Slow the real estate rush

Many immigrant clients value property over less tangible forms of wealth, since a home is a tactile sign of success.

So says Tony Mahabir, co-founder and CEO of Canfin Financial Group in Oakville, Ont. When he moved here in the 1980s, one of his parents’ first priorities was buying a home.

“Renting is something that happens more in rich countries,” he says. “When I came to Canada, the idea of renting seemed repulsive. But once we got past the sticker shock, we realized it was our only option. We started saving immediately.”

Before buying property, new immigrants should understand the Canadian market, says Jonathan Flawn, a senior advisor specializing in estate and tax planning at Page and Associates in Richmond Hill, Ont.

He provides people with articles and studies, as well as tips buying property in Canada. In particular, Flawn helps clients avoid both overpaying and underbidding; this is especially important now, with home prices in bubble territory in many cities.

For instance, “an Asian immigrant might overpay for a house perceived to have good feng shui,” even though it’s otherwise flawed. And, when comparing two houses, they may pass up a well-priced, renovated home for one they perceive as having better air and light quality.

Real estate investing

Immigrants tend to favour real estate investing, but can fail to diversify. So advisor Jonathan Flawn urges clients consider Canadian and global equities, cash, and hedge funds. Should housing prices peak or drop, they’ll be protected.

If they’ve gone all in, the consequences can be dire. “During the last housing crash, I advised a prospect to liquidate his entire real estate portfolio; the negative-cashflow properties acquired most recently were dragging down his good-cash-flow properties.”

He adds, “The prospective client chose not to follow my advice and likely got wiped out.”

Other superstitions may cause clients to overpay; unit numbers and floor numbers that end in eight are considered lucky by Chinese buyers, while the number four is considered a bad omen.

Housing developers are removing these from their numbering systems to increase appeal to Asian buyers, the same way developments omit floor 13 in a nod to Western superstitions.

Immigrants from warmer climates, meanwhile, might deem improvements like insulation and weather stripping unnecessary, says Flawn.

Additionally, “They don’t generally have basements in places like California or Florida, and immigrants might be tempted to buy [or build] houses without one.”

Another area where cultural differences might cause problems is the negotiation process. “In some cultures, standard negotiating practice is for one side to start very low and the other side to start very high, with each settling at a reasonable point in between.”

A recent immigrant who makes a very low offer here risks annoying sellers to the point of halting negotiations.

Property value and wills

Once a client buys property, she’ll need an estate plan.

What immigrants need to buy houses

• Confirmation of foreign income: Letters from previous employers showing work and salary histories.

• Work reference: A letter of reference from a boss or employer. This will verify income and job stability.

• Landlord reference: If they’ve rented for longer than a year, these can help prove reliability.

• Proof of bill payments: Also urge clients to get references from Canadian banks, which can show all cheques have cleared and they’ve been reliable customers.

Even though property is passed through the family without documentation in other countries, Canada’s laws make that difficult without proper wills.

To further convince clients, explain the government prescribes asset division in the absence of a will. Also, wills ensure children will have guardians if orphaned.

“Remind clients they can also gift property while they’re alive, and that way will have more control over how their estates are transferred,” says Mahabir.

When discussing estate planning, Flawn often recommends against elderly clients owning investments jointly with their children.

“This is generally done to avoid the 1.5% probate tax [in Ontario], but that may not be worth the potential risks,” he says.

“These include joint property becoming family property when an adult child’s marriage breaks down, and property being seized by creditors of an irresponsible adult child.”

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