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Money is pouring into bond ETFs despite painfully low interest rates – here’s why

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This article was published in The Globe And Mail and authored by Rob Carrick

It’s a testament to the usefulness of bond ETFs that they’re selling briskly in a year when the outlook for fixed income has rarely looked less appealing.

Introduced to the world 20 years ago right here in Canada, bond ETFs simplified life for investors who want to build their own diversified portfolios. They provide cheap, transparent, liquid and infinitely adaptable access to bonds, which otherwise must be purchased through investment dealers who have an excessive amount of power to dictate prices to clients.

If your portfolio needs bonds, then you have to at least consider bond ETFs. Even in a low-rate world, these funds can be shaped to suit almost any investor’s needs.

A quick illustration of low rates can be found in the decline in the yield on the five-year Government of Canada bonds to 0.45 percent from 1.47 percent one year ago. Despite near-zero yields, and some momentary drama in the March stock market crash, bond ETFs have taken in a net $11.4-billion in the first 10 months of 2020. That’s one-third of the total amount that went into TSX-listed ETFs.

A total of almost $82-billion was invested in the 251 bond ETFs listed on the TSX as of the third quarter of the year, according to National Bank Financial. All of this flows from the two bond ETFs introduced back in November, 2000, the iG5 (designed as a proxy for a five-year Canada bond) and the iG10 (acting like a 10-year Canada bond).

I might be the only financial journalist writing today who covered the debut of those ETFs (read that column here). . Just a few ETFs were listed on the TSX back then, compared with 977 as of the third quarter. The five-year Canada bond yield in late 2000 was around 5.3 percent, which seems otherworldly in today’s financial market conditions.

Bond ETFs as we know them today really date back to late 2004, when the iG10 was converted into what’s now called the iShares Core Canadian Universe Bond Index ETF (XBB-TSX). A year later, the iG5 became what is today known as the iShares Core Canadian Short Term Bond Index ETF (XSB). Both new funds offered access to a broadly diversified package of government and corporate bonds in a single purchase.

“These ETFs were really a game-changer,” said Pat Chiefalo, head of the iShares Canada ETF family at BlackRock. “They were launched to provide simple, cost-efficient access to fixed income securities, which are a cornerstone of any portfolio.”

A big debate in investing these days is what low bond yields mean to portfolio-building. Should investors shift the default 60-40 mix of stocks and bonds to 70-30, or should they keep their current portfolio mix and simply change their mix of bonds?

Note that the extent and content of your bond exposure is in question, not whether bonds are necessary. “You have a fixed income allocation for risk mitigation, as ballast to your overall portfolio,” Mr. Chiefalo said. “It serves a vital purpose there.”

It can’t be overstated how important low costs are for bond funds in today’s low-rate world. While not quite as cheap to own as ETFs holding stocks, XBB and competitors like the BMO Aggregate Bond Index ETF (ZAG), the Vanguard Canadian Aggregate Bond Index ETF (VAB) and the Horizons Canadian Select Universe Bond ETF (HBB) have management expense ratios in the 0.08- to 0.1-per-cent range.

ETFs are without doubt the most price-competitive investments in the market today and bond funds offer proof. When they were introduced, the iG5 and iG10 had MERs of about 0.25 percent, and XBB began with an MER of 0.3 percent. “As we’ve applied more and more technology, we’ve been able to pass down some of the cost savings that we have in managing our products onto the investor,” Mr. Chiefalo said.

Buying and selling ETFs through an online broker also has become more cost-effective. Most brokers charge a commission to trade ETFs, like they do with stocks. Online brokers charged between $24 and $33 a trade back in the days of the iG5 and iG10, compared with between $5 and $10 today, and sometimes zero.

Bond ETFs offer real value in the context of what they do and how they compare with buying individual bonds. XBB holds 1,359 federal government, provincial and corporate bonds. Further diversification is provided by mixing bonds issued by companies at varying levels of credit quality (all meet the threshold of being investment grade, or financially solid) and bonds maturing in the short, medium and long term.

Someone investing for 10 years or more could buy a broad-based bond ETF like XBB, ZAG or VAB and be confident they have sensibly covered off their portfolio’s bond allocation with a single product.

Or, you could build your own portfolio of bonds through your online broker. Good luck with that. Brokers are notoriously uncompetitive in pricing bonds – they tell you what they’ll charge if you buy and what they’ll pay if you sell. Unlike with stocks, there is no open auction system where investors of all types bid against each other to set market prices.

ETF companies pay wholesale prices for bonds, not marked-up retail prices. The price paid for bonds is crucial because of the effect it has on yield. The more you pay for a bond, the lower your yield.

Investors buying XBB now should expect a yield of 1.2 percent, which is calculated by taking the weighted average yield to maturity (YTM) and subtracting the MER. After-fee YTM is the best measure of bond ETF yields, not the higher distribution yield you often find when looking up quotes for bond ETFs. YTM is definitive because it factors in both the amount of interest income paid by the ETF and the changing prices of bonds in its portfolio.

One of the big online brokerages offered the following yields on bonds sold at mid-week: 0.04 percent for a Canada bond maturing in a year, 0.7 percent for a five-year provincial bond and 1.5 percent for an investment-grade corporate bond maturing in a little over seven years. You see by this comparison how competitive the yield on a broad market bond ETF can be.

A compensating advantage for individual bonds is that they eventually mature. No matter how much a bond fluctuates in price, you can expect it to be redeemed on a set date at its issue price. Bond ETFs are designed to keep rolling along, never maturing and thus subject to price declines when interest rates rise and price gains when rates fall.

Some investors find that guaranteed investment certificates are actually the best bond ETF alternative thanks to competitive yields when the issuer is an alternative bank or credit union. GICs don’t bounce around in price like bonds and bond ETFs, but they cannot be sold before maturity without severe penalty. Cashable GICs are available, but there’s a cost in the form of a lower yield.

While they’re primarily meant to be a stabilizing force in portfolios, bond ETFs did have a brief moment of drama when financial markets crashed in March. Disruptions in the bond market resulted in the price of bond ETFs temporarily falling below the net value of their assets. This problem worked itself out as central banks took steps to calm the markets.

Don’t overthink bond ETFs if you’re adding them to a portfolio. A simple but sensible approach is to buy a broad-based fund like XBB, VAB or ZAG and be done with it. An alternative is to blend other ETFs into a portfolio to add yield.

Mr. Chiefalo said some higher-yield options include long-term bonds, investment-grade corporate bonds, high-yield corporate bonds and emerging market government bonds. High-yield bond ETFs offer yields around 4.25 percent, while long-term bond ETFs blending government and corporate debt are in the 1.9-per-cent range.

You’ll need to adjust riskier bond ETF holdings to reflect changing market conditions, but the broad-based funds have proven over the past two decades that they can be hold-forever investments.

“Bond ETFs are an all-weather solution,” Mr. Chiefalo said. “We’ve gone through the ’08-’09 credit crisis and we’ve gone through the March madness of this year.”

Michael GoodmanMoney is pouring into bond ETFs despite painfully low interest rates – here’s why
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Douglas Todd: Hidden foreign ownership helps explain Metro Vancouver’s ‘decoupling’ of house prices, incomes

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This article was published in the Vancouver Sun and authored by Douglas Todd

The lack of connection between soaring housing prices and tepid local wages in Metro Vancouver is caused in large part by hidden foreign ownership, says a peer-reviewed study from Simon Fraser University that is being welcomed by the B.C. minister responsible for housing.

Based on data Statistics Canada has been collecting only recently, SFU public policy specialist Joshua Gordon’s paper shows the “decoupling” of housing prices from incomes in Metro Vancouver has been caused by “significant sums of foreign capital that have been excluded from official statistics.”

Gordon’s research set out to solve a puzzle in Greater Vancouver and, to a lesser extent, Toronto. How can tens of thousands of owners who tell Revenue Canada they are low income (earning less than $44,000 a year) consistently afford homes valued in the $2- to $10-million range?

The new data revealed Richmond, West Vancouver, the city of Vancouver and Burnaby were epicentres of the foreign-ownership phenomenon: They have the highest housing prices, low average declared incomes and the largest proportions of non-resident owners.

“This is a powerful corroboration of the idea that substantial amounts of income are not being declared in satellite family situations,” said Gordon, whose paper defines foreign ownership as “housing purchased primarily with income or wealth earned abroad and not taxed as income in Canada.”

The strange decoupling of housing prices from local wages is peculiar to Metro Vancouver and Greater Toronto. It does not show up in most Canadian cities or in the U.S., Gordon says, where high housing prices invariably correspond with high wages.

Gordon’s study is the first to be based on crucial new data from the Canadian Housing Statistics Program, which for the first time began two years ago to track the extent to which non-residents were buying housing.

“This study provides evidence of widespread tax avoidance in certain urban areas,” Gordon says in his paper, titled Solving puzzles in the Canadian housing market: foreign ownership and de-coupling in Toronto and Vancouver, published last month in Housing Studies.

“The evidence suggests that considerable tax avoidance is occurring in satellite family situations,” says Gordon, who appreciates B.C.’s unique speculation and vacancy tax for monitoring such satellite ownership.


Attorney General David Eby, the minister responsible for housing, welcomed Gordon’s research. “It’s helpful to have work like this, using independent data sets, that positively correlates some of the activity we know is happening in the market.”

The B.C. NDP government “didn’t wait for the smoking gun” before it brought in its 2019 speculation tax, the first of its kind anywhere, Eby said. Even while many denied the property market was being distorted, Eby said, “we saw enough to realize foreign capital was a factor. So we took action.”

B.C.’s speculation tax applies a two percent annual surcharge on homes owned by either foreign citizens or satellite families, which it defines as households where over 50 percent of income is earned abroad.

While Gordon generally endorsed B.C.’s speculation and vacancy tax, he stressed it must be rigorously enforced — and also suggested it could be strengthened.

Gordon questioned whether it’s wise to exempt homeowners from the speculation tax if they rent out even part of their dwelling. “This rental exemption for single-detached properties might be eliminated entirely … pressuring foreign-sourced owners to either sell into the local market or to pay an annual property surtax.”

Eby, calling the speculation tax “an experiment,” acknowledged it needs ongoing evaluation. “This phenomenon of Vancouver being an international city and people being resident here but not earning their income here is one that our tax system is still working to come to terms with.”

The cohort of more than 200,000 people who were approved entry to Metro Vancouver through Canada’s business immigrant programs, Gordon said, provide one of the most striking illustrations of satellite families who declare almost no income in Canada yet own costly houses.

“Migrants arriving with substantial wealth can have a pronounced effect on housing prices” by creating “powerful downstream effects,” says Gordon’s paper, citing the research of Markus Moos and Andrejs Skaburskis, who found almost two out of three investor immigrants to Canada, mostly from Asia, choose to buy property in Metro Vancouver.

An earlier Statistics Canada study found the median value of a detached Vancouver home bought by immigrants who arrived via the investor program was $2.55 million, but the same group “declared an average of only around $20,000 in income in the first 10 years after landing.”

Gordon’s paper captures how Vancouver condo marketer Bob Rennie, former chief fundraiser for the B.C. Liberal Party, acknowledged the decoupling when he joked in a 2012 speech to the Urban Development Institute that “the Vancouver market never went up on fundamentals, so why would we go down on fundamentals.”

Two of the first public figures to try to flag Metro’s decoupling situation were former Richmond mayor Greg Halsey-Brandt and the one-time head of the Canadian Race Relations Foundation, Albert Lo. They expressed concern in 2015 that the homeowners in Richmond most likely to declare poverty-level incomes (and thus pay low taxes) resided in expensive neighbourhoods. The late housing analyst Richard Wozny also tried to bring attention to how housing “fundamentals” were askew in Metro, with no meaningful link between prices and wages.

Michael GoodmanDouglas Todd: Hidden foreign ownership helps explain Metro Vancouver’s ‘decoupling’ of house prices, incomes
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An inflection point reached? Record low five-year fixed mortgage rates suddenly in danger of rising

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This article was published in The Globe and Mail and authored by Robert Mclister

For months, we’ve watched lenders slash five-year fixed mortgage rates to levels never seen before. But, we may have come to an inflection point.

Optimism has seized the day and interest rates in the bond market have rocketed higher, with Canada’s five-year government yield reaching 0.5 percent on Tuesday, up about 10 basis points from last week. The catalysts: less U.S. election uncertainty and new hope for a COVID-19 vaccinethanks to positive trial results from Pfizer Inc. and German partner BioNTech SE.

As rate watchers know, fixed mortgage rates are benchmarked against bond yields. The move in five-year yields, if there’s follow-through, could propel five-year fixed rates. Lenders were quick to point that out this week, with several sending notes to mortgage brokers warning of potential rate increases.

As of Tuesday afternoon, five-year fixed rates still sit at historic lows – 1.59 percent or lower if you buy default insurance and 1.84 percent or lower on uninsured mortgages. This week’s flare-up in yields, however, increases the probability that current rates are, or are near, the lowest we’ll see in this interest rate cycle.


Waiting hours are over. It no longer makes sense to stall for lower fixed mortgage rates, just to save 10 or 20 basis points.

Could rates still drop? Absolutely. Could it be 20 C on Christmas Day in Toronto? Absolutely. But I wouldn’t bet on either.

Heroes make zero. If you need a fixed mortgage in the next 120 days, and a fixed term is right for you, forget any desire for a better deal than what you can find today.

Lenders’ profit margins are tight and rising yields are tightening them further. If yields climb higher, banks may not delay in taking fixed rates with them.

My crystal ball is far from infallible, but this much seems clear. Despite all the economic gloom right now, we will see brighter days economically; 2021 will be a year of recovery. The bond market believes this. It prices in good news one to two years in advance.

In other words, by the time we know the economy is back to prepandemic levels, fixed rates will have already shot up.

Even if the rate market continues pricing in only a modicum of optimism, that could be enough to take five-year fixed rates 25 to 50-plus basis points higher. I’m in no way guaranteeing that will happen. But it’s fair to say the risk-reward no longer favours variable mortgage rates.

Every quarter-point hike on today’s average mortgage amount is more than $3,000 of extra interest over five years.

Anyone who’s riding out a variable at prime minus 1 percent or better will have a tough call to make in coming days. Hold on to a variable rate like 1.45 percent or less, or pay to lock in under 2 percent.

The right answer depends on several factors, among others: one’s risk tolerance/psychology, overall qualifications (employment stability, financial resources, credit, and so on) and the rates available to you. But, despite the chance of rates simply flatlining for months or years, no one can blame a borrower for locking in today.

At this point, rate watchers all want to know what the Bank of Canada will do to curb rising bond yields. After all, it’s pledged to keep rates low until 2023.

“While the basis of the news today is unequivocally growth and inflation positive, there are limitations that must be respected,” said Ian Pollick, Canadian Imperial Bank of Commerce’s global head of fixed income, currency and commodity strategy, in a note Monday. Among other things, ” … Let us not forget the limited tolerance of central banks to allow higher real-yields entering the market on a sustained basis.”

Indeed, the Bank of Canada has promised that its bond purchases, which could slow the ascent of fixed mortgage pricing, will “continue until the recovery is well underway.”

In any case, despite Monday’s good news on the vaccine front, there’s a long road ahead before good news helps struggling businesses and unemployed Canadians on the ground. That, and Bank of Canada bond-buying, will continue to exert drag on mortgage rates. But as any pilot knows, you can still have lift with drag.

Michael GoodmanAn inflection point reached? Record low five-year fixed mortgage rates suddenly in danger of rising
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Home sales in Toronto and Vancouver surge in October

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This article was published in The Globe and Mail and authored by Shane Dingman

Rising sales of detached homes pushed Toronto-area real estate to new highs in October, even as sales and prices were down in some parts of the high-rise condominium market.

The latest Vancouver data also show softening in the condo market and increasing competition for detached homes.

The Toronto region had its fourth consecutive month of record sales volumes, with 10,563 homes sold, up 25 per cent from October, 2019, according to the Toronto Regional Real Estate Board, or TRREB. Detached homes led the way with sales up 33.9 per cent and an average sale price of $1,204,844, an increase of 14.8 per cent.

Davelle Morrison, an agent with Bosley Real Estate Ltd. in Toronto, said the temperature in the detached segment tends to be blazing hot in some areas of the city and tepid in others.

In west-end neighbourhoods such as the Junction and Roncesvalles Village, for example, some properties are not selling on the night set aside for reviewing offers. In the family-oriented neighbourhood of Leaside, meanwhile, buyers are willing to compete for luxury properties. This week a house listed with an asking price of $3.49-million drew three offers and sold for $3.65-million. “The divide between the haves and have-nots is absolutely growing,” Ms. Morrison said.

Bidding contests are still the norm in east-end neighbourhoods such as Leslieville and on the streets near Danforth Avenue, she said. Ms. Morrison said access to the subway and streetcar is still key for many buyers, and those areas have good links to transit.

New listings for all categories of homes rose to 17,802 across the Greater Toronto Area, but TRREB’s data showed detached home listings fell 11 per cent from September to 6,797, and in Toronto they fell 8 per cent to 1,812. That highlights a years-long trend that has accelerated throughout the pandemic, as fewer owners of detached homes listed their houses and buyer demand continued to outstrip available supply, which in turn has boosted home prices.

“I wouldn’t call this market strong, I’d call it massively imbalanced,” said Shaun Cathcart, a senior economist for the Canadian Real Estate Association. “For all of Canada, the number of listings in February were at a 13-year low, now it’s a 16-year low. … But sales are setting records month after month. Across all of Canada we’re [at] 2.6 months of inventory, that’s the lowest we’ve ever reported. Everywhere is tightening up.”

The only exception to the tightening trend is in condo apartments, particularly in most dense areas of the big cities, the increasing supply of which is turning downtown high-rises into a buyer’s market.

TRREB’s October data showed a difference in the condo market between downtown and the inner and outer suburbs: Sales of condominium apartments fell 8.5 per cent in the City of Toronto compared with the same month in 2019, with prices up just 0.8 per cent to $668,161. In the 905 area code, the picture was a little rosier, as condo sales were up 28 per cent and prices rose 6.8 per cent to an average of $541,582. Active listings are up 158 per cent in Toronto to 5,719, accounting for more than three-quarters of all TRREB condo listings.

October sales data from the Real Estate Board of Greater Vancouver, or REBGV, showed detached homes and attached homes (townhouses and semis) also led a growth in sales, with benchmark prices rising 8.5 per cent year over year to an average of $1,523,800.

There were almost 400 more detached homes sold during the month compared with a year earlier (1,335, up from 938, a 42-per-cent increase). The number of listings fell 14.6 per cent from September, while sales were up 1.6 per cent month over month.

“With demand on the rise, homes priced right for today’s market are receiving attention and, at times, garnering multiple offers,” REBGV chair Colette Gerber said in a release.

Condominium sales were up 13.4 per cent from 2019 (1,570 compared with 1,384), but new listings in condominiums were also up 53 per cent from a year earlier, with 2,891 for sale compared with 1,887. The benchmark price was $683,500, flat from the previous month but still up 4.4 per cent year over year. Listings were down 11 per cent from September, and sales also fell 1.6 per cent.
Michael GoodmanHome sales in Toronto and Vancouver surge in October
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Home Capital seeing strong mortgage repayment rates as pandemic-related deferrals end

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This article was published in The Globe and Mail and authored by James Bradshaw

Home Capital Group Inc. has ended 97 per cent of the payment deferrals on mortgages that it granted to clients amid the coronavirus pandemic without a spike in write-offs or delinquent loans.

The alternative mortgage lender, which is based in Toronto, had 335 loans worth $146-million still deferring payments at the end of October, down from a peak of 9,903 mortgages with a total balance of more than $3.9-billion on April 30. And the company is no longer granting new payment deferrals related to the pandemic.

The remaining mortgages under deferral make up less than 1 per cent of the company’s loan portfolio, and more than 99 per cent of borrowers whose deferrals expired either resumed making payments or discharged their mortgages, according to third-quarter financial results released Wednesday. Net write-offs on residential mortgages amounted to $878,000, or 0.02 per cent of all mortgage loans – the same ratio of losses the company booked in the same quarter a year earlier, before the pandemic.

Home Capital’s results offer an early barometer for the unwinding of massive payment deferral programs put in place by major banks and other lenders to support customers struggling in the early phases of a global health crisis. Although some investors and regulators fretted that the bulge of loans with payments put on pause could create a “cliff” of defaults when relief programs expired, Home Capital appears to have engineered a soft landing for most clients – an encouraging sign for other lenders that will report earnings over the next month.

Yet there are still risks of further losses as a second wave of COVID-19 cases sweeps across major cities, where Home Capital does the bulk of its lending, putting pressure on spending and employment rates.

“When someone buys a home, they generally do whatever they can to keep it. Our experience with deferrals during this year makes that clear,” chief executive Yousry Bissada said on a conference call with analysts. “There is a small number [of loans] that have gone into arrears. It’s less than maybe I would have imagined back in April.”

Home Capital also reclaimed $7-million in the quarter that had been set aside to cover potential losses, partly because of an improvement in the company’s economic forecasts for unemployment and other key indicators.

For the three months that ended Sept. 30, Home Capital reported profit of $58.5-million or $1.12 a share, compared with $39-million or 67 cents in the same quarter a year ago.

After adjusting for certain items, Home Capital said it earned $1.18 a share, far outperforming analysts’ expected adjusted-earnings-per share of 78 cents, according to Refinitiv.

A strong housing market has helped bolster Home Capital’s business through the crisis. The company issued $1.96-billion in new residential mortgages in the third quarter, compared with $1.55-billion a year earlier. Total deposits held steady at $14-billion, and the company’s net interest margin – the spread between what it earns from loans and pays to borrow money – improved to 2.51 per cent from 2.2 per cent a year ago.

Mr. Bissada said the pandemic makes it hard to predict how housing markets will fare but that low interest rates, high savings rates and increased demand for homes amid a shift to remote work are all positive signs. “I don’t know exactly what’s going to happen, but it looks like the momentum will continue for a little while yet,” he said.

Michael GoodmanHome Capital seeing strong mortgage repayment rates as pandemic-related deferrals end
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Everything you need to know about converting your RRSP into a RRIF this year

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This article was published in the Financial Post and authored by Jamie Golombek

If the requirement to withdraw an annual minimum amount from your Registered Retirement Income Fund (RRIF) was eliminated, it would cost the government approximately $1 billion dollars annually, according to a cost estimate released this week by the Office of the Parliamentary Budget Officer. The estimate was done at the request of Conservative MP Kelly McCauley (Edmonton South) and is based on the assumption that RRIF holders would withdraw less, thereby reducing government revenues since RRIF withdrawals are considered taxable income.

While it’s unlikely the current government will eliminate the RRIF minimum withdrawal requirement completely, it did lower the amount that needs to be withdrawn for 2020 by 25 per cent. Let’s review the RRIF rules, how withdrawals work and give some tips for those RRSP holders who turned 71 in 2020 and need to act by Dec. 31 if they want to convert their RRSP to a RRIF.

What is a RRIF? 

If you have an RRSP and you turned 71 in the year, you effectively have three choices. The first is to simply cash in your RRSP and include the entire fair market value of the plan in your income. This rarely makes sense, unless the amount in your RRSP is relatively small and your tax rate is zero (or close to zero) in the year of collapse. (You could always put the funds back into a TFSA.) The second option is buy a registered annuity from a life insurance company, which can provide a steady, guaranteed flow of retirement income. The third, and, by far the most popular option, is to convert your RRSP to a RRIF.

With a RRIF, you can keep the same investments as an RRSP and enjoy continued tax deferral on the funds, with the exception that you must withdraw at least a required minimum amount annually, starting in the year after you set it up. The required minimum amount is based on a percentage factor, often referred to as the “RRIF factor,” multiplied by the fair market value of your RRIF assets on Jan. 1 each year. For example, if you have $100,000 in your RRIF and you were 71 at the beginning of the year (i.e. Jan. 1), normally you must withdraw 5.28 per cent or $5,280 in the year. The RRIF factor increases each year until age 95, when the percentage is capped at 20 per cent.

As stated above, for 2020, the government passed legislation as part of its COVID-19 response plan that decreased the required minimum withdrawals from RRIFs by 25 per cent. For example, if you were 71 as of Jan. 1, 2020, you would only need to withdraw 3.96 per cent of the opening balance, rather than 5.28 per cent. The lower minimum withdrawal factors also apply to Life Income Funds (LIFs) and other locked-in RRIFs. If you have already withdrawn more than the temporarily-lowered minimum amount in 2020, unfortunately, you can’t recontribute any excess back to your RRIF.

For those who regularly take out their RRIF minimums in December, now is a good time to double-check with your RRIF provider if you want to take advantage of the lower withdrawal amount for 2020. Note that this lowered RRIF minimum only applies for this year, so the regular RRIF withdrawal factors will apply again starting in 2021.

Of course, you always have the option to withdraw unlimited amounts from your RRIF, unless it is a locked-in plan that was created by a transfer of funds from a registered pension plan. Locked-in retirement funds include a life income fund (LIF), locked-in retirement income fund (LRIF), and a prescribed RIF (PRIF). The maximum amount that you can withdraw from a locked-in fund depends on the specific legislation, but, should you meet the specific conditions under the applicable pension legislation, you may be eligible to withdraw additional funds from a locked-in plan in cases of shortened life expectancy, financial hardship, or where there is a small plan balance.

Converting to a RRIF

If you’re planning to convert your RRSP to a RRIF by the end of 2020 and you have unused RRSP contribution room carried forward from prior years, you only have until Dec. 31 to make a final RRSP contribution before converting to a RRIF — you don’t get the normal sixty days after year-end (i.e. March 1) this time around.

If you’re at your RRSP maximum contribution limit, but you have “earned income” in 2020, perhaps from a part-time job or rental income, that will generate RRSP contribution room for 2021, you may wish to consider making a one-time, deliberate overcontribution to your RRSP in December before conversion. While you will pay a penalty tax of one per cent on the overcontribution (above the $2,000 permitted overcontribution limit) for December 2020, new RRSP room will open up on Jan. 1, 2021 so the penalty tax will cease in January 2021. You can then choose to deduct the overcontributed amount on your 2021 (or a future year’s) return. Note that this may not be necessary if you have a younger spouse or partner, since you can still use your contribution room after 2020 to make contributions to a spousal RRSP until the end of the year your spouse or partner turns 71.

And, while we’re on the topic of a younger spouse/partner, if you’re married or living common-law and you do have a younger spouse or partner, consider using the younger spouse’s/partner’s age to calculate the minimum RRIF payment when establishing your RRIF. This allows you to take the lowest possible minimum payment from your RRIF on an annual basis.

Finally, if you have multiple RRSPs, consider consolidating them all into one RRIF to simplify management of your retirement income and have only one minimum amount to calculate and track each year.

Pension credit and pension splitting

One of the advantages of converting an RRSP to a RRIF is that, once you are at least 65, RRIF withdrawals qualify for the 15 per cent federal non-refundable pension income credit on the first $2,000 and also qualify for a provincial/territorial credit. In addition, if you’re over 65, you can split up to 50 per cent of your RRIF income with your spouse/partner. Doing this could lower your household’s overall tax bill, potentially preserve tax credits such as the income-tested age credit, and avoid the potential OAS recovery tax. It may also permit you to double up on the pension income credit, if your spouse/partner doesn’t have their own pension income.

Michael GoodmanEverything you need to know about converting your RRSP into a RRIF this year
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Vancouver home sales set record for September

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This article was published in The Globe and Mail and authored by Rachel Younglai

Vancouver home sales reached a record for September, with buyers scrambling to take advantage of low mortgage rates amid concerns over a second wave of novel coronavirus cases.

Last month, 3,643 homes sold in the Vancouver region, a 56-per-cent increase over the previous September, according to the Real Estate Board of Greater Vancouver. That was 20 per cent higher than August and followed a summer of frenzied buying after the pandemic halted sales in April and part of May.

“There is still that component of pent-up demand that still has not been satisfied,” said board chair Colette Gerber, adding that home buyers are trying to benefit from cheap borrowing costs.

Ms. Gerber said properties continue fetching multiple offers and she expects the strong sales to continue this month after the normally busy spring selling season was roiled. But she said that depended on COVID-19 cases not rising further.

“Things are continuing at a similar pace. That is assuming we don’t get a second wave. If we get a second wave, all bets are off,” she said.

The home price index, an industry calculation of a typical property sold, was $1,041,300 last month, a 5.8-per-cent increase over the previous September. Detached properties recorded the steepest price increase, rising 7.8 per cent to $1,507,500. Following that, semi-attached houses rose 5.2 per cent and condos climbed 4.5 per cent.

Since the pandemic started, buyers have flocked to houses with more square footage and gardens, instead of condos. Sales of detached and semi-detached properties jumped over 70 percent year over year, while sales of condos rose 37 percent. As well, buyers have sought properties outside the city, pushing prices up in places like Bowen Island and Port Coquitlam.

However, the home price index for the region is still below the peak reached in May, 2018, when buyers were adjusting to stricter mortgage qualifications. The B.C. market was starting to recover in the summer of 2019 before the pandemic briefly slowed activity earlier this year.

More homeowners put their properties up for sale last month, driving new listings up 30 percent over September of last year.

Michael GoodmanVancouver home sales set record for September
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BMO clients launch lawsuit alleging millions lost from adviser’s risky trading strategies

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This article was published in The Globe and Mail and authored by Clare O’ Hara.

A group of Bank of Montreal clients are suing their financial adviser, along with the bank’s brokerage division, claiming they have lost tens of millions in savings after being placed in high-risk trading accounts without their consent.

In two separate court cases, 27 individuals from approximately 12 families have filed a multi-plaintiff action against Yujie (Jared) Liu, a financial adviser and portfolio manager who has been at BMO Nesbitt Burns since 2004. Combined, the two groups are asking for $50-million in damages for losses they allege they’ve suffered as a result of Mr. Liu’s negligence in managing their investment accounts.

In some cases, clients saw the value of their investments decline between 50 percent and 80 percent, with losses ranging from $600,000 to $16-million.

The two cases were filed last month and also name BMO Nesbitt Burns, alleging a lack of compliance oversight by the firm, and Mr. Liu’s daughter Cherry Liu, an investment adviser who took over her father’s accounts in May, 2019, when he took a leave of absence from the bank.

“BMO had a duty to supervise Jared Liu and Cherry Liu in respect of their management of the plaintiffs’ accounts to ensure that all investments made on their behalf were suitable for [clients] and consistent with their investment objectives,” the lawsuit alleges.

BMO spokesperson Paul Gammal says the investment recommendations made to the clients were “appropriate for their investment objectives – which includes risk tolerance – and investor profiles.”

“We stand by our recommendations,” Mr. Gammal said in an e-mail to The Globe and Mail. “There is risk of market volatility when investing. We are vigorously defending these actions. Out of respect for the judicial process it would not be appropriate to comment further.”

Cherry Liu referred all inquires from The Globe to BMO, while Jared Liu did not respond to requests for comment.

Both client groups allege that throughout 2017 and the first half of 2018, Mr. Liu recommended a new investment strategy that “assured safety” of their principal and provided “reasonable” investment returns.

Shortly after, clients allege they were instead placed in a high-risk strategy that involved short-selling bonds – particularly Canadian government bonds – to purchase long positions in preferred shares, many of which had variable rates or rates that reset based on interest rate movement.

According to court documents, Mr. Liu further advised the clients to begin trading on margin – investing using borrowed money – in order to purchase a larger amount of preferred shares. In some instances, clients allege Mr. Liu engaged in this strategy without informing them or seeking their permission.

None of the clients were told it was “a high-risk, speculative strategy” that was inconsistent with their low-risk investment objectives, the suit alleges.

Cloud Li, one of the plaintiffs who began to manage his father’s account in 2017 and spearheaded the group lawsuit, told The Globe both he and his father have been conservative investors since hiring Mr. Liu in 2015. Mr. Li’s father, Jinglin Li, held his money in a high-interest savings account until late 2017. By mid-2019, under the new investment strategy, Mr. Li’s account had suffered a $1-million loss.

“My father trusted Jared Liu and relied on his advice,” Cloud Li said in an interview. “He signed an agreement based on the length of his relationship and trust he had in Jared. But he never understood the contents of that form, as it was in English, and he cannot read English.”

The clients, who are represented by Peter Jervis of Rochon Genova LLP, allege in the lawsuit they were told the strategy provided “risk-free income” from the positive spread between the interest they would have to pay on the short bonds they sold and the preferred shares purchased. (Dividends paid by the preferred shares were higher than the interest rate payable on the short bond positions.)

“There are significant allegations of professional negligence of the management of these accounts, and this litigation is being pursued very aggressively on behalf of this client group,” Mr. Jervis said in an interview.

Many of the clients chose Mr. Liu because he could speak Mandarin and they were not proficient in English, and allege they were given investment documents in English to sign that he did not review with them.

In order to permit trading, clients also allege Mr. Liu changed their investment risk documents – known as know-your-client, or KYC, forms – without their consent, or made amendments to the documents after they had signed them.

“Clients acquired these high-risk, speculative securities positions without any advice or information from the [advisers] about the substantial risks inherent in the strategy or of the potential loss of their savings,” the lawsuit alleges.

BMO is set to file a statement of defence by Oct. 31, with court proceedings expected to take place in 2021.

Michael GoodmanBMO clients launch lawsuit alleging millions lost from adviser’s risky trading strategies
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Lower Mainland home sales up and prices rise as supply dips

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(Photo credit: The image is been taken from the Vancouver Sun article page. Photo by Peter J. Thompson)

This article was published in Vancouver Sun and authored by Canadian Press, Postmedia News

Buyers purchased 4,586 homes in the Lower Mainland last month, up both from June and from July 2019.

The Real Estate Board of Greater Vancouver said on Wednesday that sales in July were up 22.3 per cent from this time last year, to 3,128 homes, and up 28 per cent from June, as the economy has largely recovered from the COVID-19 pandemic and shutdown.

The numbers were up even more sharply for the Fraser Valley Real Estate Board, which covers Surrey and other Metro Vancouver communities south of the Fraser, plus Abbotsford. It reported 1,458 sales in July, up 22.2 per cent from June and up 44 per cent from July 2019. Indeed, July’s numbers were 25.5 per cent higher than the 10-year average for July and the month was only second to July 2015 for sales.

Colette Gerber, chair of the Greater Vancouver board, and Chris Shields, president of the Fraser board, attributed the increases to low interest rates and pent-up demand after a slow spring.

Home prices also rose in Vancouver, hitting a benchmark of $1,031,400, 4.5 per cent higher than a year ago. In the Fraser Valley, detached homes hit a record average of just over $1 million, up 5.3 per cent in the past year.

While more homes were on the market in Vancouver in July than in June, the total number of homes listed for sale, 12,083, is down compared to July 2019, when 14,240 homes were listed.

Gerber said that low interest rates and limited supply have increased competition in the Vancouver real estate market over the past month.


Michael GoodmanLower Mainland home sales up and prices rise as supply dips
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Canadian home sales, prices hit record high in July as low mortgage rates drive buyers into market

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(Photo credit: The image is been taken from the Globe and Mail article page. A ‘for sale’ sign in the LaSalle borough of Montreal)

This article was published in The Globe and Mail and authored by Rachelle Younglai

Canadian home sales and prices surged to a record high in July, as buyers flooded the market and took advantage of low mortgage rates after the coronavirus pandemic briefly slowed activity in the spring.

The number of homes sold jumped 26 per cent on a seasonally adjusted basis from June to July, according to the Canadian Real Estate Association, with Toronto, Montreal and Vancouver soaring along with surrounding regions such as Hamilton-Burlington in Ontario and Fraser Valley in British Columbia.

The seasonally adjusted home price index, an industry calculation of a typical home sold, reached a record high of $637,600 last month – up 2.3 per cent over June, the largest month-to-month increase since early 2017 when real estate markets were on a tear.

Before the pandemic struck in March, the real estate markets in Vancouver, most of Southern Ontario, Toronto, Ottawa and Montreal were showing signs of overheating, with a shortage of properties triggering bidding wars.

“What we saw in July is mainly activity delayed from the spring,” said Robert Hogue, senior economist with Royal Bank of Canada. “Lower mortgage rates also probably helped a number of first-time buyers enter the market last month and work-from-home arrangements caused some people to make a move,” he said.

With the popular five-year fixed mortgage currently less than 2 per cent, there is more demand today than before the COVID-19 pandemic.

“I am seeing more home buyers and more investors than pre-COVID,” said mortgage broker Bernadette Laxamana, president of Karista Mortgage in B.C. “With the rates being so low, it’s costing them less per month to buy and more of their payment is going to principal versus interest,” she said.

Realtors have described a spike in demand for larger properties and outdoor space, as the majority of office workers were forced to work from home. This has spurred “activity that otherwise would not have happened in a non-COVID-19 world,” said Shaun Cathcart, CREA’s senior economist.

Areas such as Niagara, London, Hamilton, Burlington and Guelph in Ontario are experiencing a spike in activity and prices. The home price index for Guelph rose 3 per cent month to month to $608,100. In Victoria, the index was up 1 per cent to $719,300.

In Montreal and region, the second-largest real estate market in the country, sales jumped 37 per cent to a record high, with robust demand in the areas surrounding the downtown core. The home price index also reached a record of $401,200 across all property types, according to CREA, 2.8 per cent higher than the previous month.

The quick recovery in the residential resale market has given developers confidence to launch new projects throughout the Greater Toronto Area, even though rental prices have softened partly because of the influx of new condos and a slump in immigration.

Although the number of new property listings is increasing across the country, it is not keeping pace with sales. Over all, the inventory of listed properties is at a 16-year low, according to CREA, driving up competition.

Economists and federal mortgage insurer Canada Mortgage and Housing Corp. have warned of numerous risks to the market. That includes banks’ mortgage deferrals, some of which are due to expire in the fall and could lead to loan delinquencies and foreclosures if homeowners are unable to resume payments.

As well, federal aid for businesses and underemployed Canadians is winding down, which could lead to more insolvencies and higher joblessness if the economy does not improve.

Toronto-Dominion Bank said the loan deferrals and federal support was helping insulate the economy from the worst effects from the pandemic and said it was “important not to extrapolate recent gains too far.”

When the support starts to wind down this fall, “this could bring significant headwinds to housing markets, particularly prices,” the bank’s senior economist, Brian DePratto, said in a note.

Michael GoodmanCanadian home sales, prices hit record high in July as low mortgage rates drive buyers into market
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