The Canadian Property Boom - When Will the Bubble Burst?
You can’t open the paper without reading doom and gloom forecasts for the Canadian property boom, making it an anxious time for would-be buyers who are desperate to know if the bubble is about to burst.
Crash or cooling?
The latest statistics from the Canadian Real Estate Association (CREA) have helped to ease concerns about an imminent crash, however, with many experts suggesting a moderate correction in values may now be more likely than a major crash.
National home sales for the month of January 2013 were up 1.3 per cent from December 2012, the fifth month in a row that sales activity has showed little change, despite warnings throughout this period that a crash was about to happen.
The levels of activity have remained fairly unchanged since the sharp drop back in August, after mortgage lending rules were tightened.
Positive news from Edmonton, Toronto and Vancouver
According to the CREA, home sales increased in around half of the local market areas compared to the previous month, with the greatest sales increases occurring in Edmonton which enjoyed almost 10 per cent more sales, followed by Greater Toronto (up 5.6 per cent) and Greater Vancouver (up 4.7 per cent).
“There is little news to report about national sales activity, which continues to hold fairly steady at the lower levels first reached when mortgage rules were tightened in mid-2012,” CREA’s President Wayne Moen said. “That said, things are becoming more interesting among local markets, with improving sales in Vancouver and Toronto likely to come as something of a surprise to some.”
The bigger picture
With posted decreases in year-over-year sales and predictions that house prices will continue to rise, fears about a bubble are not without grounds. However, economists disagree about the likelihood of a crash; while some warn that a US-style crash may be ahead, others argue that Canada has avoided many of the mistakes made in the US housing market and that its tighter lending and banking regulations have prevented prices getting too far out of control.
Low borrowing costs
With interest rates low and expected to remain low – the Bank of Canada has said that soft economic growth and tame inflation means it has no imminent plans to increase the 1 per cent key lending rate put in place in September 2010 – many experts expect future house sales figures to remain fairly steady. The market may be fraught with nervousness, but today’s homebuyers can at least benefit from the lowest mortgage rates Canada has ever offered. The 1.35 million mortgage holders who renewed last year saved an average of $2,000 in annual interest costs, according to the Canadian Association of Accredited Mortgage Professionals.
Spring buying season
With disagreement among the country’s leading economists, it is difficult to predict the future of the Canadian housing market. However, with the spring buying season now beginning, many leading economists now hope that fears about a crash will soon prove to be unfounded.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.