FEBRUARY 2013 REAL ESTATE UPDATE The average price of a resale home in the GTA in January From a volume perspective, the month of January was $482,648 - a 4.3% increase versus the January 2012 witnessed a 1.3% decline in sales (4,375 transactions average price of $462,655. Price growth varied by market versus 4,432 in January 2012). While slightly down versus segment, as follows: single-detached homes (+4.7%), last year, the actual rate of decline was much less than semi-detached homes (+6.5%), townhomes (+4.0%) and what was experienced in the back half of 2012. This condo apartments (-1.2%). The MLS® Home Price Index suggests that some buyers, who put their decision to (HPI) Composite Benchmark Price was up by 3.8% over the purchase on hold last year due to stricter mortgage same period. These results support the thesis that there lending guidelines, are once again becoming active in the will be enough competition between buyers to support market. Volume growth varied by market segment, as continued growth in home prices in 2013. Expectations follows: single-detached homes (+0.7%), semi-detached are for average price growth to be in the 3-5% range this homes (-1.1%), townhomes (-2.3%) and condo apartments year. (-5.1%). GTA AVERAGE RESALE PRICE GTA RESALE HOME SALES 8 $540,000 9 10 11 12 8 9 10 11 12 12,000 2011 2012 2013 2011 2012 2013 $520,000 10,500 $480,000 GTA Resale Home Salessale Home Sales $500,000 9,000 7,500 $460,000 6,000 $440,000 4,500 $420,000 3,000 $400,000 1,500 JAN MAR MAY JUL SEP NOV JAN MAR MAY JUL SEP NOV for more detailed GTA statistics: REALTYSTATS.CA/5A2X James Metcalfe BROKER 416-931-4161 Royal LePage Real Estate Services Ltd. Johnston & Daniel Division, Brokerage 477 Mount Pleasant Rd., Toronto, ON M4S 2L9 www.OurHomeToronto.com | Service@OurHomeToronto.com 1
PERSONALFINANCE PROS AND CONS OF REVERSE MORTGAGESIf you are considering taking out a reverse mortgage, it is • The money received under a reverse mortgage does not affectimportant to ensure that you understand fully how they work and Old Age Security (OAS) or Guaranteed Income Supplementthat you carefully weigh the advantages and risks. (GIS) beneﬁts. • You can determine the manner in which you receive yourHow they work reverse mortgage funds. For example, you may receive a lump-A reverse mortgage is a loan that is available to homeowners sum of cash, regular advances or a combination of both.60 years of age or older. If you have a spouse or other co-owner,the age requirement applies to both of you. A reverse mortgage The disadvantages associated with taking out a reverse mortgageis an advance of money provided by a lender that is secured by include:the existing debt-free equity that you have in your home. • Reverse mortgages are subject to higher interest rates thanThe amount of the loan provided under a reverse mortgage is other types of mortgages and loans.usually up to 40 per cent of the current value of your home. The • The equity in your home will decrease over the years as theamount you can borrow depends on your age, the current interest interest on your reverse mortgage accumulates.rate and the value of your home. Generally, the older you are, • There are signiﬁcant fees associated with initiating a reversethe larger the loan you will be able to receive. If there are mortgage, including an application fee, a home appraisalexisting outstanding loans secured by your home at the time fee and legal fees. Homeowners may also be required to takeyour reverse mortgage funds are advanced, you may ﬁrst be out mortgage insurance.required to use these funds to pay off those existing debts. • You may be charged a repayment penalty for selling yourTraditional mortgage vs. reverse mortgage home or moving out within three years of obtaining a reverseWith a traditional mortgage or secured line of credit, you must mortgage.have an adequate income verses debt ratio in order to qualify • Upon your death, your estate will be required to repay thefor the loan. Traditional mortgages also require that the borrower accumulated debt within a certain period of time. However,make regular bi-weekly or monthly payments. A reverse mortgage the time required to deal with the estate may exceed the timeis different in that it pays you and is available to you regardless permitted to repay the debt, which could cause problems forof your current income. With a reverse mortgage, the interest your estate.on your loan accumulates and the equity that you have in • Since the loan and interest will need to be repaid upon youryour home decreases over time. The accumulated debt is not death, there will be less money in your estate to leave to yourrequired to be paid off until such time as you die, sell your home children or other beneﬁciaries. In many cases, repayment isor it is no longer your principal residence. However, you are made by selling the home and then turning over the proceedsstill required to continue paying your property taxes, insurance, (or a portion of them) to the bank.utilities and other costs associated with maintaining your home.Advantages vs. pitfallsReverse mortgages have the following advantages: • You are not required to make regular payments; • You can receive cash for the value of your home without having to sell it. • The money is a tax-free source of income (unless the money is used to invest and produce income, in which case some or all of that income would be taxable). 2 Adapted from an article contributed by June Wright. June is a lawyer with the law firm Nelligan O’Brien Payne. Please visit them at nelligan.ca.
CONDO CORNER SELLING A CONDO? BEWARE THE TAXMANWhen you sell a property that isn’t your principal residenceand make a proﬁt, half of the amount is taxable. This is the so-called capital gains tax and it’s pretty straight forward, but everysituation is different. It all depends on how the Canada RevenueAgency views the transaction.Real estate agent Romano Giusti bought a condo on RichardsStreet in Vancouver in November 2006 and re-sold it in June 2007for a proﬁt of $30,831. When he ﬁled his tax return, he paid no taxon the proﬁt, saying it was his personal residence.The CRA re-assessed this return and discovered that Giusti hadbought and sold seven condos in seven years. He argued thathe intended to make the Richards Street condo his personalresidence, but changed his mind because of the street noise,irresponsible renters and pets in the building. So, he moved.Giusti appealed and lost. In a case heard on January 25, 2011,Judge G.A. Sheridan found that Giusti was ﬂipping houses andso was not entitled to the principal residence exception. Healso penalized Giusti. Here are some things the court and CRA will look at in deciding whether a proﬁt is a capital gain or income:For most people, if you make a $30,000 proﬁt, you only wouldpay tax on $15,000. In this case, the court found that because 1. The nature of the property sold;Romano was in the business of buying and selling homes, he had 2. The length of the period of ownership of the property;to pay tax on the entire proﬁt. 3. The frequency or number of other similar transactions by the taxpayer; 4. Any work done to make the property more marketable or to attract purchasers; 5. The taxpayer’s motive or intention at the time he acquired the property. The fact that Romano was also a real estate agent did not help him, since most of his business income related to commissions on real estate contacts. The key factor in most court cases is the number of deals that you have done over the last few years. If there are not many deals, it is unlikely that it will be called a capital gain so the proﬁt will be tax free. Still, if you are not sure, it is better to obtain tax or legal advice before you sell any property, to make sure that you are ﬁling properly. 3 This article was contributed by Mark Weisleder, a Toronto-based real estate lawyer. Please visit him at markweisleder.com.