Misrepresented in the Financial Times and my thoughts on Home Capital

To be clear, I have never urged anyone to load up on real estate. I urge people to invest in a conservative manner in real estate rather than in the stock market. While I do believe a foreign buyers tax is “stupid”, it is because of its misdirection. A foreign buyers tax will affect Toronto’s resale market in a small way. Richmond Hill and Markham will feel it the worst. Where this tax could cause problems is in the new development industry. Foreign buyers represent a significant percentage of buyers of new unbuilt units. This industry is vital to Toronto’s growth and economy. It is also a significant portion of the Ontario economy. Toronto’s exponential growth over the last 17 years has been on the back of this industry. Anything that disrupts this is short sighted and dangerous to our economic status.

The Canadian real estate market is healthy. We have a very low default rate and our banking industry is very conservative. Poorly informed hedge funds have been trying to short our real estate economy for years, to no avail. They focused on Home Capital because it was one firm that exclusively focused on real estate loans. Home Capital was a great company with strong financials and a great business model. It made the mistake of not properly releasing information regarding a pool of outside mortgage brokers that fraudulently altered mortgage applications. None of this Home Capital nonsense would have happened if the regulators had just fined the company from the onset, instead they went public and nearly ruined Home Capital. In the end, the regulators just fined the company anyway, but on the way they injured a great firm. The shorts have it wrong and if they haven’t exited from their position they are going to get creamed. What Warren Buffet did was confirm the health of the real estate industry in Canada, and of course reaffirm that Home Capital is a great firm.