- Quote from Globe and Mail's September 12, 2016 article
-Vancouver real estate developer seeks to set record straight
- Real estate board is the landlord of exposed real estate speculator’s company
- In the housing market, foreign buyers are given a different set of rules
Documents shown to The Globe and Mail reveal that one-time developer Kenny Gu
buys and flips homes in deals that are financed with investor money from
China and mortgages issued to those investors by Canadian banks.
Photo: Ben Nelms for The Globe and Mail
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From a September 12, 2016 article (posted below) in the Globe and Mail,
Mr. Gu came to Canada in 2009 under Ottawa’s now-defunct immigrant-investor program, which gave permanent residency to applicants who agreed to lend a significant amount of money to the federal government. He started out here as a developer, but the documents show that his business evolved to buying homes – using other people’s money– and then flipping them. His deals are financed with investor money from China and mortgages issued to those investors by Canadian banks.Back to top
The papers that Mr. Lazos [a former employee of Mr. Gu] provided The Globe paint a fascinating picture, revealing a network of players – local and foreign – who are parking money in Canadian real estate. They also show how loopholes and lax oversight make it easy for the speculators to play the system – and profit tax-free – by obscuring their ownership and earnings, all the while treating the properties as commodities, not homes.
The Globe and Mail
Vancouver real estate developer seeks to set record straight
By: Kathy Tomlinson
September 20, 2016
Kenny Gu (also known as Jung Gang Ju) sat down with The Globe for an exclusive interview because he said he wanted to clear his name after allegations of possible fraud and tax evasion in connection with flips of residential properties. “I want to show you I am a good guy. I am not that kind of guy,” Mr. Gu said. “My family is here. My children are here. They will live in this country forever. For a long time. So, I don’t want them to see or to look at me as if I break the law or don’t want to pay the taxes to the country.”Back to top
Mr. Gu said he came forward after his ex-employee Demetre Lazos persuaded him it was the right thing to do. The Globe investigation was based on a large cache of documents from Mr. Gu’s operation supplied by Mr. Lazos. The paperwork showed millions of dollars have flowed through Mr. Gu’s personal and corporate bank accounts in recent years, while he claimed personal income of $45,865 on his 2015 tax return. Mr. Gu initially did not respond to The Globe’s requests for interviews. Mr. Lazos said he met with CRA officials in Vancouver on Tuesday to show them the same documentation.
Mr. Gu has now provided The Globe with more details on his finances. He said if anything reported on his taxes was incorrect, it was unintentional, because his books are handled by professionals he hires. He said he is also prepared to meet with the tax agency to set things straight.
“I am open. I don’t fight. Any time, I will meet with them,” Mr. Gu said. “Because I don’t want to do anything to break the law here or to avoid the tax, so everything I am giving to the accountant and the lawyer and they help me to do these things. Maybe they do something not so good. But from my side, I don’t know.”
According to Mr. Gu’s documents, companies that he owns designed, built or renovated 32 Vancouver-area properties since 2011. In addition, he and several clients also flipped five homes in the past two years for $4-million more than they paid as prices in Vancouver skyrocketed. Mr. Gu’s family now lives in one of those houses in West Vancouver. His wife bought it for more than $2-million, with no mortgage. The family’s vehicles include a BMW and a Mercedes.
Mr. Gu explained that lifestyle is possible even though his reported income is low partly because he and his wife brought about $3-million into Canada from China after they came to Vancouver under the immigrant investor program in 2009.
First, he said, he started a prefab construction business and lent money to it, but it failed. Mr. Gu explained that after his companies began making money in real estate in 2014, some of those profits went to his family, tax-free, to repay the loan. His documents show Mr. Gu’s wife, Min Tang, also made $1.17-million in gross profit buying and selling six more residential properties since 2010. Mr. Gu said the family lived in three of those homes, so the sales were classified tax-free under the principal residence exemption.
However, he indicated his tax bill is about to go way up.
“This year, I will have big income. Big income,” Mr. Gu said. “Which I will report to the taxes.”
Financial statements provided to The Globe by Mr. Lazos show Mr. Gu’s companies recorded deficits until early 2015. However, new CRA notices of assessment from Mr. Gu show two of his companies now owe almost $42,000 in taxes on newly reported income. Those notices are dated four days before The Globe’s initial story was published. “The documents you had are only part of the reality,” he explained.
As The Globe first reported, Mr. Gu said his real estate deals were financed with money from China, provided by investor clients. “They trust me. That is why we do business together. They invest the money. I invest my knowledge and the work. Then after we finish the project, we share the profit.”
Mr. Gu said he understands why Canadians are upset about real estate speculation driving up home prices. He said he would rather develop properties than flip them, but that he sold recently because the gains were huge and development costs and delays were prohibitive. He said he would also like prices to stabilize because his business would suffer “terribly” from a crash.
“The policies from government need to be careful,” Mr. Gu said. “I want the business to keep going – a long business. Not just the price go very high and then go down.”
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Read the rest here
Business Vancouver
Real estate board is the landlord of exposed real estate speculator’s company
By: Bob Mackin
September. 12, 2016
Back to top
The Gukan Construction office in the complex at Spruce Street and West 8th Avenue where the Real Estate Board of Greater Vancouver is located | Photos: Bob Mackin
A real estate speculator who was alleged in a national media report to have used loopholes to avoid paying taxes is a tenant of the association for the region’s real estate agents, BIV has learned.
Provincial company records show Jun Gang “Kenny” Gu is the only director and officer of 2013-incorporated Gukan Construction Ltd. Gukan is located in the same complex at Spruce Street and West 8th Avenue in Vancouver as the headquarters of the Real Estate Board of Greater Vancouver, the trade group for more than 13,000 real estate agents.
REBGV president Dan Morrison said he had never heard of Gu before the weekend. Morrison said that Gukan had already given notice to end its tenancy by the end of September.
“We do a due diligence process where we do a credit check and make sure that they’re a legitimate company and that seemed to be the case here,” Morrison said.
The Globe and Mail reported September 10 that Gu, a former government employee from China, had come to Canada under the federal immigrant investor scheme in 2009.
A former executive who worked for Gu provided documents showing Gu sold several houses that he had never lived in, but still claimed the principal residence tax exemption. The Globe story did not mention the names of Gu’s companies.
Finance Minister Mike de Jong issued a statement on September 10 that called on Canada Revenue Agency to “diligently enforce the law.” NDP critic David Eby said de Jong and the BC Liberal government had failed to hire enough auditors to battle tax evasion and fraud in the Lower Mainland real estate industry.
“When we hear allegations that somebody might be operating outside of the law, obviously it’s very concerning to us and it ought to be investigated,” Morrison said.
Gu is also the only officer and director listed for Royal Columbia Development Corp. and was one of the nine founding directors of the Chinese Construction and Renovation Association of Canada in 2014. The CCRAC’s Chinese-only website says that Gu was elected a vice-president and is on the membership committee.
Gukan and Royal Columbia were both named as defendants in an August 19, 2015-filed B.C. Supreme Court lawsuit by Mingfei Zhao, who is purported to be a retired billionaire developer from Beijing.
Zhao bought the 1913-built, Rosemary heritage mansion at 3689 Selkirk Street in Shaughnessy for $11.01 million in 2014 and hired Gukan and RCDC to work on the exterior wood and stucco. Zhao’s statement of claim alleged the quality of work done and materials supplied “fell below” standards and were not in accordance with heritage conservation standards or civic requirements. Zhao sued Gu’s companies for breach of contract and negligence, seeking $120,500 plus GST and general and special damages.
Gukan and RCDC denied the allegations and filed a counterclaim against Zhao on September 25, 2015, seeking $39,375 in unpaid bills. The statement of defence blamed Zhao for the breach of contract when work was halted in February 2015. The mansion was assessed at $13.5 million in 2015.
None of the allegations has been proven in court, and the Court Services Online database does not show any hearing dates.
In the housing market, foreign buyers are given a different set of rules
The Globe and Mail
By: Gary Mason
September 14, 2016
It has long been suspected that Canadian banks were playing a less-than-honorable role in the foreign investment rush taking place in the country’s real estate market. Now, questions about precisely how they have been helping fuel the obscene rise in house prices in places such as Vancouver and Toronto have been partly answered.Back to top
It would appear the Big Five banks (and likely others) have been doing this by giving foreign clients preferential treatment when it comes to qualifying for loans – a level of banking bias the likes of which Canadians have never witnessed.
A Globe and Mail investigation into Canadian real estate practices revealed on Wednesday that banks use a different set of loan requirements for foreigners than they do for those who work and pay taxes in this country. So, if you are from mainland China, for instance, and have no credit history in Canada but are looking to buy a place in Vancouver, you can likely borrow large sums of money from a Canadian bank without having to verify your income – this would include foreign students attending university here.
Related: Canadian banks’ mortgage guidelines favour foreign home buyers
According to internal documents obtained by The Globe, loans officers at Bank of Nova Scotia, for instance, have been told they do not need to verify the incomes of new immigrants if they have a loan down payment of 35 per cent. For foreigners, the no-verification threshold jumps to 50 per cent. At the Bank of Montreal, it’s 35 per cent for both; the bank also requires that foreign clients have the equivalent of 12 mortgage payments on hand at the time the loan is issued.
So much is wrong about what is taking place one hardly knows where to begin. But let’s start with the now-evident role the banks have been playing in the vicious, inflationary upward spiral in house prices. Although a federal regulator has warned all of the banks that income verification for foreign clients has been lacking, the practice continues. As long as one bank is doing it, they all will – especially if there is no punitive price to pay beyond a mild reproach. Meantime, there are ample data to underscore the role of foreign purchasers on the price surge in markets such as Metro Vancouver and Toronto.
At the same time, economists for most of the big banks have been warning about the economic perils represented by a potential housing bubble, and the corollary debt bomb it could set off. Yet they never mention the role their institutions are playing in creating these dangers.
There is also the not-so-little matter of what this lack of income verification could facilitate: money laundering. If foreign clients do not have to document and prove the source of their income, it opens the door to those looking for a haven for ill-gotten gains. Real estate is the perfect vehicle in which to invest illicit funds. And it would seem our banks are more than happy to accommodate people with this intent.
What the recent mayhem in the real estate market has confirmed is that many people take Canadians for dupes. Look at the shady practices (such as shadow flipping) that were taking place before they were uncovered by The Globe: Realtors and others using the most unscrupulous means possible to take advantage of unsuspecting buyers, right under the nose of government and regulatory bodies.
On the weekend, The Globe revealed that a network of house speculators was flipping homes for profit and dodging taxes in the process. The person who blew the whistle told The Globe he had earlier approached the Canada Revenue Agency and the police and got nowhere. This is what passes for consumer protection in this country.
But it is the banks’ role in all this that is especially infuriating. It was not the foreign clients they now seem to prefer who helped them become what they are today. It was families in big cities and small right across this country. It was parents opening accounts for their kids, who would later open ones for their own children. It was plumbers and electricians, school teachers and nurses. These are the people who helped make five, once small Canadian banks into global players.
Well, it would seem gratitude does not go as far as it once did. Today, when Canadians walk into a bank to negotiate a mortgage, they will wonder if someone in the next room is operating by a different set of rules. And if so, why?