Daily Market Update

by Jordan Maxwell23 Apr 2015
Commercial real estate in Calgary slow in Q1 
The recent volatility in oil prices has had an adverse and negative impact on Alberta’s commercial real estate market, particularly the downtown office sector in Calgary, says a new report by Colliers International. According the the Calgary Herald, the Q1-2015 Canadian Real Estate Capitalization Rate Report indicated Calgary’s downtown office market was at a historic low in the first quarter of this year, with capitalization rates ranging from 5.5 per cent to 6.25 per cent in A Class properties and 6.5 per cent to seven per cent in B Class. Capitalization rates are calculated by dividing net operating income produced by an asset and the asset’s current market value or sale price. The rate is used by the industry to compare different real estate investments, said Laurel Edwards, managing director of Colliers International in Calgary. “While we’re looking at cap rates potentially increasing, they’re at historic lows now. That would be considered to be quite low. So we’re looking at them increasing from that. They’re as low as they’ve been in a very long time,” she said. Read more here

Overvaluation to put owners at risk? 
In light of a recent Economist Magazine analysis that tracked Canada's housing prices as being overvalued by 35 per cent, Hillard MacBeth says it's clear the world is forecasting grim tidings for Canadian real estate. In fact, if the Economist's figures are any indication, experts warn, Canada could be facing the kind of devastation the U.S. went through when its housing bubble burst in 2006, according to an article on CBC.ca. "Our bubble is bigger," says MacBeth, author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash, noting U.S. investment in housing topped out at six per cent of GDP before the crash. "At seven per cent, our exposure as a percentage of total economic activity is higher, and then we've got this nationwide obsession with buying homes and condos," he said from Edmonton. According to MacBeth, those best positioned to weather a possible market correction would be debt-free millennials — those between the ages of 18 and 34 — still looking to buy.

Tax exemption links charities to real estate 
According to the Financial Post, Tuesday’s budget will let Canadians donate proceeds from their real estate and be exempt from some capital gains tax which is charged on investment property. Principal residences are already exempt from the tax. To qualify, you have to sell your real estate to an “arm’s length party” — someone not related to you — and then donate the proceeds within 30 days. If a portion of the proceeds is donated, the exemption from capital gains tax is applied to that portion. The new measure, which would reduce federal revenue by about $265 million over the 2016–17 to 2019–20 period, applies to donations related to properties sold after 2016. Walter Pela, partner in charge of tax at KPMG, says the change could work well for those who have had large gains on their initial investments. As an example, someone who bought a condo for $300,000 and then sold it for $500,000, and donated $200,000 to charity would be exempt from capital gains tax on 40% of that $200,000. That person would be paying tax on $120,000 and since capital gains are taxed at a 50% rate, they would only pay tax on the $60,000 taxable portion. Read more here

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