14 May, 2012
Posted by on
While the biggest losers in a Toronto condominium bubble collapse would be the owners of the property – there will be fallout to other stake holders (looking to the US for clear examples) including banks, federal insurance programs, and the condominium complexes (abandoned units which don’t pay their condominium fees).
But owners that decide to simply bunker down and hold on to their properties until they rise once again will face an additional burden for their trouble: higher taxes.
Toronto has a Municipal Land Transfer Tax (MLTT) – on top on the provincial land transfer tax – which accounts to about 300 million dollars a year. This tax takes place when a property changes ownership. For a cost example, on the average cost of a condo ($369,892 – Toronto Real Estate Board) the Toronto MLTT works out to $3074.52.
If property prices fall 20% the drop in city taxes isn’t the same because the rate varies based on the price of the property. This is important to realize when the cost of detached homes in Toronto averaged $650,147, and the blended value of all property types in Toronto averaged $517,556 – a 20% reduction in property value would result in a 34% reduction in the MLTT – or about $105 million in reduced revenue for the city.
A collapsed bubble market coupled with a MLTT will result in even further loss in property values. It will be bad enough when values naturally drop in a bubble, but with Toronto scrambling to make up 100+ million in taxes, there will be dramatic raises in property tax (or other service costs) that will continue to put a downward pressure on housing values.
People who hold on to under-water equity homes will get punished for riding out the loss with new and greater taxes that were previously funded by an addiction to the MLTT.
I’m not a big fan of MLTT – I much prefer a fair market taxation rate (which is nice – more expensive properties pay more taxes) as a single, primary, tool of municipal taxation. The MLTT seems too variable, too addictive in certain markets, and especially too difficult to deal with when a municipality has to go cold turkey on a collapsed housing bubble.
HOAs and Condominium corporations when dealing with delinquent fees, and after following the correct steps, can foreclose on the property to recoup outstanding amounts. In foreclosing, sometimes you need to evict the owners or tenants.
Apparently, for the Jasime Homeowners Association, California, simply knocking on the front door during daylight hours, and communicating the need for eviction isn’t their chosen approach. Instead they hired a security company to perform a 3am raid on the tenants.
After the guards entered the premises, awoke everyone, forced them into the street in underwear and then ransacked their stuff, the tenants had an opportunity to show lease and utility payments. This proved that the tenants were actually renters (with rights) vs. what the HOA claimed – squatters. With the new information, the guards allowed the tenants back into their homes.
The tenants are suing the HOA (and it seems rightly from the report) for a variety of charges. I would have to say that all this could have been avoided if the HOA had made sure that clear, and proper, notification of eviction had been given. Say, during daylight hours.
The best part, one of the security guards hired is quoted as saying:
between you, me and the lamppost, the homeowners’ association is over-zealous.
Really? Over-Zealous. Say it isn’t so!