Month: July 2021

Many of Canada’s immigrant business owners have a predilection for owning restaurant franchises, and according to Ori Grad, a real estate broker and managing director of CHI Real Estate, it’s for good reason.

“Immigrants coming to Canada desire triple-A locations and they like having a big brand behind them because these franchisors have systems in place and it’s really plug and play for the most part,” said Grad. “You have ongoing training and assistance from the franchisor, as well, so a lot of immigrants come to Canada with a franchise and sometimes they eventually expand, or maybe go ahead with new concepts.”

Another reason large franchises are desirable is because the franchisee can negotiate better leasing terms, added Grad, otherwise they will have to come up with huge security deposits.

All over Ontario, in particular, franchises attract a lot of immigrant owners. In addition to established systems, franchises aggressively secure top locations. For example, Grad noted that A&W, which expanded in the last few years, prefers leasing corner units on busy streets.

“They lock it down and go through their list of franchisees to see who wants the location,” said Grad. “Often, it’s the franchisor that caters to the franchisee with the location. In some cases, the franchisee scopes locations, but everything has to be approved by head office. A good franchisor has brokers on the ground who tie locations up and during the conditional period they will do due diligence with the franchisee, and if everything checks out deals are signed.”

Canada is slated to accept 1.2 million immigrants through 2023, 60% of whom will belong to the “economic class,” according to Immigration, Refugees and Citizenship Canada, and Grad says among them will be many franchise owners.

Through the COVID-19 pandemic, many franchises have tried to expand, circling like sharks in the water for businesses to go under, however, thanks to government subsidies, most of those coveted commercial units never hit the market. But perhaps they cannot be blamed for trying, though.

“In 2008 during the financial crash, some brands aggressively tried locking down locations,” said Grad. “Subway took up locations all over the place because they wanted market share. However, we’re not seeing that great of deals in the market right now because there’s a major lack of availability in some markets. A lot of franchises are looking for locations with patios right now, but they’re in high demand and there’s not much available out there at all.”

It isn’t just immigrants who choose to run franchises in Canada. A lot of major brands in other countries flock to Canada, and why wouldn’t they considering that it’s a country of people from all over the world?

“When it comes to foreign franchises coming to Canada, we’re one of the most desirable places to live and we have a booming economy, so most brands want to be here,” said Grad. “We also have a huge influx of people from Hong Kong and China, and that’s a driving factor behind all the bubble tea cafes we have all over the place, but we have people from all over the world. Jollibee from the Philippines is in Toronto, too. Some of these brands are aggressive: before COVID at College and Yonge, a group paid $60,000 just to buy a lease. They had quite a bit of money and were looking to expand because they have a lot of franchises.”

A company headquartered in Collingwood is giving its employees up to $20,000 towards the purchase of their first homes.

Crozier & Associates, a land development engineering firm that also has offices in Toronto, Milton and Bradford, quietly launched the program in February for its staff, which just passed 200, after the company’s president and other senior leaders listened to story upon story from employees about being priced out of the housing market.

“The idea came during water cooler conversations going back to last fall with a few of my employees, who talked about how crazy the market is. They were all having trouble finding a house in this market that’s affordable and where they’re not constantly in bidding wars with 20 other people,” said Nick Mocan. “That was the impetus for this whole thing. I was in their position at one point in my life, except my first home was $170,000, not $870,000.”

Mocan noted that Crozier’s employees are highly skilled, and given runaway housing prices that are pushing homebuyers further away from urban centres, the company sought a way to help them. After Mocan presented the idea to the company’s accountants and lawyers, the program was born. To date, 12 employees have already used the program and Mocan says at least another dozen more have expressed interest.

“We couldn’t implement this soon enough,” he said. “It launched quietly in February to test it out because we’ve never heard of something of this nature, and the reaction was a bit overwhelming, so we decided to roll it out to all staff.”

The program provides a fixed amount of money with the rest determined by employees’ duration at the company, although there isn’t a wide fluctuation. Moreover, the money provided is tax-free and paid as a bonus that’s put into employees’ RRSP accounts, which they can withdraw and use on their down payments without any penalties. However, because the funds must stay in the account for 90 days (and are subject to CPP and EI payments), Mocan advised employees who are seriously considering a home purchase in the next six months to have the money in their accounts before tendering offers.

One employee who took advantage of Crozier’s first-time homebuyers’ assistance program is engineering intern Ian Blechta, 30, who, with his girlfriend, bought a single-detached house in a new subdivision in Stayner. He says that, because his girlfriend was new in her job at the time, the bank from which they tried securing a mortgage demanded a 20% down payment, but thanks to Crozier’s program, they made the numbers work.

“The program helped a lot because, for the pre-build we bought, we have to pay $10,000 every 45 days, so that’s up to $60,000 and most people don’t have that much cash just sitting there, but we got almost $20,000 from Crozier, which helped us with the second and third payments to keep the contract of the house,” said Blechta.

The young couple will be moving into their Stayner home in September, and Blechta says it’s a good thing the couple purchased when they did.

“At the time we signed the contract, the house was $500,000, and we just checked the price of that same house in the same subdivision and it’s going for $650,000,” he said. “In the last six months we signed, it went up that much.”

Baby boomers hold a lot of wealth, especially in the real estate market, and they intend on unleashing it over the next half-decade, says a survey from Royal LePage.

The survey, conducted in tandem with Statistics Canada, of Canadians born between 1946 and 1965 determined that 35%, or 3.2 million people, are considering home purchases in the next five years, with 45% stating that now is a good time to buy. Forty percent of the respondents have at least 50% of their net wealth tied up in real estate.

Fifty-two percent of boomer homeowners would, however, prefer renovating their present homes than move. Seventeen percent of survey respondents own more than one home, and 64% of surveyed boomers aren’t carrying mortgages.

A quarter of respondents stated they would have to financially assist their children to purchase a home.

“The boomer generation appears to have no intention of slowing down,” said Phil Soper, president and CEO of Royal LePage. “Fully vaccinated, and turning a cold shoulder to retirement, the typical member of this huge demographic is enjoying an empty nest and believes real estate is a good investment. Millions of boomers are expected to wade into the market over the next five years.”

Fifty-six percent of the 35% of boomers considering buying a new primary residence in the next five years would opt for a rural or recreational region, while 28% would upsize their new property. Of those who would downsize, 71% cited reduced maintenance as the reason, while 39% said they would unlock retirement funds, 29% want to travel, and 9% would spend the money towards buying their children a home.

Soper noted that most boomers interested in home purchases are looking to enjoy their later years, although some want to live in quieter environments without sacrificing space. As such, he expects home sales in exurban areas to remain elevated in the years ahead.

Moreover, the survey results heavily suggest real estate equity is the means through which boomers intend on retiring comfortably, even leisurely.

“The boomer generation strongly values home ownership, for good reason. Real estate has been very, very good to them,” said Soper. “Most are still working and their home equity has become the bedrock of retirement security. Financially confident, their next move is a matter of lifestyle choice.”

Ontario

The survey revealed that 37% of Boomers in Canada’s most populous province want to buy a home in the next five years, however, that number hits a whopping 41% in Toronto. According to the Royal LePage-StatCan survey, 76% of Ontarian boomers own their own home—64% and 60% in Ontario and Toronto, respectively, are mortgage-free—with 16% owning multiple properties.

“The pandemic has left a lasting impact on many younger boomers who are trying to get more from their home after a year of COVID-19-related health restrictions. Many are looking for more space to entertain, help out with the grandkids or continue to work remotely. Not all boomers have the luxury to upgrade to a larger space, but the desire is there,” said Toronto-based Cailey Heaps, who leads the Heaps Estrin Team at Royal LePage Real Estate Services.

Quebec

In Canada’s second-most populous province, 29% of boomers surveyed are contemplating a home purchase in the next five years, however, that’s among the lowest in the country, says the survey report. Moreover, Montreal has among Canada’s lowest rate of boomer homeownership at 62%, though the rate climbs to 67% for the province, 57% of whom are mortgage-free. Sixteen percent of Quebec boomers own more than one property and 34% derive at least half of their net wealth from real estate. Fifty-three percent of Quebec boomers will buy a detached house if they follow through on their intentions to purchase, and 20% would opt for an apartment or condominium.

Of the 29% of boomers in Quebec who are considering buying a new primary residence in the next half-decade, 62% would move to a rural or recreation region, while 32% would buy a larger home than the one in which they current live, and 53% would buy something equal in size, while 59% in the province and 55% in Montreal would downsize.

Despite, relative to the rest of the country, the low homeownership rate among boomers, Quebec is among the leaders in one category, says Georges Gaucher, broker and owner of Royal LePage Village.

“While the expectation may have been that boomers would downsize into condominiums en masse, the proportion of Quebec boomers looking to move into a larger property is among the highest in Canada,” she said. “Although prices continue to rise in the Belle Province, it remains one of the most affordable markets in the country.”

British Columbia

In B.C., 39% of boomers are considering a home purchase in the next five years. Of the 79% of boomers in the province who own their home, 73% are located in Vancouver, which has Canada’s highest home prices. Sixty-six percent of boomers in the province don’t have mortgages, and 64% in Vancouver are mortgage-free.

Forty-eight percent of boomers province-wide have at least half of their net wealth in real estate, and 18% own more than one home.

“Boomers are the most affluent generation in Canadian history and appreciate the equity they have built up in their homes,” said Caroline Baile, an associate broker at Royal LePage Sussex in North Vancouver. “While many did not have an immediate need to move due to additional space requirements, as safety restrictions are lifted and the vaccine roll-out is in full gear, many boomers will again think about their next move.

“The trend we’re noticing among this group is rightsizing, rather than downsizing. They may choose a slightly smaller home, but they still want some outdoor space and room to entertain. Townhomes are very popular today among younger boomers, who aren’t quite ready for a condo but enjoy the freedom of a property with lower maintenance.”

Cottage values in Ontario have skyrocketed through the COVID-19 pandemic as scores of people fled Toronto for arcadia and demand vastly outstripped supply, however, this could lead to improper estate planning and even litigation down the line.

Paul Shelestowsky, a senior wealth advisor with Meridian Credit Union, told CREW that there are tax implications in virtually every scenario involving cottage successions, and that complicates estate planning, but there are ways to mitigate the severity.

“For a cottage owner, regardless of how they want to pass it along—as a gift or putting it in a trust—there will be tax implications for the owner because this is a capital asset,” he said. “If they gift it, it’s deemed to have been sold at fair market value, so now there could be $100,000-200,000 in capital gains they have triggered on themselves. If it’s gifted, the child wouldn’t face the tax implications, but the parents would be hit with a massive tax bill.

“The other option is they could sell it to the child at fair market value and now, at least, the parents have the means to pay that tax bill, but the challenge with that is how does the child come up with the money to buy it?”

A potential solution is for the cottage to be sold at less than market value, although even that carries the risk of double taxation. Even creating a living trust, says Shelestowsky, would be considered a deemed disposition by the Canada Revenue Agency, but it would most likely avert legal disputes down the road.

“The nice thing with the trust is parents can still control the cottage and they can name the kids as beneficiaries. It does avoid some probate issues like parents passing away. With a trust, parents and children can have control.”

Trusts require separate tax returns, which can be convoluted, so Shelestowsky recommends having a deed of gift because cottages are often the subject of litigation between siblings, with courts usually rejecting gifting and putting the cottages through estates. Trust agreements are additionally necessary to satisfy questions surrounding who has rights to the cottage and when, who will look after maintenance and future development, and whether or not a cottage can be sold to a third party. The agreement also exists to prevent family members from squabbling about the property in question.

“This isn’t a regular capital asset; it’s an asset that has a lot of emotion attached to it and when emotions come into play, at least you’ll have something to fall back on,” said Shelestowsky.

With the surge of cottage purchases in the last year, Shelestowsky anticipates more family rows in the near future, but a lot of that acrimony can be avoided if families openly discuss inheritance instead of making assumptions.

“When trying to do a succession plan for a cottage, make sure everyone is treated equally, meaning if one child doesn’t want it, you still can’t have one child who benefits and the other doesn’t because that could potentially result in a legal dispute down the road.”

A lot of landlords are saddled with opportunistic, if problematic, tenants as a consequence of the COVID-19 pandemic, and as the moratorium on residential evictions expired June 30, a lot of multifamily properties could be hitting the market in the near future.

Sandy MacKay, founder and CEO of MacKay Realty Network, recommends investors interested in purchasing those properties focus on Hamilton where price points are, at least compared to the GTA, favourable. Moreover, because the Landlord and Tenant Board is backlogged, it could take some time yet to remove difficult tenants, and until then prospective buyers will likely stay away. However, that could still result in bargain pricing.

“The Landlord and Tenant Board is backed up six months to a year, if not longer, and that could create a delay with properly determining what to do with the property, because some of the rules brought about by the pandemic have made it difficult to be a landlord and not everybody wants to remain one now. It also takes two to three months to remove a tenant,” said MacKay. “We’re at the time of year when people enjoy the weather and aren’t in business mode, but I suspect that by fall when a lot of people revisit their portfolios, there are a lot of properties in the multifamily segment that will flood the market and it will lead to buying opportunities.”

Hamilton does indeed have a lot of multifamily properties with anywhere from two to five units that could be market-bound, but the time to prepare for such purchases is now, says MacKay, adding that investors should start working their networks to find out about opportunities, whether market or off-market.

“They should also be reassessing what their real estate portfolios look like, as well as other investments they’re in, and making sure they’re ready. The other thing that’s happened is the market has gone a bit softer here in early summer. We still see sellers looking to get top, top dollar, but as summer lingers on prices may drop from where they were in spring. There could be more motivated sellers out there. Price points might be easier to swallow come fall.”

Specifically, neighbourhoods that are close to downtown Hamilton could be replete with multifamily properties for sale, including Corktown, Stinson, St. Clair, Blakeley, Crown Point, and Beasley.

“If you’re looking for a window of opportunity, we’re in it,” said MacKay. “Now it is about finding inventory, but it will definitely come in the second half of this year. Start looking now and brace yourself for the fall market.”