Redfin to refer only to RE/MAX in Canada

Steve Randall
Canadian Real Estate Wealth

A strategic alliance has been announced between RE/MAX and Redfin in Canada and the United States.

Building on an established 10-year relationship that the two real estate firms already have in the US, Redfin will refer customers to other brokerages where it does not have its own agents.

In the US, these referrals may be to RE/MAX agents or to other participating brokerages; but in Canada only RE/MAX agents will receive referrals.

“Teaming with Redfin further enhances the value we offer to our network of highly productive agents and differentiates RE/MAX from the competition,” said Adam Contos, CEO of RE/MAX, LLC. “By combining our expansive network of professional agents across the U.S. and Canada with Redfin’s massive online audience, consumers are connected with best-in-class agents, and our affiliates are given exclusive access to a rich source of referrals. Everybody wins.”

Redfin entered the Canadian real estate market in February this year with its listings site while its US operations are more mature with its own agents across multiple markets and its own mortgage operation.

The firm has announced that it is reducing its onboarding fee for RE/MAX partner agents in Canada.

Happy agents “Our own research has shown that RE/MAX agents are more likely to stay at their brokerage than agents at any other major traditional brokerage, and it is well known that RE/MAX agents are far more productive than the industry average,” said Redfin CEO Glenn Kelman. “Happy customers, happy agents, with significant experience at every stage of a sale: these were the reasons that we concluded a RE/MAX partnership would lead to better service for customers browsing Redfin.com and Redfin.ca in the areas where Redfin doesn’t employ one of our own agents.”

The agreement will last for an initial period of two years.

Copyright © 2019 Key Media Pty Ltd

Eby opens door to licensing system for money services

Gordon Hoekstra
The Vancouver Sun

B.C. Attorney General David Eby is considering a B.C. licensing system for money transfer and foreign exchange businesses, which are vulnerable to money launderers.

Eby was responding Monday to a Postmedia investigation that found two dozen money-services businesses in Vancouver, Richmond and on the North Shore are run out of condos and homes, others are run by real estate firms and property developers, and many that have no public face at the street level or online.

The investigation, published last week, also uncovered that a company and owner was fronting a money-services business for another person, and found companies that had supposedly ceased business were still registered with Fintrac, Canada’s financial information-gathering agency.

And court documents alleged the owner of one such business was also involved in an underground banking scheme to move millions from China to Canada.

Eby said the province is in the early stages of policy work on licensing money-services businesses.

“It is certainly possible that any provincial registry would go beyond requiring the principles and the address … to be registered,” Eby said Monday. “It could include background checks and further information to ensure that the businesses are not being abused for the purposes of money laundering.”

Quebec is the only province with a licensing system for these businesses.

Quebec’s licensing process requires applicants to provide a significant amount of information, including legal structure, officers, directors, partners and branch managers; the financial institutions with which it deals; its business plan; and financial statements. The business and its owners must also meet conditions of suitability and obtain a security clearance from Quebec provincial police.

Eby said the need for a B.C. provincial licensing system suggests a failure of the federal government. He said he has been concerned for some time that Fintrac, which already requires money-service businesses to register, isn’t working. It gathers information, he said, there is little action taken on that information.

The Postmedia investigation showed, said Eby, that there are red flags that should be triggering enforcement work on money-service businesses. “And it just doesn’t seem like it happens.”

Across Canada, more than 800 money services businesses handle an estimated $39 billion a year. The federal government and the Financial Action Task Force, an international anti-money-laundering standards-setting agency, have identified the sector as highly vulnerable to money laundering.

In a written response, a federal Finance Department spokeswoman, Marie-France Faucher, said the government is examining changes to Fintrac recommended by a parliamentary committee. She did not respond to questions on whether Postmedia’s findings were a concern and what the federal government might do about it.

Fintrac officials said Monday the agency was prohibited under law from answering questions about specific cases and did not respond to questions on whether it would take action on Postmedia’s findings.

Sources have told Postmedia the federal government will unveil in its budget on Tuesday a new group meant to improve money-laundering investigations and increase the likelihood of prosecutions.

A new “anti-money laundering action co-ordination and enforcement team” is meant to bring together the RCMP, Canada Revenue Agency, Canada Mortgage and Housing, the Justice Department and Fintrac.

Eby said Monday he had no knowledge of Ottawa’s plans.

“I do know that there is a desperate need for some coordinated enforcement that is going to use the intelligence gathered by Fintrac,” he said.

© 2019 Postmedia Network Inc.

Altus Group says housing starts will fall

Neil Sharma
Mortgage Broker News

Housing starts are expected to dip in two of Canada’s three largest this year amid stress test difficulties, higher renewal rates, and a slumping economy.

According to an Altus Group report, Toronto and Vancouver are staring down another turbulent year in which housing starts will fall. Montreal, on the other hand, expects to keep riding high until at least next year—although affordability challenges and a cooling economy will soon catch up with buyers, while possible immigration restrictions could dampen housing demand. While housing starts will remain elevated in Montreal through 2019, that should change by 2020.

According to the report, Toronto appears to have hit a wall after 2017. In 2018, housing starts reached a six-year high in the city, but they will drop this year.

“They had a buoyant benchmark last year, but that was following pretty strong sales in the period before that, and we saw new home sales—which are all preconstruction sales—decline significant last year, as they were down 40%,” said Peter Norman, Altus Group’s vice president and chief economist. “That decline last year is going to come through as a characteristic for starts this year.”

In 2018, housing starts in Toronto peaked at 41,000 units, 30,000 of which were condos. The single-family sector, however, produces very few starts; before the 2008 recession there were 15-20,000 new units per annum, but only 6,000 last year.

“[Starts across all housing types are] moderating a little bit into 2019. We’ll hit a slightly lower number, but it’s still at high levels by historical standards,” said Norman. “The single-family story is one of general financial conditions—mortgage rules, on the one hand, and a rising interest rate environment put a big damper on housing demand. Elevated pricing in the Toronto market, in particular, with weakening financial conditions for households meant we have affordability issues, and that took the wind out of demand for single-family housing.”

Vancouver has hit a nadir, at least ostensibly. The mortgage stress test along with higher renewal rates and the foreign buyer tax have cooled demand, in spite of the above-average wage growth, strong population inflow and robust employment.

Norman says slower housing starts in 2019 are due to strained affordability issues and supply constraints in both the single-family and medium-density housing sectors, which also explain new home sales dipping 10% and overall sales 33% in 2018.

However, he added that things aren’t going south.

“Last year, we had 23,000 housing starts, which were down a little from 2017, but still in line with the five-year average, and we expect the 20-23,000 range over the next couple of years as well. It’s not a deep dive; I’d call it a holding pattern. Although we’ve had some adjustment in Vancouver with pricing, on a year-over-year basis prices are still 10-15% higher than they were five years ago, so there’s still asset appreciation.”

Copyright © 2019 Key Media

New-housing construction is expected to slow but remain at relatively high levels

Derrick Penner
The Province

A new report from the research firm Altus Group reinforces expectations that B.C. housing construction, particularly in Metro Vancouver, will decline under the influences of mortgage stress tests, new tax measures and a slowing economy.

The report, released Monday, estimates that housing starts in B.C. will fall to 37,475 units in 2019 and further to 36,925 in 2020 compared with 2018’s 40,875 units, perhaps adding to pressure on federal officials to change policies aimed at protecting first-time homebuyers from taking on too much debt.

“Our expectations in the budget is that the feds are going to do something,” said Peter Norman, vice-president and chief economist at Altus Group, “This is an election budget after all.”

However, whether that is abandoning or restructuring mortgage stress tests, or other direct supports to assist in building more rental housing, remains to be seen.

Mortgage stress tests, brought in last year, require that buyers have the ability to handle mortgage interest-rate increases of two percentage points in the loans they’re qualifying for. The measure was intended to protect first-time homebuyers from taking on too much debt, but in expensive markets like Metro the development community argues that the rules unfairly push too many of them out of the market.

Declining property sales and falling prices has the province anticipating a 30-per-cent decline in the number of new homes built over the next three years, though Norman points out construction will remain at relatively high levels.

“Housing starts are not going to go down all that much, although the market has a lot of adjustments going on in it,” Norman said.

Altus’s forecast for Metro’s share of 2019 housing starts total 22,400 units, down from 23,404 in 2018, then 21,900 in 2020.

“(That) 22,000 is still a pretty strong number, from a historical standpoint,” Norman said, and it will continue to be driven by healthy levels of population growth.

In its forecast, Altus expects Toronto to experience a similar decline in housing starts, to 38,500 in 2019 and 35,100 in 2020, compared with 41,107 in 2018.

However, Norman said there is also “a lot of softness” in real estate markets, particularly in housing resales, and not just in Vancouver.

“It is really coming from the financial condition of households,” Norman said, related to high debt loads and rising interest rates.

And others note that the mortgage stress test is having the effect it was intended to have, said University of B.C. academic Tom Davidoff.

“One (reason) was to prevent people from taking on a lot of mortgage debt,” said Davidoff, director of UBC’s centre for urban economics and real estate, “and I think that’s working.”

However, with so many other measures aimed at curbing demand in B.C., coupled with China putting more restrictions on the amount of money its citizens can take out of the country, Davidoff said it’s difficult to judge how much mortgage stress tests in particular are cutting into property prices.

“Starts respond to prices,” Davidoff said. “People want to build when there is a big reward, and when that reward gets smaller, the side-effect is going to be fewer starts.”

In terms of assistance for property markets in the federal budget, Davidoff said encouraging more rental-housing construction, or offering tax credits to renters in very expensive markets, might be helpful measures.

Extending the amortization period on mortgages to 30 years from 25 might be a way to help first-time buyers without easing up on restrictions of stress tests, Davidoff said.

However, loosening stress-test requirements might simply serve to pit more first-time buyers against one another competing for properties “and most of the benefit is going to go to higher sales prices,” Davidoff said.

© 2019 Postmedia Network Inc.

The rent-to-own model is emerging as a superior strategy

Neil Sharma
Canadian Real Estate Wealth

In today’s real estate milieu, where cash flowing properties are becoming more sporadic by the day, the rent-to-own model is emerging as a superior strategy with a favourable buy-in.

Helping tenants take eventual ownership of a property by giving them a stake in their own success, rent-to-own investors only have to put 15% for a down payment, enlisting their tenant to put up the remaining 5%.

“This is where a lot of the profitability of rent-to-owns is coming from,” said Rachel Oliver, managing partner of Clover Properties. “Eighty percent comes from the bank, 5% from the tenant-buyer and you’re only in for 15% at a time when you can’t buy a residential property for less than 20%, but we found a way to do it.

“The sweet spot for a lot of rent-to-own properties would be an initial investment of $70,000 to 90,000.”

Rent-to-owns are ideal for supplementing income right away. Rather than banking on long-term appreciation the way most downtown Toronto condominium investors do, RTOs can yield anywhere from $600 to $900 a month in cash flow, after expenses.

But the beauty of rent-to-own investment properties is that you can leverage your personal residence or existing rentals to start building a rent-to-own portfolio that actually pays for your lifestyle. For example, a simple home equity line of credit can be used to buy multiple RTO properties, and if done properly, the investment can yield as much as $60,000 in cash flow a year, says Oliver.

“If you own a personal residence, that gives you a lot of access, especially if your residence is in the Greater Toronto Area or a major national market—you’re already leaps and bounds ahead,” she said. “It’s a number’s game: The more RTOs you get under your belt, the more cash flow you generate. If each RTO generates an average of $750 monthly cash flow, you can supplement your income by $40,000 or $50,000. Work it backwards to figure out how many properties you need, combining cash in your bank account and equity from either other investment properties that you have or equity in your home. The buy-and-holds might not cash flow as much as you need them to, and you can redirect that equity to buy rent-to-own properties.”

Of course, there’s a caveat with RTOs: In order for the investments to bear fruit, investors must know what they’re doing. Oliver reckons a single rent-to-own transaction can take as many as 80 to 100 hours from start to finish—and that excludes the learning curve.

Clover Properties has been around a decade—long enough to adapt to market fluctuations or lending rule modifications and adjust the rent-to-own strategy—and manages the entire rent-to-own transaction from start to finish for its clients.

“Our success hinges on qualifying the right tenant-buyer and we know how to do it effectively before we even have a property in the mix,” said Oliver. “When the tenant is approved, they go house hunting and then we analyze the property to make sure it’s right for our strategy, and at that point we bring the investor into the mix. There’s no other investment vehicle out there like this, but rent-to-own has to be done right, and I can’t stress that enough.”

“A lot of people think you have to gouge the tenant-buyer to get a lucrative profit, but in reality if you can access more favourable borrowing costs, you capitalize on rich cash flow,” continued Oliver. “For it to be a secure transaction, the RTO is more relationship-based than transaction-based, and the beauty of it is we want to give the homebuyer a solid springboard for success, so we look for strong down payment and stable income. When they invest a large sum in their future success, it helps the investor succeed too because they don’t tie up a lot of their own capital in the deal.”

A notable difference between typical real estate investments and rent-to-owns is that the latter helps tenants become successful owners, and investors enjoy consistent, predictable cash flow with less risk. As Oliver puts it, “we’re families helping families.”

Click here to watch Rachel Oliver at the 2019 Investor Forum, where she explained how a single investor helped seven families become homeowners while cash flowing $60,000 a year.

Copyright © 2019 Key Media Pty Ltd

The framework governing syndicated mortgages changing

Steve Randall
Canadian Real Estate Wealth

Canada’s securities regulators are implementing changes to the framework governing syndicated mortgages and have proposed further changes to improve investor protection.

The Canadian Securities Administrators has published a second notice and invited comments on the further proposed changes, which build on those previously announced in March 2018.

“We are moving forward with changes outlined in our initial consultation that will substantially harmonize a regulatory framework for syndicated mortgages and increase investor protections,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “In light of the feedback received, we have also adjusted specific aspects of our proposals and are now seeking comment on these changes.”

Those specific aspects include implementing all changes on December 31, 2019 rather than the staggered implementation that had been proposed.

Given the rapid change of the real estate market in some jurisdictions, the CSA is also proposing a revision that includes a requirement that a property appraisal take place within six months before an appraisal is delivered to a purchaser. Staff are also proposing additional guidance regarding the identity of the issuer of a syndicated mortgage.

Regional variations For qualified syndicated mortgages, provincial regulators in Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador, are proposing dealer registration and prospectus exemptions.

Alberta and Québec are proposing a prospectus exemption similar to that already available in British Columbia.

Qualified syndicated mortgages are subject to restrictions relating to property type, loan-to-value ratio and other characteristics similar to those of a conventional mortgage, and as such, do not present significant investor protection concerns. These exemptions are being proposed on a local basis, primarily due to differences in existing provincial legislation.

Copyright © 2019 Key Media Pty Ltd

Canada’s housing market to remain subdued

Steve Randall
Canadian Real Estate Wealth

Canada’s housing market likely to remain subdued this year but should see an uptick in 2020 as the impact of policy changes begin to ease.

Sales are expected to remain weak amid lower access to mortgages caused by rising interest rates and stress tests. However, prices will rise in 2019 following a stabilization in 2018.

Following data that revealed a sharp month-over-month drop in sales (down 9.1% in February) the Canadian Real Estate Association has updated and extended its resale market forecast for 2019 with sales expected to ease to 1.6%.  

British Columbia is forecast to see the largest decrease along with Alberta while Quebec will gain along with a small rise for Ontario.

“For aspiring homebuyers being kept on the sidelines by the mortgage stress-test, it’s a bitter pill to swallow when policy makers say the policy is working as intended,” said CREA president Barb Sukkau.

Prices to rise Prices in 2018 saw a 0.2% decline nationally following the previous year’s 4.1% drop, the largest in 25 years; and the Aggregate Composite MLS® Home Price Index (MLS® HPI) was little changed (-0.1%) y-o-y in February 2019. That said, it still marked the first decline in almost a decade.

But there is an increase of 0.8% forecast for this year, taking the average price to $490,800 and reflecting further average price gains in Ontario, improving sales activity in British Columbia and Alberta (despite further price declines), and the combination of both higher sales and average prices in Quebec.

“The housing sector is on track to further reduce waning Canadian economic growth,” said Gregory Klump, CREA’s Chief Economist. “Only time will tell whether successive changes to mortgage regulations went too far, since the impact of policy decisions becomes apparent only well after the fact. Hopefully policy makers are thinking about how to fine tune regulations to better keep housing affordability within reach while keeping lending risks in check.”

Copyright © 2019 Key Media Pty Ltd

Finance minister to tackle housing affordability

Ephraim Vecina
Mortgage Broker News

Among the main items in this week’s federal budget is a focus on wide-ranging changes aimed at making home buying more attainable, according to research by The Canadian Press.

Finance Minister Bill Morneau has previously vowed that a particular area of concern that the budget will tackle is housing affordability for Canadians, especially for the millennial/young adult purchasing cohort.

A government source, who declined to be named due to lack of prior authorization to speak about the budget ahead of its release, admitted that the plan is tailored towards addressing housing supply, demand, and regulation. No further specifics were provided.

Recently, UBC associate professor and Generation Squeeze founder Paul Kershaw argued that the federal administration should not ratchet down the stress test nor extend amortization, as such decisions will only embolden more consumers to borrow greater amounts.

Kershaw also pressed for changes to “outdated” policies that have severely crippled supply. Said policies include taxes that exempt principal residences from taxation.

“We’ve tolerated – not only that, we’ve celebrated – home prices rising a lot over the last decade,” Kershaw stated. “And we need a government that says, ‘Nope, henceforth we want housing to be for homes first, investments second.’”

Multiple real estate, mortgage, and development market players and observers have long petitioned for the easing or even full removal of the stress tests introduced by B-20 early last year. The tighter mortgage qualification rules have been cited by multiple studies as a leading factor in the malaise of cooling demand currently affecting major markets like Toronto and Vancouver.

Copyright © 2019 Key Media

ReferralExchange a lead generation management firm

Neil Sharma
REP

Following in the footsteps of Zillow and Redfin, U.S.-based ReferralExchange has entered the Canadian real estate market.

The real estate referral and lead generation management firm has begun operations in Toronto, Vancouver and Calgary to start, but already has plans for further expansion throughout the Great White North, including in Edmonton this week. Dubbed as “dating for real estate agents and clients,” ReferralExchange will commence Canadian operations by matching agents with consumers, but soon intends to launch an agent-to-agent program that has already proven popular in the States.

“We have always seen Canada as a strong market as a supplement to our business,” said ReferralExchange’s VP of Marketing Lisa Fettner. “We don’t just want to help agents in the U.S., we want to help Canadian agents too. Activity in Canadian real estate is strong and we just have to work out details to get there and start launching through the rest of the country. We’re going market by market.”

ReferralExchange appears to be off to a good start, having already overseen its first referral sale in Mississauga, ON. Fettner says it’s a sign of things to come.

“There’s tremendous opportunity there,” she said. “It’s a market we’ve been eager to service for years and we just wanted to make sure that we can do it properly. Many Canadian agents we’ve met over there have asked us when we’re bringing our services to Canada and we’re looking forward to growing there.”

The service is all offered online and will include cross-border referrals, too. Given the entrance of other American companies, particularly juggernauts Zillow and Redfin, there will likely be more to follow. Fettner is especially excited about the agent-to-agent referral facet of the business it plans to launch in Canada.

While there could conceivably be opposition to American real estate businesses proliferating in Canada, Sunny Sharma, president and co-owner of Leading Edge VIP Realty, welcomes the arrivals. In fact, given the weak Canadian dollar, American investors have had keen eyes on markets north of the border and Sharma believes ReferralExchange could help broker more deals.

“Seeing as how our dollar is down and the U.S. dollar is in excess of our money here, Canada is on sale for cross-border sales,” he said. “They have 30 cents extra on the dollar, so their return on investment will be much higher. We’re 30% off right now for them.”

Copyright © 2019 Key Media Pty Ltd

Housing affordability main topic in federal budget

Andy Blatchford
other

The Trudeau government will take steps in Tuesday’s federal budget to make home-buying more affordable with changes affecting supply, demand and regulation, The Canadian Press has learned.

Finance Minister Bill Morneau has promised the budget will focus on ways to help improve housing affordability for Canadians, and particularly for millennials, who are now in their mid-20s to late-30s.

The changes, along with expected measures on adult skills training, pharmacare and supporting seniors, will be included in the Liberals’ fourth and final budget before the October federal election.

The budget’s housing measures could grab a lot of attention. Polls have suggested affordable home ownership is a key concern for millennials and could be a vote winner with the increasingly critical demographic.

Morneau has heard housing-policy recommendations from numerous sources, including academic, real estate and mortgage experts, on how best to help more people buy homes.

The budget will respond to issues in the housing-related areas of supply, demand and regulation, says a government source, who was not authorized to speak publicly about the plan ahead of its release. They declined to provide specifics on the measures.

The government, however, faces a delicate task of introducing changes that avoid destabilizing housing markets, driving up prices or enabling already overstretched households to pile on more debt.

Internal briefing documents show Morneau was warned in November that Canadians’ heavy debt loads are a key risk that have made abrupt shocks to incomes, house prices or interest rates a “significant concern.” The memo was obtained by The Canadian Press through access-to-information law.

No signs stress tests will be dialed back

Morneau has been feeling pressure to act on housing.

On the demand side, the real estate, mortgage and home-building industries have urged Ottawa to ease or eliminate stress tests that have tightened mortgage qualification rules and, as a result, cooled once-scorching markets in cities like Toronto and Vancouver.

The federal changes, combined with provincial and municipal guidelines, were brought in to improve the quality of mortgage debt and to lower risks to the broader economy.

Morneau has insisted the stress tests were needed as a way to keep prices in some markets from rising at an unsustainable clip. He’s shown no signs that he’s prepared to dial them back.

There have also been industry calls for the reintroduction of insurance on 30-year amortization mortgages as a targeted way to help people at the lower end.

But Paul Kershaw, an associate professor at the University of British Columbia, said many experts, himself included, have discouraged the government from weakening the stress tests or extending amortization out of fear such moves would only encourage people to borrow more.

 

/Darryl Dyck/CPA condo building is seen under construction surrounded by houses as condo towers are seen in the distance in Vancouver on March 30, 2018.

Kershaw is the founder of Generation Squeeze, a group dedicated to informing policy decisions about the socioeconomic challenges of younger Canadians.

He wants policies that keep home prices from growing faster than earnings.

“We’ve tolerated — not only that, we’ve celebrated — home prices rising a lot over the last decade,” Kershaw said.

“And we need a government that says, ‘Nope, henceforth we want housing to be for homes first, investments second.”’

He recommends Ottawa change “outdated” tax policy that shelters principal residences from taxation, thus exacerbating demand, limiting supply and pushing up prices.

 

Chris Young/CPA child points to the new budget shoes being put on by Finance Minister Bill Morneau in a pre-budget photo opportunity in Toronto on March 14, 2019.

On regulation and enforcement, Ottawa could take steps to crack down on people who falsely claim a home is their primary residence as a way to dodge capital gains taxes.

Morneau recently vowed to do more to enforce laws in another area that’s been directly connected to housing: money laundering.

Last year, reports from an international anti-money-laundering organization and the RCMP warned that organized crime groups had bought luxury home sales in the Vancouver area to launder and hide their money.

On supply, Kershaw said the federal government could create incentives to encourage more cities to raise their housing density targets. Ottawa could offer a larger share of infrastructure transfers — like those for transit — to municipalities that agree to allow the construction of more homes to be built per plot of land.

To increase demand, Kershaw said the government could bump up the maximum, one-time withdrawal limit of $25,000 under the home buyer’s plan, which enables Canadians to borrow once from their own registered retirement savings plan to buy a home.

Ottawa could also increase the non-refundable, $5,000 first time home buyers tax credit, which offers up to $750 in tax relief, he said.

Opposition delay tactic delayed to after the budget

The budget’s release date was at risk of being delayed after the Conservatives took steps to use their opposition day Monday for an extended House of Commons voting session, which would have spilled into Tuesday.

The Tories were hoping to use the procedural move to draw attention to the House of Commons justice committee, which is also set to meet Tuesday to determine if it will recall former attorney general Jody Wilson-Raybould as a witness.

But Mark Kennedy, a spokesman for House Leader Bardish Chagger, said Sunday that the Tories’ opposition day would be rescheduled to Wednesday. Therefore, it would not interrupt the budget’s release.

Opposition MPs were furious last week after the Liberals used their majority at the committee to delay an attempt to call Wilson-Raybould to testify again on the SNC-Lavalin affair.

The move prompted shouts from opposition MPs at committee of “shame,” “coverup” and “despicable!”

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