CHHMA - EYE ON OUR INDUSTRY
Volume 16, Issue 30, August 10, 2016
Inside This Issue:
• TIMBER MART’s Bernie Owens to Speak to CHHMA Members in Montreal – October 26
• Join Us on September 13th for a Seminar on the Future of E-Commerce/Digital
• Register Now for the Industry Memorial Golf Classic - September 27th at Blue Springs G.C.
• CHHMA Announces Scholarship Program Recipients for 2016
• Giant Tiger Wants to Open 10 to 15 Stores Every Year
• Wal-Mart to Buy Amazon Competitor Jet.com for About $3.3 Billion
• Orgill to Expand Distribution with Idaho Facility; Will Service Customers in BC & Alberta
• Canadian Tire to Focus on In-House Product Lines and a Digital Future
• Pace of Canadian Housing Starts Eases in July but Still Beat Expectations
• June Building Permits Drop on Lower Apartment/Condo Plans
• Scuttled Property Deals, Legal Risks Mount from Vancouver’s Foreign Property Buyer Tax: ‘It’s a Domino Effect’
• Canadian Economy Sheds 31,000 Jobs; Unemployment Rate Rises to 6.9%
• U.S. Adds 255,000 Jobs in July, Wages Rise as Unemployment Rate Unchanged
Association News
TIMBER MART’s Bernie Owens to Speak to CHHMA Members in Montreal – October 26
The CHHMA is pleased to announce that Mr. Bernie Owens, President of TIMBER MART, will be our next guest speaker at a CHHMA Breakfast Seminar to be held at the Hôtel Holiday Inn Montréal-Longueuil on the morning of October 26th.
Mr. Owens began his career in the building-supply industry over thirty years ago, serving a long tenure at building-material manufacturer, CertainTeed – a subsidiary of multinational corporation, Saint-Gobain.Throughout his 21 years at CertainTeed, Mr. Owens served various roles including, General Manager - Finish Products for North America and Vice President of Sales for the company’s gypsum and insulation business units. Over the years, Owens adopted global best practices and fostered relationships with buying groups and building-material suppliers nationwide. Owens also went on to further his studies in business at international business school, INSEAD and York University’s Schulich School of Business.
Today, as the president of TIMBER MART, Mr. Owens leads the organization with a global industry perspective, fresh ideas, clear vision, and a relentless drive to make TIMBER MART the buying group of choice for Canadian independent building material and hardware entrepreneurs.
We look forward to hearing from Mr. Owens and his update on the organization. Further details and registration information will be available over the coming weeks.
Join Us on September 13th for a Seminar on the Future of E-Commerce/Digital
The digital world continues to transform retail in and out of the physical store and this trend will continue well beyond 2020. Traditional brick and mortar retailers are evolving their e-commerce operations and global third party marketplaces are fundamentally disrupting the retail landscape, resulting in a completely reshaped retail environment that will require distinct capabilities to compete.
In order to position for growth in this new seamless, digitally integrated retail environment, retailers and suppliers need to understand how fast e-commerce is growing, and get answers to crucial questions related to e-commerce and the digital transformation, including:
• How fast is e-commerce forecast to grow around the globe and in Canada?
• What is the size of the e-commerce opportunity?
• Which retailers are leading the change and driving the innovation?
• What capabilities will be critical for retailers and suppliers to win in the future digital landscape?
• How will e-commerce impact logistics and fulfillment business models of the future?
The CHHMA along with the Canadian Office Products Association (COPA) and RetailNet Group will be bringing the answers to you in a workshop on the future of e-commerce/digital on the morning of Tuesday, September 13, 2016, 9:00 a.m. – 11:00 a.m., at the Centre for Health & Safety Innovation, 5110 Creekbank Rd., Mississisauga, ON., CHHMA Members: $99.00 + HST.
The seminar will explore how fast e-commerce is growing, the top e-commerce initiatives that retailers around the globe are working on today, and the future prevalent e-commerce fulfillment models. Participants will learn why retailers and brands need to build their roadmap of the table stakes and differentiating capabilities to carry them through the e-commerce and digital transformation.
With such a huge shift taking place in the industry, you will not want to miss out on this game-changing information!
About the Speaker
Hannah Donoghue leads RNG’s advisory practice, specializing in global retail strategy, e-commerce, and planning. Through her advisory work, she supports global retailers, manufacturers and service providers on custom projects, presentations, and immersion programs focused on the future of retail, retailer growth initiatives and supplier capabilities. Donoghue also supports and presents at RNG’s Executive Education programs, which provide strategy and leadership courses through partnerships with leading universities.
Beginning her career at RNG as an analyst, Donoghue leads RNG’s research and forecasts for the Latin America region. She also leads RNG’s college graduate recruitment program, supporting the growth and development of RNG’s analyst team.
Click here for a PDF registration form.
Online registration will open shortly.
Register Now for the Industry Memorial Golf Classic - September 27th at Blue Springs G.C.
The 15th Annual Industry Memorial Golf Classic is taking place on Tuesday, September 27th at the Blue Springs Golf Club in Acton, Ontario.
The event is held on behalf of the hardware and housewares industry and it honours stalwarts from the industry who have passed away. CHHMA members and non-members are welcome to attend.
This year’s honourees are: David Holden (Hamilton Beach), Leonard Lee (Lee Valley Tools) and Warren Parr (D.H. Howden/TSC Stores).
Past honourees include: David Fry, Ted Kennedy, Geoff Somers, Ray Ceolin, Tom Ross, Bruce Webster, Chris Hrushowy, Mike Pullen, Jim Ypma, Bill Caldwell, Brayl Copp, Ed Hardison, Stuart North, Joseph Kuchar, Shelly Lush, Jack Pountney, Christof Vanooteghem, Ian Hay, Trygve Husebye, Bernie Carpenter, Don McDonald, Les Groves, Bob Hilton, Doug Straus, Mel Boshart, George Giles and Ed Barnes.
The day allows family, friends and colleagues to honour these gentlemen while enjoying a fun day out on the golf course followed by a dinner and silent auction.
The event will start off with registration and breakfast at 8:00 a.m. with a 9:00 a.m. tee off. Dinner will commence at around 2:30 p.m.
Money raised from the event will go towards the CHHMA Scholarship Program which provides support for children of CHHMA member company employees to attend university or college.
Click here for a PDF registration form. Click here for a PDF silent auction pledge form.
For full details and to register online, click here.
CHHMA Announces Scholarship Program Recipients for 2016
The CHHMA Board of Directors was pleased to announce last week the Scholarship Award recipients for 2016. The finalists were chosen by ballot draw and this year we are pleased to award five scholarships.
Since 2001, the CHHMA has awarded $170,000 towards scholarships and some 85 young people have benefited from the scholarship program. Recipients receive $1,000 per year for the first two years of study at an accredited post-secondary institution.
Here are this year’s winners:
Victoria Denobrega – Ajax, Ontario
Victoria is the daughter of Chris Denobrega from IPEX Inc. She will be attending Western University in the fall to study Kinesiology. Victoria was on the honour roll all four years of high school and graduated with a final average of 87.5%. She would like to become either a doctor or a physiotherapist as she has a passion for learning as much as she can about the human anatomy.
Wynona Falcao – Mississauga, Ontario
Wynona is the daughter of Shaunon Falcao from Loxcreen Canada. She will be attending Wilfrid Laurier in the fall pursuing her bachelors degree in Communication Studies with Management. Wynona graduated with honours and plans to work in the Marketing and Advertising industry when she finishes school.
Elias Jambari – Laval, Quebec
Elias is the son of Youssef Jambari from MTD Products Limited. He will be attending University of Montréal’s Polytechnique de Montréal this fall to study engineering. During high school and CEGEP, Elias was very active in community service and volunteer work including tutoring other students in several subjects. His entrepreneurial spirit was developed selling electronic accessories online.
Rebecca Malcolm - Aurora, Ontario
Rebecca is the daughter of Dale Malcolm from Lincoln Electric. She will be attending Queens University in hopes of getting a Bachelor of Science degree.Rebecca is passionate about medicine and would like to become either a medical surgeon or a medical lawyer. She was a very active and dedicated volunteer during her high school years and would like to continue to make difference when she enters University.
Kenneth Sun – Vancouver, British Columbia
Kenneth is the son of William Sun from Taymor Industries.He will be attending the University of British Columbia striving for a Bachelor of Arts degree. Kenneth was active in his community as a volunteer which led him to wanting to make the lives of others easier with his passion for business and economics. Kenneth hopes to one day open a business that will be beneficial to the community and create a positive impact on the world.
Congratulations to the winners for their outstanding achievements and to the member companies for encouraging their employee participation.
For a complete list of past scholarship winners, go to: http://www.chhma.ca/Public/Scholarship-Program
Industry News
Giant Tiger Wants to Open 10 to 15 Stores Every Year
For 55 years, Giant Tiger’s smiling feline mascot has beckoned shoppers in small towns and those driving up to the cottage.
But after years of operating under the radar amid intense competition against rivals like Walmart and the now defunct Target Canada, the company is setting its sights on becoming a household name.
The Ottawa-based retailer, with its trademark yellow branding, currently operates 220 stores and has a goal of opening 10 to 15 new stores every year for the next three to five years.
The company also has plans to revamp the design of its locations and increase its product offerings in order to build a better shopping experience. Growing its e-commerce business has also been a top priority.
Selling everything from groceries to big-screen TVs, the national discount chain credits the key to its survival and more importantly, its success over the last half-century, to delivering value to shoppers in the know.
“Giant Tiger is Canada’s best-kept secret,” touts Thomas Haig, president and chief operating officer at the privately-owned company.
But in growing its footprint, Haig says it will not lose sight of what has kept it sitting pretty: its local franchise owners who know their customers and what works for their specific community.
“These store managers live in the area, (have) lived there for several years and understand the clientele and understand the needs and wants of the community,” he said.
For instance, some locations carry hunting and cottage supplies if they’re serving rural areas, while others may sell medical uniforms if they’re close to a hospital.
As part of its expansion, the company says it’s looking for sites between 18,000 to 25,000 square feet in communities where there’s demand for Giant Tiger — including areas where there’s already a location.
Recent openings have included stores in Bathurst, N.B., Sudbury, Ont., and Wetaskiwin, Alta. The company also recently announced a new store in Peterborough, Ont., scheduled to open next April.
For the past few years, Giant Tiger has been working on transforming its sleepy image in order to stay relevant to customers who want one-stop shopping for household items and groceries.
One of the biggest priorities the company has is the task of reorganizing store layouts so customers can navigate faster and easier as opposed to rivals who operate warehouse-sized locations that force customers to walk around aimlessly.
“(Our customers) are looking for a simplified shopping experience,” says Karen Sterling, vice-president of marketing at Giant Tiger.
Their target customer continues to be women between 30 to 55 years old, with two kids, who are the “CFO (chief financial officer)” of their families and looking for value from their purchases.
Sterling says their customers’ time constraints have also motivated the company to include more product selection, so a weekly shop for toilet paper, frozen pizza, workout clothes or back-to-school supplies can all be done under one roof.
“The smaller store size is a competitive advantage,” she said.
Along with updating its store look, the company has also been increasing its e-commerce presence. It currently has about 6,000 products online, with the option of shipping some of them to home or a local store for pickup.
Retail analyst Sandy Silva, who is with market research firm NPD Group, says part of Giant Tiger’s success comes from customers who like the idea of supporting a Canadian business.
But where the company can really make its mark is how it proceeds with online shopping.
Silva noted that some challenges for the retailer will be meeting expectations when it comes to home delivery times and product availability because the majority of their customers live in rural areas.
“E-commerce is going to be crucial to them,” she said.
Source: The Canadian Press
Wal-Mart to Buy Amazon Competitor Jet.com for About $3.3 Billion
Wal-Mart has agreed to buy fast-growing online retail newcomer Jet.com, which had launched with a splash a year ago when it announced its intention to challenge online leader Amazon.
Wal-Mart is paying $3 billion (U.S.) in cash and another $300 million in stock.
The deal announced Monday underscores how serious Wal-Mart is about igniting its online business, which has been slowing even as it has been making big investments including hiring thousands of workers, opening two offices in Silicon Valley, building large e-commerce distribution centres and expanding services.
Buying Jet.com would let Wal-Mart compete more effectively with Amazon.com and other online retailers. The deal also reflects the difficulties for startups like Jet.com to make it on their own in a sphere dominated by Amazon.com with its network of distribution hubs and the powerful asset of its Prime membership program.
The acquisition is expected to close this year upon regulatory approval, Wal-Mart said.
Buying Jet.com will help Wal-Mart grab a higher-income customer who typically is younger. Jet.com has more than 400,000 new shoppers added monthly and an average of 25,000 daily processed orders. Wal-Mart says that it will also be incorporating some of Jet.com’s “smart” technology that lowers prices in real time by looking for ways to cut costs. For Jet.com, which has been pouring money into splashy TV ads and other marketing, it will provide big financial backing.
The move follows a series of acquisitions by major traditional retailers of online startups in an extremely competitive landscape. In January, Hudson’s Bay, which owns Saks Fifth Avenue, purchased flash-sales site Gilt Group. And in June, Bed, Bath & Beyond scooped up One Kings Lane.
“We’re looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that’s what our customers want,” said Doug McMillon, president and CEO, in a statement.
Wal-Mart reported in May that global e-commerce sales rose 7% in the first quarter, weaker than the 8% in the previous quarter and far below the 20% increases seen less than two years ago. So it trimmed its free-shipping pilot program ShippingPass to two-day delivery from three and cut a dollar off the membership to $49 a year in an attempt to answer Amazon’s Prime program. But while Amazon’s Prime membership costs $99 a year, it comes with a lot of perks like streaming music and video and household subscriptions.
Wal-Mart’s online sales were about US$14 billion last year, 14% of Amazon’s product and service revenues of US$99 billion. Mr. McMillon said last month that the company’s online operation has taken too long to grow.
Marc Lore, co-founder and CEO of Jet.com noted in a statement that the combination of Wal-Mart’s retail expertise, purchasing scale, sourcing capabilities, distribution footprint and digital assets together with the team, technology and business we have built at Jet — will allow the company to deliver more value to customers.
Hoboken, New Jersey-based Jet.com, launched in July 2015 under Lore, set out to reinvent the shopping cart. The company distinguished itself in e-commerce through “gain sharing,” luring buyers to add items to their orders to reduce shipping costs, and to pay with debit instead of credit cards to reduce transaction fees. It now sells 12 million products, from jeans to diapers, coming from more than 2,400 retailers. The company, which touts its service, delivers to two-thirds of the country overnight in its purple boxes. In some high-density regions such as New York City, Jet often can offer same-day delivery at no additional cost.
The deal gives Wal-Mart control over Jet.com’s proprietary technology and its customer database.
It was unclear as of Monday morning what the arrangements were for Lore.
Lore has experience competing with Amazon before, as CEO of Quidsi, whose main site was diapers.com. Eventually, it bought him out for more than $500 million back in 2010.
Jet has faced plenty of challenges, though. Three months, after Jet.com launched, it ditched its annual membership fee of $49.99 (U.S.), leading critics to question the business model. So Jet.com promised to undercut Amazon and other retailers by 4% to 5% instead of larger discounts.
But Jet.com is not a discount site. It is built on a real-time pricing algorithm that determines which sellers are the most efficient in value and shipping and adjusts prices based on what items are in the checkout cart, as well as how far the desired products are from the shopper’s home. So as shoppers put items in their cart, they’re encouraged to add more to build a more efficient cart and buy items labelled “smart cart” for more savings. Users can even further customize orders for more savings. For instance, if they waive the right to return an item — a huge cost for online retailers — prices drop even more.
In May, Lore told The Associated Press that Jet.com had expected to reach overall profitability in 2020 and to hit $20 billion in general merchandise value with 15 million customers. Lore said the company wanted to make sure people know about it and was taking its profit from selling products and investing it in advertising. Jet.com was also testing the sale of fresh food like eggs.
Source: The Associated Press, Bloomberg News
Orgill to Expand Distribution with Idaho Facility; Will Service Customers in BC & Alberta
Orgill, Inc. will be expanding its network of distribution facilities with the addition of an approximately half-million- square-foot distribution center in Post Falls, Idaho.
Orgill has signed an agreement to acquire the facility and is expecting to close on the purchase Sept. 1.
The new facility will be Orgill’s seventh full-service distribution center, in addition to locations currently operating in Tifton, Ga.; Inwood, WV.; Sikeston, Miss.; Hurricane, Utah; Kilgore, Texas; and London, Ontario.
“We are excited to announce this expansion to our distribution network and look forward to the enhanced efficiencies this will create for our customers as we move forward,” says Ron Beal, Orgill’s chairman, president and CEO.
The new facility will service customers in five states throughout the Northwest including Montana, Idaho, Oregon, Washington and Alaska as well as Canadian customers in British Columbia and Alberta. These customers had previously been served out of other Orgill distribution centers but the addition of the new facility will streamline the delivery process.
“Orgill’s investment in this distribution center will further enhance our ability to provide retailers with access to all the products, programs and services they need to compete effectively,” says Brett Hammers, Orgill’s Chief Operating Officer.
Following the completion of the purchase, Orgill will begin retrofitting the facility and expects to be fully operational and serving customers in these states by March 31, 2017.
Source: Orgill, Inc.
Canadian Tire to Focus on In-House Product Lines and a Digital Future
The new chief executive officer of Canadian Tire Corp. Ltd. will make a big push on developing its own lines of products while looking for an acquisition as the retailer navigates unchartered digital waters following last month’s abrupt departure of former CEO Michael Medline.
Stephen Wetmore, who unexpectedly was re-installed as CEO after his successor left, outlined last Thursday his vision for the retailer – one that is similar to the one of Mr. Medline.
But in marking a divergence, Mr. Wetmore said he will seek an acquisition in line with Canadian Tire’s past takeovers, such as those of Forzani Group, whose sporting goods chains include Sport Chek as well as clothier Mark’s. In contrast, Mr. Medline had recently said he was looking for an e-commerce or digital specialist as a takeover target.
“I have every confidence that we are on the right track now and that we are … at the right pace for the enterprise to be successful in the e-commerce space over the mid to long term,” Mr. Wetmore told an analyst conference call after the company reported better-than-expected second-quarter results.
Mr. Wetmore said Canadian Tire needs to develop or acquire products that will keep customers of all ages coming back to the retailer’s family of chains to meet their needs in “living, playing, fixing and driving.”
Forzani, including its flagship Sport Chek chain, was a strategic acquisition in that it caters to teenagers and twentysomethings, he noted. It opened the way for the retailer to test more digital efforts to draw a younger customer.
And to tie in all Canadian Tire divisions and lure customers back, it needs to strengthen its loyalty program, its use of customer data and one-to-one personalized marketing, Mr. Wetmore said.
But he also hinted at his impatience at the company’s pace of change in tracking customer purchasing patterns more accurately through new point-of-sales systems.
He said two or three years ago he couldn’t wait to get new point-of-sale systems at Mark’s and the sporting good business while updating the one at Canadian Tire. “They are coming along,” he said. “We will have two-thirds of that done pretty soon. And now that is the starting point of generating data, being able to analyze things that we could never analyze before.”
And while Mr. Medline aimed to make Canadian Tire a world-class digital platform, Mr. Wetmore said he would also like to meet customer expectations “hopefully in a world-class way.Having said that, I have no intention of asking the organization to go out and beat Amazon on an innovation play. I am not into that, investing in drones and things.”
Mr. Medline said Sport Chek will begin testing same-day home delivery in the GTA this fall, emphasizing his commitment to e-commerce.
“I remind you that I cancelled our e-commerce initiative back in 2009 when I first came on as CEO because I was not happy with how we were executing,” said Wetmore.
“The solution was simply not sustainable and lacked a foundational infrastructure and support system to make it successful. I was concerned about the risk to our brand,” said Wetmore.
“That said, I have every confidence that we’re on the right track now and that we’re moving at the right pace for the enterprise to be successful in the e-commerce space over mid-to-long-term.”
Wetmore said Canadian Tire has ‘no fewer than 30 e-commerce initiatives’ underway, from search optimization to order fulfilment.
“Not all of these will be home runs, but every one of them is getting us closer to a more sustainable and proper model,” he said. Continued product development is also critical to the brand, he added, pointing to the company’s Canvas brand, with its emphasis on design in home products, as an example of innovation.
Source: The Globe and Mail, The Toronto Star
Economic News
Pace of Canadian Housing Starts Eases in July but Still Beat Expectations
The pace of new Canadian residential construction eased last month following an unusually robust June, but still held up stronger than expected.
The Canada Mortgage and Housing Corporation (CMHC) reported on Tuesday that its seasonally adjusted rate (SAAR) of housing starts in July was 198,395 units, down 9.1% from 218,326 units the month before.
Economists had estimated a decline to 195,000 units.
The SAAR of urban starts decreased by 9.9% in July to 182,620 units. Multiple urban starts decreased by 13.3% to 123,630 units in July and the single-detached urban starts decreased by 1.8% to 58,990 units.
Meanwhile, CMHC’s trend measure of housing starts in Canada was 201,936 units in July, up 2.1% from to 197,847 in June. The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.
“July’s housing starts continued to pick up pace, as construction strengthened in BC and Ontario’s multi-unit segments,” said Aled ab Iorwerth, CMHC’s deputy chief economist. “This reflects continued strong demand for lower-priced homes and low inventories of completed and unsold new units.”
In July, the seasonally adjusted annual rate of urban starts decreased in Quebec, British Columbia, Ontario, and in Atlantic Canada, but increased in the Prairies.
Rural starts were estimated at a seasonally adjusted annual rate of 15,775 units, up slightly from 15, 5688 in June.
Source: CMHC, The Canadian Press
June Building Permits Drop on Lower Apartment/Condo Plans
The value of Canadian building permits unexpectedly sank in June, hurt by a drop in construction intentions for apartment and condominium buildings in Ontario and British Columbia, data from Statistics Canada showed on Monday.
The 5.5% decrease in the value of national building permits to $6.4 billion from May fell short of economists’ expectations for a gain of 1.5%. May was downwardly revised to a 2.1% decline from an initially reported 1.9% decrease.
In the residential sector, the value of building permits fell 5.0% to $4.1 billion. This was the third consecutive monthly decline. The decrease in the value of multi-family dwelling permits more than offset the gain posted by single-family homes. Five provinces recorded declines, led by British Columbia and Ontario.
The value of permits for multi-family dwellings was down 15.8% to $1.7 billion in June. Declines were recorded in seven provinces, led by Ontario and British Columbia.
Construction intentions for single-family homes were up 4.2% to $2.4 billion, the fourth advance in five months. The gains were spread among seven provinces, led by Ontario.
Municipalities approved the construction of 14,960 new dwellings in June, down 8.1% from the previous month. The decline was attributable to multi-family dwellings, which decreased 13.7% to 9,280 new units. Conversely, single-family homes were up 2.7% to 5,680 new units.
The value of non-residential permits was down 6.2% to $2.3 billion in June, led by lower construction intentions for institutional buildings. Decreases were registered in seven provinces. Ontario and the Northwest Territories posted the most notable declines.
The value of institutional building permits was down 20.6% to $664 million in June, following notable gains the two previous months. Lower construction intentions for hospitals were largely responsible for the drop. Declines were posted in six provinces. The most notable decreases were registered in Ontario and the Northwest Territories, both of which recorded large increases the previous month. Saskatchewan reported the largest advance for institutional building intentions.
In the industrial component, the value of permits fell 8.7% to $346 million. Lower construction intentions for primary industry buildings were mostly responsible for the decrease. Declines were registered in four provinces, led by Ontario and Quebec.
The value of commercial building permits rose 4.3% to $1.3 billion in June, after recording a 14.8% decline in May. The advance was attributable to higher construction intentions for retail and wholesale outlets, recreational facilities, and warehouses. Four provinces reported increases, led by Quebec.
The total value of permits was down in six provinces in June, led by Ontario and British Columbia. The Northwest Territories also registered a notable decline.
In Ontario, the value of building permits dropped 8.4% to $2.6 billion, the second decline in three months. The decrease was largely attributable to lower construction intentions for multi-family dwellings and institutional structures. The value of permits for multi-family dwellings fell 20.4% in June, after posting a 20.9% increase the previous month.
The value of permits in British Columbia was down 11.5% to $1.0 billion in June, after two consecutive monthly advances. Multi-family dwellings led the decline, followed by commercial buildings.
Following a record high in May, the value of building permits in the Northwest Territories was down 90.8% to $9.8 million in June. The decline was attributable to lower intentions for medical facilities.
In contrast, Saskatchewan posted the largest gain in June, up 72.4% to $288 million. The increase in the value of permits was mainly attributable to higher construction intentions for institutional structures, specifically, educational facilities.
Source: Statistics Canada, Reuters
Scuttled Property Deals, Legal Risks Mount from Vancouver’s Foreign Property Buyer Tax: ‘It’s a Domino Effect’
British Columbia’s decision to impose a 15% tax on foreign buyers to cool Vancouver’s scorching housing market is poised to derail more than 400 deals worth millions of dollars and may prompt calls for legal action.
At least 427 deals are likely to collapse due to the new measure, according to Dan Morrison, president of the Real Estate Board of Greater Vancouver, citing responses from 27 brokers to an e-mail inquiry. The group didn’t calculate the value of those sales, though they would be worth about $404 million based on the average purchase by a foreign buyer of $946,945.
That may just be the tip of the iceberg.
“It’s a domino effect,” said Elton Ash, Western Canada regional executive vice president for Re/Max Holdings Inc. Not only will foreign buyers be hit but also Canadians who had contracts to sell and had already put offers on their next house, he said. Morrison said the effects could take years to play out given some deals involve the sales of condos still being built.
The province introduced the tax for foreigners as price gains intensified this year. The cost of a detached home in Canada’s third-biggest city soared 38% over 12 months to $1.58 million in July. British Columbia joins governments from the U.K. to Australia imposing measures to tame markets that have become unaffordable for many local residents. Public support for intervention was building in Vancouver, where anecdotes abound of offshore investors bidding up prices then leaving homes empty. The provincial levy only applies on homes in the Metro Vancouver area, where three-quarters of the foreign money flows.
Re/Max is still tallying the fallout of the tax, which took effect Aug 2. At least one $14 million sale in West Vancouver fell through because the levy would’ve added another $2.1 million to the cost, Ash said.
The measure will hit the lower-end of the market the hardest, such as $500,000 condos, where the cost won’t be so easily absorbed, said Ash. Some sellers will react by cutting prices to salvage deals, he said.
The province’s move may yet face legal challenges.
The new tax violates several treaties and agreements that Canada holds with at least 28 other countries, including the U.S. under the North American Free Trade Agreement, according to Barry Appleton, managing partner of law firm Appleton & Associates, who specializes in international law and has launched claims in Canada under NAFTA.
“It’s just shocking that a provincial government in Canada would choose to have a knee-jerk reaction in this way,” Appleton, who has been contacted by several entities but declined to name them, said by phone from San Francisco. Depending on the treaty in place, individuals or the state can sue Canada for losses related to the tax, as well as challenge the tax as discriminatory, he said.
“All legislation is vetted to ensure it complies with the constitution,” said Jessica McLachlin, a spokeswoman for British Columbia’s finance ministry in Victoria. “The government received opinions on the additional property transfer tax and we believe British Columbia is within its rights to act as it did to protect the residential real estate market from distortions.”
France may provide a precedent for legal action. Foreign homeowners went to court in 2012 after the nation raised the capital gains tax on overseas investors to as high as 33.5%, arguing discriminatory treatment was illegal under France’s bilateral tax treaties. They were successful, and France reduced the rate to 19% for all sellers, said Miranda Bothe, founder of Paris Property Group.
In British Columbia, an individual U.S. investor could file a claim under NAFTA, as could residents in 28 other countries that have trade agreements with Canada, Appleton said. Chinese buyers, who comprise the majority of foreign investors in British Columbia according to the finance ministry data, could file individual constitutional challenges under Canada’s Charter of Rights and Freedoms. The Chinese government could also go after the Canadian government, Appleton said.
“This government has been going around the world telling people that Canada is open to foreign investment, and now they discriminate against those very individuals, and with little warning,” he said.
In the ultra-luxury real estate market where homes go into the tens of millions of dollars, at least a dozen buyers and sellers moved the transaction closing date up before the tax came into effect, said Sotheby’s International Realty Canada Chief Executive Officer Brad Henderson.
Sotheby’s Canada had about 20 high-end home deals organized the week prior to the tax announcement, and those deals are still proceeding as planned, Henderson said.
A bigger risk than cancelling deals is the possibility that the tax may push some investment into the shadows as investors seek methods around the measure to avoid paying millions, he said.
Henderson’s firm found that the fastest-rising category of luxury homes were in the $4 million-plus space driven by foreign investors, he said. “People are buying homes worth millions and if they have the means to avoid the tax, they’ll take that route.”
Source: Article by Bloomberg News
Canadian Economy Sheds 31,000 Jobs; Unemployment Rate Rises to 6.9%
Canada’s economy lost 31,000 jobs in July, due to a big drop in public administration positions as well as declines in Ontario and among younger workers.
Full-time work plunged by 71,000 spots and part time employment rose by 40,000.
The unemployment rate rose to 6.9% from 6.8% in June, Statistics Canada said in its monthly labour report released last Friday.
The agency says full-time work in Canada hasn’t suffered a one-month blow this big since October 2011.
The public sector shed 42,000 jobs, with only 13,600 more people working in the private sector.
The report also says paid employee positions fell by 28,400 last month, compared to a decline of 2,700 in self-employed work.
A consensus of economists had predicted the country would add 10,000 jobs and the unemployment rate would move up to 6.9%, according to Thomson Reuters.
Over the past 12 months, total employment is up 71,000 positions or 0.4%, with all the growth in part-time work.
Ontario lost 36,000 positions in July, marking the first significant decline in the country’s largest province since September 2015, although the jobless rate was unchanged at 6.4%.
Newfoundland and Labrador lost about 5,000 workers last month, which lifted the unemployment reading to 12.8% from 12%t in June.
In Alberta, which has struggled to generate job growth since the global collapse in oil prices, the employment picture was little changed in July — although the wildfires in the Fort McMurray area limited Statistics Canada’s ability to collect household data in the hardest-hit town of Wood Buffalo.
Meanwhile, employment in British Columbia was up by 12,000 last month, pushing the jobless rate down to 5.6% from 5.9% in June.
By industry, public administration lost 24,000 positions, while there were 28,000 additional people working in health care and social assistance. The construction sector continued to lag in job creation, losing 9,000 jobs, while manufacturers added 5,600 positions.
Source: Statistics Canada, The Canadian Press
U.S. Adds 255,000 Jobs in July, Wages Rise as Unemployment Rate Unchanged
U.S. employment increased more than expected in July and wages picked up, which should bolster expectations of an acceleration in economic growth and raise the probability of a Federal Reserve interest rate hike this year.
Nonfarm payrolls rose by 255,000 jobs last month as hiring increased broadly after an upwardly revised 292,000 surge in June, the Labor Department said last Friday.
The unemployment rate was unchanged at 4.9% as more people entered the labour market. Highlighting labour market strength, average hourly wages increased a healthy eight cents and workers put in more hours. May’s payrolls were revised up to 24,000 from the previously reported 11,000.
“It looks like a pretty strong report overall. It shows the U.S. economy from a labour perspective is heading in the direction that the Fed wants. It gives the Fed some support for those looking for an increase in rates by the end of the year,” said Doug Duncan, chief economist at Fannie Mae in Washington.
Economists polled by Reuters had forecast payrolls increasing 180,000 in July and the unemployment rate dipping one-tenth of a percentage point to 4.8%.
Last month’s strong job growth should reinforce the Fed’s confidence in a labour market that officials view as at or near full employment. Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with population growth.
The second straight month of robust job gains is a boost to the U.S. economy after growth averaged a tepid 1.0% annual rate in the last three quarters. After a policy meeting last month, the Fed described the labour market as having “strengthened” and said it appeared it was still tightening.
The U.S. central bank raised interest rates at the end of last year, its first hike in nearly a decade, but since then has held them steady amid concerns over persistently low U.S. inflation and a global growth slowdown.
Most economists expect another rate increase in December.
After Friday’s data, futures contracts showed traders still saw less than even odds of a rate hike this year, but close to even odds of such a move by early 2017. Ahead of the employment report, traders saw little chance of a rate increase until well into next year.
The 0.3% increase in average hourly earnings last month left the year-on-year gain at 2.6%. The average workweek increased by 0.1 hour to 34.5 hours, the most since January, which should boost take-home pay.
The payrolls data added to July auto sales in underscoring the economy’s sound fundamentals. Economic growth is expected to accelerate to at least a 2.5% annualized rate in the second quarter.
But with the bulk of labour market slack largely absorbed and the economy’s recovery from the 2007-2009 recession showing signs of aging, payroll gains will probably drift to average between 150,000 and 160,000 jobs per month later this year, economists say.
Manufacturing sector employment increased by 9,000 jobs in July after adding 15,000 positions in June. Construction payrolls rose 14,000 following three consecutive months of declines. Mining shed a further 7,000 jobs in July.
Professional and business services, a high wage sector, added a strong 70,000 jobs last month, the most since last October. Retail sector employment increased by 14,700 jobs and payrolls in the leisure and hospitality sector rose by 45,000.
Temporary-help jobs, a harbinger of future hiring, increased 17,000. Healthcare and social assistance payrolls rose by 48,800 jobs, extending the prior month’s hefty gains. Government employment increased by 38,000 jobs.
Other details of the employment report showed a rise in the labour force. That raised the participation rate, or the share of working-age Americans who are employed or at least looking for a job, by one-tenth of a percentage point to 62.8%.
The employment-to-population ratio increased to 59.7% from 59.6% in June.
But a broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment rose one-tenth of a percentage point to 9.7% last month.
Source: Reuters
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