Dundee Bets on Canada’s Housing Market With Sotheby Acquisition

Dundee Bets on Canada’s Housing Market With Sotheby Acquisition

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Sothebys Canada

Ned Goodman’s 360 VOX Corp. has made a move into the real estate market with the purchase of Sotheby’s International Realty Canada.  360 VOX Corp. said it had entered into an agreement to acquire a group of Canadian real estate businesses, including Sotheby’s International Realty Canada, Sotheby’s International Realty Quebec, and Blueprint Global Marketing.

According to a release, the group is involved in ‘listing, marketing and selling real estate,’ including condominium developments resort properties and homes.  Sotheby’s specializes in high-end residential properties.  Blueprint Global Marketing works with the Sotheby’s International Realty, listing and selling international developments.  The group’s roster includes some 300 high-end real estate agents that the merged entity hopes will grow to be 1,500 or more in the next few years.

Mr. Goodman, who owns 24% of 360 VOX, has been said by someone close to the deal to have helped shape it.  The deal will see the transfer of $3.65m in cash and 54.25m common shares in 360 VOX, which is about 27% of the company’s issued shares prior to the transaction.

Though Mr. Goodman doesn’t appear to share their concerns, the Canadian housing market has some analysts worried.  Ottowa ordered alterations to the terms and conditions of mortgage loans in July this year, reducing the repayment period to 25 years and reducing the cap on home equity loans from 85% to 80%.  Additionally there’s been overproduction of housing in Canada, with building outstripping the formation of new households.

CIBC’s Avery Shenfeld sees the combination of ‘recent changes in mortgage insurance rules, lofty prices that make taking the plunge a bit less attractive (particularly for speculators), and the end of a catch-up period in which construction has outpaced the trend in household formation’ to result in a slowdown of the housing market by 2013.  However, CIBC’s Benjamin Tal says Canadians shouldn’t expect a ‘US-style housing meltdown.’

Mr. Tal covers the data showing the disparity between Canada’s house prices – which he says ‘continue to defy gravity’ and Canada’s household debt, which is now at 163%, the kind of level seen in the US before the 2008 crash.  However, Mr. Tal goes on the offer an alternative analysis, observing that debt-to-income measurements alone are a ‘headline grabber,’ rather than a ‘serious analytical tool,’ and that over the past decade housing starts exceeded household formation in Canada by about 10%: ‘In the US, the gap during the decade leading up to the crash was almost 80%.’

However reassuring Mr. Tal’s analysis is, there’s less comforting news coming in from the market.  Home sales fell 15% in September, to their lowest level since 2001, and there’s trouble on the horizon for the Canadian banking sector too.

Ratings agency Moody’s Investor Service placed almost all of Canada’s major banks on review for a downgrade on Friday, based on its concerns about the country’s mounting household debt levels.  Institutions like the Bank of Montreal and Toronto-Dominion Bank are facing downgrades over concerns Moody’s describes as ‘concerns about high consumer debt levels and elevated housing prices, macro-economic risks, capital markets activities and bank-specific factors.’  Moody’s vice-president, David Beattie, said in a statement that Mody’s saw the banks as ‘more vulnerable to increased risks to the Canadian economy.’

However, Robin Connors, the CEO of 360 VOX, sees things a different way: ‘The markets are in flux,’ he says, ‘but the industry is reinventing itself.’  Mr Goodman agrees, saying that he sees the recreational property sector as a good opportunity in its own right, and thinks it will eventually meld into the wealth management industry.  And Mr. Connors points to 360 VOX’s investments in ski-in, ski-out developments in the French Alps, which analysts predicted would end in disaster.  ‘People said, ‘You guys are out of your minds, European markets are in the bucket’,’ Mr. Connors recalled.  But the first phase of that development sold out, proving ” to 360 VOX at least ” that their customers are still ready to spend.  ‘Those people are still buying,’ Mr. Connors notes.