This weeks top stories include how building permits have surged, how Toronto luxury is on the rise, how Canada pushes a bigger global role on all, how the economic recovery is well under way, how the NDP is against the HST, how Toronto will be paying the 2010 budget until 2040, how interest rates will stay at historic lows due to the fragile market and how its become a renters market as condo building keeps increasing.
Building permits surge
Statistics Canada released a report this Monday showing that the value of building permits increased to $6.1 billion which was an 18% increase. Economists had previously expected an increase of only 1% in the month of October. Canadian building permits had hit a 13 month high in October which is a good indication that the Canadian economy is coming out of its recession. This tied in with a small expansion during the third quarter and the 79 000 new jobs created last month are all positive signs of strength in the economy. The report was released the day before the Bank of Canada’s (BoC) interest rate announcement.
The rise in building permits was wide spread with the third straight month to see gains on the residential side as the value of single home starts reached its highest level since February of 2008. Building permits on the non residential side were up significantly by 42.4% with gains in industrial construction rising for the third straight month in a row. The residential side was up 3.8% due to growth in Ontario and Quebec leading the way. Single home plans were also up again for the eighth month in a row and saw increases in every province except Prince Edward Island and Nova Scotia. Single home plans outweighed the decline seen in multiple dwelling intentions as plans for multi-family housing dropped 8.2% which reversed the increase seen during the month of September.
All three components of the non residential side were up in the month of October with a rise in industrial, institutional and commercial segments. The industrial segment includes plans for mines, plants, water filtration facilities, subways and more. The industrial side saw the value of building permits double with higher construction intentions in Alberta, Ontario and in Quebec. This is usually the most volatile segment but analysts are happily surprised to see its third straight month of growth.
Institutional building permits were up drastically by 50.9% which reversed the last four months of decline in that segment. The gain was attributed to educational projects underway in Alberta, Quebec, Saskatchewan and British Columbia. Ontario’s gains were seen in the construction of medical buildings. This segment includes numbers with respect to construction plans for new schools, hospitals and additions to buildings that are currently standing.
Commercial building permits were up 15.3% with plans to build more office buildings and retail stores in Ontario as well as plans to build more warehouses in Saskatchewan. The strongest gains were seen in Toronto, Edmonton and Calgary with the largest declines seen in Kingston and the metropolitan area of Quebec. Please note that this data does not take into account if the increases seen are coming from federal stimulus spending or from long term plans that municipalities had in place prior to our recession.
Toronto luxury on the rise
Toronto’s high end luxury condo market has gained traction in the past few years even during the economic downturn. As of recently, we have seen a barrage of high-rise projects with big names attached to them. The Trump Tower, the Four Seasons, Ritz-Carlton and Shangri-La just to name a few of the bigger players. Toronto may not be in the same league as New York, London or Singapore when it comes to high end luxury real estate but the market is definitely expanding at an unseen rapid pace with plenty of high end condos under development as we speak.
Toronto is catching up to the international trend of mixed use hotel condo developments seen in such places as Hong Kong, New York and London. An example is the Four Seasons Private Residences in Yorkville with its penthouse listed at $30 million which makes it the most expensive penthouse property in Canada. In the past you would only find one luxury building breaking ground every five years or so and that would be the property that everyone would buy into. In recent years we have seen a number of projects break ground at the same time reflecting that the luxury market is not the limited niche it used to be.
International investors are flocking to Canada as clients from other parts of the world feel that being able to buy a luxury property for $1700 to $2000 a square foot is steal. What do you think? How long do you think this trend will last? Please comment below.
Canada’s global role
Jim Flaherty, Canada’s Finance Minister, plans to be heard as the world of international economic policy making is reshaping the outlook for the global financial system. The Bank of Canada (BoC) Governor Mark Carney and Jim Flaherty have made it clear that they will intervene and broker volatile talks between the U.S, China and some European countries such as Germany and France. Flaherty announced the appointment of former cabinet minister Tom Hockin to represent Canada at the International Monetary Fund (IMF) last week. He will be the first Canadian executive director to enter into the IMF from outside the public service sector in the IMF’s 68 year history.
Canada has a great deal of interest in these talks due to the fact that we are an economy with a small domestic market and our economy relies greatly on stable global trading to help generate money into our gross domestic product (GDP). Politics will be an aid to us during negotiation times as Flaherty and Carney both feel that Canada’s interests will be better served by a former politician who can use his clout with ties to Ottawa to get things done faster.
Flaherty released a statement in which he was noted as saying, “Mr. Hockin’s extensive background in trade and finance would serve Canada well as we continue to work towards a stronger, more effective and representative IMF.” Flaherty feels that Hockin’s ties to Ottawa could help Canada at the IMF where influence is measured by how much freedom executive directors are perceived to have to negotiate on behalf of their countries.
The purpose is to have an individual that does not need to call the Department of Finance or the BoC on a daily basis to get answers. The person with this role should be able to make decisions on his own merit with trust from our officials that the job will be done correctly. The IMF board has generally responded well to those individuals that can exude this level of confidence and stature.
The IMF job comes with the added responsibility of representing Ireland and the Caribbean countries as well. This year’s role of the IMF will be to define the rebalancing of geopolitical influences as it figures out how to realign its voting shares to reflect the rise of emerging economic powers such as China. The fund will also be responsible to overhaul international financial regulation and to try and forge agreements from the world’s economic powers to come together on policy making.
Economic recovery underway
The Bank of Canada (BoC) announced this week that after months of uncertainty, the economic recovery now appears to be solidly entrenched. They also forecasted that growth will unfold as previously envisioned. The BoC had its latest rate announcement this Tuesday where they reiterated their conditional commitment to keep their policy interest rate at a record low of 0.25% until June of next year. This is based on inflation which is not expected to hit its target rate of 2% until the second half of 2011.
Recent data painted a positive picture of the Canadian economy even though a third quarter gross domestic product (GDP) growth of 0.4% annualized came in drastically below the BoC’s 2% expectation. Since the central banks last forecast in October of this year, global economic developments have been slightly more positive and the global outlook has improved modestly even though significant fragilities remain.
The BoC stated that the composition of economic growth is going as expected with a shift towards stronger domestic demand and less reliance on exports. The main drivers of the recovery remain consistent with the bank’s outlook and they continue to expect economic growth to become more solid over the projection period with inflation to return to the 2% target in 2011. According the Bank of Canada’s outlook, Canada is forecasted to grow 3.3% this quarter with growth of 3% in 2010 and growth of 3.3% in 2011. These forecasts gained acceptance last week when data showed that the Canadian economy added 79 000 jobs in the month of November.
The central bank did play down the impact of the strong Canadian dollar but did acknowledge that it remains a key risk to its current forecast and could act as a significant drag on growth and inflation. The loonie has increased by as much as 25% this year against the greenback which has led to a drastic increase in imports during the third quarter of this year. This resulted in net exports hindering the economy by roughly 5.3%.
This report should hold down expectations for rate hikes as the BoC’s plan moving forward remains unchanged. Economists now expect the central bank to hike its policy interest rate aggressively starting in the second half of 2010. What do you think? Please comment below.
NDP against HST
This week saw the new HST legislation move closer to passing in Ottawa and in Queens Park. B.C NDP Leader Carole James and Ontario NDP Leader Andrea Horwath joined federal leader Jack Layton this Monday in a move to stop the harmonized sales tax (HST) which would blend both the provincial sales tax and the federal GST.
The new tax is basically kicking people when they are down financially and coming out of this economic downturn. Ontarians have already clearly rejected the idea of putting tax burden onto consumers while providing huge tax breaks and giveaways for the corporate sector. An overwhelming majority of taxpayers in B.C and Ontario oppose the harmonized sales tax which will increase the costs on hundreds of goods and services including gasoline, taxi fares, haircuts, fuel and legal fee’s just to name a few.
HST supporters feel that this will reduce taxes for businesses significantly and that these savings could be used to hire more employees. At this point, this is just speculation as the tax will take a harder toll on Ontarians more so than the tax payers in B.C. In Ontario, the levy will equal 13% while in B.C the levy will be 12% with the HST set to be in effect for July 1, 2010.
Last week the Conservatives, Liberals and Bloc Quebecois supported a ways and means motion amending the Excise Tax Act in a 192-32 vote. This is one further step taken towards implementing the new HST. The bill for the HST was introduced last week on Friday. Liberal Leader Michael Ignatieff boasted last week that all his MPs will speak with one voice on the matter but has not been able to convince all his MPs to do so which will be seen as empty Liberal seats this week in the House of Commons where the tax is expected to be fast tracked.
The federal government has been urging our province for years to harmonize the GST and the PST but the Conservatives only introduced the bill after offering $1.6 billion to B.C and $4.3 billion to Ontario to help cushion the blow. The B.C Liberal government promised during the provincial election this year, in writing, that they would not introduce a harmonized tax but it seems that once the ballots were counted, all promises were out the door.
Toronto will be paying 2010 budget until 2040
Toronto city council is going on a spending spree as low interest rates mixed with a large amount of federal stimulus cash is paving more than just our roads. The council announced on Tuesday that they would be spending money on new police stations, subways and buses, streetcars, Smart cars, community centers, libraries and pedestrian bridges. The City of Toronto 2010 capital budget will be one that we will be paying for many years to come. The normal 10 year horizon that Toronto has used to borrow in the past is a large variance to the 30 year payout of all these amenities that we are looking to utilize.
The strategy moving forward is that the city will repay their existing debts and borrow new debts at lower interest rates at longer terms. This will be like refinancing their mortgage by paying out the higher rate debt and securing a lower rate of interest on their new debt with a longer amortization. In addition to this, the city will cash in a $700 million promissary note from Toronto Hydro which was originally planned to be cashed in sections from next year through to 2013.
The budget spending adds up to $16.3 billion over the next 10 years with $631 million for 360 subway cars, $230 million for 390 new buses, $1.2 billion for 204 new streetcars, $164 million next year for the Sheppard East light rail line, $51 million for the Toronto Union Station subway platform upgrades, $621 million for Union Station upgrades and another $76 million for a new St. Lawrence Market north building.
The budget passed with little debate with the Mayor winning support from all sides voting on the matter. The only question is will this still be our debt in 2040 or will it become our children’s debt? What do you think? How do you feel about the budget? Please comment below
Interest rates stay at historic lows due to fragility
The Bank of Canada (BoC) left its overnight lending rate unchanged at 0.25% this Tuesday, citing weaker than expected growth in the July to September period of this year. TD Bank commented on the matter saying that Canada’s recovery is so fragile that the BoC Governor Mark Carney may have to hold the overnight rate at the historical low it’s at today until the latter part of next year. This is several months longer than Mr. Carney previously forecasted the bank would wait in order to help stimulate business activity.
TD stated that current trends indicate that a full return of economic output will be delayed until the April to June period of 2012. This is a full six months later than the BoC is forecasting. A leading TD Bank economist commented by saying, “We believe that the Bank of Canada will stay put past its conditional commitment of June 2010 and the first rate hike will not come until the fourth quarter of next year.”
This is a large contrast to a few months ago where analysts were predicting a stronger than expected rebound in the Canadian economy which would force Mr. Carney to go against his previous forecast of keeping the overnight rate at the historical low of 0.25% until summer of 2010. The thought was that once the economy bounces back, the bank would need to raise rates aggressively to stop runaway inflation. That thought was stopped dead in its tracks with a poor economic performance in the third quarter.
Canada did in fact emerge from its recession but just barely with a growth of just 0.4% from July to September which was well short of the BoC’s 2% growth prediction. The BoC commented by saying that global economic developments have been more positive than expected in October. It went further and said that significant fragilities remain in the world economy, which is only beginning to emerge from the worst downturn in decades. In Canada the decline in exports is pulling down the economy which is leading to weaker than predicted expansion in recent months.
For the future outlook, the main risks are a more protracted global recovery and persistent strength in the Canadian dollar that could act as a significant drag on growth. After a constant rise in the dollar in recent months, the dollar has been trading in the 94 cents (U.S.) range which is still making Canada’s exports less competitive in the U.S market. TD Bank forecasts that the Canadian dollar will hit parity and possibly surpass the U.S dollar in the first half of 2010 which will create more problems for Canadian exporters. What do you think? Please comment below.
Renters market as condo building increases
Many renters are now buying homes as a housing boom with incredibly low interest rates has caused an uptick in homeownership. Some renters are moving from older apartments into newer condominiums instead of buying but the consensus is a move up from where they were this time last year. Interest rates have had a major impact on the rental market with clients lowering prices for rent with fewer renters on the market now.
The movement out of rental housing and into home ownership has caused Ontario’s vacancy rates to rise up to 3.3% this year from the 3.1% we saw last year at this time. There are forecasts that there will be even more competition in the years ahead as investment property owners fight for their share of the rental market. There is currently an estimated 35 000 to 40 000 condos under construction in the Greater Toronto Area (GTA) with majority expected to be move in ready in late 2010 and early 2011. This will eventually turn into investor properties that will be rented to many further beefing up rental competition in the Toronto area.
The market did take a small break in the month of November when Toronto area housing starts declined by 25% from October of this year according to Canada Mortgage Housing Corporation (CMHC). Seasonally adjusted and annualized rate of housing starts reached 25 500 units in November of this year. The declines were mainly from the highrise sector and are really considered to be just a blip in the recovery process. The backlog of highrise units are coming close to the construction stage says a senior market analyst for CMHC.
Nationally we saw housing starts grow by 0.7% in November from October of this year with 158 500 units registered last month. Canadian construction activity continues to make a comeback from the economic downturn and should be pulled further by strong demand moving forward. The Canadian construction industry is poised to be a source of strength in the 2010 year. What do you think? Please comment below.
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