Archive for December, 2017

BCREA 4th Quarter Housing Report

Thursday, December 28th, 2017


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Foreign ownership data just ‘tip of the iceberg’

Thursday, December 28th, 2017

Further study may look at homes owned by B.C. shell companies, students and other family members

Dan Fumano
The Province

Recent data released by Statistics Canada only looked at non-resident property ownership in Vancouver and Toronto. NICK PROCAYLO

Last week’s government data release, which was the most comprehensive study to date of foreign ownership of Canadian real estate, was just “the tip of the iceberg,” says the director of Statistics Canada’s new housing program.

The new year will bring the release of more data providing a deeper, broader, and “much more nuanced” look into Canadian property ownership, said Haig McCarrell, director of the Statistics Canada division overseeing the Canadian Housing Statistics Program (CHSP).

Last Tuesday marked the first release from the CHSP, an initiative supported by both StatsCan and the Canada Mortgage and Housing Corporation. The release made local, national, and international headlines, with the Wall Street Journal reporting the study’s initial findings “garnered global attention.”

But there’s much more to come, said McCarrell, reached by phone in Ottawa.

As Postmedia reported last week, among other noteworthy findings, CHSP’s initial release showed that in pricey markets like Vancouver and Richmond, one in five of the most recently built condos is owned by non-residents.

But some experts stated the true proportion of foreign-owned properties could be higher. McCarrell said StatsCan hopes future research will illuminate more details about certain kinds of property ownership arrangements.

For example, a property owned by a B.C.-incorporated shell company with foreign owners would, for the purposes of this month’s release, count as Canadian-owned, McCarrell said. Eventually, StatsCan wants to determine how much Canadian real estate is owned by “resident corporations with foreign owners.”

Another area where McCarrell hopes to shed light is overseas residents buying Canadian properties in the name of spouses or children.

If a foreigner buys a Canadian home with money generated overseas, and puts the property in the name of a child attending school in Canada, it would not count as foreign-owned in this initial StatsCan study. McCarrell said future CHSP research could compare tax filings and property title records to find, for example, certain neighbourhoods with disproportionate numbers of multi-million properties owned by “students” with no declared income.

“We want to look at the use of the property,” he said. “Is this property for owner accommodation? Is it for rental? Is it for investment purposes? Or is it for recreation?”

For the initial study, StatsCan and CMHC defined “non-resident homeowner” (often expressed as “foreign owner”) as someone whose principal residence is outside of Canada, regardless of citizenship.

The first release examined non-resident property ownership in the metropolitan areas of Vancouver and Toronto, regions that have seen contentious debates about the role of offshore money in increasingly unaffordable housing markets.

But future research may broaden the scope to include other B.C. markets such as Kelowna and Victoria, McCarrell said.

“We can’t do everything right away, it’s going to take us some time. This is a really big undertaking,” he said. “And I think you’re seeing the tip of the iceberg right now, quite frankly.”

“A lot of great information’s going to be coming,” McCarrell said, saying the next release is expected in spring 2018. “So stay tuned.”

© 2017 Postmedia Network Inc.

Motion would see mansions in shadow of social housing

Saturday, December 23rd, 2017

Social housing in posh Vancouver postal code? Not so fast

Matt Robinson
The Vancouver Sun

If Hector Bremner had his way, mansions in tony West Point Grey would be flanked by six-storey flats flush with students, seniors and social housing recipients.

The new Non-Partisan Association councillor introduced a motion at city hall on Tuesday to rezone one of the wealthiest neighbourhoods in the country to permit thousands of affordable rental homes in the area. But the motion was effectively brushed aside by a move by Vision Vancouver Coun. Heather Deal to refer the idea to staff for further consideration.

Zoning in the neighbourhood, north of 4th Avenue and west of Blanca Street, not far from the University of B.C., “forbids homes on lots smaller than 12,000 (square feet),” according to the motion.

“This is a chance for this council to put its money where its mouth is and … actually take action and say mandated mansions in the 21st century is not more important than creating housing right next to UBC,” Bremner said in an interview before airing his motion at council.

West Point Grey is a pricey neighbourhood. Of the three properties on the market in the area Tuesday, a seven-bedroom, eight-bathroom mansion was priced at $28 million and a four-bed, six-bath pied-à-terre ran for the lucky-sounding sum of $18.88 million. The third property, a four-bed, two-bathroom shack, was listed at a meagre $14.88 million. “Build your dream home nested in the heart of your own ‘Stanley Park’,” the listing stated.

Bremner said he saw rundown properties “the size of football fields” while on a recent walking tour in the neighbourhood with advocacy group Abundant Housing Vancouver.

“I saw just how dilapidated and derelict many of them are. The rest are owned by numbered corporations, largely out of country, passing amongst each other to avoid property transfer tax,” he said, adding with a laugh that the properties were so large that “you could build six storeys … and not see your neighbour.”

Asked whether developers could make a profit turning such costly properties into affordable rentals, Bremner said he ran the numbers and believed they could.

“I went to folks that I know that know the business … and I said: ‘Tell me I’m nuts. Tell me, do the numbers work or do the numbers not work?’ And they came back and immediately said the numbers absolutely work,” he said. “I was really bolstered by that.”

Last month, Bremner voted against the city’s Housing Vancouver strategy, which aims to combat homelessness, revitalize low-density neighbourhoods, tame real estate speculation and boost rental housing. He said he voted against the plan because he thought its targets were too low, unclear and not properly resourced. He called his own motion a “very clear” way to turn some 150 underutilized acres into rental housing.

“What I’m trying to achieve is a conversation that is more serious than the vagaries and mealy-mouthed plans that we’ve been getting for the last 10 years,” Bremner said, taking a swipe at his Vision colleagues.

Bremner was criticized in council for having voted against the strategy and for being overly prescriptive in his motion before his idea was referred to staff. No councillors spoke against Bremner’s general concept per se.

In a letter to council, the West Point Grey Residents Association expressed “dismay and opposition” toward the idea. It faulted the motion for lack of consultation and stated that scarce social housing funds would be squandered on purchases of such high priced land.

Scott de Lange Boom, a member of Abundant Housing Vancouver, said before the vote that his group was thrilled with Bremner’s proposal.

West Point Grey “has larger-than-average lot sizes, and limits to detached housing there effectively creates a mansion-only zone. In our opinion, that’s a poor use of land, particularly in a housing crisis,” de Lange Boom said.

He said the motion for six-storey buildings in the neighbourhood was a good start that could feasibly lead to 10,000 new homes, and he hoped to see the idea extend to other areas in the city as well.

© 2018 Postmedia Network Inc.

At less than an acre, this Vancouver restaurant site just sold for $245M

Friday, December 22nd, 2017


The land where a White Spot currently sits in Downtown Vancouver has sold for $245 million. The selling price for the site currently occupied by the restaurant likely means the new condos that will be built will be out of reach for most buyers. Ted Chernecki has more.

WATCH: A White Spot location on West Georgia Street in Vancouver just sold for $245 million. Ted Chernecki reports.

© 2017 Global News

Year in Review: Juwai Top Stories of 2017

Friday, December 22nd, 2017

As 2017 comes near to an end, we take a glance back at the biggest news and stories that made waves over the past 12 months.


Here are some of our top stories that defined and summed up the year that was 2017:

#1 China tightened its money transfer policy

China kicked off 2017 with new restrictions on overseas currency transfers. While citizens in China were already limited to converting up to US$50,000 per person each year, new regulations (effective 1 January 2017) meant that Chinese individuals will now have to declare the intended usage of the yuan being converted as well. Besides that, the new rules prohibited borrowing or lending on behalf of others, and required banks to report transfers exceeding 200,000 yuan (US$29,000) too.1

Here’s how Chinese buyers adapted to these new regulations.

#2 China unleashes tightest domestic restrictions

2017 saw the Chinese government imposing some of its strictest cooling measures on its soaring home prices, with Beijing leading the way in March with extensive new measures to curb speculative buying, including a crackdown on mainland homebuyers utilising the ‘divorce’ loophole to purchase a second home sans the 80% downpayment requirement.2 Shanghai3, Guangzhou4, and 18 other cities followed suit in tightening home buying curbs within days. By September, data from Centaline Property revealed that the number of cities implementing similar cooling measures rose to nearly 30, with analysts predicting that this number could continue rising to more than 50.5

Find out how these domestic restrictions are driving Chinese buyers abroad.

#3 China adopts OECD’s Common Reporting Standard (CRS)

July brought about a new tax-related change when China adopted the OECD’s Common Reporting Standard (CRS), which aims to combat cross-border tax evasion by enabling the Chinese authorities to have access to information on non-real estate international investments of Chinese residents. With real estate holdings in certain locations being exempted from the reporting standards of the CRS, wealthy Chinese individuals made moves to shift their assets into overseas property holdings.

Read full story on how the CRS could propel Chinese overseas property demand.

#4 China loosens capital controls for the first time in 2017

As the yuan currency continued to stabilise in 2017, China’s central bank relaxed some of its cross-border capital curbs in September – a first since heightened capital controls were implemented in 2015. In a sign of recovered confidence, the People’s Bank of China (PBoC) scrapped two rules – including one that required banks to reserve a 20% deposit on forward sales of foreign exchange – that meant more flexible renminbi exchange rates. Prospects look bright, as further loosening is expected in future, such as the latest news of Shanghai planning to revive the Qualified Domestic Limited Partnership (QDLP) scheme from its late-2015 suspension.6

Discover how this could impact Chinese buyers looking to invest abroad.

#5 President Trump visits Asia

US President Donald Trump’s first official tour of Asia was a much-touted affair that saw him visiting Japan, South Korea, China, Vietnam, and The Philippines in early November. While his trip to Japan and South Korea was much scrutinised, it was really Trump’s visit to China and his meeting with China President Xi Jinping that had the world riveted over what it could herald for Sino-US relations in the next few years.

Find out 5 reasons why Chinese are fascinated by Trump.

#6 New Zealand bans foreign property buyers

Shortly after taking office in late October, New Zealand’s newly-elected Prime Minister Jacinda Ardern stunned the world by announcing an imminent ban on foreign property investors buying existing homes in New Zealand. The proposed ‘Overseas Investment Amendment Bill’ has just passed its first reading today, and the NZ government hopes to pass the legislation by early 2018, before a possible signing of the Trans-Pacific Partnership (TPP) trade agreement.7

See how Chinese buyers may react, and 4 reasons why New Zealand will still appeal to Chinese.

#7 Toronto follows Vancouver, imposes 15% foreign buyer tax

Just less than a year after the provincial government in British Columbia (B.C.) enacted its 15% additional property transfer tax on international real estate buyers in the Metro Vancouver region, Ontario followed suit with a similar legislation. Home to Toronto – one of the top Canadian cities for Chinese buyers – the Ontario government implemented a 15% tax on foreign property investors purchasing homes in Ontario’s Greater Golden Horseshoe area, which stretches from the Greater Toronto Area (GTA) and Niagara region to Peterborough.

Check out why Canada continues to draw Chinese buyers despite foreign buyer taxes, how the foreign buyer taxes have benefited Seattle and other nearby cities.

#8 China’s outbound tourism booms stronger than ever

China is still hands down the world’s largest, and most profitable, outbound tourism market.8 Last year, 122 million Chinese tourists spent about $261 billion while travelling overseas – equivalent to the total national GDP of Chile. Already, China Outbound Tourism Research Institute (COTRI) has estimated that Chinese outbound travellers will grow 6.3% y-o-y to hit 154 million next year.9 Li & Fung predicts China’s outbound tourist population to hit 179 million by 202010, while another forecast from GlobalData expects more than 200 million Chinese tourists to be globetrotting by 2021.11 These forecasts bode well for international agents and developers worldwide, as Chinese outbound tourism has been known to boost Chinese overseas property investment as well.

Learn how you can capitalise China’s outbound tourism upsurge with these 11 tips to better market properties to Chinese buyers, especially during Golden Week.

#9 Single’s Day rakes in record retail profit

2017 saw Alibaba’s Singles’ Day – the world’s biggest shopping event – reaping a record-breaking $25.4 billion in just 24 hours on 11 November, completely smashing its 2016 takings of $17.8 billion and outselling both Black Friday and Cyber Monday, combined.12 According to Fortune, that’s $1.5 billion worth of stuff sold within just 3 minutes13, and this 1-day shopping frenzy clearly indicates how once can leverage the power of online platforms and mobile to tap into the world’s largest and fastest-growing consumer market.

Read all about Singles’ Day and how you can leverage it.

#10 Fate of EB-5 visa scheme in the US still up in the air

News about the EB-5 investor immigrant scheme’s looming changes created much buzz earlier in 2017, resulting in a Chinese rush of EB-5 applications amidst fears that the programme may be phased out in the future. To date, the EB-5 deadline has been extended over and over again, and is currently expected to continue into early 2018 unchanged14, which is a temporary sigh of relief for the Chinese, who currently dominate as the largest group of immigrant investors in the US – 82% of 13,237 EB-5 visas awarded in 2016 went to mainland Chinese applicants alone.15

Find out how much Chinese have invested into the US via EB-5, and why a potential EB-5 demise won’t dampen Chinese interest in the US here

 Sources: 1. Better Dwelling: China moves to stop its capital outflow, real estate markets should be worried; 2. SCMP: Beijing imposes fresh home purchase restrictions to close the ‘divorce’ loophole; 3. SCMP: Shanghai tightens rules on buying second homes to cap soaring property prices; 4. SCMP: Guangzhou, four cities follow Beijing’s lead to curb home purchases; 5. China Banking News: Property sales restrictions expected to spread to over 50 Chinese cities; 6. Kitco News: Shanghai to resume issuing quotas for QDLP outbound investment scheme; 7. TVNZ: 1 News Now: Bill banning foreign buyers purchasing Kiwi homes passes first reading; 8. China Daily: China becomes world’s largest outbound tourism market; 9. Travel Daily News: COTRI publishes its 2018 forecast of total Chinese outbound tourist arrivals in the Autumn 2017; 10. Li & Fung: Chinese Outbound Tourists— More Diverse, More Sophisticated; 11. Verdict: In 2021 there will be over 200m Chinese tourists travelling the world – and they’ll do it through WeChat; 12. CNBC: ‘Singles Day’ China shopping festival smashes record with $25 billion haul; 13. Fortune: Alibaba just sold $1.5 billion worth of stuff in 3 minutes on Singles’ Day; 14. The National Law Review: EB-5 immigrant investor program: Following extension, next decision looms; 15. Geckoboard: EB-5 industry statistics;

2017 © Juwai. All Rights Reserved

White Spot site on West Georgia sells for whopping $245 million

Thursday, December 21st, 2017

Downtown plot of almost an acre among top sites on continent, consultant says

Kevin Griffin /Glenda Luymes
The Vancouver Sun

The high-profile White Spot site on West Georgia has been sold for a reported $245 million, which is among the highest prices paid for residential real estate in Vancouver, according to real estate officials involved in the sale.

The restaurant site and adjacent parking lots are zoned for at just under 398,000 square feet of residential space. At a sale price of $245 million, that works out to more than $615 per buildable square foot, according to Perry Allen, a real estate consultant involved in the deal.

“It’s almost an acre in downtown Vancouver,” Allen said Thursday. “It’s probably the best site in all of Canada — maybe North America.”

The two sites were purchased by Carnival International Holdings Ltd which trades on the Stock Exchange of Hong Kong. The company listed on the land title as the new owner is Champion Rainbow Holdings Ltd. One of its directors is listed as Chunning Wang at 18/F Everbright Centre in Hong Kong, the head office of Carnival.

Postmedia could not reach Carnival for comment.

The properties were sold by Shato Holdings Ltd which was founded by Peter Toigo and now run by his sons Peter and Ron Toigo. In 1982, Shato purchased White Spot restaurants. The Toigo family also owns the Vancouver Giants Western Junior hockey team.

Shato Holdings declined to comment in response to a Postmedia request.

In July, Shato Holdings showed preliminary designs for two towers of 33 and 39 stories on the site at an open house, according to

The project was to have 350 condos ranging from one-bedroom units at 502 square feet to two-bedroom suites up to 1,342 square feet. Rooftop terraces were to be included in penthouses.

There are as many as eight other high rises slated nearby for the West Georgia corridor and Coal Harbour. They include Westbank’s Alberni by Kuma at Cardero and Alberni and Bosa’s Cardero at West Georgia and Cardero/Pender.

In April, Anthem Properties bought the Chevron gas station adjacent to the White Spot, paying a reported $72 million for the 16,369-square-foot site.

Allen said there a previous deal to sell the property that fell through. He and realtor Paul Isaacs became involved about five months ago.

Isaacs said in addition to its scenic location, the property had the added appeal of being suited to development because there is no highrise on the site that would take months and millions of dollars to demolish.

Isaacs said the $245 million price tag is high but it’s what properties are selling for in Vancouver.

“It is a beautiful location,” he said. “It is a trophy property.”

Andrey Pavlov is a professor at Simon Fraser University’s Beedie School of business who specializes in real estate finance.

He said given the price paid for the land and the proposed 350 suites, he didn’t see units starting at anything less than $1.5 million to $2 million each.

“Obviously, it’s very expensive,” he said.

Pavlov said there appears to be a story that’s repeating in Vancouver. If you look at current prices, it’s impossible to make a project work. So a developer adds another 15 to 20 per cent to make it profitable.

That’s fine – so long as prices keep going up.

He said while he’s worried about already high construction costs going higher, the bigger issue is prices.

“What happens in the real estate market stop going up the way it has been? It is hard to make a project like that work without price increases. God forbid we get a price decline.”

If that happens, is the city at risk of having half-completed condo towers everywhere because developers can’t turn a profit?

“But that has been my concern for a number of years and I have been wrong every time,” he said.

“I’m starting to be very cautious when I express this kind of concern.”

Known for building a massive tourism complex in Qingdao City, Carnival Group International is China’s only publicly-listed operator of integrated tourism and retail attractions.

The Rio Carnival complex includes indoor and outdoor underwater ocean exploration theme parks, hotels, outlet shopping, restaurants, a cinema, skating rink and conference centre.

Carnival also built the first high-end foreign living area in Chengdu — a combination of luxury residences and commercial buildings.

According to its website, the company recorded a gross profit of approximately HK$591 million at the end of 2015.

© 2017 Postmedia Network Inc.

Fraser Valley benchmark home prices nearing $1M

Monday, December 18th, 2017

Ephraim Vecina
Canadian Real Estate Wealth

Options for budget-conscious home buyers in British Columbia are getting scarcer, as the benchmark price for a single-family detached home in Fraser Valley – long considered an affordable alternative to the Vancouver market – increased to $972,700 in November.

The data from the Fraser Valley Real Estate Board also indicated that the number of new listings for single-family homes declined considerably on a month-over-month basis (-9.2%). In addition, active listings for all property types in the region fell (-6.5%) from October to November.

Urban Development Institute president and CEO Anne McMullin noted that this cooling in the single-family segment shouldn’t come as a surprise, especially since buyers in Fraser Valley might have finally reached the limit of how much they are willing to pay for properties in the region.

“When you start to get over a million dollars [for a home] in the Fraser Valley, there’s very few people that can afford that,” McMullin said, as quoted by Business in Vancouver. “You might say that on the North Shore [of Vancouver], that threshold is about $2 [million] or $2.5 million. And on the west side it’s about $3.5 million, and sure you’ll get a $16 million home sold every once in a while, but they don’t go much more than that.”

Copyright © 2017 Key Media Pty Ltd

Heather and Seventeenth 717 West 17th Avenue 16 homes in a 4 storey low rise by Terra Blanka Developments

Saturday, December 16th, 2017

Heather and Seventeenth to take its place in an established city location

Michael Bernard
The Vancouver Sun

Heather and Seventeenth

Project Address: 717 West 17th  Ave., Vancouver

Project Scope: A total of 16 homes — 10 two-bedroom and six three-bedroom units — in a four-storey concrete building

Price: From $1.7 million to about $2.8 million

Developer: Terra Blanka Developments

Architect: GBL Architects

Interior Design: Cristina Oberti Interior Design Inc.

Sales Centre: 3246 Cambie St.

Sales Contacts: Elise Yu, Multiple Realty; Su Huang, Sutton Realty

Sales phone: 604-620-8817

Sales Centre:Hours: noon — 5 p.m., Sat — Thurs 


Completion Date: Fall 2019

Sometimes architectural statements are made on a grand scale, standing out because of their height, massive footprint or use of lavish materials. In contrast, the Heather and Seventeenth new-home project — so named for its Vancouver location — reflects the low-key neighbourhood where it will be built: a simple four-storey structure that quietly and unobtrusively blends into its surroundings of largely single-family homes.

“It’s very rare to have a four-storey site like this off a main corridor,” said Dave Bauman, sales and marketing director for Magnum Projects. “Heather and 17th is a very quiet-tree-lined street with a bike lane and lots of pedestrians.’’

“There are a lot of single-family homes around there, but there is a very unique situation on Heather. It is not a very busy arterial, but it is still zoned C2 for commercial and mixed use.”

So far, the building has attracted downsizers from the surrounding area seeking the convenience of smaller, but well-appointed homes, Bauman said.

The four-storey structure will have two commercial spaces on its ground level — perhaps for a grocery or yoga studio — and 10 two-bedroom suites and six three-bedroom homes on the top three storeys. The largest suites top out at about 1,570 square feet, with an average suite with two bedrooms and two bathrooms totalling about 1,400 square feet.

Fitting into the neighbourhood was a priority, said building architect Daniel Eisenberg of GBL Architects. “We wanted to design a building that was mindful of its surroundings, of its context, but yet could be crafted in a very contemporary way and more minimalistic than you would find in that neighbourhood.”

The balconies are built into bays in the face of each side, offering protection from the weather. There are private rooftop gardens accessed through stairways and roof hatches in each of the four penthouse homes.

What makes Heather and Seventeenth unusual is that it is made of concrete, unlike the vast majority of boutique-style condo buildings, which are wood-frame, Eisenberg said.

“We don’t usually do four-storey concrete buildings, but the client wanted something really special,” said Eisenberg. “We came to the conclusion that it had to be exposed concrete and the client was open to that. It’s a very honest material that you don’t usually see in Vancouver (in buildings of this size.)

“It was crafted in a contemporary way. For example, we give individuality to each suite by expressing the bays, which give a rhythm to the building, give it more of a residential character and break down the scale.”

Inside, the homes are notably spacious with their nine-foot-four-inch ceilings and sleek engineered hardwood floors. The presentation centre at 3246 Cambie has “vignette” style displays providing examples of the kitchens and bathrooms in the building. Both are designed by the Arclinea, a high-end Italian specialist wood workshop founded in 1925.

The smooth gloss finish upper and lower cupboards in the kitchen display feature hidden stainless steel handles. Countertops are made from three-quarter- inch square-edged quartz, framed by a full-height porcelain slab tile backsplash. The kitchen island, which seats four, has elegant detailing and a waterfall edge. Under the upper-level cabinetry is convenient LED lighting.

The kitchen is equipped with a premium Sub Zero and Wolf appliance package, a 30-inch four-burner gas cooktop, 30-inch wall oven and hood fan. There is also a 30-inch fully integrated Sub Zero refrigerator with freezer drawer.

Premium additions in the penthouses include a 24-inch Sub Zero under-the-counter wine fridge and 30-inch Wolf steam oven, a 36-inch five-burner Wolf gas cooktop and a 36-inch refrigerator-freezer with internal water dispenser. The dishwasher is by Scandinavian manufacturer ASKO, while the microwave is by Panasonic and comes with the stainless steel trim package.

The bathroom comes with the same Armour finish as the kitchen as well as quartz vanity countertops. Mounted above the counters are Kohler vanity basins with wall-mounted Grohe fixtures. Main and ensuite bathrooms have floor and backsplash tiling is made of large format porcelain. Showers are frameless glass and have Grohe hand and head showers, while there are frameless glass shields on all bathtubs, which are contemporary soaker style with a tiled apron.  

Each home comes with two underground parking stalls, bicycle storage and one storage locker. The homes are scheduled to be completed in the fall of 2019.

© 2017 Postmedia Network Inc.

Shadow lending growing as Canadians chase housing dream

Friday, December 15th, 2017


Mortgage broker Samantha Brookes is trying to figure out how to get one of her clients out of a housing-fuelled debt hole.

The couple, a 59-year-old Toronto city worker and her husband, 58, have so much debt that they stopped making payments on the $410,000 mortgage for their suburban home. They wanted to refinance but regulations imposed last year will disqualify them. In a few weeks, they won’t even qualify for an uninsured loan at an alternative lender as more rules come into effect.

They opted for a third route: adding a second mortgage with an interest rate of 10.5% to pay off their debt. Their salvation came from a private unregulated lender, a move many other Canadians are making as the government tries to rein in a home-price surge that’s driven household debt to a record. But like a giant game of Whac-A-Mole, the risk to the financial system from tapped out borrowers is merely shifting – this time to a market where there’s no oversight from the country’s national bank regulator and new stress-test rules don’t apply.

“We’re transferring risk from the regulated segment to the unregulated segment of the market,” Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, said by phone from Toronto. “If we have a significant correction, clearly the unregulated markets will suffer even more because that’s where the first casualties would be. And then you will see it elsewhere.”

Brookes says more than 90% of her business in the last two months has been lining up funding from non-bank and private sources, or shadow banks – versus a 50-50 mix previously. “People aren’t going to stop buying, they’ll just find different ways of doing it.”

For the government, it may be a case of careful what you wish for. Anxious to prevent a repeat of the kind of taxpayer-funded bank bailouts that occurred in the US after its housing crash a decade ago, the federal government has been moving to reduce its exposure to the mortgage-insurance market.

Rules last year added a stress test for insured loans backed by the government. That sent more buyers to the uninsured space, where a 20% down payment is required. As of 1 January, these borrowers will also need to qualify at a rate two percentage points higher than their offered rate, a move which could lower mortgage creation by as much as 15%, Canada’s bank regulator has said.

Earlier changes have already had a dramatic effect. Uninsured mortgages made up about three-quarters of new loans at federally regulated banks this year, up from two-thirds in 2014, according to the Bank of Canada. Roughly 90% of new mortgages in Toronto and Vancouver this year are now uninsured, in part because government insurance is forbidden on homes priced over $1m and prices have risen, the bank said.

Initial Bite
On the one hand, taxpayer risk has dropped as insured mortgage origination fell 17% in the second quarter compared with a year earlier, the bank said in its semi-annual financial system review. About 49% of all outstanding mortgages are now uninsured, up from 36% five years ago. The credit quality of some of the loans at the big banks have also improved as borrowers buy less expensive homes, the Bank of Canada said.

The rules, along with other measures such as a foreign-purchase tax, have had an initial bite – with Toronto house prices falling 8.8% from May to November and the average price of a home posting the first annual drop since 2009. Vancouver prices have reclaimed new heights after cooling earlier this year.

But the risks to the financial system haven’t gone away. In the uninsured space, mortgages are increasingly going to highly indebted households and for amortizations for longer than 25 years, the central bank said. And like Brookes’s clients drowning in house debt, more borrowers are turning to lenders whose activities fall outside federal regulatory scope.

These include credit unions and mortgage-investment corporations, pools of money from individual shareholders, which aren’t subject to the new rules, Tal said. Credit unions hold about 17 percent of uninsured mortgages, according to the Bank of Canada.

Canada’s patchwork regulatory system also doesn’t encourage comfort, Tal said. Banks are regulated by the Office of the Superintendent of Financial Institutions, but credit unions and brokerages are overseen provincially. Mortgage-finance companies are semi-regulated, and MICs and other private lenders are unregulated.

MICs currently make up about 10% of mortgage transaction volume, or 6% of dollar volume, according to research from Tal at CIBC said. Transaction volume will likely grow to about 14% under the new rules, and in the event of defaults in a housing correction, those MIC investors would be open to losses, he said.

“Anything over 10% is sub-optimal,” he said. “You don’t want this market to be too big because you don’t want to increase the blind spots.”

Sound underwriting is an important element in maintaining a strong and stable Canadian financial system and OSFI will continue to monitor the country’s housing and mortgage markets under the new rules, Annik Faucher, spokeswoman for Ottawa-based organization said in an email.

Need Solutions
Like her clients, Brookes said borrowers will get creative to get around the new rules. Options include companies like Alta West Capital, Fisgard Asset Management and Brookstreet Mortgage Investment or just a wealthy individual willing to lend at interest rates starting around 12%.

Fisgard didn’t respond to request for comment, Brookstreet declined to comment while Chuck McKitrick, chief executive officer at Calgary-based Alta West said MICs are regulated by the country’s securities commissions and various real estate bodies.

“We’re scrutinized a hundred different ways,” said McKitrick. “There’s very little difference between us and other regulated entities.”

Despite the expectation that MICs will see more business, McKitrick said the big financial institutions will adapt to new regulations to keep lending. Shawn Stillman, a mortgage broker at Mortgage Outlet, said banks could lower their mortgage rates so homebuyers would still qualify under the new stress-test rules.

“The bank doesn’t care because they’re still going to make their fees and get their money,” Stillman said by phone from Toronto.

Alta West predominantly lends to entrepreneurs and new Canadians, groups that typically have a harder time getting a mortgage at one of the big banks. Its rate of mortgages in arrears is about 2%, he said. That compares with about 0.2% at the big banks and about 0.4% for the credit unions, according to data compiled by the Canadian Credit Union Association.

“People need solutions – it could be temporary, but at least they have a home over their head,” Brookes said.

Copyright Bloomberg 2017

Stress test, supply issues will limit home prices says Royal Le Page

Thursday, December 14th, 2017

Steve Randall

The impact of the B-20 mortgage rule changes by OFSI which come into effect in January will, along with supply issues, limit national home prices in the year ahead.

That’s the forecast by Royal Le Page which expects a 4.9% rise in price appreciation across 53 key Canadian cities by the end of 2018 to $616,919.

“It is prudent that policy makers introduce measures that help protect the housing market from runaway price inflation,” said Phil Soper, president and CEO, Royal LePage, “However, natural supply and demand forces will always triumph over regulatory tinkering. Attempting to use public policy to steer property prices in huge, rapidly growing cities like Toronto and Vancouver is like a tugboat trying to turn an ocean liner. Consistent, measured policy can have a positive impact. Just don’t try to turn the market on a dime or you risk sinking the ship.”

Soper added that the continued tight supply in some markets will continue to drive prices higher once the initial impact of the OSFI stress tests moderates, while those with softer demand will struggle to adapt to the affect of the tightened mortgage rules.

Prices in the GTA are forecast to outperform the national average with a 6.8% increase to an aggregate $901,392 with condos fueling the rise.

The Greater Montreal Area will see the second highest growth at 5.5% to $408,285.

Greater Vancouver will see a 5.2% price rise to an aggregate $1,353,924.

“We are watching how the new OSFI stress test will impact the Greater Vancouver market,” said Randy Ryalls, general manager, Royal LePage Sterling Realty. “Low inventory will continue to put upward pressure on prices. However, with the introduction of the stress test, as well as other factors such as potential interest rate hikes, price growth will likely be limited to mid-single digits.”

The price rise forecast for Ottawa is 3.2% to 458.208; Calgary up 2.3% to $494,109; Edmonton up 1.5% to $382,180; Winnipeg up 4% to $315,120; and Halifax up 2.5% to $326,975.

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