How Canada’s economy is ‘on the verge of expansion’ – The Globe and Mail

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How Canada’s economy is ‘on the verge of expansion’

Workers build a condo development in downtown Vancouver

Workers build a condo development in downtown Vancouver HAYTER 2010

Midday Update: GDP now just 0.4 per cent shy of pre-recession peak

Stories Report on Business is following today:

Economy surges in first quarter

Canada’s economy is inching back to its pre-recession peak. The economy expanded in the first quarter at an annualized pace of 6.1 per cent, Statistics Canada said today, a showing that was stronger than economists had expected, and the strongest growth in more than a decade. As a measure of comparison, that compares to 4.9 per cent in the fourth quarter of last year, and just 3 per cent in the United States in the first quarter.

“Residential investment increased for a fourth consecutive quarter, as did consumer spending on goods and services,” Statistics Canada said this morning. “Export and import volumes both rose for a third consecutive quarter, with growth in imports outpacing growth in exports in the first quarter.”

Economists Yanick Desnoyers and Matthieu Arsenau noted in a report today that the economy is “on the verge of expansion” following the depressed levels of the recession.

“Canadian real GDP is only 0.4 per cent from its pre-recession peak and domestic demand is already above it,” they wrote. “… Moreover, Canadian employment is 0.8 per cent off its peak copared to -5 per cent in the U.S.”

Real GDP growth and domestic demand

Business investment rose 0.2 per cent. Spending on machinery and equipment rose 1.8 per cent, Statistics Canada said, though it is still 23 per cent below the peak in the first quarter of 2008.

“The resumption in business investment was a missing ingredient until [the first quarter], and is encouraging,” said Toronto-Dominion Bank economist Diana Petramala. “Firming up of business investment and a continued healthy performance in Canadian exports related to a strengthening U.S. economy through the second half of this year should help to offset some of the weakness stemming from domestic demand.”

The Statistics Canada report also shows personal debts rising, as mortgage growth surged $76.4-billion annualized in the first quarter from $59.8-billion per cent in the fourth quarter of last year. Consumer credit for other items dipped about 15 per cent at the same time.

People are using more credit for homes, but less for other items, Ms. Petramala said.

Based on calculations, she said household debt as a percentage of personal income probably rose to a record 148 per cent.

The Canadian dollar (CAD/USD-I0.95–%) picked up steam after the report. Read the story

More Discussions in our Globe Investor forums

Are we in a housing bubble?

Started by: Claire Neary
125 replies
Last post by PatrickB2
5/31/2010 10:18:39 AM

Bank of Canada overnight rate and forecast

Markets await Bank of Canada

This morning’s GDP report is the latest evidence of a stronger economy, and the last piece of data, before Bank of Canada Governor Mark Carney and his colleagues set interest rates tomorrow. Markets increasingly believe the central bank will hike its benchmark overnight rate, now at an emergency low of 0.25 per cent, for the first time since before the financial crisis and recession began. Economic growth and hotter inflation warrant a rate increase, economists say, but the recent market turmoil sparked by the euro crisis could delay such a move. Mr. Carney must weigh the former against the likelihood that Europe’s debt crisis will continue to roil global markets or dampen global economic growth.

“Fear of another global financial crisis like the one sparked by the collapse of Lehman Brothers, or rising worries of a double-dip recession, are two good reasons to take things slow, but only if one believes that there is reasonable probability of either of those two events happening,” said economist Meny Grauman of CIBC World Markets.

Added research analyst Shahrzad Mobasher Fard of Toronto-Dominion Bank: “Accompanying a [Bank of Canada] move could be a dovish statement outlining European sovereign debt concerns as the dominant downside risk to the outlook. Faced with the prospect of a possible pause in the hiking cycle if financial turmoil were to resurface, markets would refrain from pricing in too much near-term tightening. The absence of such dovish overtones in the [Bank of Canada] statement would likely induce a bond selloff and push the Canadian dollar closer to parity.”

Here are four things to keep in mind, courtesy of BMO Nesbitt Burns deputy chief economist Douglas Porter:

– If the Bank of Canada hikes rates tomorrow, it will be the first central bank among the G7 to do so.

– Mr. Carney has not yet “presided over” a rate hike in his short time as governor.

– The central bank “tripped up the market” once before under Mr. Carney, when it remained on hold in July, 2008, when markets expected a cut in the overnight rate.

– If the bank does not cut rates, it “technically” will have met the conditional commitment it made more than a year ago to hold the line until mid-2010, though it killed off that pledge last month as it signalled it could soon begin tightening monetary policy.

Read

Bank of Canada’s Carney to take centre stage

Central bank’s decision a product of intensive research and collaboration

Auto sales rebound

The global auto industry is rebounding and has returned to profitability, Bank of Nova Scotia said this morning. The increase in car sales around the world slowed in April to 13 per cent, compared to the 25-per-cent surge in the first quarter, but this was due largely to the end of cash-for-clunkers programs in Germany, Scotiabank auto analyst Carlos Gomes said in a report. Outside of Europe, sales continued to strengthen, up 23 per cent.

“Despite concerns that recent risk escalation emanating from Europe will spread across the globe, the outlook for the global auto market continues to improve,” Mr. Gomes said. “… The global auto industry has returned to profitability, with the five largest auto manufacturers posting earnings of $5.5-billion (U.S.) in the first quarter of 2010. This improvement represents a sharp turnaround from annual losses averaging in excess of $22-billion from 2007 through 2009. Profitability improved in every region last quarter, especially in North America, with the five larges auto makers returning to profitability in the region.”

China warns on euro crisis

Europe’s debt crisis threatens to push global economies back into recession, China’s Premier Wen Jiabao warned today, saying governments must watch closely and adopt measures to ensure that doesn’t occur.

“The world economy is stable and beginning to revive, but this revival is slow and there are many uncertainties and destabilizing factors,” Mr. Wen told a group of business leaders in Tokyo. “Some countries have experienced sovereign debt crises, for example Greece. Is this kind of phenomenon over? Now it seems that it’s not so simple. The sovereign debt crisis in some European countries may drag down Europe’s economic recovery.”

India’s economy expands 8.6 per cent

India’s economy is surging, expanding 8.6 per cent in the first quarter from a year earlier, according to government data today. The official reading puts even more pressure on the country’s central bank to raise interest rates. “The biggest threat in India is from inflation and the risk that the economy overheats,” Capital Economics economist Kevin Grice told Bloomberg News. “This, in the end, would force the Reserve Bank of India to aggressively high policy rates, which would inevitably bring far lower growth later on.”

Sales of iPad hits 2 million

Sales of the iPad have now topped 2 million in two months, Apple Inc. (AAPL-Q256.88–%) said today. The popular tablet computer marked its global launch Friday in Canada, Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and Britain.

From today’s Report on Business

Business leaders host own summit at G20

Why dividends are heading higher, unlike the stock market

From tee to green to digital marketing

Posted via web from Toronto Real Estate News, Blog

Selling on your own or with an agent? – #Toronto #realestate

Selling on your own or with an agent?

Valuation, negotiation, nailing a deal – is this territory for the pros or newbies?

Steve Ladurantaye

Globe and Mail Update

A hot real estate market often leaves sellers wondering why they should bother paying a real estate agent for something that seems to sell so easily.

But there’s more to selling a house than planting a sign in the front yard and waiting for the offers to roll in. It can be a lot of work to handle everything on your own.

So who should use an agent and who should go private? We asked Dianne Usher, a vice-president at Royal LePage Johnston and Daniel in Toronto, and Property Guys’ Kitchener-Waterloo franchise owner Mike Shanks to explain.

Why should someone use your services?

Ms. Usher: Well, how long do you have? As individuals we are trained and experienced. We have market knowledge, and have skills in both negotiating and marketing. In addition to that, we are bound by provincial regulators as well as having a national code of ethics. All of these codes exist to protect the consumer. Real-estate agents also have access to professional legal advice when we need it, and mortgage brokers when we need them. We can also provide greater exposure – we have our Multiple Listing Service, which is on Realtor.ca, and we run open houses.

Mr. Shanks: We look at selling on your own as simply being a better way. You control the process all the way through. Not only is it empowering, it’s a time saver. You’re not kicked out of the house when you have a roast in the oven. And having a face-to-face connection with the buyer can be rewarding, you can actually make friends with the people who bought your house. I did that when I sold, it was really neat to know the buyer. That’s not even mentioning all the money you can save.

Are there certain people who should opt for one choice over another?

Ms. Usher: People who are not knowledgeable in a marketplace and don’t have the skills and expertise needed to trade on their own. That can be anybody from unskilled labourers to a chief executive officer in the money markets. I say that because while people may be trained and focused in their own areas of expertise, we are trained and focused on ours. Our job is to protect the consumer and ensure the best property transaction.

Mr. Shanks: The easy answer is that anyone can sell a house privately. Maybe there is a small percentage who shouldn’t, like if they have already moved and live out of town. But there’s no demographic that should avoid it. We’ve got a group of retired seniors in an adult lifestyle community getting together as a group to put a bunch of listings on. Some argue negotiating isn’t for everybody, but there are ways to get comfortable with that. You can do it over the phone, do it over the Internet.

What’s the main thing people don’t understand about the way you operate?

Ms. Usher: They often don’t understand the scope of service that we provide. You find that when you use any professionals – financial advisers can provide information off the top of their heads and make it look so easy. It’s the same way with lawyers, it’s the same with brain surgeons. It can be difficult to articulate our value proposition. We have to highlight our experience and our negotiating skills, and that can be difficult.

Mr. Shanks: People don’t always understand how easy this is, because they’ve been told for years how difficult it is and that it’s a big scary process. But it’s actually pretty easy, and when you need advice you can turn to professionals such as lawyers who demystify the process and show you it’s not really a big scary world.

How flexible are fee structures for agents? And if you’re selling on your own, how much can you expect to spend?

Ms. Usher: The fees are totally flexible. There are many different models out there and different levels of service. We are a full-service brokerage, so we charge a commission. There are others who will have different fees, some will post listings and do nothing else. But we don’t set our rates in stone and the consumer is certainly able to negotiate.

Mr. Shanks: There are some costs. If you sell with us, there are different packages that range in price depending on how much help you want. The most important thing is to spend a little bit of money to find out how much you should be listing for. Agents have access to a lot of data that you may not, but you can hire an appraiser for a couple of hundred bucks and find out what it’s worth. That’s definitely a worthwhile investment.

What’s the problem with the competing proposition?

Ms. Usher: You need to understand the marketplace and there’s a lot of competition out there. Things need to be presented effectively, both physically and through marketing materials such as websites. Knowing how to set a value is difficult, as is acting as a negotiator. It’s hard because when you are selling residential real estate the buyer and the seller are both operating in an emotionally charged environment and are skeptical of one another. It’s hard to get something done effectively. When someone is trying to sell on their own they can miss the valuation and have it languish on the market and do themselves a disservice. It’s highly difficult and usually unsuccessful to sell privately.

Mr. Shanks: I think the flaw is in the real estate industry’s attitude. Any time I talk to agents they say they believe in private sales and give us a bit of lip service because we’ve been a success. And then they say they think people should try and sell privately and then when that doesn’t work, use an agent. They really do think you have to use an agent.

Posted via web from Toronto Real Estate News, Blog

Mortgage-free, and retirement-bound – #Toronto #realestate

Financial Facelift

Mortgage-free, and retirement-bound

Vancouver couple wonder how to employ extra cash: sock it away or buy rental property?

Dianne Maley

Globe and Mail Update

Ella and Ken will be mortgage-free in June.

The B.C. residents wonder what to do with the extra $2,000 a month they will soon have: sock it away in registered savings plans, or buy a rental property in Vancouver’s popular, and expensive, Kitsilano neighbourhood.

The idea is to invest now to help finance their retirement in eight years or so. Ella is 51, Ken 52. Together, they have $158,000 in unused registered retirement savings plan contribution room.

Ken has $60,000 in a defined contribution pension plan, while Ella will collect a defined benefit pension of about $915 monthly after tax when she retires at age 60.

If they were to buy a condo in Kits or a second house to rent out in their own suburban Vancouver neighbourhood, they would take out a line of credit against the equity in their current home for the down payment.

“We are confused as to whether the property is the best way to go considering that we would most likely have to pay capital gains when we sell,” Ella writes in an e-mail.

We asked Ian Black, a financial planner with Macdonald, Shymko & Co. Ltd. in Vancouver, to look at Ken and Ella’s situation.

What the Expert Says

Before they consider buying an investment property, Ella and Ken should pay off their consumer debt, Mr. Black says. Interest payments on this type of borrowing are not tax-deductible.

Next, they should begin to build an emergency fund equal to three to six months of after-tax household expenses; in their case, between $11,000 and $25,000. They could use their tax-free savings accounts for this, making sure whatever investments they held were readily cashable.

Then they should consider taking full advantage of their $158,000 in unused RRSP contribution room, Mr. Black says. Every dollar contributed to their respective RRSPs will cut their tax bill and add to their savings capacity.

For example, Ken’s marginal tax rate is 33.7 per cent, so every $1,000 contributed to his RRSP will cut his income tax by $337. As well, investing through RRSPs allows for greater diversification of asset classes than real estate, the planner notes.

As for the rental property alternative, Mr. Black gives it a thumbs down. The least expensive condo in the Kitsilano area would cost about $300,000, he says. Ken and Ella would borrow the $75,000 down payment against the equity in their home and take out a mortgage for the remaining $225,000.

“Regardless of how the purchase is structured, the $300,000 investment would be 100-per-cent financed,” he notes.

Ella and Ken would want to have the mortgage paid off by the time they retired in eight years, which means a short amortization period. At 6 per cent, a mortgage loan over eight years would cost about $3,940 a month. Property tax could add another $100 or more and condo fees $220.

“Already, the cash flow needed is up to $4,260 a month, and there has been no consideration of insurance, maintenance, special assessments and potentially, management fees.”

Rents for a one-bedroom condo in Kitsilano range from $1,500 to $1,800 a month.

“The property is cash-flow negative from day one.”

Ken and Ella would have to use the money they would otherwise be saving, estimated at $2,770, to make up the shortfall of between $2,460 and $2,760 a month.

What if one of them were to lose their job?

By investing instead in a broadly diversified portfolio of fixed-income and equity-based investments, Ella and Ken could earn an average annual return of 6 per cent, Mr. Black estimates. This, together with their company pensions ($11,000 for Ella, $6,900 for Ken), Canada Pension Plan (about $10,000 each) and Old Age Security (about $6,200 each), would give them at least the $45,000 a year in today’s dollars they figure they will need to get by on for the rest of their lives – and perhaps more.

Mr. Black’s analysis assumes Ken and Ella save $33,000 a year after their debts are paid off from now until they retire, and an inflation rate of 3 per cent.

The planner recommends a 50-50 split between equity and fixed-income, with laddered five-year guaranteed investment certificates and government bonds and a small amount of corporate bonds through iShares or Claymore ETFs.

The equity component could be 15 per cent each of Canadian, U.S. and international ETFs or Dimensional Fund Advisors funds, and 5 per cent in real estate investment trusts through iShares Real Estate ETF.

Special to The Globe and Mail

Want a free financial facelift?

E-mail finfacelift@gmail.com

More Discussions in our Globe Investor forums

Should commission-based financial advisors be regulated?

Started by: Gone South
36 replies
Last post by always right
5/29/2010 5:45:46 PM

CLIENT SITUATION

The People: Ella, 51, and Ken, 52

The Problem: Whether to buy an investment property to help fund their retirement or invest in the financial markets through RRSPs.

The Plan: Pay off debt, take advantage of considerable unused RRSP room and build a balanced investment portfolio to supplement their pensions.

The Payoff: A comfortable retirement without the risks attached to a fully financed investment property.

Monthly net income: $7,070

Assets: Home $450,000; Ken’s defined contribution pension plan $60,000; bank account $4,400; Ella’s RRSP $18,300; TFSAs $10,000. Total: $542,700.

Monthly disbursements: Food and eating out $1,000; clothing, haircuts, other personal $120; personal allowance $80; pet insurance $50; mortgage $2,050; property taxes $297; house insurance $75; utilities $400; maintenance $50; vacations $200; entertainment $50; books and magazines $50; auto loan $358; auto repair, insurance, tires $400; gasoline $300; credit card payments $200; life insurance $90; group medical/dental insurance $150; donations $75; gifts $100; Ken’s employer pension plan $250; Ella’s employer pension plan $275; tax-free savings accounts $200; miscellaneous $250. Total: $7,070.

Liabilities: Credit cards $17,000; car loan $13,000; mortgage $4,000. Total: $34,000.

Posted via web from Toronto Real Estate News, Blog

Looking for a financial adviser? Better know what to look for first – #Toronto #finance

Portfolio Strategy

Looking for a financial adviser? Better know what to look for first

Preet Banerjee is the author of a blog called wheredoesyourmoneygo.com.

Preet Banerjee is the author of a blog called wheredoesyourmoneygo.com. The Globe and Mail

Online tool Know Your Adviser guides you in asking the right questions and assessing the answers

It’s your financial adviser’s job to study up on you as a new client, so one of the first things you’ll do together is complete something called a Know Your Client form.

But what about your adviser’s background? You should know as much about your adviser as he or she does about you, but posing the right questions is beyond most people because they don’t know what to ask.

Introducing the new online Know Your Adviser form, a tool developed by financial blogger and fund industry executive Preet Banerjee for people to use while interviewing prospective advisers. You simply ask some key questions, score the answers using Mr. Banerjee’s rating system and then use the final tallies to help you pick the right adviser.

Next step: You and your new adviser tackle the Know Your Client (KYC) form on the way to building the financial plan of your dreams. Or not.

KYC forms typically look at the amount of time you intend to keep your investments, the amount of risk you can stand, your objectives as an investor and your level of knowledge about investing. The idea is to build a profile that ensures the client interests are served by the portfolio their adviser designs.

Mr. Banerjee, an ex-broker who works in the mutual fund industry while maintaining the Where Does All My Money Go blog (wheredoesallmymoneygo.com), has a more skeptical view of the KYC form.

“I’m sure it does protect the client to a certain extent,” he said. “But in my experience and my training, it was more to protect the adviser. If the investor complains about a transaction, you can say, no, this was in your risk tolerance.”

The Know Your Adviser form serves only the interests of you, the client. In fact, there’s an opportunity for people like you to have a say in what it’s final version looks like.

A draft version of the KYA form can be viewed on Where Does All My Money Go, which Globe readers have voted their favourite investing blog (read about it here). Care to collaborate on building the final version? Both individual investors and advisers are invited to comment or provide additional questions that may be used to improve the form.

As it stands now, there are 20 questions divided into four categories.

More Discussions in our Globe Investor forums

Should commission-based financial advisors be regulated?

Started by: Gone South
36 replies
Last post by always right
5/29/2010 5:45:46 PM

The first section is designed to help you discern whether you’re dealing with a provider of financial advice or just a seller of investment products.

The most controversial question in this section delves into the way in which the adviser is compensated. Three choices are provided – fee only (a flat or hourly fee), fee-based (something like 1 to 1.5 per cent of your investment assets per year) and commissions and fees generated by the sale of products.

The scoring system awards a maximum of five points for each question. In this particular case, fee-only advisers get five, fee-based gets three and commission, by far the most common way advisers are paid, gets zero.

Mr. Banerjee said he prefers the fee-only model because it’s transparent and free of the conflicts of interest that can potentially arise when someone is paid through the sale of products. He also said he will provide commentary in the final version of the form explaining that some advisers and firms are only able to serve smaller clients if they use the commission model.

“It’s meant to be food for thought,” Mr. Banerjee said of the way the on his KYA form treats commission-based advisers. “It’s not a definitive ‘I can’t deal with this guy.’”

Another question meant to distinguish between advisers and sellers focuses on disclosure of commissions and fees associated with recommended investment products. The KYA form awards five points to the adviser who provides full disclosure for all recommendations. Zero points go to the adviser who answers your query about fees by either saying you’re focusing on the wrong questions, or that such information is not provided.

The second section, covering qualifications and competence, is broken down into separate parts for investment management and financial planning. Some advisers are well qualified in both areas, others in one or the other. The point here is to ensure that the adviser does have one or more recognized designations.

The KYA’s gold standard on the investment management side is the chartered financial analyst (CFA), which requires something like 750 hours of study and covers securities analysis, financial accounting, ethics and, increasingly, financial planning. Fewer points are awarded for the Canadian Investment Manager (CIM), the Fellow of the Canadian Securities Institute (FCSI), the Derivatives Market Specialist (DMS) and others.

On the financial planning side, the preferred designations include the Registered Financial Planner (RFP), Chartered Life Underwriter (CLU), Certified Financial Planner (CFP), Chartered Financial Consultant (CH.F.C.) and Chartered Professional, Strategic Wealth (Ch.P.).

Mr. Banerjee’s blog has explanations of what these designations mean. You can also use the website of the Canadian Securities Institute (csi.ca/student/), which oversees a variety of designations, or try this roundup of designations I wrote a year ago.

For more about advisers read Ted Rechtshaffen’s Adviser Secrets series:

There’s an element of subjectivity here about which designations are better than others (Note Mr. Banerjee has the DMS and strongly believes options strategies have a place in portfolio management). Above all, establish that an adviser has earned a designation, and find out what it signifies.

The third section of the KYA form covers the client services that are offered. The most important question here asks what kind of financial plan clients receive (tip from Mr. Banerjee: ask to see a sample). Top marks go to a plan that covers investments, budgeting, estate and tax planning and insurance. Zero marks go to the adviser who provides nothing written down.

The final section of the form, called “Preet’s Smell Test,” includes three skill-testing questions, plus a query about whether the adviser’s firm makes index funds available.

Index investing is a low-cost and effective alternative to mutual funds, which many advisers use extensively because they pay well (full disclosure: Mr. Banerjee works for a company, Pro-Financial Asset Management, that offers a kind of index fund). Both indexing and traditional funds are defensible approaches – what you’re on guard for is someone who trashes indexing for reasons of self-interest.

Mr. Banerjee’s plan is to have a version of the KYA that you can complete online, or print and fill out while interviewing advisers. While he welcomes input from advisers, he’s prepared for them to criticize the initiative.

“There’s going to be some backlash for sure,” he said. “But the good advisers are going to welcome it. They’re going to say thank you for helping us differentiate ourselves from everyone.”

Know Your Adviser

Here is a summary of some questions that appear on a form designed by financial blogger Preet Banerjee to assist people interviewing prospective financial advisers. You can comment or submit ideas for additional questions on Mr. Banerjee’s blog, at wheredoesallmymoneygo.com.

Sales Person or Financial Adviser?

1. Are you a full-time adviser, or do you have a part-time job not related to financial advice?
Ideal answer: Full-time adviser

2. Does your firm hold sales contests or provide sales incentives?
Ideal answer: No

3. What is your main method of compensation?
Ideal answer: flat or hourly fee, although this is not a deal breaker by any means

4. Do you provide full disclosure of all fees and commissions paid by clients?
Ideal answer: Yes, for each recommendation

5. Do you mainly use products from your own company?
Ideal answer: No

Qualifications and Competence

1. What investment management qualifications do you have?
Ideal answer: CFA is the gold standard, but others show expertise as well

2. Are you licensed to trade options?
Ideal answer: Yes

3. Will you show clients your own personal portfolio so they can see if you practise what you preach?
Ideal answer: Of course.

4. What financial planning designation do you hold?
Ideal answer: The RFP, CLU and CFP are among several that show expertise.

5. Are you licensed to sell insurance products?
Ideal answer: Yes

Client Services Offered

1. Do you provide an investor policy statement (explains how a client’s portfolio was created and what will happen in various situations)?
Ideal answer: Yes

2. What kind of financial plan do you provide clients?
Ideal answer: A comprehensive plan involving investments, estate planning, budgeting and tax.

3. Do you provide a written summary of all meetings to recap recommendations, etc.?
Ideal answer: Yes

4. How many people are on your team?
Ideal answer: A few, to provide several points of contact.

5. What kind of contact will we have?
Ideal answer: Annual face-to-face meetings, plus periodic phone calls and comment in falling markets.

Posted via web from Toronto Real Estate News, Blog

Window for renegotiating rent may be closing – #Toronto #Realestate

Office space

Window for renegotiating rent may be closing

Small business owners hoping to cash in on cheaper rent, or hoping to downsize their spaces, need to act fast, says Stan Krawitz founder and manager of Toronto-based real estate brokerage Real Facilities Inc.

Small business owners hoping to cash in on cheaper rent, or hoping to downsize their spaces, need to act fast, says Stan Krawitz founder and manager of Toronto-based real estate brokerage Real Facilities Inc. Fred Lum/The Globe and Mail

Landlords may allow office spaces to sit idle to avoid losing money on long-term leases negotiated at recessionary levels, expert says

Chris Atchison

Special to The Globe and Mail

If the recent recession taught business owners any lessons in the fine art of cash-flow management, one of the most pertinent dealt with the often crippling financial consequences of expensive office rent.

As business dried up for many firms, their monthly rental obligations loomed large. For landlords, the recent downturn was a painful reminder that the commercial real estate sector is not immune to downward market pressures.

According to a recent report by commercial real estate services firm CB Richard Ellis Group, office vacancy rates across Canada continued to rise in the first quarter of this year, posting a year-over-year jump from 7.5 per cent in 2009 to 10.1 per cent.

Another key indicator, sublet space as a percentage of vacant office space, logged a year-over-year first-quarter gain from 20.8 to 21.9 per cent this year. Although vacancy rates have continued to climb, increases have largely stabilized since the peak of the recession.

“The few transactions that did take place [over the past four quarters], took place at anywhere from a 15 to 30 per cent discount on the net rental rates,” says Stan Krawitz, founder and manager of Toronto-based real estate brokerage Real Facilities Inc. “The increasing vacancy rate is dominated by new buildings coming on stream … especially in major markets like Vancouver, Toronto and Calgary.”

All of this has resulted in an increasing willingness on the part of landlords to reconsider their rental fees as they compete to retain tenants.

That Canada-wide glut of office space has opened a window of opportunity to small- and medium-sized business owners who may have been feeling a cash-flow pinch. For most, expensive rental leases are their single largest cash-flow burden – and any cutback in overhead would be a welcome relief.

This perfect storm of economic contraction and increased real estate supply has ushered in a brief era of mass rent renegotiations – one that may soon be coming to an end.

Mr. Krawitz predicts that as the economy continues to bounce back and market demand is further restored, many landlords will allow their spaces to sit idle for six to 12 months if necessary to avoid losing money on long-term leases negotiated at recessionary levels.

All of this means that SME owners hoping to cash in on cheaper rents, or hoping to downsize their spaces, need to act fast.

But renegotiating a lease isn’t as easy as knocking on a landlord’s door and requesting a rent rollback. On the contrary, Mr. Krawitz says renegotiation is a task best left to real estate professionals trained to understand market realities and leverage them to a tenant’s advantage when negotiating with landlords.

Those tenants who do attempt the feat on their own should bear certain key points in mind.

The first consideration, Mr. Krawitz says, is to understand the health of their business and how their rent stacks up in the current market, as well as the ease at which their landlord could lease the space to another tenant.

“You need to put all of those variables into a formula that says, ‘What is my landlord’s best alternative to a negotiated outcome if I were to leave?’ ” Mr. Krawitz explains.

“These landlords are so sophisticated and do this every day that if one piece of the puzzle is not presented properly, they simply leave the bargaining table and you’re stuck with the lease you have. That could be the difference between staying in business and going out of business.”

He urges all small business owners to step up to the bargaining table armed with cash-flow and income statements to prove that a decrease in rent is necessary to keep their business healthy. But even this involves a delicate touch.

Mr. Krawitz urges his clients to prepare a presentation that not only explains why a rent reduction is essential for them, but also how it can benefit the landlord in the long term.

“You have to be able to put together a presentation that says, if you help me now, here’s how I’m going to be in business three, four, five or even 10 years from now. Here’s why I’ve had a problem and here’s why helping me helps you.”

In tough times, landlords will often agree that locking in a less-lucrative tenant for the long-term is a wise move, particularly if it helps them secure financing on their properties. However, if they see renewed prosperity on the horizon, Mr. Krawitz says they might take a pass and wait until a lease expires to begin negotiating, assuming there’s no ancillary benefit for them to pro-actively work to retain certain key tenants.

But as Mr. Krawitz points out, the real opportunity for small businesses hoping to improve cash flow isn’t necessarily best served by simply asking to pay less in rent, but downsizing their space altogether.

As many firms have been forced to shrink their staff count during the recession, they’ve attempted to sub-let all or part of their oversized office spaces to cut costs.

But offering landlords an opportunity to reclaim space they might be able to rent to new tenants at higher rates – and in turn slashing the recession-weary firm’s monthly overhead –creates a win-win scenario for both parties.

“I think that’s where the current timing works quite nicely for the tenant,” Mr. Krawitz explains. “Because the landlords are feeling a little more comfortable about the fact there are tenants to back-fill vacant space, I believe the greatest ability for tenants is in the reduction area.”

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CTV News | How Spain’s downgrade hit stocks, Canadian dollar, oil

How Spain’s downgrade hit stocks, Canadian dollar, oil

Michael Babad

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Stories Report on Business is following today:

Spain downgrade knocks markets

A downgrade of Spain’s debt by Fitch Ratings knocked stocks, oil and the Canadian dollar today, helped along by disappointing data from the United States on consumer spending. Markets have ebbed and flowed with every development in Europe’s mounting debt crisis amid investor jitters over sovereign credit defaults and the impact European austerity measures could have on economic growth. A $1-trillion rescue package of the euro zone by the EU, the International Monetary Fund and the European Central Bank has done little to calm investors’ nerves, though markets rallied yesterday.

The Dow Jones industrial average , the S&P 500 and the S&P/TSX composite all slipped.

Fitch cut Spain from a triple-A rating to AA+ and give it a “stable” outlook, warning of slower economic growth.

Read

Fitch downgrades Spain’s debt

Greece could set off bigger debt bomb

Market Blog by David Berman: Stocks struggle into the weekend

Canadian dollar forecast to return to parity

It was about 5 cents ago that the Canadian dollar was at parity with its U.S. counterpart, and currency watchers expect it will be there again over the next few months, depending on the ebbs and flows of the euro crisis.

There is a “significant divergence” between the near- and medium-term outlook for the Canadian dollar, Scotia Capital currency strategist Camilla Sutton said today, noting that the shorter term the loonie is vulnerable to the types of turmoil the markets have seen as Europe’s debt crisis mounted, spooking investors and driving them into what are deemed safe assets. She said, though, that in the medium term she believes the loonie will be back at parity.

Mark Chandler, fixed-income strategist at RBC Dominion Securities in Toronto, agreed, adding that he expects “flare-ups” over the summer related to developments in the global banking sector, but that the loonie should get back to parity again within a few months.

“Then ultimately it may become a story of a recovery in the U.S. dollar, so Canada’s foray with parity may yet again be short-lived,” Mr. Chandler said, adding RBC expects the loonie to be in the mid-90-cent range this time next year.

In a separate report today, Scotia Capital economists Derek Holt and Karen Cordes Woods noted that not only is the loonie outperforming other currencies, so are Canadian stocks and sovereign bonds.

“In local currency terms, Canadian equities have also outperformed,” they say. “On a month-to-date basis during the period of heightened risk aversion, the TSX is down 3.8 per cent Most other global exchanges have suffered a worse plight. The DJIA and S&P500 are both down about 7 per cent, the Nikkei 225 is off 12 per cent, each of the FTSE 100, CAC 40, and Hang Seng are off about 6-7 per cent. Only the German DAX has fared better than the Toronto TSX via a comparatively mild 2.8-per-cent drop … In [U.S. dollar] terms, Canadian stocks are on roughly even terms to U.S. stocks, and stronger yet against many other global exchanges.”

On the issue of government debt, the economists point out that yields on Canadian 10-year bonds “have benefited from a safe haven bid not terribly out of line with other key 10-year benchmarks in local currency terms.”

This is the backdrop for a key week in Canadian markets, as Statistics Canada reports Monday on how Canada’s economy performed in March and the first quarter. And expectations are high.

“Monday starts with a bang via expectations for about 6-per-cent annualized month-over-month growth in GDP during March over February to close off [a first quarter] that likely had Canadian economic growth doubling that of the United States as a clear sign of economic outperformance.,” the Scotia Capital economists said.

The Bank of Canada’s interest rate decision follows on the heels of the GDP report as the central bank meets Tuesday. Markets are still betting heavily – though not as heavily as before the recent turmoil in global markets – that Governor Mark Carney and his colleagues will raise their benchmark overnight rate for the first time since before the financial crisis and recession.

“My, my, aren’t we fickle?” BMO Nesbitt Burns deputy chief economist Douglas Porter said this morning. “One good rollicking day in the equity market, and now the markets are suddenly pricing in roughly a 70-per-cent chance of a Bank of Canada rate hike next week (up from less than 40 per cent at one point on Tuesday).”

Related: Volatility returns, with a vengeance

This could be Canada’s decade, CIBC says

There’s a theme emerging today. In another report, CIBC World Markets said today that this could be Canada’s decade to shine among the western industrialized economies, given its resource base and better fiscal standing.

“Canada’s current federal deficit of 3 per cent of GDP (or 5 per cent including the provinces) pales next to double-digit deficit-to-GDP ratios for national governments in the U.S. and the U.K.,” economists Avery Shenfeld and Peter Buchanan said in a report. “The result is that if each country aimed to stabilize its debt-to-GDP ratio at 45 per cent, Canada would require a retrenchment of less than 3 per cent of GDP, while others would need fiscal cuts several times larger.”

Canada will still see a “huge fiscal drag” next year amid a swing from stimulus to restraint, which the bank estimates could represent a drag of 2 per cent of GDP. But that pain will be far less severe than elsewhere.

“Investors have been climbing the proverbial wall of worry due to euro zone debt woes,” Mr. Shenfeld and Mr. Buchanan write. “Geopolitical tensions in Asia have also amplified volatility. While all this, not surprisingly, has overshadowed longer-term fundamentals, Canada’s resource endowments, resilient financial system and favourable demographics relative to other G7 nations make it an economic contender looking out of the next 5-10 years.

“Another notable positive is in the healthier state of public and corporate sector balance sheets. These factors are no iron-clad recipe for national success in the near term, but do mean Canada is better positioned than many of its competitors to deal with the challenges of the upcoming teen years. And where economic growth goes, corporate earnings, dividends and other rewards for investors are likely to follow.”

Dutch central bank warns of bubble

The Dutch central bank warns today of the risk of bubbles in financial markets given record low interest rates around the world. De Nederlandsche Bank also warns of the threat of a double-dip recession in a semi-annual report.

“Central banks have lowered interest rates firmly during the crisis,” the DNB report said. “… The current interest level and loose liquidity impose risks. The danger remains that loose monetary policy will create the foundation for a new bubble in financial assets.”

It also issued a stark warning in a statement accompanying the report: “The nature of the risks for financial stability has changed rapidly over the past few months. Since the spring of this year, concerns about European governments’ debt levels have generated increasing unrest in the financial markets. A further slide in confidence poses one of the main threats to financial stability, while a double-dip scenario, in which economic conditions deteriorate again, is still a risk. In the banking sector this could cause another increase in credit risk. If this coincides with greater pressure on the market for commercial real estate or the housing market, the banking sector could face considerable potential losses.”

Porter cuts IPO price

Porter Aviation Holdings Inc. has cut the price of its initial public offering to $5.50 a share from as much as $7 because investors balked at the valuation the upstart airline was seeking. The Toronto-based airline decided on the new valuation with its bankers today, and will try to do the deal by Tuesday, Globe and Mail writers Boyd Erman and Andrew Willis report. Read the story

Lineups for international iPad launch

For today at least, the iPad is more popular than the Mona Lisa. From Tokyo to Paris and Sydney, the global launch of the new tablet computer from Apple Inc. drew long lineups and heightened anticipation. The launch had been delayed because Apple couldn’t meet demand amid estimates from one analyst that global sales will top 8 million by the end of the year.

“I wanted to touch it as soon as possible,” Takechiyo Yamanaka, a 19-year-old who was first in line at the Apple store in Tokyo, told the Reuters news agency.

It also on sale this morning in Canada, priced between $550 and $879.

In the basement of the Louvre in Paris, Bloomberg News reported, the lineup for the iPad at the Apple store, in the Courrousel du shopping centre in the museum complex, far surpassed that of the lineup to view the Mona Lisa. Read the story

Related: Computer tablet wars are coming

Shell in $4.7-billion shale deal

Royal Dutch Shell today struck a $4.7-billion (U.S.) deal for a privately held player in the hot Marcellus shale gas play in the northeastern United States. The cash deal for East Resources Inc. will boost the energy giant’s daily production of North American gas by some 7.5 per cent. Energy companies have been scrambling for shale gas assets in North America, and today’s deal highlights the growing interest. Shell has also joined forces with EnCana Corp. to develop projects in the Haynesville Shale play in Louisiana.

Japan fights deflation

Japan continues to struggle with a bout of deflation, and its unemployment rate is rising. Official measures today showed core consumer prices, which exclude volatile items, fell 1.5 per cent in April from a year earlier. That marked the 14th month in a row of falling prices. Japan’s unemployment rate, meanwhile, rose to 5.1 per cent, and the number of people without work now stands at 3.56 million.

Soda pop in high demand in U.S.

A prominent U.S. analyst is warning about the possibility of that the United States could run short of soda pop this Memorial Day weekend because of demand sparked by discounts launched by Wal-Mart Stores Inc. Bill Pecoriello of Consumer Edge Research said cans are “flying off the shelves,” according to the Reuters news agency, and some Wal-Mart outlets have sold out of cases of 24. Wal-Mart lowered the price of 24-packs to $5 (U.S.). Americans could, of course, always take a cue from Canada, where we kick off the summer with 24-packs of beer.

From today’s Report on Business

Alberta woos energy producers

Banks fail to impress with results

Foreclosure wave deemed unlikely

Obama denies BP contamination could be his Katrina

Read Kevin Carmichael’s G8/G20 Global View blog

And in ROB Magazine: A qualified man is hard to find, Linamar’s drive to $10-billion, and more

via ctv.ca

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Price gains slow across the country | #Toronto #Ottawa #realestate #economy

Friday, May 28, 2010

Price gains slow across the country

Canwest News Service 

OTTAWA – The latest home-price index from National Bank of Canada, done in partnership with real-estate technical-services provider Teranet, shows prices far ahead of where they were a year earlier, though monthly gains are slowing.

The Teranet-National Bank home-price index showed home prices among six major markets up 11.6% overall in March from a year before, up from annual gains of 9.9% in February and 7.5% in January.

The report said the widening year-to-year gap was largely due to the decline in home prices in the early part of 2009, an effect that carried through to April.

On a monthly basis, prices were up 0.3% in March. In February, they were up 0.2%, and gains for these last two months for which data is available mark the slowest pace of price gains in almost a year.

“The … slowing of monthly gains is consistent with a general loosening of resale-market conditions across the country,” the report said. “For some months now, homes have been coming on the market faster than they have been selling.”

The year-to-year gains have been largely influenced by prices in Toronto and Vancouver, which were up 15.5% and 14.4% respectively, from a year earlier in March. Other markets, which include Calgary, Halifax, Montreal and Ottawa, saw gains of less than 8%.

Calgary had the lowest year-to-year gain at 2.7%. It was also the only one with a monthly decline, with prices down 0.3%. It was the city’s third straight month of lower prices.

The Teranet-National Bank index is based on prices for homes that have sold at least twice. The survey does not provide specific sales figures.

The Canadian Real Estate Association also issued a report, saying that while prices are slowing, no one should expect a downturn like that seen in the United States.

CREA acknowledged that rising Canadian home prices in recent history have outpaced the growth of incomes, and some “stabilization” in the real estate market is due to allow incomes to catch up.

“This ratio [of incomes to home values] will revert to its long-term average as it always does as part of a normal housing-market cycle,” said Gregory Klump, CREA chief economist. “History suggests, however, that it will not do so by means of a significant correction in home prices.”

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