38 | CANADA VIEWPOINT WORDS | Jeff Mayes
BUSINESS Looking south
Owning a cottage has been a Canadian dream for years. City-dwelling Canadians with the fi nancial means would often purchase a cottage by a lake as a refuge from the city, but today the modern Canadian buyer wants his bolt-hole to be in the sunny southern states of the USA. New OPP columnist Jeff Mayes takes a closer look.
C
anada has been doing well in recent years. The country has little debt, growing GDP and a vast wealth of minerals, timber and natural resources. As a result, property prices in Canada rose slowly and steadily between 1995 and 2005. The pace of the increase in prices made building equity in new homes a slow process and gave new homeowners less disposable income to spend on second homes. Even now, despite Canada’s exceptionally low interest rates, the increase in cottage prices, coupled with higher down-payment requirements has made purchasing a second home in Canada more diffi cult than ever. The rising costs have hampered the cottage investment market too, because rents are not bringing the desired returns. Today, almost half of the Canadians buying second homes are doing so to improve their lifestyle rather than for investment purposes. Canadians are now looking south for cheaper alternatives and they have become the ultimate snowbirds, meaning they fl ee Canada’s harsh winter temperatures for sunnier climes. For the wealthiest Canadians, the Caribbean, Mexico and the Dominican Republic have become popular destinations, while the U.S has continued to dominate Canadian foreign home purchases, particularly Florida for eastern Canadians.
The trend for ‘snowbird’ winter migration has become so common, that in Hollywood, Florida (a coastal suburb of Miami), the snowbird community is such an integral part of the local economy that it’s common to see restaurants showing Canadian hockey games and the community even has its very own daily French language newspaper for migrants from French- speaking Quebec.
Other Florida destinations that top the list include: Tampa, St. Petersburg- Clearwater, Miami, Fort Lauderdale, Miami Beach, Orlando Kissimmee,
Naples-Marco Island, and Cape Coral- Fort Myers. It’s not surprising that Canadians buy real estate in Florida considering that 3.1 million Canadians visit the state each year.
The recent economic downturn severely hit Florida’s housing market giving Canadians greater buying power in the State. In 2010, 10% of home- buyers in Florida were Canadians who spent a total of $2.1 billion; and 89% paid in cash. In 2011, Canadians purchased even more Florida property,
“Canadians buy lower-priced homes, paying $137,000 for a house and $91,000 approx for a condo”
spending a whopping $5 billion, accounting for 39% of all Florida’s non-resident transactions. This year Canadians made up the largest share of international buyers in the state. While Florida is popular among Eastern Canadians, Western Canadians prefer another hot favourite – sun- baked Arizona. With hot temperatures and housing prices among the lowest in the American Sunbelt, Arizona is a prime location for snowbirds. Western Canadians are also big fans of California and Texas as alternative vacation home locations. Western
Canadians tend be more likely second home compared to their eastern counterparts. According to a survey conducted by the Bank of Montreal, nearly one in three people in Alberta and British Columbia in Western Canada are interested in buying real estate in the United States. Canadians are also generally fi nancially astute with their vacation home purchases. Almost two thirds of buyers paid less than US$200,000 for their Florida property, with a median purchase price of $152,000. Canadians tend to buy lower- priced homes compared to other foreign U.S. property buyers, paying around $137,000 for a single-family home and $91,000 for a condominium. They are also selective with location and property type. The majority of Canadian buyers selected condo properties and prefer resorts over other locations. Most Canadians are not interested
in selling their vacation home, instead they have long term plans to use the property as a vacation spot for family and friends while some plan to use their home as an investment or nest egg for retirement.
The average price of a US home has dropped by almost 20% since 2005 and with the appreciation of the Canadian dollar over the same period, the average price has fallen by more than a third
Jeff Mayes is vice president at agency Jones Lang LaSalle Canada, based in Montreal. He will write a quarterly Canadian column for OPP and can be contacted at: Tel: +1 514 667 5651 jeff .
mayes@am.jll.com
making US home prices the lowest in more than a decade. The weak US dollar, at roughly one Canadian dollar to the US dollar, also makes living expenses and renovation costs in the U.S. much cheaper for Canadians. Securing fi nancing for foreign properties is the biggest issue Canadians face when purchasing a home abroad. This is even the case for well-qualifi ed borrowers with a large down payment. The majority of buyers pay for their property in cash or by refi nancing their primary residence. Income and estate tax implications can also be problematic for Canadians. For example, if a Canadian spends more than 121 days in the US within a given tax year, he or she is not considered a US resident for income tax purposes. However, if they surpass the121- day- rule they risk having to pay income taxes in both countries. If they rent their vacation home for part of the year, there is also a 30% withholding tax on the rent collected which must be paid to the U.S tax department, the Internal Revenue Service (IRS).
And , when a Canadian decides to sell his US home, there is a withholding tax of 10% on the gross sale price to consider, but there are ways to be exempt from having to pay this tax. There are also property taxes which vary from state to state, and in some states, out of state owners are charged a higher property tax.
Snowbirds | are migrating south taking the maple leaf to sunny Florida and Arizona
Canadian buyers must do thorough research, explore the U.S. property laws and tax implications before opting for a home down south rather than a cottage back home in the countryside.
www.opp.org.uk | JANUARY 2012
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