Historical article note: This article was originally published on 2018-04-23. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
On the first anniversary of the announcement of the 420 Fair Housing Plan (Fair Housing Plan) by the Ontario government in April 2017, as a close observer of the real estate market, I would like to share with readers what I have seen and heard in the past year since the government regulated housing prices. The impact and impact of this sudden policy change on consumers who are upgrading their own homes and purchasing investment properties is unprecedented in the past decade, and the impact is very large. On the positive side, policy adjustments and market changes have sounded the alarm to those who were overly optimistic, taught a bloody lesson to the impulsive people involved, and provided a lesson for latecomers to the real estate market. On the negative side, the impact of sudden policy adjustments on the real estate market and the losses caused to ordinary homeowners are unnecessary. In the past year, impulsive people have been punished the most in real estate transactions, and the greatest lessons can be learned from these "victims."
2016 was the year with the largest number of new immigrants settling in Ontario and the largest number of residents from other provinces immigrating to Ontario in the past ten years. The housing loan policy underwent an unprecedented change in September 2016. Specifically, the loan approval policy for new immigrants, which had been implemented for many years without considering income, was exposed by a newspaper in the form of a crusade, and named several banks. These banks quickly made policy adjustments. As a result, one stone caused thousands of waves, and many new residents suddenly felt a sense of urgency to buy a house. After entering 2017, most banks tightened their policies for new immigrants, but some banks still went their own way and implemented overly loose approval policies, which continued to fuel the real estate market. Before April 20 last year, there was a rush to buy all kinds of real estate in the entire Greater Toronto Area. The provincial government announced a fair home purchase plan with unfounded reasons, pointing its sword at non-residents, accusing non-residents of being real estate agents, hiding destructive weapons that raise housing prices on a large scale. When buying a house, you need to pay a 15% real estate speculation tax first, and the tax will be refunded after N years and M conditions have been reviewed to prove that it is self-occupied. At the end of 2017, Statistics Canada released specific data on non-residents owning real estate: the proportion of non-residents owning real estate in the Greater Toronto Area is 3.4%, of which the ownership rates of various types of real estate are: 2.1% detached houses, 2.3% semi-detached houses, 2.9% townhouses, and 7.2% apartments. Among homeowners in Greater Toronto, the homeownership rate is 96.6% for local residents and 3.4% for non-residents. Regardless of whether housing prices rise or fall, non-residents cannot be attributed to them because the proportion of non-residents is too small and they have no ability to influence housing prices. How can a discriminatory policy against non-residents have such a big impact on the market? My own understanding is: The 15% real estate speculation tax for non-residents is like a needle that punctures the balloon that housing prices only rise but does not fall. It awakens many people's dreams of getting rich and brings the market back to its senses.
One type of initiator of impulsive behavior in real estate transactions is the diligent lazy person. "Earn when you buy it", like "Martial arts class to defeat the enemy with one move" and "weight loss pills that take effect in three days", stimulate those who usually do not learn financial knowledge, but imagine that they have gained wealth and freedom when they wake up, and step into the trap without knowing it. There are too many hard-working lazy people around us, busy and struggling to find various shortcuts, working hard to get rich overnight, lose weight quickly, and defeat the enemy with one move, wear iron shoes, pay this kind of tuition, and will never stop until they find a smarter method than others and achieve once and for all results. When these hard-working lazy people discover that real estate continues to rise, they are bound to fall into the trap. Don’t get me wrong, this trap was not dug by others, but by these lazy people themselves. The essence of this trap is: there is not enough time to build wealth. The reason is that too much time has been wasted looking for shortcuts without down-to-earth accumulation, and the panic of "not enough time" makes these people extremely active in looking for quick fixes, hoping to achieve immediate success. Full of hope but facing despair every minute, they are afraid of missing any opportunity to make a fortune. The initiators of impulsive behaviors in real estate transactions are people who have no knowledge accumulation, no practical experience, and not enough time, but dream of getting rich overnight - diligent lazy people. The lesson they teach us bystanders is: growth is more important than success. Spend time on growth, and the desired results will naturally grow. People without accumulation will not have the ability to identify opportunities or disasters. Under the pressure of time, if you treat gambling and fooling around as investments, sooner or later you will not be taught a lesson by reckless policies, but will also be overwhelmed by the turbulent market.
Some impulsive people fall victim to the scarcity scam. "Land is limited and the population is increasing, so houses are becoming more and more scarce, and housing prices will keep rising." This theory that houses are scarce, that houses are in immediate demand, and that if you don't buy them, you won't be able to buy them, is not a fact, but a marketing ploy. Renting a house can replace buying a house, so the need to buy a house is not a rigid need in any country and at any time. People who buy houses on impulse are falling into a marketing trap by believing that housing is scarce. Robert Cialdini's world-sensing bestseller "Influence" was published in 1984. This book was written for consumers to prevent deception, because in the 1980s in the United States, various marketing methods targeting human weaknesses had appeared, and consumers were in urgent need of a lightning rod to prevent deception, so the book "Influence" came into being. Unfortunately, not many consumers read this book, while those who choose sales positions regard it as a volume of the Bible. I have excerpted part of page 266 of this 34-year-old book as follows, for those who are impulsive to take note of it: "The feeling of participating in competition for scarce resources is powerful and piercing. Lovers' attitudes are neither salty nor cold, but when they hear that a rival has appeared, they immediately become enthusiastic... Salespeople will also use this tactic with undecided customers. For example, if a real estate agent wants to sell a house to a hesitant prospect, he may tell the customer that a new buyer is interested in the house, likes it, and plans to discuss the details the next day. The new buyer is of course completely fabricated. The salesperson will usually say that they are a wealthy out-of-towner, "investor from out of state to avoid taxes," or "a doctor and his wife who just moved to town." "In some circles, this method is called "driving ducks to the shelves", and the effect is surprisingly good. Because they did not want to lose to their competitors, many buyers who had been hesitant immediately made a decisive move." This passage was written 34 years ago. Such an old-fashioned marketing method is still effective today. No wonder the Chinese version of the book "Influence" is still at the top of the marketing book list. Zhao Benshan has actually put this passage on the Spring Festival Gala, and the name of the skit is "Selling Kidnappings". Today's sales staff have only slightly changed their tactics, such as posting photos of people queuing up to buy off-the-plan properties, the results of last night's house grab (not necessarily their own customers) - the asking price was 1 million, and the final deal was 1.5 million, etc. If consumers do not have anti-marketing capabilities, it is actually very difficult not to be deceived. It is recommended that you read the salesmen’s teaching materials and exercise your immunity in your daily life.
Some impulsive people are ignorant people in the herd effect. Financial historian Charles Kindleberger said, "Nothing can break your comfort and well-being and disturb your judgment more than seeing your friends making money." Robert Shiller, the author of "Irrational Exuberance," believes that the crazy process will escalate itself in the form of "positive feedback". The initial price increase encourages more people to buy, which in turn makes the price rise, thus inducing more people to participate. Daniel Kahneman, a psychologist who won the Nobel Prize in Economics, believes that following investors rush into unfamiliar investment fields at the wrong time due to the herd effect, which will cause devastating trauma. The above are the conclusions of behavioral economics that have been widely recognized in recent years. To put it simply: collective consensus in investment causes the group to become deaf and blind, lose its rationality, and ultimately lead to market inefficiency, and those who enter the market last lose their shirts.
The final category of impulsive people is the victim of the “opportunity-now” scam. These types of scams can be found everywhere and are not unique to the real estate market. When all scammers in the world start their business, the first step is to try every means to make the deceived believe that "opportunities cannot be missed, and losses will never come back." When a person is not prepared, for him, there are no opportunities in this world. How can he not miss the opportunity? When a person has everything ready, opportunities are everywhere, so there is no such thing as a loss that will never come back. So, when you hear "opportunities must not be lost, they will never come back", the person who says this is lying to you. A person's strength is calculated like this. People whose courage minus fear is greater than zero are strong, and those who are less than zero are weak. Fear is innate and is always a positive number. Courage is acquired. Sometimes it is high when something happens, and it is low when something happens. No one should laugh at anyone, because no one can always be strong at any time or in anything. I have seen many practitioners posting on WeChat Moments to ridicule their customers for being hesitant. Such people who do not understand social psychology are not suitable to be salespeople.
People with low emotional intelligence and low financial intelligence are usually impulsive performers and bear the burden of financial losses. Financial intelligence includes 5 abilities: 1. Make more money, 2. Keep your money, 3. Financial planning, 4. Financial leverage, 5. Improve financial information.