National resale activity edges down in January

OTTAWA – February 17th, 2010 – According to statistics released by The Canadian Real Estate Association, the number of homes sold through the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards declined in January 2010 from the previous month.

Seasonally adjusted national home sales dropped 2.8 per cent from near record levels reported in December. Ontario accounted for about half the national decline. Activity was also down in British Columbia, Alberta, and Manitoba, but reached new heights in Quebec.

The Federal Government takes steps to protect consumers from predatory lending practices.

“Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. “Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent lenders from facilitating it."

The Government will therefore adjust the rules for government-backed insured mortgages as follows, and are effective April 19, 2010:


- All borrowers must qualify at the 5 year rate even if they choose a mortage with a lower interest rate and shorter term.

- Lower the maximum lending on equity limit to 90% of the appraised value of your home on refinancing, from 95%


- 20% down is now needed for government-backed CMHC insured mortgages on investment properties that are not owner-occupied.

- Amortization period and down payment remain unchanged at 35 years max and 5% down

The result of these changes will be negligible as most lenders already have these policies in place, as a minimum.

2009 resale housing market ends on a high note

OTTAWA – January 15th, 2010 – Existing home sales activity reached the highest level ever for the month of December, according to statistics released by The Canadian Real Estate Association. Strong demand in the second half of 2009, especially in the fourth quarter, pushed annual sales above 2008 levels. Residential sales activity via the Multiple Listing Service® (MLS®) of Canadian real estate boards numbered 27,744 units in December 2009. This stands 72 per cent above activity in December 2008, when activity dropped to the lowest level in a decade. New records for the month of December were reported in Ontario, Quebec, Saskatchewan, New Brunswick, and Newfoundland & Labrador. Seasonally adjusted national home sales totalled 46,805 units in December, capping the strongest fourth quarter period ever. A total of 137,957 homes traded hands on a seasonally adjusted basis in the fourth quarter of 2009. This is up 2.6 per cent from the previous record set in the first quarter of 2007.

New quarterly records were set in British Columbia, Ontario, and Quebec. National sales activity began 2009 on a weak footing. Despite year-over-year increases in the second and third quarters of the year, year-to-date activity was still trailing 2008 levels at the end of September 2009. A 59 per cent year-over-year gain in the fourth quarter of 2009 pushed sales activity above annual levels for 2008. “Sales activity in 2009 came in like a lamb and went out like a lion,” said CREA President Dale Ripplinger. “The continuation of unusually low interest rates may keep national sales activity near current levels over the coming months, as will a blip in housing demand in Ontario and British Columbia from home buyers motivated to beat the introduction of the HST.”

Annual activity in 2009 was down 10.7 per cent from the peak reached in 2007. A total of 465,251 homes traded hands through the MLS® systems of real estate boards in Canada in 2009. This is up 7.7 per cent from 2008 levels, and represents the fourth highest level on record for annual activity. The national residential average price was $337,410 in December, up 19 per cent year-over-year. On an annual basis, average price climbed five per cent to a record $320,333.

Average prices set new annual records in a majority of local markets in 2009, and in every province except Alberta. The large year-over-year increase in the national average price in December reflects the high degree to which it was skewed downward in late 2008 by unusually low activity in Canada’s priciest markets. The national average price was also skewed upward by rebounding activity in the spring and summer months of 2009. The national average price rose to unprecedented heights at that time, despite records having been set in only a small number of local markets. 2009 resale housing market ends on a high note The contribution of activity by higher priced markets toward the national average price has recently returned to more typical levels.

Record level average prices in most regions are now driving the national average price to new heights. The price trend is similar but less dramatic for the national weighted average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. It climbed 3.6 per cent in 2009. The residential average price in Canada’s major markets was up 5.5 per cent year-over-year to $348,840 in 2009. As with the national counterpart, the price trend is similar but less dramatic for the major market weighted average price, which rose 2.3 per cent from 2008 levels. Strong demand and headline average price gains are drawing more sellers to the market.

New listings coming onto Boards' MLS® Systems across Canada rose to the highest level on record for the month of December, with a total of 33,090 residential properties coming on stream. This is up 4.8 per cent from December 2008, the first year-over-year gain in a year. On a seasonally adjusted basis, new listings rose by 4.7 per cent in December 2009 compared to the previous month. The recent rising trend in new listings has not yet offset the steep decline in the number of new listings during the first half of 2009. As a result, new listings in 2009 were down 12.6 per cent from the annual peak in 2008. Despite the recent rise in new listings, strong demand for resale housing continues to draw down inventories.

There were 154,264 homes listed for sale on Boards’ MLS® Systems in Canada at the end of December 2009, a decline of 22 per cent from levels reported one year ago. Nationally, there were 4.1 months of inventory in December 2009 on a seasonally adjusted basis. This is the lowest level in more than two years. *Aggregate of sales in Canada's 10 most expensive markets as a percentage of national sales. Based on the 10 markets with the highest annual average price in 2009: Vancouver BC, Fort McMurray AB, Victoria BC, Oakville-Milton ON, Fraser Valley BC, Toronto ON, Calgary AB, Okanagan-Mainline BC, Muskoka & Haliburton ON, and Edmonton AB. The actual (not seasonally adjusted) number of months of inventory in December 2009 stood at 5.6 months, the lowest December figure since 2005, and well below the same month in 2008 (12.3 months). Although up slightly from November (five months), an increase is normal at this time of year since demand normally eases relative to supply over autumn and winter months.

The number of months of inventory is the number of months it would take to sell current inventories at the current rate of sales activity. “CREA’s latest statistics will no doubt spark further bubble talk amongst the usual suspects,” said CREA Chief Economist Gregory Klump. “Cooler heads recognize that many of the recent gains reflect temporary factors that could fade by summer.” “The extraordinary decline in activity one year ago and subsequent rebound, particularly for higher-priced real estate, is stretching current year-over-year comparisons,” he said. “By the second half of 2010, price gains are likely to shrink significantly, since a year will have elapsed since the decline and rebound.” Klump added that, “Further expected increases in supply will also take some steam out of the market.

A more balanced market will result in smaller price increases in the second half of the year, but a massive decline in demand similar to what we saw in late 2008 and early 2009 seems as unlikely as a massive spike in supply.” PLEASE NOTE: The information contained in this news release combines both major market and national MLS® sales information from the previous month. The Canadian Real Estate Association has previously released these separately. CREA cautions that average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighborhoods or account for price differential between geographic areas.

Statistical information contained in this report includes all housing types. MLS® is a co-operative marketing system used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale. The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 96,000 REALTORS® working through more than 100 real estate Boards and Associations.

Smart but naive people burned by Ponzi schemes

CALGARY - Greed, naivete, wishful thinking, fear, impatience, the need to belong.

Financial predators exploit a rich soup of human emotions when it comes to Ponzi schemes, which may help explain why seemingly smart people keep getting duped by these age-old ploys.

"It's amazing that people get burned in these schemes. But, unfortunately, intelligent people do seem to get caught," said Gordon Sick, a professor of finance in the Haskayne School of Business at the University of Calgary, who lists naivete and impatience as the top emotions at play in a duplicitous game that fuses psychology with finance.

"In order to have, say, $350,000 to lose, they have to be pretty smart and hardworking. But they were smart in a different area that didn't give them that (financial) sophistication.

"And a lot of them are in way too much of a hurry. They want to retire at 50. They don't want to work until 65 and follow a more traditional wealth creation pattern," -- i. e. slow, steady saving and investing, and cutting one's consumption.

He speculates that those who get "suckered" are middle-class people who live beyond their means, haven't put much money aside for retirement and feel a bit panicked so they look for a way to beat the system. Then they hear about a friend or a family member who's making a killing.

Ponzi schemes typically target "affinities"--tightly knit groups such as churchgoers, business colleagues or friends who trust one another. Often there's an air of exclusivity, of clubbiness. For example, Bernie Madoff, the former U. S. financier jailed for 150 years in June for running an investment scam, targeted wealthy Jewish communities in New York City and Miami.

"You had to get an invitation, and you were the real smart guy if you got in on that group," said Supt. Eric Mattson of the Integrated Market Enforcement Team in Calgary, a division of the RCMP that investigates financial crime and corporate fraud.

"They'll even deny you (access) for a while, saying, 'No, no, you've got to bring more money than that and bring two people with you or you're not in the club.' So now you're fighting to get in to lose your money.

"Everybody wants to belong, be part of the club and be smarter than the average bear and to tell others, 'I'm in something and you're not, and I'm making a bunch of money and you're not.' "

Mattson said the alleged Ponzi scheme currently unravelling in the Calgary area is the largest he's seen in 15 years. He's personally investigated eight such scams, including one that ran successfully for 22 years, and has been involved in numerous others, including Bre-X.

Everyone wanted in on the Bre-X action, he said.

When gold fever gripped the small Alberta town of St. Paul, Jack Kindermann said he didn't want to get left behind. He gambled $500,000 on Bre-X's purportedly huge gold strike in Indonesia. The 76-year-old electrician lost every penny in 1997 when the "discovery" was revealed to be a scam.

"A lot of it was my fault. I put my head in the sand," said Kindermann who didn't sleep for weeks when he found out he'd been bilked.

"I didn't have my blood pressure taken for three or four months."

Twelve years later, Kindermann has "bounced back," but said the experience taught him that if something looks too good to be true, it is.

He expressed concern for the victims of the latest alleged Ponzi scheme.

"I feel for anybody who gets involved in this kind of stuff."

One 48-year-old victim of the massive Ponzi scheme allegedly masterminded by two Calgary-area men, Milowe Brost and Gary Sorenson, isn't feeling sorry for himself. "Disappointed in myself" is how he put it.

"It was a stupid move, and I paid for it," said the 48-year-old, who declined to be identified. He said pure, naked greed was the emotion driving him to sink $275,000 US into Brost and Sorenson's Institute For Financial Learning.

"I was greedy. The more money we have, the more money we want."

Once the hooks of a Ponzi scheme are set, wishful thinking and fear keep victims from wriggling free.

Often, victims are adamant that everything will turn out.

"Some of the victims point-blank refuse to believe that they may have been victims of a crime," Det. Supt. Bob Wishart, of City of London Police told The Times in June when it reported on an 80-million-pound Ponzi scam. "They think these people are their friends and they have placed complete trust and have given over a lot of . . . information and it is very difficult to break that link of trust.

"Consequently, we get this situation where we find they do not believe us. Even though they have been arrested and we have searched their homes and offices and closed them down, the victims still do not believe anything is wrong."

Mattson agrees that victims' silence is one of the most challenging things about investigating a Ponzi scheme. But he takes a darker view of their motivations in not speaking to police.

"They don't want to talk to you at all and will tell you to go away. They're absolutely convinced that you're wrong and they're right and the perpetrator is right and you're just trying to ruin the plan. They think that if they talk to us they'll lose their money, which is a line that is told to them (when they're recruited)."

He likens a Ponzi scheme to a chain letter, in which participants are told they must keep the chain going or it won't work.

"They always get the first people in and pay them off. They then recruit their friends, family and associates and now there's an emotional hook.

"You don't want to believe it's not working. So you don't discuss it after a while. No one's making money. You don't go to your husband, your wife, your cousin, your sister-in-law and say, 'I'm losing money,' because you don't want to admit that.

"And if you do bring it up, the promoter will tell you don't tell the others. It's all very hush-hush and very embarrassing.

"They're VERY good at what they do. And if you do try to get your money out they tell you you're going to ruin the whole thing, similar to a chain letter.

"You're going to ruin your family, your friends, your church. Everybody's going down, including your Aunt Matilda."

vberenyi@ theherald. canwest.com

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Some donation tax schemes offer little shelter

Not only is Dec. 31 the deadline for making charitable donations, it’s also the deadline for determined Canadians looking to buy a tax shelter to reduce their 2009 personal income tax.


But a chill has been cast on some tax shelters, especially if they involve donation schemes, as a result of a tax case decided last month.


The case involved a “leveraged” donation tax shelter known as the Donation Program for Medical Science and Technology. It was marketed by Trinity Capital Corporation, which in 2001 took in over $18-million from 118 participants. Max Maréchaux, a real estate lawyer with Miller Thomson LLP, was among them.


Trinity offered similar programs in 2002 and 2003, resulting in total “gifts” in those years of $106-million and $94-million respectively.


The shelter was promoted as producing a “return on donation of up to 62.4%, depending on the donor’s province of residence.” It was supported by a tax opinion “from a firm of respected tax lawyers.”


Mr. Maréchaux was informed of the program by his accountant who advised him that by participating, based on a $30,000 cash outlay producing a $100,000 donation, he could come out ahead by more than $14,000, “subject only to a risk of challenge by the Canada Revenue Agency.” The risk of such a challenge was described to him as “slim.”


Here’s how the program worked: Under the deal, to make a $100,000 donation, Mr. Maréchaux contributed $30,000 of his own cash and received a 20-year interest-free loan for $80,000, $70,000 of which was to go to charity with the remaining $10,000 going to the lender to cover fees, insurance and a security deposit.


The Tax Court had two issues to decide: whether the donation was in fact a “gift,” and whether the general anti-avoidance rule (GAAR) applied.


Under the Income Tax Act, you can get a donation credit only for “gifts” made to registered charities. The term “gift” is not defined in the Act. Quoting an earlier case, “a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor.”


The judge concluded that there was no gift because a significant benefit flowed to Mr. Maréchaux in return for the donation -- the $80,000 interest-free loan that was given in return for the donation. In other words: no donation, no loan.


David Chodikoff, a tax litigator with Miller Thomson, who represented his fellow partner Mr. Maréchaux in tax court, advised tax shelter donors in a recent firm newsletter to “keep all options open” by objecting to their Notice of Assessment, while at the same time paying any amounts owing. This will stop the interest clock from ticking, allowing donors to “sleep better at night.” If they ultimately prevail, any monies refunded will be a “bonus.”


Asked whether Mr. Maréchaux’s case will be appealed, Mr. Chodikoff replied: “Stay tuned.”


Financial Post

Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director, tax and estate planning, with CIBC Private Wealth Management in Toronto

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