses to investigate, but this is beyond a simple case. This requires a task force to look into this.
A realtor said ordinary foreigners are buying from “funds” that are bundling units in Toronto and promising huge returns.
“Foreigners have been lured into so-called investment products, property units, with promises of high yields,” wrote this real estate professional. “They are often small investors who go to property seminars overseas. Many of these buildings do not allow Canadians to buy these units, obviously because of the tax implications.”
The Australians were victims of the same shenanigans and shut it down and now Canada must too.
The implication to me is that these seminars are designed to thwart the Canadian system in this regard or else why exclude Canadians. It is clear in my mind that this illegal activity would result in investigations and the ultimate closing of the loop hole. The tax system is an honour system after all. These people are clearly not working within the honour system so there must be some recourse or else pretty soon everyone will ask why they are paying when others are not.
Does Canada really want to become a banana republic where a few steal from the masses with no responsibility?
I am not saying it is out of control but clearly it was a problem in other countries so can we not at least pro act to a degree?
I think Diane Francis eludes to that. She says the investor who is honest tried to do something:
From the article:
The investor who described the tax shenanigans took his information to several politicians and called the CRA hotline, but got nowhere. Tax officials said they needed specific names and addresses to investigate, but this is beyond a simple case. This requires a task force to look into this.
A realtor said ordinary foreigners are buying from “funds” that are bundling units in Toronto and promising huge returns.
“Foreigners have been lured into so-called investment products, property units, with promises of high yields,” wrote this real estate professional. “They are often small investors who go to property seminars overseas. Many of these buildings do not allow Canadians to buy these units, obviously because of the tax implications.”
The Australians were victims of the same shenanigans and shut it down and now Canada must too.
The implication to me is that these seminars are designed to thwart the Canadian system in this regard or else why exclude Canadians. It is clear in my mind that this illegal activity would result in investigations and the ultimate closing of the loop hole. The tax system is an honour system after all. These people are clearly not working within the honour system so there must be some recourse or else pretty soon everyone will ask why they are paying when others are not.
Does Canada really want to become a banana republic where a few steal from the masses with no responsibility?
I am not saying it is out of control but clearly it was a problem in other countries so can we not at least pro act to a degree?
WanderLust
Active Member
http://www.thestar.com/business/article/1078078 <-------- half of the units for the new Ivory condo sold before the doors opened to the general public ...
The general public, however, could still buy the units that were 'bought' before the doors opened to the general public, they just have to buy them from the speculators, via the developers' sale team who act as dual agents ... sometimes on the same day, sometimes multiple times per day, and it's all tax-free, legal, and CRA can't do a thing about it until they enact property ownership rules for foreigners.
interested
Senior Member
Actually Wunderlust, I beg to differ. It is not tax free, legal.
First of all, the agents have to declare commissions. I am sure they are not because to do so would be to expose their clients whom they are selling to telling them one can get away with this.
The developer is aware these sales are going on and being remarketed. If the developer is aware, he is aiding and abetting in a crime if he is aware that people are doing this to avoid the countries taxes. T
These speculator/investors are conducting a business in Canada....the buying and selling of contracts to purchase Canadian real estate. The government could and should act to deal with this.
The CRA could do something if they knew of the sale or wanted to. They could do this as pointed out earlier in another post by simply saying to the developer that every sale/resale/assignment must be reported to CRA. Further, they could put the onus on the developer to with hold tax on the transaction. It happens with foreign securities when one buys. They could insist on foreign sale reporting and copies of all transactions. Add hefty penalties for failure to do so and I am sure it would suddenly become much less of a problem.
My problem is left unchecked the only way this can eventually end is when the investor no longer can make money, the Canadian real estate has been artificially bid up by not only Canadian speculator investors, but further by the additional foreign investors, and the people of Canada pick up the bill for the eventual fall. In the mean time, the people of Canada have not benefited from the taxes owed on the increasing in prices.
To me the argument put forth by CN Tower is a bit like saying because this is wrong with independent garages, we should therefore turn a blind eye to real estate fraud. 2 wrongs don't make a right.
Further, the problem is a few independent garages....small problem. The biggest asset owned by most Canadians....big problem if it collapses.
CN Tower
Banned
Don't close off the market to foreign investment. That's suicide. It's hard to argue that there arent enormous benefits to allowing foreign investors the opportunity to park thei capital in Canada's best markets Just enforce the tax laws better.
Why is that so hard?
April numbers show a 4% increase in condo prices year over year. We couldn't wish for anything more stable.
Why is that so hard?
April numbers show a 4% increase in condo prices year over year. We couldn't wish for anything more stable.
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