Property: Lease or Buy
Written by Laura Clapper, Buffini and Company
It’s the age-old question on the minds of experienced and first-time homebuyers alike: Is this a good time to buy a home? With the American housing market still in recovery, many Canadians are worried that their own housing market will endure the same tumultuous decline. Is this the perfect time to buy the home of your dreams or will the fear of a potential bubble burst keep you renting?
The good news is that the housing market is in good shape. According to the Canadian Real Estate Association (CREA), housing sales were up in the first quarter of 2011, with changes to the mortgage rules responsible for the boost in activity. Though the market is anticipated to decline slightly, sales activity is expected to grow 2.6% by 2012.
Changes to Canadian Mortgage Rules
The Canadian government seeks to avoid future real estate meltdowns through new legislation. In January, the government revamped its mortgage guidelines to reign in mounting consumer debt and to prevent homebuyers from defaulting on loans in the future, when prime lending rates may increase. Canadian consumers’ escalating debt-to-income ratio has raised red flags among government officials and financial experts for good reason—household debt is 144% of disposable income, narrowly surpassing the debt ratio of the United States.
According to a statement by Jim Flaherty, the Finance Minister of Canada, “We want to caution Canadians that we will not facilitate excessive debt assumption by some Canadians at very low interest rates because that will lead to trouble in the medium and longer term.” Translation: The Canadian government wishes to dodge the bullet that struck the American housing market a few years ago.
The Canadian government’s mortgage changes included:
- A 30 year maximum amortization period, down from 35 years
- Homebuyers can only borrow up to 85% of the home value, down from 90%
- The government will not be covering popular lines of credit
The changes will affect mostly first-time home buyers and people living in areas with high home values, such as Vancouver or Toronto. However, most Canadians will not feel the effects of the mortgage changes, particularly if they are financially stable, can supply a 20% down payment and have managed their debt successfully—basically the portrait of the typical Canadian homebuyer.
The Canadian Difference
Although Canadian consumers are borrowing at higher levels, experts do not believe that Canada will experience an American-level bubble burst in the housing market for several reasons. First, Canada has stricter lending standards than the United States. Most mortgages are written by one of the six major banks, who are required to follow specific regulations. Additionally, sub-prime mortgages are rare, comprising only 5% of mortgages. While these loans were all the rage in the United States, they never gained traction in Canada.
Second, mortgages are full recourse loans—the borrower is responsible for paying back the loan regardless of circumstances. Lenders are able to use a homeowner’s assets and income as collateral, thereby reducing the risk of the borrower walking away from a mortgage. As a result, delinquencies are one-tenth of the level of the United States.
Third, Canadians tend to seek conservative mortgage options. Since home mortgages are not tax-deductible, homeowners see no tax benefit to owning a home. Additionally, prepaying a mortgage comes with heavy penalties to dissuade refinancing.
Buy or Rent?
It’s a great time to buy a home. However, homeownership isn’t for everyone. Before you sign on the dotted line, it’s important to assess whether homeownership is right for you.
Reasons to Rent:
- You plan on relocating soon or you relocate frequently
- You don’t have enough money saved for a down payment
- You have bad credit
- You have limited financial resources
- You need/prefer liquidity in your investments
Reasons to Buy:
- It’s a good, long-term investment
- You’re financially stable
- You need more space or are expecting changes in your family situation
- To have a place of your own
- To escape rental increases
Whether you’re in the market for your first home, a bigger property or simply a vacation home, refer to your real estate agent for information regarding the state of your local real estate market.
Laura Clapper is a copywriter for Buffini and Company, North America’s largest and most successful real estate training and coaching company.
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.