Monthly Archives: September 2014

MaRS Building

The Ontario Government’s Recent Spending Spree

Kathleen WynneThe actions of the Ontario government have many people perplexed, with many left wondering whether the decision to reinvest in certain ventures may be coming at an inopportune time. On September 23, the provincial government agreed to reinvest, in the hundreds of millions of dollars, into two large-scale Toronto projects, that all economic indicators suggest are hemorrhaging money. These bailouts are being implemented despite projecting a $12.5-billion dollar deficit for 2014-2015, at a time when some argue, the government should be more concerned with selling off assets to raise funds. Conservative MPP Vic Fedeli, is one of many MPs voicing concerns over what he labelled “dump day,” referring to the fact that a number of large bailout plans were approved in a single day, an attempt the Liberals made to “get bad news out the door,” according to Robert Benzie of The Toronto Star.

The first was the announcement that taxpayers would be left flipping the bill for an additional $74-million to be invested in next year’s PanAm Games, a project that is estimated to cost approximately $2.5-billion, 16 times what it cost to build the infrastructure needed for Winnipeg to host the games back in 1999 (read more). According to Richard J. Brennan of The Toronto Star, the bulk of $2.5-billion is being allocated towards the construction of the athletes’ village (which will house 7,666 athletes competing in 51 sports at venues in 16 municipalities), and does not include transportation and security costs, with security alone being estimated to cost upwards of $229-million. The Globe and Mail reported that the government;s additional contribution would be spent on services such as back-up ambulances, more television coverage and additional participants in the torch relay.

MaRS Phase iiSecond, the province also approved a $309-million to bail out the MaRS (Medical and Related Sciences) research incubator, a complex located at the corner of the southeast corner of College Street and University Avenue. Benzie notes that the $309-million figure, when broken down, is actually quite deceiving, considering the figure includes a $224-million loan that was issued to the project back in 2011, $3.61 million in debt-service payments, and $16.2 million used to initially purchase the land.   Martin Regg Cohn of The Toronto Star, stated that the incubator has given birth to a “white elephant,” a real estate term that Merriam-Webster defines in two ways: a property requiring much care and expense and yielding little profit, and an object no longer of value to its owner but of value to others.

Adrian Torrow of the Globe and Mail, goes into some detail about the obstacles the MaRS complex (particularly Phase II) encountered since its development. The second tower hovers at approximately one-third occupancy, with many potential startups and businesses complaining of high rental costs for office space, effectively scaring away the business it was intended to attract. Alexandria Real Estate, the building’s developer, is being held accountable for rental costs, prompting the government to agree to pay $65-million to buy the firm out of the initial deal, which will allow MaRS to both lower rents and compel other types of organizations to use their space, such as civil servants. After the announcement was made that the government would buy out, Fadell was quoted as saying, “that’s the only ante into this gain,” implying that the government’s only course of action is to double, and invest further in order to see the project to completion, and hopefully generate a return.

Toronto condos

Purchasing a Condo in Toronto: Some Cautionary Tales

Based on some recent news stories published by major Toronto media outlets, certain property developers and real estate lawyers are not to be trusted. It’s somewhat common sense to recommend to potential homebuyers that they should proceed with caution and do their research before making a major home purchase, but in most cases, it’s impossible to anticipate or predict when one is being scammed. But the good news is, as the examples below will demonstrate, tenants and victims are fighting back, seeking accountability and restitution from the developers and real estate professionals who failed to live up to their promises at the point of sale.

ChoThe most publicized incident to make headlines as of late involves Real estate lawyer Meerai Cho, who is currently under investigation by Toronto police for defrauding condo buyers, charged with 75 counts of fraud over $5,000, possession of property obtained by fraud, and breach of trust. According to Vidya Kauri of CP24.com, Cho completed purchase-and-sale agreements in 2012 for pre-construction condominium units in a building planned on a vacant lot at 5220 Yonge St. (Yonge Street and Finch Avenue), taking deposits from the buyers to be held in trust until construction by the Centrust Development Group was to be completed. But once the condo project was cancelled back in January of this year, buyers began to step forward arguing that their deposits had never been returned. Initial police investigation revealed that the trust the monies were held in had been emptied by 2012. A total of 25 complainants have come forward thus far, claiming to have lost more than $2-million collectively, but police, in uncovering bankruptcy statements filed by Cho, estimate that approximately 141 complainants may have lost roughly $12.4-million in expected losses. Cho is currently in police custody, and awaiting trial to be held on October 2.

Susan Pigg of the Toronto Star, disclosed details recently of a lawsuit that was filed by Etienne de Muelenaere, a 26 year old resident of a 44-storey Charles St. highrise. The suit alleges that Great Gulf, developer of the highrise project, acted both negligently and in breach of contract in the installation of faulty water valves during the building’s construction four years ago. As a result, tenants are experiencing dramatic fluctuations in water temperature, which is not only annoying, but potentially dangerous. Being in construction himself, Muelenaere suspecting that non pressure-balanced valves were used instead of pressure-balanced valves, spending $4,000 to have the faulty valves (and cracked bathroom tiles needed to reach the valves) replaced. He argues the lawsuit is not about the money, but admits he was slightly angered when Great Gulf refused to compensate him for the repairs. The $29-million class-action suit is being filed on behalf of all tenants, many of which have complained have been scalded.

And then there’s the story of Wendy Ji, who also filed a class-action lawsuit seeking restitution from property developer Elad Canada Inc. for promises they made regarding her two-bedroom unit at the Emerald City Condominiums at Don Mills Rd. and Sheppard Ave. E., back when she purchased the unit in 2010. Ji argues that herself, along with all the tenants in her complex, were lead to believe the 36-storey tower would have “easy underground access” to the Sheppard subway line and Fairview Mall, which ultimately never came into fruition. The lawsuit, citing misrepresentation and breach of contract, involves owners of 60 condos in the 464-unit Emerald City Phase I, seeking a total of $30-million.

Toronto Land Transfer Tax

Proposed Changes to Toronto’s Land Transfer Tax

With Toronto’s mayoral election scheduled for October 27, the local news cycle has been dominated by coverage of the mayoral campaigns, and the various promises being made by leading candidates. One of the most talked about issues has to do with the Municipal Land Transfer Tax (sometimes referred to as the Home Buying Tax). Olivia Chow has been the most vocal on the topic, vowing to increase Toronto’s Land Transfer Tax in order to make it “more progressive.”

Andrew Lupton of CBC (read here), provides an excellent primer on how the tax works. Anyone who purchases a new home, condo or business in the city, is obligated to pay this tax. In residential home sales, taxes is charged as a percentage of the sale price. Homes below $400,000 pay a 0.5-1% tax, while homes over that amount pay 2%. The tax has been an extremely lucrative revenue stream for the city since its implementation in 2008. Just as an example, in 2010, the municipal government expected to earn about $160 million in the collection of MLTT, and instead, exceeded expectations by pulling in more than $275 million. Toronto is the only municipality in the country with such a tax, which must be paid in addition to the provincial property tax.

Olivia ChowChow’s proposed increase essentially introduces a new tax bracket, only affecting home and condo sales over $2 million, raising the tax obligation from 2% to 3%. Such an increase, Chow estimates, will affect approximately 500 transactions per year, netting the city an extra $20 million in tax revenue.

“Surely those people that can afford $2-million or $10-million homes, adding 1 per cent to the land-transfer fees I don’t think is too much.” – Olivia Chow

Chow has stated publically during campaign debates with Rob Ford and John Tory that she plans to spend this extra revenue in two ways. The first would be to help fund the public school board’s “breakfast program,” which provides healthy meals to children whose parents can’t provide them with one (for more read Don Peat’s article in the Toronto Sun). The second would be to finance the construction of an additional subway line running south to the downtown core, something that many believe, the city desperately needs.

Chow’s chances at becoming mayor have likely decreased since the unveiling of her tax hike proposal. Paul Etherington of the Toronto Sun (read here), offers some insight into the results of a recent Ipsos Reid poll conducted on behalf of the Toronto Real Estate Board in May of this year, asking a randomly selected sample of Torontonians whether they support an increase in the Land Transfer Tax. 58% of those surveyed support a reduction in the Land Transfer Tax, with 51% stated that they are more likely to support a Mayoral candidate who also supports a reduction or elimination. The most telling of all the conclusions drawn from the survey is that 67% of Torontonians planning to purchase a home in the next two years, are considering purchasing a home outside of the GTA to avoid the tax altogether.

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