Month: December 2020

Short-lived affordability gains in Canada’s housing market receded in the third quarter of the year, owing to voracious demand for detached housing and nascent signs of income precarity.

A report from RBC Economics noted that market activity during Q2 was quelled by the coronavirus, unintentionally boosting affordability. However, those gains were all but lost in the June quarter.

“All markets we track saw an overall deterioration in ownership affordability,” stated the report from RBC Economics’ Robert Hogue. “Perhaps more noteworthy, the pandemic created new market dynamics impacting affordability trends differently across categories. Chief among them are soaring demand for larger living space and reduced attachment to live in, or near, core urban areas. Single-detached and other low-rise homes have become highly coveted and pricier as a result. And the ability to work from home has helped spread the heat—and affordability erosion—to all sorts of markets.”

That scorching demand for ground-related housing erased the affordability gains made in major Canadian cities’ condo submarkets. For example, although RBC’s condo apartment affordability measure decreased (indicating greater affordability) in Toronto because of a supply glut, its single-detached affordability measure increased in Vancouver.

Moreover, Toronto-based James Laird, president of CanWise Financial and co-founder of Ratehub.ca, is dubious that affordability ever returned to the housing market, even with surplus condominium supply, because historically low-interest rates surged demand.

“Affordability issues have not gone anywhere—they never left—and I think in the mortgage industry, we’re looking for slow and stable growth,” he said. “We don’t want things to get too out of hand like they were in 2017 when the housing market was out of control. Absolutely, [low rates] will add to existing affordability issues.”

The RBC Economics report nevertheless contends that Canadians temporarily enjoyed elevated affordability during the second quarter, thanks to generous government financial aid in the form of the Canada Emergency Response Benefit.

“A partial retracement in government transfers caused household disposable income to fall 3.1% in the third quarter. With the imminent start of mass vaccination brightening the economic outlook in 2021, we expect further dialling down of transfers in the period ahead.”

Sustained property appreciation will also eat away at those Q2 affordability gains through 2021, in some regions more than others, but low mortgage rates can offset some of it.

“Buyers in Canada’s least affordable markets—Vancouver, Toronto and Victoria—are most vulnerable to any erosion in affordability given how stretched they already are, especially when shopping for a single-detached home,” said the report. “Local buyers in many smaller markets may also be challenged by rapid price increases. Strong demand is putting intense pressure on their housing stock.”

However, the report proffers a clue about where to find respite from the bidding wars and rapidly escalating prices that have dominated headlines in Canada for the last few years. Save for Ottawa, virtually all Canadian markets were more affordable last quarter than in Q3-2019, and rising affordability woes are predominantly a consequence of robust demand for single-family detached houses.

“Condo apartments are a generally more achievable option for buyers,” said the report.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Forgoing liability insurance on rental properties is akin to “playing Russian roulette,” claims a savvy investor with about 57 doors, and for good reason.

“It’s playing Russian roulette if you don’t have insurance on the property. If you have 20 units and two people living in each one, that’s up to 40 people who can sue you. It could happen because somebody slipped down stairs that had a small pool of water from somebody else’s boot,” said Niran Kulathungam, a financial life professional, real estate coach and owner of The Ascension Principle.

Unlike freehold properties, basic fire insurance is included in condo maintenance fees while other types, like liability—which, for example, covers the landlord in case a leak originating from their unit seeps into, and damages, a neighbouring unit—aren’t. A bad situation could become downright desperate for a landlord who owns an entire multifamily residential building, say a triplex, and it burns down, because lost rental income wouldn’t preclude their mortgage obligations.

“If the property that burned down was worth $600,000 but the rebuild cost is $450,000, make sure the amount you’re insured for is the rebuild value and not the market value,” advised Kulathungam. “You also want to have the loss of rental income insurance. If it brought in $3,000 in rent, just because the building burned down it doesn’t mean your mortgage stops. In good rental insurance, I look for fire, loss of use of the building, rental loss, and I also make sure I’m getting liability.”

In Ontario, condo insurance premiums have been rising steadily. In Q3-2020, premiums in the province increased by 3% year-over-year, with a recent report explaining that freak weather events are largely to blame. However, in a city growing as quickly as the provincial capital, insurance claims have upsurged.

“Some cities, such as Toronto, have rushed to build condos to keep up with a rapidly increasing population,” said a report from LowestRates.ca. “Condos being built so quickly increases the risk of lower workmanship, potentially resulting in building problems that may require an insurance claim later on. This could contribute to the trend of a rising number of claims.”

Kulathungam confirms his insurance premiums have increased on a per annum basis, and while that could make cheaper premiums more attractive to investors, he warns against the low hanging fruit.

“From an investment perspective, the challenge I see is that the government has capped rental increases from taking place, yet insurance has skyrocketed,” said Kulathungam. “In an apartment building, I was paying just under $5,000 a year ago and now I’m paying over $8,000. A number of insurance providers are leaving the commercial real estate insurance field, so there are higher costs with fewer players. My understanding is it’s because of a high number of insurance claims. But if you go with the cheapest provider, when you need them to back you, they often don’t.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Queen & Ashbridge Condos has managed to distinguish itself from Toronto’s staidly designed condominium stock by harnessing the potential both within and without the building, and attracting robust end user interest in the process.

Located in the Beaches, the building’s Queen St. E. frontage offers residents value-boosting streetcar service, hundreds of restaurants, bars and boutique shops along the celebrated street, and the most access to nature anywhere in Toronto.

“The Nos. 1 and 2 amenities are Lake Ontario and the largest expanse of green open space in all of the GTA,” Howard Cohen, president of Context Development, Q&A’s co-developer, told CREW. “Woodbine Park, Woodbine Beach, Ashbridges Bay and Pump House Park are next to Q&A, so it’s really amazing the amount of green open space we have there, and we’re immediately north of Ashbridges Bay Yacht Club.”

The Beaches has been one of Toronto’s most desirable neighbourhoods for the aforesaid reasons long before citywide housing prices began surging a few years ago, and it could also explain why, unlike most Toronto condos that are investor-driven, the overwhelming majority of Q&A’s buyers so far are end users, some of whom have already purchased the more expensive units over $2 million. It’s perhaps for that reason investors would benefit from owning a unit or two at Q&A—Toronto rents haven’t carried condos for a few years, but capital appreciation potential is through the roof—because when the units enter the resale market, end users will pay a premium that other investors won’t.

“It’s unusual for end users to buy preconstruction because they have to wait about four years to move in, but that Q&A is getting huge interest from end users tells an investor something powerful,” said Cohen. “When they put a downtown unit on the resale market, they get a huge amount of competition, because probably 95% of downtown towers are bought by investors, so everyone living in it is a tenant. Our building will probably be half and half, and with more end users there’s more value, especially on the resale market, because an investor likely won’t sell a Q&A unit to another investor, they will sell it to an end user, and end user-driven buildings are taken care of better. You see that with downtown condo boards that only want to keep the fees down as opposed to maintaining the building.”

Dil Banga, a broker with Royal LePage Flower City Realty, says buildings with high end user contingents last much longer than investor-driven buildings, which run the risk of falling into disrepair faster than they should.

“End users take care of the condo more than investors, who just want rent and low overhead,” he said. “End users always monitor the condo corporation and status certificate to make that anything to do with maintenance is taken care of.”

Cohen added that, unlike the downtown towers every real estate broker in Toronto brings their investor clients to, clued in brokers have been bringing their clients to Q&A, which is being co-developed by RioCan Living, since it launched a couple of months ago.

“Housing prices in the Beaches are through the roof. We’re finding it’s the brokers who know this part of Toronto, as opposed to the cookie cutters downtown, who are bringing us the most buyers as investors.”

The 17-storey, 360-unit U-shaped development, which incorporates geothermal energy to keep utility costs low, will feature a 5,000 sq ft state-of-the-art fitness centre equipped with a yoga studio, spa and steam saunas, co-working space for residents, a rooftop party room and lounge with a capacious outdoor terrace that has cooking and dining areas, and a courtyard for residents.

“There’s also a dog run and a dog washing station, and we’ve been getting a really good response to that,” said Cohen. “Our architect [Teeple Architects] came up with a building configuration that looks a little like a pyramid in its genesis, and on the skyline it’s going to be pretty exciting. Because of the way the building is shaped and modelled, it’s created a really beautiful courtyard that’s a private park for people who live in the building, which some of the units overlook, and which we think of as an urban forest.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Condo insurance premiums in British Columbia have surged by 40%, claims a new report from the B.C. Financial Services Authority (BCFSA), because calamitous events are of greater concern.

However, the preponderant reason premiums have risen is that only a few insurance companies share the risk. The greater the concentrations of risk, the greater the insurer’s exposure to a large claim, like fire or flooding.

“High-risk concentration negatively impacts insurers’ catastrophe models, reinsurance costs and credit rating assessments,” said the report. “As strata properties get more concentrated in both the number of units and physical proximity, especially in geographic areas with high catastrophic loss exposure, insurers will charge more for that exposure or reduce supply or both.”

Moreover, B.C. has an elevated risk of earthquake exposure, “especially the Greater Vancouver and Victoria regions, which are also the two largest strata property markets,” added the report. “

According to Ron Antalek, a sales agent with RE/MAX Lifestyle Realty, Vancouver’s older stock of strata buildings are responsible for accruing larger insurance claims that have, consequently, played a role in rising premiums.

“This has been an ongoing issue in B.C.,” he said. “Newer buildings haven’t been the issue; older buildings, rather than being proactive and doing a depreciation report with the strata group, left it and waited for claims and for insurance to fix everything.”

However, the proximity to California also plays an outsized role, added Antalek.

But as the BCFSA report makes clear, the province’s neighbours south of the border don’t have the same insurance outlays because their industry is managed differently.

‘B.C. shares many of the same risk exposures with California, Oregon, and Washington. Some of these risks are natural, such as wildfire and earthquake risk, but also urban growth concentration. However, while those markets have not seen the same type of percentage increases as the B.C. market, they are also facing the same issues. The U.S. insurance market is managed very differently than the B.C. market.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Canada’s population grew by 767, or 0.0%, from July 1 to Oct. 1 of this year, according to Statistics Canada, representing a 74-year low.

The 2,767 additions brought the country’s population up to an estimated 38,008,005, meaning there was hardly any growth, while populations actually declined in British Columbia, which lost 1,861 people, and Newfoundland and Labrador, where 1,105 people left. On the other hand, Quebec, Prince Edward Island, Manitoba, Yukon, and Alberta all saw increases, with the latter up by 6,236, or 0.1%.

Canada actually welcomed 40,069 immigrants in Q3-2020, a 61.4% year-over-year decline, and had a net loss of 66,000 non-permanent residents, therefore, not only had too few immigrants entered the country during the pandemic, many more packed up and left. Canada’s growth last quarter is the result of there being 99,024 births to 69,114 deaths. Of those mortalities, 706 were COVID-19-related, a substantial decrease from 8,4595 in the second quarter.

According to Dil Banga, a sales agent with Royal LePage Flower City Realty, Canada’s flailing migration pattern has resulted in desperation among landlords in major centres like Toronto.

“There are a lot more incentives when it comes to rentals because there are virtually no people coming to Canada,” he said. “It’s a renter’s market where they have more options. Something they couldn’t afford before, they can now get into because landlords, especially in Toronto, just want to cover their overhead. More inventory means fewer renters coming in, which means the ones who are looking have more options.”

StatCan noted that international students typically arrive in droves during the third quarter of every year, and while they didn’t in 2020, Alex Balikoev says they will in Q3-2021. Although they won’t fill all of the vacancies, they will help make up some of the ground lost by landlords.

“For condo rentals, we monitored the market pre-COVID and we had 4,500 units available in Toronto, and by August that number grew to over 10,000,” said Balikoev, senior vice president of sales at Sotheby’s International Realty Canada. “The reasons were job losses and a drop immigration, for sure.

“I suspect if we open up sometime in spring, things could pick up by late summer 2021 when people return to work in Toronto and we see more immigrants coming.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Not even the pandemic has been able to cool Hamilton’s real estate market.

For the last five years, The Hammer has benefited from Toronto’s affordability woes by poaching millennial-aged homebuyers, from first-timers to move-up purchasers. Although that has driven the city’s prices up, they’re still affordable relative to the region.

In November, the average price of a home in the City of Toronto was $909,803 and $651,744 in Hamilton, and given the two cities’ proximity to each other, it’s no wonder Torontonians are still fleeing to the former industrial powerhouse.

It isn’t just end user purchasers who are seeking bargains in Hamilton, though. Adrian Pannozzo is the founder of Executive Properties Inc., a property management company, and a retired 21-year veteran of Peel Regional Police where he served as a sergeant, who began investing in Hamilton in 2007. After an auspicious decade of investing there, he decided to retire from the police force in 2017 to focus on his investments full-time.

Pannozzo says choosing Hamilton, where he carries 64 properties, over Toronto was a no-brainer 13 years ago, and it still is today.

“Money went a lot further in Hamilton than it would have in Toronto, and cash flow was the major reason,” he said. “You can pay the mortgage and property tax and still come out at the end of the month with a healthy surplus, whereas in Toronto you’re lucky if you break even at the end of every month if all of your expenses are covered.”

Make no mistake, on wider horizons, Toronto investment properties fetch a pretty penny on appreciation, but Hamilton is still brimming with short- and long-term investment opportunities, some of which manifested after COVID-19 struck earlier this year.

“Multifamily buildings are getting $70,000-80,000 more today than they were in March,” said Pannozzo, “ because supply is down.”

Downtown Hamilton, where most of the demand for rental properties is, has undergone a rejuvenation over the last few years, especially on James St. North and South where a slew of brewpubs, restaurants and art galleries have recently taken up residence.

Hamilton’s economy is bolstered by robust health care, construction and manufacturing sectors that form a solid foundation upon which the city’s real estate market can thrive. And like many other cities in the country, the COVID-19 pandemic hasn’t impaired the property market.

“Most of our tenants are young professionals between 26 and 32 years of age, and relocating to the city from Toronto or Mississauga to live and work,” said Pannozzo. “We’re managing over 500 units and our delinquency payments are below 1%.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Amid major institutional employers’ announcements that they’re relinquishing office space in favour of remote work configurations, the trend of rising office vacancies appears persistent.

In its Q4-2020 earnings conference call earlier this month, TD Bank Group revealed that its adjusted net loss for the quarter was $213 million, significantly higher than its $178 million adjusted net loss in Q4-2019. Moreover, the bank noted that its net outlays were driven by corporate real estate optimizing costs reaching $163 million.

“This quarter, we made the decision to vacate approximately 1.2 million sq ft, or 11%, of our non-retail space related to real estate optimization plans that predate COVID,” Riaz Ahmed, TD’s chief financial officer, said during the call.

While he says the plans were in motion prior to the pandemic, the bank might have still decided to rid itself of superfluous office space after the global health crisis hit in March.

In CIBC’s Q4-2020 earnings conference call, Victor Dodig, the bank’s president, CEO and director, stated that the pandemic accelerated a real estate consolidation plan the bank previously hatched for many of its employees to work from home permanently.

“Some of the spaces are sitting vacant at this point in time with teams working from home,” added Hratch Panossian, CIBC’s senior executive vice president and chief financial officer. “There’s cleaning expenses, utilities and so forth. So there really was a positive payback for our shareholders when we looked at exiting some of the space earlier.”

Remote working is a trend that the pandemic accelerated, but according to Ray Wong, Altus Group’s vice president of data operations and data solutions, there isn’t a mass exodus from downtown office buildings. Wong noted to CREW that Richardson GMP will occupy three floors and 85,000 sq ft of office space in a 25-storey Menkes’ tower on Toronto’s waterfront, which is 65% leased.

In fact, office square footage per employee has been shrinking for decades, and Wong says that contraction is on the cusp of reversing.

“Amazon has taken up more space in Vancouver at The Post building and in downtown Toronto, so there will be a continuing shift from companies to see what the balance is and how many employees will have to come into work, as well as understanding the actual space requirements for social distancing,” said Wong.

“I don’t think social distancing will go away with the pandemic. We’ll have increased space per employee, because even the number before the pandemic was getting too densified in some of the office space, and that trend was going to happen anyway. It will be interesting to see what will happen in next 18-24 months.”

But office towers in Canada’s major downtown cores definitely have had pandemic-induced vacancies. Downtown Toronto’s office vacancy rate in Q3-2020 was 5.1%, up from 3.4% in Q3-2019; downtown Vancouver’s office vacancy rate rose to 5.3% last quarter from 2.2% in the third quarter of last year; and Montreal’s hardly changed, rising to 7.7% during the third quarter of this year from 7.6% in Q3-2019.

In fact, in a way, the pandemic has created opportunity in a tight office sector through sublets, and it pushed the net asking rate in the GTA up by 5% in Q3-2020 from a quarter earlier, according to Colliers Canada.

In some cases, it’s given tenants more negotiating power with their landlords, says Wong. For example, some landlords have agreed to lower rent in exchange for extended lease terms.

“Posted rents in the marketplace haven’t changed much, but there are more tenant incentives with one or two months’ free rent,” he said. “Office availability rates in downtown Vancouver and Toronto are still relatively low on a historical basis, so some of those adjustments are for existing tenants renegotiating some term on space they have leased. If availability rates move up in 2021, we may see price come down.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate