Homeowners concerned that Vancouver real estate has become a buyer?s market should not fret, say accountants, because tax laws and historical performance show that investing in real estate remains a better bet than buying other assets.
According to the Real Estate Board of Greater Vancouver (REBGV), the price of a detached Vancouver bungalow rose 657% to $1.17 million in the 30 years between September 1981 and August 2011.
In contrast, TMX Group Inc. data covering the same period shows that the Toronto Stock Exchange composite index increased 578% to 12,768 points.
Add the fact that homeowners pay no capital gains tax on the rise in value of their homes and the differential between the two investments increases substantially.
Equity investors must pay tax on half of their stock-market gains at their individual tax rate.
?Clients I?ve had who have invested in real estate have made a killing in comparison to those who went into the stock market,? said Gabrielle Loren, a partner with Loren, Nancke and Co.
Aside from legislated tax advantages that benefit real estate investors, virtually all of those investors added to their gains because the value of their investments outpaced the cost of the interest on the money they borrowed to finance those investments. New exchange traded funds (ETFS) offer investors the opportunity to have double or triple the exposure to an underlying set of stocks or commodities, but most stock investors don?t borrow money to invest.
Focusing solely on the rise of the TSX index does not reveal the total return that many investors achieved by acquiring dividends, which many companies pay. Nor, however, does the rise in the price of a Vancouver home reveal the total return some homeowners reaped by renting part of their primary residence.
Stock dividends and rental income are taxable gains, but Loren said both sets of investors can write off all expenses incurred to generate that income.
?If you?re holding stocks in a portfolio and you have to pay a portfolio manager $100 a year, that $100 is tax deductable,? Loren said.
?If you have a 3,000-square-foot home and you rent out your 1,000-square-foot basement, you?re allowed to write off one-third of your mortgage interest and one-third of all other operating costs: property taxes, utilities and insurance.?
But to qualify for that write-off, the property must be a primary residence. If the owner occupies only one-third of the home, Canada Revenue Agency will deem it a rental property. ?
Buyer?s market emerges in Vancouver
An increase in property listings combined with fewer sales during the summer created a buyer?s market, according to Real Estate Board of Greater Vancouver (REBGV) statistics released in October.
Metro Vancouver home prices rose 7.5% to $622,955 in October compared with the previous year, but the worrying trend is that sales have been falling as listings rise. Listings spiked 20.1% in September compared with the same month in 2010.
Sales for detached, attached and apartment properties in Metro Vancouver (not including Delta, Surrey and Langley) dropped on a month-to-month basis:
?3.4% in June;
?21.2% in July; and
?7.5% in August.
Sales in September continued the trend. They fell a further 5.6% to 2,246 compared with August.
?The sales-to-listing ratio has been dropping. We?re about 14%, which means 14% of the listings sell during the month,? REBGV president Rosario Setticasi told Business in Vancouver October 31. ?That?s moving the market to a buyer?s market. The thing to observe over the next few months is where is it going. Is the inventory continuing to build and the sales to listing ratio continuing to drop. Those are the critical numbers.?
REBGV numbers show that September?s average home sale price in the region was:
?$1,104,896 for a detached property;
?$573,259 for an attached property; and
?$455,342 for an apartment.
Property prices in September compared with August:
?detached (down 5.5%);
?attached property (up 2.2%); and
?apartment (down less than 0.4%).
Recently released Statistics Canada numbers found that new-home prices in Metro Vancouver dropped 0.4% between July and August – the biggest drop in the country. ?
