# Ontario reconsidering a foreign buyers’ tax to cool housing market



## rebel_ins (Apr 6, 2009)

This was published by The Globe & Mail today. It will be interesting to see if it has any impact, or if it eventually materializes. Likely a move to avoid (delay?) a crash before the elections.


http://www.theglobeandmail.com/real...s-tax-to-cool-housing-market/article34256991/



> The Ontario government is considering a new tax on foreign home buyers designed to curb rapid growth in Toronto home prices.
> 
> Finance Minister Charles Sousa said on Thursday he is reconsidering the tax as one option to cool the housing market, after rejecting such a measure last fall.
> 
> ...


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## carverman (Nov 8, 2010)

rebel_ins said:


> This was published by The Globe & Mail today. It will be interesting to see if it has any impact, or if it eventually materializes. Likely a move to avoid (delay?) a crash before the elections.


Good source of revenue for the province and maybe they will share with the city so that the toll idea is gone.

Foreign buyers and real estate agents just drive the prices up so that homes that are worth far less than the million and a half "average" prices become unaffordable for working families. 

Foreign buyers are just looking for investments that are relatively safe in today's economic climate.

Unlike get rich schemes such as ahem..."cannabis stocks" etc that will rise and crash, real estate always has some intrinisic value, usually driven by what the buying market will bear...
however the new real estate rules (20% down now) pushes affordabilty out of the reaches of most working Ontario "stiffs" paying taxe up the ying-yang, along with the high cost of food and shelter. Most first time buyers now can no longer scrape together $150k to 300k to put in that 20% down to get a 1.2 million dollar mortgage for 30 years. 

Imagine the mortgage payments never mind the update property appraisal when the property is purchased..its downright crazy now!

Mortgage payment: *$5,400* Interest over fixed 2.42% on 5 year term" *$87,056*
Total interest on life of mortgage (25years) *$419, 858*

Even if the province goes ahead with an updated LTT (Land transfer tax) on realestate transactions done with foreign buyers...
say 5% on the final price..that's only $75,000 added to the cost will be recovered when the property gets flipped again 5 to 10 years down the road.

Now,at one time a family of wage earners assuming both working should spend no more than 30% on shelter of their gross salaries.
assume here both have $125K salaried positions that monthy total ($10K) minus at least 40% inciome taxes = leaves around $6000 of take home pay for both.

Add to the mortgage and taxes, 
Car loans, credit cards, other living expenses and one can easily see that even $6000 of net income monthly for TWO wage earners will not suffice anymore.

If a marriage breakdown occurs,that's it!..nether spouse can afford the house on just $125 of salary.
The house is resold again and up go the prices!

Winners: Mortgage companies: (insane interest collected on these high ratio mortgages.
Real estate companies,
Ontario gov't land transfer tax
Muncipal taxes

Losers: the working stiffs that really need the house and can no longer afford it due to the high cost of living in the city.

The bubble WILL burst at some point.


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## Mortgage u/w (Feb 6, 2014)

As long as demand is there, nothing will cool the housing market. Government is simply trying to cash-in - like everyone else. Investors will continue to invest. Homeowners will continue to look for a home to own. 

The bubble will burst when people start losing their jobs and/or actually start moving elsewhere. Once the demand drops, so will prices. So far, those indicators are not there so we can all stop speculating and panicking.


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## Electric (Jul 19, 2013)

To me, they should let the foreign buyers purchase as much real estate as they want. There is no land shortage in this country.

The HAM will lose interest at some point, because some other jurisdiction will offer them a better deal for storing their wealth. They will sell, but they can't take the houses and condos with them. That physical wealth will remain, to the benefit of the people who actually live here.

It is not totally clear that the main driver of the real estate bubble is the HAM. I think it has more to do with ZIRP/NIRP, and the substitution of debt for wealth. I would be in favour of cancelling the HBP, and winding up the CMHC or at least enforcing a 20% minimum down payment.


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## rebel_ins (Apr 6, 2009)

> To me, they should let the foreign buyers purchase as much real estate as they want.


The problem is not foreign _buyers_ per se, but foreign _money_ (i.e. untracked, untaxed, etc.).

In this paper (PDF), Josh Gordon, a professor in public policy at SFU, makes a case for foreign investment as the main culprit in Vancouver's housing affordability crisis. From the paper:



> 48.8 percent of investor stream migrants reported that “real estate and rental” was the nature of their business operations.
> 
> Even more tellingly, only about 10 percent of the migrants in this stream reported any self-employment income. And then the kicker: the average income tax paid annually after 10 years of admission was only $1,400. That compares to the $10,900 paid on average by skilled immigrants in other programs, and $7,500 for Canadians in general. In short, the investor stream migrants have engaged in virtually no economic activity in Canada. This is striking. These are individuals who we would expect to be able to prosper in Canadian society should they wish. Anyone who has a net worth of $1.6 million and can front a government an interest-free five year $800,000 loan is presumably well placed to do well in business or the labor market if they so choose.


The G&M also published a terrific investigation on this issue last year.

Foreigners (people who don't live/don't pay income tax here) should not price locals (who live and pay taxes here) out of residential real estate.

I used to be skeptical about foreign money being the main driver behind the rise in home prices in Vancouver and Toronto, but Pr. Gordon's case especially is pretty convincing. Even if only a small percentage of buyers (e.g. 5%) involve untracked, untaxed foreign money in real estate transactions, that may be enough to trigger rampant speculation, FOMO on the part of first-time homebuyers, etc.


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## rebel_ins (Apr 6, 2009)

> I would be in favour of cancelling the HBP, and winding up the CMHC or at least enforcing a 20% minimum down payment.


I would agree with this. The only reason the banks are lending to those who put down less than 20% (many of whom otherwise would not be able to "afford" a home), is because of CMHC insurance. Should the market collapse, taxpayers are on the hook for $500 B (maybe significantly more).


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## gibor365 (Apr 1, 2011)

> The bubble will burst when people start losing their jobs and/or actually start moving elsewhere. Once the demand drops, so will prices. So far, those indicators are not there so we can all stop speculating and panicking.


 People will start moving elsewhere when government start encouraging businesses to move out of Toronto.... The only real industry here is financial services and all banks have their HQ in downtown Toronto...If some banks would move to Waterloo or London areas, we'd be happy to move there too considering that our son in Waterloo University and most likely our daughter will start same University in 2-3 years


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## mordko (Jan 23, 2016)

Bring it on, but the real problem is that foreign buyers are sending family members to Canada who are then claiming primary residence exemption and no income. As such, they pay zero tax while receiving free healthcare and other benefits and sheltering investments from high tax jurisdictions.

Canada is a heaven for foreign tax cheats who are milking the system while inflating the housing bubble. Foreign buyers tax will do diddly squat to address the problem.


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## OptsyEagle (Nov 29, 2009)

rebel_ins said:


> I would agree with this. The only reason the banks are lending to those who put down less than 20% (many of whom otherwise would not be able to "afford" a home), is because of CMHC insurance. Should the market collapse, taxpayers are on the hook for $500 B (maybe significantly more).


Spoken by someone who is obviously not planning on buying or selling a house in the near future. 

The first time homebuyer plans are good tax policy to help young people acquire homes. The government of Ontario needs to understand that there are significant differences between the GTA and the rest of Ontario. I can tell you with complete certainty that in Ottawa, real estate prices in Ottawa are pretty much flat. I can't believe Sudbury or Sault Ste Marie would be much different. I think trashing those markets would present a real risk to the Banks more then what happens with rising prices in Toronto. I have to imagine the banks are just as concerned about Toronto as we are, and are adjusting their lending practices somewhat. I also have to imagine that they may not have considered what would happen if a knee jerk government sends a negative shot towards real estate prices across ALL of Ontario, what that might do to their loan security in the areas outside of the GTA. That would most definitely cause some blood letting by the banks. Maybe they do know about this disparity but the press seem to have missed it and most posters on this board as well.


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## Spidey (May 11, 2009)

As foreign buyers make up only 5% of the Toronto market, it is difficult to see such a tax making much impact.

https://www.thestar.com/business/re...r-cent-of-toronto-home-purchases-in-2016.html


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## My Own Advisor (Sep 24, 2012)

rebel_ins said:


> I would agree with this. The only reason the banks are lending to those who put down less than 20% (many of whom otherwise would not be able to "afford" a home), is because of CMHC insurance. Should the market collapse, taxpayers are on the hook for $500 B (maybe significantly more).


Totally agree. Cancel the HBP. That would be a start.

Raise friggin interest rates already. An even better start. 

The Toronto market is nuts. You have over-sized shacks going for $750,000+. Insane.


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## mordko (Jan 23, 2016)

Spidey said:


> As foreign buyers make up only 5% of the Toronto market, it is difficult to see such a tax making much impact.
> 
> https://www.thestar.com/business/re...r-cent-of-toronto-home-purchases-in-2016.html


If 5% bring in $2-$3M each per purchase, removing them would take enough cash out of the supply to have a major impact on the overall market in Toronto. We have already seen it in Vancouver.


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## My Own Advisor (Sep 24, 2012)

Government absolutely needs to intervene Mordko, I think anything that takes some demand / run-up out is a great thing. Vancouver needs more as well.


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## Dmoney (Apr 28, 2011)

Even if the 5% figure is accurate for "foreign buyers", my understanding is that this does not account for a huge swathe of foreign money that is being deployed by those that are not characterized as foreign buyers (permanent residents, landed immigrants, students, family etc.). Also, a tax or speculation regarding an upcoming tax adds a layer of uncertainty that could keep people on the sidelines.

I'm looking at the market in Toronto, seeing the crazy run-up in prices, and getting a sense that the political will to actually do something is finally gaining momentum. I'm a seller now, and the specter of a tax definitely plays a part. I would much rather lock in $400-500k and give up another potential $500k of upside than see my $500k paper gain drop to $250k or $0 because I waited too long to sell. 

While it's impossible to time the market perfectly, I just don't see how much longer this thing can go. It was "bubbly" 5 years ago when I bought, now it looks downright scary.


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## rebel_ins (Apr 6, 2009)

Dmoney said:


> Even if the 5% figure is accurate for "foreign buyers", my understanding is that this does not account for a huge swathe of foreign money that is being deployed by those that are not characterized as foreign buyers (permanent residents, landed immigrants, students, family etc.).


I agree. In an earlier post I said instead of tracking foreign _buyers_, they should track the _money_. Especially dirty money, because at this point we look like a heaven for money launderers.


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## Dmoney (Apr 28, 2011)

But wait until I sell!!! 

At this point it's really an issue of closing the barn door after the horse has left, crossed the field, grown old and died.
Without a sizable crash, a single family home of any kind (outside of the odd townhome) is now out of reach of 95% of Toronto residents.
I have a few friends, couples in their mid to late 20s, with household income >$200k, who can't get into the market at these prices. 
These are top 5-10% of income earners on a municipal/national scale, and probably top 0.5-1% for their age group. 
Also, a number of colleagues are in a similar position. Income well in excess of $100k, and completely priced out of the market with the exception of condos. 

Remarkably, this has less to do with prices, and more to do with regulatory changes. The monthly cost is not the hurdle. Without a downpayment of more than $200k (plus another ~$50k for closing costs), $1m+ houses are unattainable. And given that tear-down semis are now going for more than $1m, that really puts a damper on people's ability to buy.


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## mordko (Jan 23, 2016)

Well, I sold in the GTA. And the house closed within the last 3 months. And it was about =$2M. And bought by a student. A Chinese student, who is - of course - a resident. And all but 1 viewings out of 30 were by Chinese buyers. 

Worked out grrreat but something tells me there is a problem with this kind of market.


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## My Own Advisor (Sep 24, 2012)

I absolutely live in the wrong city. $2M house sale mordko? Geez.


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## mordko (Jan 23, 2016)

Almost, but the fact that a 20-year-old girl bought our family home is kinda of an insult. 

Perhaps she is a wiz-kid and had a really good summer job. Except that she is supposed to be a student at a university which is 2 hour's drive away so... Again, I am thinking something is not entirely kosher here.


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## Dmoney (Apr 28, 2011)

Think she wants to buy mine?
Always good to have a backup home just in case...


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## mordko (Jan 23, 2016)

Totally. What is a poor foreign student to do without a back-up $2M home?


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## kcowan (Jul 1, 2010)

The government is being played by foreign buyers and this has been going on for 30 years.

$1m house with 2 Mercedes in the garage, just 2 students and grandma, my neighbours across the street on Cachet Parkway in the 80s. The government explained to them what help they could apply for. It was totally legal and never understood by our government employees.

It has also been happening with Persian families in Vancouver for many years. Again they are our neighbours. Nice people. Love Canada. Cannot believe their good luck in finding such a stupid government.


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## stryder1587 (Feb 27, 2017)

This point is bang on. Also not everyone wants (or needs) to report that they were a foreign buyer. TREB is not doing any official statistics, just throwing out a best guess. Many foreigners believe Canada is a great place to live and have PR, landed, or student status. The true "foreign money" number is waaay higher than 5%. 

Go to open houses these days and see what kind of people are visiting. Most are Chinese with no shortage of money, few are the young couples barely trying to squeeze in to an entry level home with all of their savings, then there are the speculators/investors going for multiple homes.


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## rebel_ins (Apr 6, 2009)

Dr. Josh Gordon wrote another report where he challenges the lack of supply theory in Toronto, and points to speculative demand instead. He also argues for a progressive property surtax, in addition to the foreign buyer tax.
Report link (PDF)
G&M article

In the conclusion:



> As Mian and Sufi (2014; p. 9) put it: “Economic disasters are almost always preceded by a large increase in household debt. In fact, the correlation is so robust that it is as close to an empirical law as it gets in macroeconomics.”


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## DollaWine (Aug 4, 2015)

rebel_ins said:


> Dr. Josh Gordon wrote another report where he challenges the lack of supply theory in Toronto, and points to speculative demand instead. He also argues for a progressive property surtax, in addition to the foreign buyer tax.
> Report link (PDF)
> G&M article
> 
> In the conclusion:


Good ol' debt... the toxic poison for the average household.


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## cashinstinct (Apr 4, 2009)

Where are foreign buyers in Montreal area? Please come.


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## fcyloh82 (Dec 2, 2013)

I think the price increase should be allocated to two factors: The catalyst to drive prices higher, and the support. 

Everyone is pointing a finger at foreign buyers as the main culprit of housing price increase, I think they're partly correct and also partly wrong. Let's assume a very high rate of foreign buyer purchasing homes at 25% or 1 in 4 houses sold are to foreign buyers. But what about the other 3 houses? Well, they must be sold to non-foreign buyers right? 

So essentially, I think the foreign buyers are helping to drive the price increase, and the local buyers are somehow supporting it - they have to! This leads me to believe that the housing prices still have room to grow, it'll only slow down when the local money just simply do not have the funds to support the ever-increasing prices.

Am I missing something here?


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## sags (May 15, 2010)

No shortage of illegal money in the world, and it is always looking for a legitimate home. 

You can only pile it up in a bedroom for so long.

The same situation happened in Saskatchewan a few years ago. Chinese "farmers" were buying farm land through a Chinese realtor.

The Chinese farmer never showed up. The land was leased to a farmer.

The effect was that young Canadian farmers couldn't afford to buy land anymore.

The government started talking about looking into it...........and it suddenly stopped.

Now we have the same situation with housing.


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## SW20 MR2 (Dec 18, 2010)

Very common in my neighbourhood. We bought our house almost 3 years ago for $1.05M. My neighbour just sold his house for $1.925M, and his house is smaller than mine. The vast majority of prospective buyers are from mainland China. While there's been a problem in some areas with people just parking money and leaving the house to sit uninhabited, the homes in my neighbourhood are lived in. These people would not be considered "foreign buyers". 

That said, IMO the housing issue is a product of lack of supply and an influx of affluent immigrants. I think back to my parents' generation when they came to Canada in the late 60s. They had no money and were chasing a better life. They worked their tails off, rented housing, saved up, and then bought a house. Today, many - not all ofcouse - of the folks coming to the country are already well off. Hence, they can come here and overpay for a house and still put two Mercedes in their driveway without breaking a sweat. 



mordko said:


> Well, I sold in the GTA. And the house closed within the last 3 months. And it was about =$2M. And bought by a student. A Chinese student, who is - of course - a resident. And all but 1 viewings out of 30 were by Chinese buyers.
> 
> Worked out grrreat but something tells me there is a problem with this kind of market.


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## sags (May 15, 2010)

With interest rates of 2%, why would wealthy Chinese pay cash for a home ? No better place to employ a million dollars ?

Most likely, they don't want to reveal their source of income.


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## stryder1587 (Feb 27, 2017)

In the red flag deals forum, there are over a hundred pages of people discussing how to take out a HELOC to make another down payment while locking in HSBC's 2.35% 5 year fixed rate. So yes, it's not just foreign buyers, but also the "home equity" rich domestic older generation that are picking up investment/rental units.


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## sags (May 15, 2010)

Sellers would be delighted to see a rental speculation boom around here.

A million bucks will buy 9 apartment condos to rent out.

https://www.realtor.ca/Residential/...COMMISSIONERS-Road-West-LONDON-Ontario-N6J4X7


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## Nelley (Aug 14, 2016)

rebel_ins said:


> Dr. Josh Gordon wrote another report where he challenges the lack of supply theory in Toronto, and points to speculative demand instead. He also argues for a progressive property surtax, in addition to the foreign buyer tax.
> Report link (PDF)
> G&M article
> 
> In the conclusion:


Classic government operations-have CMHC (the taxpayer) almost totally support the residential housing market, then say we need a tax because the market is too strong. If the market is so strong, drop that 1 million dollar taxpayer guarantee (down from UNLIMITED) to say 750 grand and see what happens.


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## rebel_ins (Apr 6, 2009)

fcyloh82 said:


> Am I missing something here?


I don't think so, that's effectively what the policy report by Dr. Gordon linked above in this thread is saying (if things are left unchanged). The paper is also calling for government policy action _now_, and argues that letting the bubble expand will only worsen the inevitable deleveraging after the correction.



> Counting on “this time being different” is not a prudent strategy. Letting the housing boom grow will only worsen the “debt deleveraging” that accompanies a price correction. This happens when many households try to pay down debt at the same time, thereby reducing their consumption and causing economic activity to fall. A rise in interest rates or some other macroeconomic shock can generate this dynamic, and many analysts expect this in the next few years. Figure 13 shows this process at work following 2007-08 in some major economies, coinciding, as we know, with painful recessions in these places. It is better to tame this boom now, then, before the situation gets worse.


Our economy is heavily concentrated into sectors related to real estate (and Canadians heavily in debt), much more so than the US at the peak of their bubble. If a recession follows the correction, we are in for some tough times. I think that's what Gordon is claiming we should prevent.

I personally think it is too late.


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## fcyloh82 (Dec 2, 2013)

sags said:


> With interest rates of 2%, why would wealthy Chinese pay cash for a home ? No better place to employ a million dollars ?
> 
> Most likely, they don't want to reveal their source of income.


I don't think the majority of foreign money is Chinese - there's a definite chunk that belong to the Chinese, but I've read that (though mostly based on anecdotal information) there's also money streaming from the Middle East and Russia. 

I can understand why the Chinese are buying so much real estate worldwide (I'm Chinese myself, and have lived in Canada for 95% of my life). Simply, *Chinese believe that real estate prices can only go up and is the safest investment one can buy* - it's a very traditional way of thinking and even my family and friends have advocated this. Living conditions in Canada is literally heaven as compared to their living conditions back home, and a lot of Chinese have viewed the Western countries as the perfect nurturing grounds for their kids. 

The amount of wealth the middle-to-upper Chinese citizen have accumulated in the past 20 years during China's economic boom is staggering. And because they do not believe in the Chinese government and the future of China, they're moving to Western countries to solidify a safer and better future for their kids. It's really a no-brainer.

So, as a result of the global economy, money is flowing to parts of the world where buying power is much much greater, i.e., $2 million nets you a condo in Shanghai, but a house in Toronto, that's a steal!

I feel that this situation is somewhat similar to the late 80's when Hong Kong residents began to immigrate to Canada (I was part of that immigration). Hong Kong citizens benefited from an insane economic boom, leading to a ridiculous increase in housing prices, and were sitting on a boatload of capital gains. But here's where I think it differs: That era stopped quickly, likely because there were only so many Hong Kong citizens (China as way more) and the high interest rates prevent the domestic (Canadian) market from supporting the high real estate prices (we have very very low interest rates). 

So essentially, the trend of increasing real estate prices is a social-economical phenomenon, and it's definitely applying a paradigm shift in the way the young approach housing. What I wonder is, will Toronto (or Vancouver) follow Hong Kong - where the bank of Mom and Dad is really the only option to purchasing housing, and the house of Mom and Dad becomes most of one's life.


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## My Own Advisor (Sep 24, 2012)

Happy to have foreign buyers come to Ottawa and run up housing here. Like UFOs....come here!!


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## kcowan (Jul 1, 2010)

rebel_ins said:


> Our economy is heavily concentrated into sectors related to real estate (and Canadians heavily in debt), much more so than the US at the peak of their bubble. If a recession follows the correction, we are in for some tough times. I think that's what Gordon is claiming we should prevent.
> 
> I personally think it is too late.


Agreed. Yet the previous Chinese runup stopped dead in 1990, 7 years before the event, because RE values stopped inflating. The Chinese investors are not stupid.


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## mordko (Jan 23, 2016)

They are not stupid but they have an even larger bubble back home, also thanks to irresponsible lending. They also need to get the money out of China before capital controls kick in and Canada provides a helpful tax heaven.


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## Spidey (May 11, 2009)

The assumption appears to be that there is not very much benefit to foreign capital entering Canada or that the downside of foreigner's investing in real estate outweighs the benefit. Not my belief but I suppose everyone is entitled to their opinion. 

I always find it puzzling when capitalists want more government control on free-enterprise. Do you really want more regulation from the Liberals?


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## rebel_ins (Apr 6, 2009)

Spidey said:


> The assumption appears to be that there is not very much benefit to foreign capital entering Canada or that the downside of foreigner's investing in real estate outweighs the benefit. Not my belief but I suppose everyone is entitled to their opinion.
> 
> I always find it puzzling when capitalists want more government control on free-enterprise. Do you really want more regulation from the Liberals?


But government intervention, or improper/incompetent (not "more") regulation, is what got us here in the first place.

The CMHC allowed our banks to transfer the risk of previously uninsured mortgages from the banks to the taxpayers. The widespread notion (among Canadians) that our banks were never bailed out during the Great Recession is a myth.

The Bank of Canada slashed interest rates, then kept them low.

Those two factors massively inflated the bubble. Without the CMHC bailout, our banks would not be comfortable lending to borrowers with less than 20% down. Without historically low interest rates, Canadians would not be indebted through the roof, as they were being sent a message that it's not worth saving money, since with inflation being higher than interest rates, by saving you're effectively losing money.

On top of that, the real estate market is among the least transparent markets. It is nothing like the stock market for example. I understand that real estate is not as liquid, but at the same time a home is the most important purchase most of us will make in their lifetime. The system is setup in favour of sellers, and their agents. Why is MLS aggregate sold data not open to the public? Is CMHC doing their job at investigating fraud?


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## mordko (Jan 23, 2016)

rebel_ins said:


> The system is setup in favour of sellers, and their agents. Why is MLS aggregate sold data not open to the public? Is CMHC doing their job at investigating fraud?


I think it's because the agents' association set up the system and the agents are paying for it every month. There is nothing stopping you paying for the access.


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## mordko (Jan 23, 2016)

In general, I don't think the tax on foreign buyers is the right approach. Nor is it clear what problem it would try to address. 

- If the problem is high prices, then effort should be made to increase supply. It's not like we have no space, but the government artificially restricts construction.

- If the problem is that the foreigners send their wives and kids who buy $2M dollar houses, pay no federal or provincial taxes and use the services and benefits, then all services to such people should be chargeable at cost + profit.


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## Nelley (Aug 14, 2016)

mordko said:


> In general, I don't think the tax on foreign buyers is the right approach. Nor is it clear what problem it would try to address.
> 
> - If the problem is high prices, then effort should be made to increase supply. It's not like we have no space, but the government artificially restricts construction.
> 
> - If the problem is that the foreigners send their wives and kids who buy $2M dollar houses, pay no federal or provincial taxes and use the services and benefits, then all services to such people should be chargeable at cost + profit.


Newsflash-we have a monster called CMHC-100% guaranteed by the taxpayers-the purpose of which is to inflate RE prices-your "high RE prices" problem wouldn't exist without CMHC.


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## lonewolf :) (Sep 13, 2016)

I thought one of the provinces came out with a plan to increase house prices by giving first time home buyers a big chunk of cash. They cant make up their mind if they want to try to make housing more expensive or cheaper.


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