Scotiabank Plaza Could Fetch $1 Billion for Shareholders. Scotia Decides to Take Advantage of Hot Toronto Real Estate Market.

Finally a Canadian bank is doing something prudent recently for its shareholders. Scotiabank (TSE: BNS) has indicated that it is looking for buyers of Scotia Plaza, the second largest tower in the country. Real Estate analysts think that Scotiabank could fetch $1 billion for its shareholders from the sale of the property. 


In an overheated property market, with low mortgage interest rates, deciding to unload a property for a massive gain is a prudent move for the bank. Scotiabank is currently the only bank in Toronto that actually owns its office building, which it has occupied since 1988. 


Bank spokeswoman Ann DeRabbie stated that "given market conditions, this could be an opportune time to maximize the value from our holdings," and Intelligent Investors should agree. The $1 billion could be better utilized elsewhere, even if it is simply used to reduce the bank's leverage and risk profile. 

Should You Refinance Your Mortgage at Lower Rates? A Little Research and a Couple Questions Should Save Canadians Thousands of Dollars.

The CBC and other news media outlets have been heavily publicizing Canada's historically low mortgage rates. This highlights that fact that many home-owners and real estate investors need to seriously consider whether or not they should refinance their current mortgage. How does someone know if they should cancel their existing mortgage and obtain a new one at a lower rate?

• A little research and simple mathematics. Ask your current lender how much it would cost to pay off your mortgage early. Generally it will be one of two amounts:

1. Three months mortgage interest.
2. The "Interest-Rate-Differential," or IRD.

Three months interest is a simple calculation, but the IRD can be a little more nebulous. It depends primarily on two factors: how many months are remaining on your existing mortgage, and the rate difference between the current lenders rate that you have, and what their current posted rate is. If they would make more money off you than a new customer, they will penalize you accordingly. To get the most reliable amount for a penalty, the lender's head office or mortgage servicing department is best. The representative at the local branch can often be less forthcoming.

• Next you need to take the cost of the penalty, and decide if it is less than the total amount of money saved from obtaining a better interest rate at a different institution. For example, if your current penalty is $2000, but you would save $200 per month for the next 5 years ($200 x 60), or $12,000, if you moved to another lender, financially you would clearly be better off paying the penalty and savings $200 per month. 

It is important to keep a close eye on your finances and ask the important questions to ensure that you are not being taken advantage of as a consumer. So please, question your lender. Ask what your penalty is and see if it would be better for you to move somewhere else. A vibrant and competitive marketplace can only exist with informed customers. 

Condo Risks for Investors. Careful not to get Burned.

Condo risk bubbles up | Economy | News | Financial Post:

According to the Canada Mortgage and Housing Corporation and the Financial Post, housing starts in Canada continue to rise. A huge disconnect, however, has now developed between single family and multi-unit buildings. Condo and multi-unit construction is up over 17% this year, while construction of detached homes has started to fall-off, declining by over 12%.

According to the law of supply and demand, increased supply for condominiums in Toronto and Vancouver, without a requisite demand from new buyers, will undoubtedly result in a price drop for new units in the area. Detached homes, however, may experience a more elongated rise in prices, or at least a more cushioned fall, should prices decline across the board during a down-turn in the economic cycle because construction of them has largely slowed.

“The multi side of the market certainly looks more at risk given the supply situation,” he said. “Prices have been pretty resilient so far, but the concern is if we do get a correction in prices the fact that the supply of condos is looking so much more ample, those will be more at risk. Singles are actually looking pretty tight be historical standards.” (Financial Post).

Both the Royal Bank and the Bank of Montreal have now expressed warnings about an overheated condominium market in Canada's major population centres. Special attention should be paid to "investor-owned" condominium properties. This is because market rents have to be commensurate with the cost to carry the mortgage on over-inflated property prices. Should prices fall, and rent not cover the mortgage, this will be a double edged sword for investors. They could lose money as the sale price of their condo falls, but they could also lose money trying to carry a mortgage on a property that cannot be rented out.

For those who live in their units, the risk is much lower, as there is no imminent need to sell or realize a positive cash-flow from the units, they simply have to wait out the market in their primary residence.

Point of advice: Be wary of buying a metropolitan condominium as an investment property in the current market. A number of warning signs indicate that you might get burned.