Archive for January 27th, 2012
Why that condo rental might not work
Toronto condominium investors might find themselves disappointed in rental rates, according to a new survey.
“Investors have been able to rent out their condominiums units in Toronto — but not necessarily at the rents they were expecting,” says Altus Group, a real estate research firm, in a new report. “The addition of more than 9,000 condominium apartments units to the Toronto rental stock in the past year has kept average rent increases to a minimum.”
The addition of new 9,000 units to the Toronto marketplace compares with 650 the year before and comes as demand in the city has been strong enough to reduce the overall vacancy rate.
The vacancy rate in Toronto dropped from 1.7% to 1.1%. The surge in supply has kept down average rental rates which climbed to $ 1,608 per month for a two bedroom apartment, up 0.8% from a year earlier.
Across the country, condominiums are increasingly becoming an important element in the rental stock with not much purpose-built rental stock going up.
The report notes condo units are on the rise in all six markets survey which in addition to Toronto include Edmonton, Calgary, Ottawa, Montreal and Vancouver. In Edmonton and Calgary, condo units are 17% and 24% of the rental stock respectively which compares with 10% and 6% five years ago.
ProPublica: Foxconn By The Numbers
An investigative series [1] by the New York Times and a performance piece by Mike Daisey [2] featured on This American Life [3] have put the spotlight on Foxconn [4], the Taiwanese company whose massive Chinese factories manufacture some of the world’s most popular consumer electronics.
As well as working with companies like Dell, Motorola, Nokia and Hewlett-Packard, Foxconn assembles popular Apple products like the iPhone and iPad.
Here’s a quick look at what we know about Foxconn. (The company disputes workers’ accounts [5] of abusive conditions. In a 2010 company report [6], Foxconn said it promotes “employee respect, an atmosphere of trust, and personal dignity.”)
Working for Foxconn
1.2 million: number of workers employed by Foxconn [7] in China, according to the New York Times.
40: Estimated percent of the world’s consumer electronics [7] manufactured by Foxconn.
7: seconds it takes Foxconn’s workers to complete a single step of their work [8], according to a survey cited by the New York Times.
12: Hours in a typical work shift, according to interviews [9] with Foxconn employees [2].
83.2: Average hours of overtime worked each month [10], according to a 2010 survey of Foxconn employee.
13: age of a Foxconn employee Mike Daisey interviewed [2] outside the gates of a Foxconn plant in Shenzhen.
91: cases of underage labor found by Apple’s audits of its suppliers [11] in 2010, the year Daisey visited China.
3,000: number of workers Foxconn could hire overnight, according to Apple’s former worldwide supply demand manager [12].
10-20: percent estimated monthly turnover [2] in Foxconn’s workforce.
$ 7,500: amount founder Terry Gou used to start the anchor company of Foxconn Technology Group in 1974, according to the company website [13].
$ 5.7 billion: Terry Gou’s estimated net worth [14] as of March 2011.
Living Conditions
230,000: number of workers at “Foxconn City” [12] in Shenzhen, according to the New York Times.
13: tons of rice prepared each day [15] at the central kitchen at Foxconn City.
$ 0.65: meal allowance for dinner at the Foxconn City canteen [9] in 2010.
2: number of free swimming pools [16] there, according to The Telegraph, which noted that the pools “are said to be quite dirty.”
70,000: number of workers at Foxconn’s Chengdu plant who live in company dorms [17], according to the New York Times.
20: number of employees sometimes packed into a three-room apartment [17].
200: Reported number of police officers who responded to a Foxconn dormitory riot [17].
Deaths
17: Number of reported suicides [18] of Foxconn workers in China between 2007 and February 2011, according to Wired. Eleven workers died after jumping off buildings in the Foxconn Campus in Shenzhen, which were then draped with preventive netting. (Wired noted that the rate actually seems to be below China’s national averages.)
70: number of psychiatrists employed by Foxconn [19] to prevent suicides, according to a 2010 announcement by CEO Terry Gou.
100: Estimated number of employees at a Foxconn factory in Wuhan who stood on the roof of a factory building this month to protest [20] working conditions and wages. Several threatened to commit suicide, according to the New York Times.
$ 450: monthly salary a worker involved in that protest said employees had been promised [20] for moving from the Foxconn campus in Shenzhen to one in Wuhan.
34: continuous hours a Foxconn employee worked in 2010 before he collapsed and died [2], according to media reports [21].
4: workers killed last year by an explosion at a Foxconn factory [22] in Chengdu, China that assembles iPads [23].
$ 22: approximate daily salary [24] earned by Lai Xiaodong, a 22-year-old college graduate, working at a Foxconn factory in Chengdu, China, according to the New York Times.
$ 150,000: approximate amount the company wired Lai’s family [7] after he was killed in the aluminum dust explosion.
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From:The Blog
It’s time for RRSPs to apply for travel visas
By Mark Jasayko and Neil McIver
Over the last couple of years, the geographic diversification of RRSP investments has become as important as remembering the contribution deadline date.
We Canadians may feel inclined to be true to the Maple Leaf with our investments. After all, there are many upsides to living in Canada: Tim Horton’s doughnuts, Hockey Night in Canada and universal health care.
Investing in home-grown Canadian stocks can breed good feelings because of brand familiarity. We have seen evidence of such “investment nationalism” reflected in the lack of foreign exposure in Canadians’ RRSPs in recent years, even though foreign-content limits were completely eliminated in 2005.
The reluctance of Canadian investors to immediately increase foreign exposure after the restriction was lifted initially paid off as the Canadian dollar increased almost 25% against the U.S. dollar over the next five years (although, during the depths of the 2008-2009 financial crisis, the C$ briefly retreated to 2005 levels).
On a currency-adjusted basis, this helped Canadian stocks to trounce American stocks by about 6% (annualized) over those five years — until last year. In addition to that, the strength of our currency internationally was enough to wipe out all the gains if one had broadly invested in international stocks.
But last year, the strategy of “Investing Canadian” began to break down. And, if recent trends continue, a number of factors could adversely affect investors who are overexposed to Canadian securities.
First of all, while Canada has benefited from being a resource exporter in the face of increasing demand for our raw materials from China and the developing world, the pace of economic growth elsewhere is slowing. And our economy will be vulnerable.
The other factor is the C$ itself. It is particularly dependent upon trade flows compared to a reserve currency like the US$ , which represents a safe haven in volatile markets and represents a sizable portion of reserves held by other central banks. The C$ does not have this cachet. If we continue to see stress and anxiety over Europe, the US$ will benefit disproportionately relative to the C$ .
In addition to avoiding pitfalls, there are also some benefits to diversifying out of Canada, especially into U.S. securities. In general, the stocks of U.S. companies represent better value than Canadian stocks. Also, a number of U.S. stocks represent good inflation hedges to protect against the fallout from the numerous money-printing policies pursued by an increasing number of central banks. Many companies should be able to keep increasing dividends during an inflationary episode, something bonds don’t do. All of this will increase investor interest in U.S. stocks.
It is common for investors to continue investing in areas that have already had a good run. However, ‘rearview investing’ is one of the costliest mistakes an investor can make as new markets and sectors take over in a business cycle.
Although investing in Canada has been rewarding over the last number of years, it is time to break old habits and look beyond our border in order to maximize RRSP returns.
Mark Jasayko and Neil McIver are portfolio managers with the McIver Wealth Management Consulting Group of Richardson GMP Ltd. The opinions expressed are their own.
Miles Mogulescu: You Can Bet Romney Doesn’t Stash Millions of Dollars in Cayman Islands to Work on Its Tan
Mitt Romney’s tax returns and financial disclosures reveal that Romney has millions of dollars stashed in Cayman Islands funds. According to ABC News, Romney has as much as $ 8 million invested in at least 12 Cayman Islands funds, and another investment worth between $ 5 million-$ 25 million domiciled in the Caymans.
There are many places in the world — including the United States — to safely park millions of dollars in assets. People don’t seek out a P.O. Box in the Caymans to stash their cash to help their money get a deeper tan. The generally do so to lower their taxes, to take advantage of bank secrecy, or both. This is almost certainly true of Romney.
According to the Wall Street Journal, Romney has tax-deferred IRA retirement accounts valued at between $ 20.7 million and $ 101.6 million which hold stakes in 13 investment entities run by Bain Capital.
The most likely reason for Romney investing substantial amounts in Cayman Island funds is to legally launder millions of dollars in Romney’s IRA retirement money to avoid or defer paying an obscure 35% US tax called the Unrelated Business Income Tax (UBIT).
Taxes can be pretty boring, but stay with me a minute. Although income from IRAs are generally tax deferred, the 35% UBIT tax is an exception. A 35% UBIT tax is assessed on retirement accounts which invest in an unrelated trade or business, and/or which uses debt. Since the Bain funds in which Romney’s IRA put much of their money often invest in ongoing businesses, and since to increase returns they are likely highly leveraged through the use of debt, a substantial amount of Romney’s IRA income could be in danger of losing its tax deferred status and being taxed at 35%.
But smart, highly-paid tax lawyers and accountants have come up with a neat trick to shelter to 0.01% individuals like Romney who invest their IRAs in Bain-type hedge funds and private equity funds from paying this 35% American tax.
Romney’s IRA may, as his trustee claims, be set up in the US. But Romney’s filings suggest that many of the Bain entities in which it invests are likely set up offshore in the Caymans. The Cayman entities (called offshore blocker corporations by tax experts) may invest in ongoing businesses and use leverage without owing US taxes. When the earnings on the Cayman-based funds are repatriated to Romney’s US IRA as dividends, they’re no longer treated as taxable Unrelated Business Income.
The US IRA investment may be legally laundered through the Bain funds in the Caymans and the 35% US UBIT tax avoided. Presto Chango!
Oh, and then there’s the question of Romney’s Swiss bank account, which his trustee closed in 2010 as Romney was preparing to run for the presidency. Was Romney’s money parked in Switzerland to work on its skiing? Or is it that you wouldn’t want to have money in a Swiss bank account when you’re running for President, for Pete’s sake?
The deeper you drop down the rabbit hole of Romney’s fortune, the “curiouser and curiouser” things become, as Alice in Wonderland famously said.
POSTSCRIPT: An interesting question for further investigation by an enterprising reporter is how Romney accumulated $ 20.7 million-$ 101.6 million in his tax-deferred IRA account in the first place. The annual IRA contribution limit for ordinary Americans is $ 4,000-$ 5,000, and , if part of Romney’s IRA was rolled over from a 401(k) account when he left Bain Capital, the annual limit on 401(k) employee and employer contributions, depending on the year, is $ 30,000-$ 35,000 plus some potential further matches for “highly compensated” individuals. Even with the deferred income in Romney’s IRA compounded at extremely high rates, it’s hard to imagine how the IRA grew to tens or hundreds of millions of dollars… Curiouser and curiouser.
From:The Blog
Scattered results
In Alberta, a couple we’ll call Wilt, 36, and his wife, Susan, 44, are thriving with a total take-home income of $ 8,000 a month. Both self-employed as consultants — he in management, she in health care — they have come to a point in their lives in which they have a good deal of unencumbered cash flow. Their net worth, about $ 229,000, is modest, but they are planning far ahead. Their goals – educate their five-year-old daughter and plan a retirement.
Family Finance asked Lenore Davis, a registered financial planner with Dixon, Davis & Co. in Victoria, to work with Wilt and Susan. “They are scattered in terms of where they deploy their money,” Ms. Davis says. “They do indeed need a plan to get them to their retirement goal while looking after their daughter’s educational needs.”
Financial management
For now, Susan and Wilt need to reduce their debts and to rationalize their investments. To do that, they have to resist the urge to increase their personal spending parallel to their increased income. Their method has been to run all their income through their personal corporation and pay themselves as needed. Their $ 8,000 monthly draw leaves $ 983 a month unspent. They can use it for their child’s RESP — $ 2,500 a year, which will attract $ 500 a year from the Canada Educational Savings Grant — and putting $ 8,000 into lump-sum mortgage reduction on each anniversary due date.
After taking their draws from their corporation and allowing for deductions, there should be $ 60,000 in their company each year to be invested. The money can be left inside the company or flowed out to Wilt and Susan so that they can invest it personally.
Corporate income tax rates – federal and provincial — on active Alberta small-business income are low at 14%, compared to personal income tax rates in their bracket of 32% on salaries. But investment income from money left in a corporation is taxed at 45%. So the best thing for now is to distribute the income to the couple as dividends, Ms. Davis advises. In time, they should consider adding to salary to boost Canada Pension Plan benefits, she adds. Dividends are not salary or wage income and do not generate CPP credits.
Any payouts of surplus cash can be used for RESPs, mortgage paydowns, TFSA contributions or filling RRSP space. Wilt has $ 67,000 of unused RRSP space, Susan $ 86,000 of space.
Retirement planning
In 29 years, when they are ready to retire, if they have built up CPP benefits at the maximum rate, currently $ 11,840 a year, they can add their entitlement to full Old Age Security benefits, currently $ 6,480 a year, to build a base of public pensions of $ 36,640 a year in 2012 dollars. Their present spending net of school tuition, saving and debt repayment, about $ 4,000 a month, or $ 48,000 a year after tax, would be approximately $ 74,000 before 35% average tax.
To achieve that level of income, they would have to add $ 37,360 of annual investment income. At 65, when Wilt and Susan begin their retirement, they would need capital of $ 622,700. That would produce the required annual supplement to public pensions, assuming all their income and capital would be used up by the time Wilt is 90. To get to that level of capital, they will have to save $ 11,220 a year for the next 29 years and achieve a 3.0% real rate of return.
The couple already saves more than $ 14,000 a year in RRSPs and taxable savings, so reaching the target should be no problem. Yet Wilt and Susan have shown a knack for investing in risky undertakings with sad outcomes. For example, they have $ 100,000 in a real-estate venture that has gone into receivership. The couple needs to switch investment methods from the concept of adventure to a steady system for diversifying assets and estimating dependable returns from stocks, bonds and perhaps real-estate mutual funds or exchange-traded funds that have strong and rising payouts. Their allocation to bonds should grow to perhaps 25% of total investments within the next few years and rise to 65% by retirement age, Ms. Davis suggests.
Investing in security
The final issue in Wilt and Susan’s future is their view of the purpose of investments. When they had little money, they invested for the thrill of it. Now that they have substantial incomes and substantial assets, they must act like good managers for themselves and for their child.
To avoid the risk of buying the wrong stock or bond, commodity or parcel of real estate, the couple can use low-fee exchange-traded funds with diversified assets. Over a period of 29 years, ETF fees that would average about 0.50% a year will tend to outperform actively managed mutual funds with fees five times higher. The 2.0% annual saving will translate into a 58% value retention over 29 years. Competent managers of higher-fee mutual funds could boost returns and justify their fees, but the odds of finding mangers who can beat the market for nearly three decades are poor.
Wilt and Susan could increase their financial security by purchasing disability insurance. Disability coverage prices vary widely. For payments of $ 5,000 a person a month that begin 90 days after a reported injury or illness, Wilt would pay $ 125 a month to age 65 and Susan would pay $ 243 a month to age 65. The premiums could be paid by their company as a taxable benefit to the employees.
“This couple is in a great place to make their financial situation secure,” Ms. Davis says. “By taking concrete money-management measures, they can stop worrying about past losses and focus on a comfortable future lifestyle and a solid retirement plan. A relatively small amount of planning and a move to a sound investment style with reasonable costs should get them to a comfortable retirement.”
— Need help getting out of a financial fix? E-mail andrewallentuck@mts.net for a free Family Finance analysis.
