April 2024: What Does Capital Gains Mean For Real Estate Investors & Market Update #capitalgaintax

Summary

In this market insights video, Ryan Coyle from connect.com discusses the GTA real estate market, highlighting significant changes in capital gains tax for personal and corporate investments effective June 25th, 2024. He provides a detailed analysis of the Toronto real estate board's market watch, noting price appreciation in various housing types except townhouses. Coyle emphasizes the importance of understanding market trends and supply-demand dynamics, particularly the decrease in new construction supply and its impact on future prices. He also shares investment opportunities in the Dominican Republic and upcoming developments in Toronto, encouraging viewers to reach out for personalized market updates and advice.

Takeaways

• 📊 Ryan Coyle from Connect.com provides monthly macro market insights and offers to analyze micro markets upon request.
• 📈 As of June 25th, 2024, capital gains tax on personally held real estate investments will increase from 50% to 66.7% for profits over $250,000.
• 💼 Corporations will face a capital gains tax increase to 66.7% on every dollar, not just above $250,000, but this may still be advantageous due to generally lower corporate tax rates.
• 🏢 The media may not always provide the right context for numbers; for example, a reported 26% increase in mortgages refers to a very low number of borrowers entering AAR.
• 🔍 Toronto Real Estate Board's market watch shows mixed results with price appreciation in most asset classes except townhouses.
• 📉 There is a significant affordability gap between detached homes and condos, which is wider than ever, indicating potential shifts in the market.
• 📉 The gap between 905 and 416 areas is also widening, suggesting affordability concerns are pushing buyers further from downtown Toronto.
• 🏘️ Condominiums, once a hot market segment, are currently experiencing a soft market with increased supply and reduced demand.
• 📊 Despite increased listings, average prices have remained relatively flat, suggesting a balanced market with potential for growth.
• 📈 Historical data indicates that interest rates and property prices are inversely correlated, suggesting that lower rates in the future could lead to higher prices.
• 🏢 There is a significant future supply shortage of new construction in Toronto, which could drive up prices as supply and demand dynamics change.

Q & A

What is the purpose of the GTA market analysis presented by Ryan Coyle from connect.com?

The purpose of the GTA market analysis is to provide year-over-year month-over-month macro market insights, focusing on the Greater Toronto Area (GTA) real estate market. It aims to help understand market trends, affordability gaps, and what's currently hot in the market, which can be useful for real estate investors and those interested in micro-market updates.

What is the change in capital gains tax for personally held invested real estate as of June 25th, 2024?

As of June 25th, 2024, the capital gains tax for personally held invested real estate will increase. It will go from 50% to 66.7% on profits over $250,000. This means that profits up to $250,000 will still be taxed at 50%, but any profit above that threshold will be taxed at the higher rate of 66.7%.

How does the new capital gains tax affect corporations differently from personal holdings?

Corporations will see an increase in capital gains tax on every dollar, not just on profits over $250,000 like personal holdings. However, corporate taxes are generally lower than individual taxes, so despite the higher capital gains rate of 66.7%, investors might still be left with more money in their pocket after taxes when investing through a corporation.

What is the significance of the mortgage stress test introduced in 2017 or 2018 in the context of the current market?

The mortgage stress test, introduced in late 2017 or early 2018, required borrowers to qualify for their rate plus two percentage points or the overnight lending rate plus two percentage points, whichever was lower. This policy has contributed to a historically low number of borrowers going into arrears, indicating that despite higher interest rates, the market remains stable due to borrowers being more qualified to borrow.

What is the current trend in the Toronto real estate market regarding different housing types?

The current trend shows price appreciation across all asset classes except for townhouses. Detached homes have seen a 2.2% year-over-year growth in the 416 area and 1.2% in the 905 area. Semi-detached homes have a 3% growth in the 416 and a 2.6% decrease in the 905. Townhouses, surprisingly, are seeing year-over-year price depreciation.

What does the term 'AAR' refer to in the context of the real estate market?

AAR stands for Arrears, which refers to a situation where borrowers have missed payments on their mortgage and are behind on their mortgage obligations. The script mentions that the number of borrowers going into AAR has increased from 0.14% to 1.18%, which is still considered very low.

How does the number of new listings compare to sales in the current Toronto real estate market?

In April 2024, there were about 7,000 sales, which is comparable to the previous year. However, the number of new listings has almost doubled, with 18,000 new listings compared to 10,000 in the previous year. This increase in listings without a corresponding increase in sales is adding more months of inventory to the market.

What is the historical average price change for the Toronto real estate market since 1980?

Since 1980, the historical average price change for the Toronto real estate market has been a compounded annual growth of 6.73%. This long-term outlook helps to illustrate the market's overall stability and growth over time.

Why is the downtown Toronto condo market currently considered a soft part of the market?

The downtown Toronto condo market is considered soft due to an oversupply of completed units compared to demand. There are 'panic sellers' who are selling aggressively due to affordability issues and high interest rates, which is driving down the overall average price in this segment of the market.

What are the implications of the current market conditions for buyers and sellers?

For buyers, the current market conditions present an opportunity to take advantage of lower prices and increased inventory. For sellers, it is advised to wait out the market if possible, as historical trends suggest that the market will likely recover and appreciate in value in the future.

What is the significance of the drop in the number of cranes in the GTHA?

The drop in the number of cranes indicates a decrease in new construction projects, which could lead to a lower supply of new housing units in the future. This is a sign that the market may be adjusting to the current oversupply and could lead to a tighter market with potentially higher prices in the future.

What does the affordability gap between detached homes and condos in the 416 area currently indicate?

The affordability gap between detached homes and condos in the 416 area is over a million dollars, which is a significant difference. This suggests that condos may be becoming more attractive to buyers who are priced out of the detached home market, potentially leading to increased demand for condos.

What is the current state of the future supply of new construction in Toronto?

The future supply of new construction in Toronto is expected to drop drastically by 2028, with record low deliveries of new units. This is due to a combination of cancelled and halted construction projects, which could lead to a tighter market and potential price appreciation in the future.

What are some of the current real estate opportunities being promoted by Ryan Coyle?

Ryan Coyle is promoting several real estate opportunities, including Secret Garden in the Dominican Republic, Cliffside Condos by LCH Developments in Scarborough, and upcoming projects like Rain by LanLamb Developments in Streetsville and assignments in Burlington. These opportunities offer various incentives, tax benefits, and potential for capital appreciation.