Why enticements for first-time buyers are failing

Ephraim Vecina
other

“Almost all clients dislike the idea of becoming a co-homeowner with the government, if they can avoid it”

An early promise of the federal government’s First-Time Home Buyers Incentive was the prospect of homeownership for a greater number of Canadians – a promise that turned out to be a broken one, by most accounts.
In its recent summit, Mortgage Professionals Canada said that the equity-mortgage program was “simply failing.”
“Most recent data shows that the First-Time Home Buyer Incentive program participation is less than one-third of the government’s stated initial goal,” said Veronica Love, vice chair of MPC. “Almost all clients dislike the idea of becoming a co-homeowner with the government, if they can avoid it. An insurable 30-year amortization can accomplish at least the same outcome as the first-time home buyer program promotes: reduced monthly payments for buyers, but without the complexity of two mortgages and increased legal costs to buy and sell the home.”
The offering, which began in September 2019, is intended to fund 5% of the down payment for a first-time buyer’s purchase of an existing home, or 10% for a newly built residence.
Read more: Canadians answer: Is now a good time to get a home?
Mounting home prices continue to make would-be homeowners hesitate, with a recent poll by Royal Bank of Canada indicating that purchase intentions over the next five years have dropped to just 23%.
“While there is still a significant amount of activity in the market, our research indicates that the rush of Canadians looking to purchase a home over the last two years has subsided and we’re now starting to see a move back to pre-pandemic levels,” said Andrea Metrick, senior director of home equity financing, acquisition, and distribution at RBC. “Between rising costs and the competitiveness of the market, Canadians may now be taking a step back and setting aside more time to plan and save before making the jump into homeownership.”
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Industry observers weigh in on the likely stronger BoC rate hikes this year

Ephraim Vecina
other

A more “hawkish” tone paves the way for more aggressive moves, analysts say

Traders have priced in approximately a 75% chance that the Bank of Canada will raise its target for the overnight rate by 50 basis points on April 13, according to tracking by Bloomberg.
The estimates came in the wake of an aggressive statement by Bank of Canada Deputy Governor Sharon Kozicki on March 25. In her speech, Kozicki said that the central bank is “prepared to act forcefully” to keep inflation within the central bank’s target of 1%-3%.
Currently, the BoC interest rate is at 0.5%. In February, the annual pace of inflation stood at 5.7%, up from 5.1% the previous month and reaching its highest point since the 6% level seen back in August 1991.
February marked the second consecutive month in which the rate exceeded 5%, although inflation has consistently remained above the BoC’s target range since April 2021.
Read more: Could Russia-Ukraine change Bank of Canada path on rate hikes?
Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, said that the “hawkish tone” of Kozicki’s speech paves the way for more gung-ho rate hikes.
“The persistent acceleration and upside surprises in inflation over the past months and quarters have clearly struck a nerve with central bankers,” Reitzes said, adding that BMO is now expecting the BoC to hike by 0.5% at each of its next two policy meetings.
Citi Economics offered similar predictions, saying that it’s anticipating upward adjustments of 0.5% at each the central bank’s policy meetings in April, June, and July, before decelerating to 0.25% hikes that will push the BoC rate to 2.75% by the end of 2022.
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B.C.’s Homebuyer Protection Period won’t be in place until late spring

The Vancouver Sun Staff
The Vancouver Sun

No decision yet on how long the cooling off period will be and what penalties may apply

 If you’re buying a home in Metro Vancouver, there’s a chance you’ll end up competing with others for the same property. Photo by Michael Vi /iStock/Getty Images

B.C. Minister of Finance Selina Robinson says details of the government’s plan to introduce a cooling-off period for homebuyers will not be revealed until late spring.

 

“Regulations will be introduced this year to define the specific time homebuyers will have to exercise this right as well as the financial costs of retracting an offer,” Robinson said in a statement, later clarifying that it would be late spring.

The plan to amend B.C.’s Property Law Act was announced in last month’s provincial budget and was introduced to the legislature on Monday — creating a Homebuyer Protection Period to protect people buying a home in a “challenging real estate market.”

The amendments will allow a buyer who has an accepted offer to rescind that offer within a period of time yet to be revealed.

Robinson said that 70 per cent of offers in B.C.’s most competitive markets over the past year were made without conditions, which can lead to major repair and renovation costs or the loss of a deposit if the buyer’s financing falls through.

 

“People need to have protection as they make one of the biggest financial decisions of their lives,” Robinson said. “In our overheated housing market, we have seen buyers feeling pressure to waive conditions just to be considered, and new homeowners discovering costly problems only after a deal has closed.

“We want to make sure people buying a home have time to get the information they need to make a sound decision within limits that still give sellers the certainty they need to close sales.”

The amendments would enable the creation of a period to give people buying a home more time to consider their offers, ensure financing and obtain a home inspection, instead of feeling like they need to waive these conditions, she said.

The Home Inspectors Association of B.C. and Mortgage Professionals Canada support the move.

B.C. is the first Canadian province to implement a homebuyer protection period for resale properties and newly constructed homes.

Seven-day, cooling off periods for pre-construction sales of multi-unit development properties such as condos are already in place under the Real Estate Development and Marketing Act.

The B.C. Real Estate Association says the new law will not be effective and adds a layer of uncertainty for sellers.

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© 2022 Vancouver Sun

‘Unprecedented’ construction costs jeopardize projects

Peter Mitham
Business in Vancouver

Some Metro Vancouver developers are taking their cash elsewhere as margins disappear

Construction costs can hit $500 per square foot or more in Metro Vancouver. | File photo: Western Investor
Construction cost increases have become so dramatic in Metro Vancouver that they’ve outstripped land prices as the single biggest unknown in proformas for developers.
That’s the message Greg Zayadi, president of the Rennie Group, delivered to a breakfast meeting of the Independent Contractors and Businesses Association this week.
“When developers are working on proformas today, the biggest impact on the end number to the consumer is the construction pricing,” Zayadi told Western Investor following the breakfast. “The land you purchase, the cost to hold, the soft costs – all of these things are much less significant than managing the construction costs.”
Time was that land prices and construction costs were both in the $250 to $300 a square foot range. Today, construction costs are often closer to $500 a square foot.
“We’ve seen a 30 per cent increase over the past 14 to 16 months, and in the last four months we’ve estimated that it’s 5 per cent to 7 per cent a month,” Beau Jarvis, president of Wesgroup Properties said. “It’s making it extremely challenging to understand the dynamics of a viable construction project. It’s so difficult to understand what’s going on.”
Wesgroup is planning a project in East Vancouver that started out at $430 a square foot in hard costs, but when the project went to tender it came in at $525 a square foot.
“In order to make that project viable we had to raise the revenue assumptions in the project,” Jarvis said. “We haven’t launched that project yet, so we don’t know if those new revenue assumptions are even viable in the marketplace. And so that’s a project that could be paused.”
Zayadi isn’t aware of any projects that have been shelved to date by construction cost increases. But he notes the situation is hitting woodframe construction particularly hard, impacting affordability for first-time buyers.
“This is townhomes, this is six-storey woodframe, this is in-fill. This is not investor-type product,” he said. “When all of a sudden every woodframe project from Pemberton to Abbotsford is needing $750 to $800 a square foot, that is really putting pressure on that first-time homebuyer.”
Altus Group estimates that multifamily construction costs in Vancouver increased 5 to 7 per cent last year, and senior director Dave Schoonjans expects a similar increase this year.
“It doesn’t sound bad, but you’ve got developments that only have a 10 percent margin,” he said. “Say you’ve got permitting issues or some other delay, and in 12 months your profit is gone.”
But he says the situation in Vancouver is less dire than elsewhere in the country. Toronto, Montreal and to some extent Ottawa are under greater pressure because the markets there were going full-tilt when the pandemic hit. The labour constraints and supply chain disruptions made a bad situation worse, and the surge in presales over the past year has compounded the woes.
“The Vancouver market slowed down just in time for a lot of these cost increases and disruptions,” he said. “It’s not to say things are great in Vancouver and Alberta, but they’re the least bad.”
But the pressure isn’t about to let up.
Taxes and fees aren’t about to drop, and municipal approval processes have yet to catch up with demand. Census data indicate that per-capita housing in Metro Vancouver was unchanged in 2021 versus 2016, meaning the housing shortage continues.
“The most recent census is a clear indication that we have yet to make progress in meeting the housing needs of Canadians,” Scotiabank stated regarding the data.
Meanwhile, government-funded projects continue to tap into a tight labour pool, increasing cost pressures and eroding the premium that makes developers want to take risks in the market.
“There’s just not enough trades in the trade pool, and then we have commodity prices, and all of this is culminating into one point in time that is significantly impacting our costs,” Jarvis said. “It’s getting harder to pull the trigger on some of these projects. … We are already starting to see a flight of capital to where it’s easier to work and the risk premium is there.”
Recent data on new housing starts indicates this trend. In February 2022, total Metro Vancouver housing starts had plunged 38 per cent from the same month last year, to 1,365 units. Starts of new townhouses had fallen from 275 in February 2021 to just 173 in February 2022. 

Copyright © Business in Vancouver.

Victoria shopping centre sold to U.S. firm prior to redevelopment

Carl Wilson
Western Investor

B.C. acquisition marks South Carolina-based Greystar’s first purchase in Canada

 Artist’s rendering of redevelopment plans for University Heights shopping centre in Saanich. Courtesy of Wesbild Holdings

University Heights Shopping Centre in the Greater Victoria area of B.C. has been sold to a U.S. real estate company as the property approaches final approval of its extensive redevelopment plan with the District of Saanich.

This is South Carolina-based Greystar’s first major investment in Canada. The company manages and operates about $230 billion in real estate in 215 markets in North America, Europe, South America and the Asia-Pacific region, and has offices in Victoria and Vancouver.

John Wilbeck, Vancouver-based managing director at Greystar, said Friday that although the company is global, the redevelopment of University Heights will support local jobs and local companies. “We look forward to developing strong community relationships.”

The purchase price is not being released, said Greystar, which doesn’t expect to make changes to the project plans or timeline of redevelopment.

The $230-million redevelopment is set to go to council for its fourth and final reading this month, and construction is anticipated to start this spring.

An estimated 300 construction jobs and 200 permanent on-site jobs are expected to be created on what is destined to be a mixed-use site, now home to a 1980s-era shopping centre.

The property bordered by Shelbourne Street, McKenzie Avenue and Cedar Hill Road had been owned by Wesbild Holdings, a real estate development company that spent more than four years on the plan.

The planned redevelopment will add more than 590 rental apartments to the region’s housing stock, helping address concerns about the availability of rental units. Victoria’s residential rental market has a vacancy rate of 1 per cent, according to the latest statistics from the Canada Mortgage and Housing Corp. This is down from from 2.2 per cent a year ago.

Of the total apartments proposed for the University Heights redevelopment, 60 would be designated as affordable.

Also included in the plan is a public plaza, B.C. Transit hub, new commercial areas, up to 11,000 square feet of daycare space, and electric-vehicle-charging infrastructure.

Plans call for the Home Depot store on the property to be expanded. It’s expected to remain open during the site’s redevelopment.

Wesbild president Kevin Layden said the company will do everything it can to ensure a smooth handoff of the property.

Devon Properties of Greater Victoria will be responsible for the day-to-day management of the shopping centre.

 

© 2022 Western Investor

‘Cooling-off’ time coming for homebuyers but details yet to be worked out

Peter Mitham
Western Investor

Regional approach possible, similar to foreign buyer and vacancy taxes

 B.C. Finance Minister Selina Robinson. | File photo

A cooling-off period is coming for resale homes in the province, but the province has yet to announced the details of the regulation, including where and when it will be applied and how long the recession period would last.

B.C. Finance Minister Selina Robinson introduced the Property Law Amendment Act in the legislature on March 28, which will give purchasers the right to “rescind the contract of purchase and sale for the property by serving written notice of the rescission on the seller.”

“People need to have protection as they make one of the biggest financial decisions of their lives,” Robinson told media in a briefing following the bill’s introduction. “The status quo is only working for those who profit from an over-heated housing market.”

Originally announced last November, the cooling-off period parallels the seven-day rescission period for buyers of pre-sale multifamily units.

But the length of the rescission period for other residential properties has yet to be determined, and may vary with location.

“British Columbia is a large province with different housing markets,” Robinson said. “Things might be very active in the South Island or Lower Mainland; they might not be particularly active in the North, and you might not need the same consumer protections in the same way.”

She said the regulation could also be responsive to shifting market conditions.

A regional approach was also taken with the foreign buyers tax introduced by the BC Liberals in 2016 and the speculation and vacancy tax the BC NDP introduced the following year.

A consultation the BC Financial Services Authority undertook when the measure was announced last November will guide the specifics of the regulation.

“BCFSA will consult with key industry stakeholders and experts on consumer protection issues and return to government with advice for other possible measures to enhance consumer protection and strengthen public confidence in the purchase and sale of homes,” it said at the time.

The consultation is complete but the report hasn’t landed on Robinson’s desk. It will provide valuable information, such as how often presale buyers exercise the right of rescission in multifamily sales.

However, the fact she has yet to receive the report means Robinson could give no timeline for implementing the new cooling-off period.

“We’ll get the legislation done, and I hope as quickly as we can we’ll get the regulation done,” Robinson told media.

Robinson says the change targets multiple-bid scenarios, and aims to address purchases that homeowners make because they don’t feel they can afford the luxury of a home inspection or because they agree to a sale but then realize they may not be able to afford it.

Both the Home Inspectors Association of BC and Mortgage Professionals Canada, which represents lenders, are in favour of the move.

The B.C. Real Estate Association has stated that it feels a cooling-off period would create more problems than it solves, including greater uncertainty for sellers and an increase in frivolous offers.

“Instead of a cooling-off period, we have suggested to government that a pre-offer timeline would better protect British Columbians,” the association’s CEO Darlene Hyde said. “During this period of a minimum of five business days from listing, prospective buyers could hire home inspectors of their choice, review important documents, ensure financing and complete any other due diligence prior to making an offer. This would achieve the stated consumer protection goals in a far more balanced manner.”

 

© 2022 Western Investor

OPINION:Spare us the stupid ideas to fix the housing problem

Frank O’Brien
Western Investor

No, a cooling-off period, teeny-tiny houses, punitive taxes or $500,000 suites for the homeless won’t create more affordable housing in British Columbia

The typical apartment in Greater Vancouver sells for $807,500 and rents for $2,661, both the highest levels in Canada.Paul McGrath, North Shore News files
After five years of all three levels of government trying to fix the issue of affordable housing, Canadian homes cost more than they ever have, rents are at record highs and rental vacancies are at near record lows.  There are more homeless people than ever, and in more communities.
Now we have the latest round of stupid ideas – sadly from the private sector as well as government – that are supposed to fix the problem while ignoring the only real solutions.
Much of the “help” is concentrated on high-priced British Columbia, which has the fastest-growing population in the country.
The federal government wants to place a national tax on foreign homebuyers while at the same time encouraging record-high levels of immigration. Duh.
The B.C. government plans to mandate a seven-day ‘cooling-off’ period during which a homebuyer can walk away from an agreed transaction without any financial penalty. Since the majority of those selling a home are also buying a home, the week-long delay would create a cascade of confusion and reduce listings in a market already short of inventory, while putting no brake on prices.
The B.C. Real Association, which should know better, recommends a week-long ‘pre-sale’ period between when a home is listed for sale and offers can be accepted. All this would do is delay and frustrate buyers and sellers and, once more, discourage listings.
Big brains at the University of British Columbia want to slap Canada’s first capital gains tax on private residences – and make it retroactive. University thinktanks also recommend a superlative tax on all homes priced at $1 million or more, as if they were a rare commodity, and policies to curb “excessive” profits when a home is sold, as if sellers were the villain.
All levels of government say they are trying to house the homeless, but the solutions are not sustainable for taxpayers.
The latest example is Burnham Place in East Vancouver, which opened March 10 with a photo-op for federal and City of Vancouver politicians. The 68-unit complex is meant to house “people experiencing or at risk of homelessness.” The project cost $500,000 per apartment and ongoing expenses include “medication administration,” free meals and 24-hours-a-day/7-days-a-week staffing at union scale, apparently forever.
Another wacky B.C. idea is cheap tiny houses under 300 square feet, ignoring the fact that land values, home sale taxes and municipal permit fees are the key reasons house prices are so high.
So how do homes become more affordable?
More supply, fewer taxes and less red tape would be the first three steps.
An independent study conducted for the Greater Vancouver Board of Trade’s Housing Forum 2018 found that government taxes and fees account for 26.2 per cent, or $220,256, of the total $840,000 cost of a typical new Vancouver condo apartment. The only thing that has changed since is that city fees, taxes and home prices are even higher.
B.C. has perhaps the most regressive anti-landlord rental regulations in North America. It also has the tightest rental supply, highest rents and the lowest vacancies in Canada.
Look to Calgary, which has a healthy housing inventory, and where, despite high in-migration and a recent 80 per cent month-over-month surge in housing sales, the average home price is about half the national average and one-fifth that of Vancouver. Calgary’s rental vacancy rate is a tenant-friendly 5 per cent and a typical two-bedroom rents for $1,355, half the price in Vancouver.
Alberta is one of only two provinces with no rent controls and no tax on the resale of private homes, and Calgary has a streamlined residential development approval process: three of the signposts towards more affordable housing.

© 2022 Western Investor

Mission 9.9-acre potential townhome site sells for $8.2 million

HomeLife Advantage Realty
Western Investor

Located in the Silverdale area, the land could host townhomes or single-family houses under development plans expected to finalize in the summer of 2022

Nault Group, HomeLife Advantage Realty, Abbotsford, B.C., for Western Investor

Type of property: Land

Location: 31061 Gunn Avenue, Mission, B.C.

Land size: 431,244 square feet

Land size, in acres: 9.9 acres

Potential: Low-rise residential development

List price: $9 million

Sale price: $8.2 million

Date of sale; January 29, 2022

Brokerage: Nault Group, HomeLife Advantage Realty, Abbotsford, B.C.

Broker: Mary Nault

 

© 2022 Western Investor

Poll: Variable-rate offerings seeing greater popularity

Ephraim Vecina
other

Canada’s fixed rates have seen their first increases since the pandemic took hold, Ratehub.ca says

Attesting to the product’s increasing desirability in the current climate, variable-rate requests made to online platform Ratehub.ca increased by over 40% from 2019 to 2020 and saw a further increase of nearly 50% annually from 2020 to 2021.

By comparison, fixed-rate requests represented more than 68% of total rate requests in 2021, a level 14% lower than 2020 and 31% lower than 2019.

“One of the most striking developments since the beginning of 2020 has been the increase in popularity of variable-rate mortgages and last year was no exception,” Ratehub said. “Fixed rates climbed for the first time since the onset of the pandemic and continue to rise – and with this, variable-rate mortgages became increasingly popular.”

Read more: Variable-rate mortgages amid the new BoC rate-hike regime

On the other hand, HELOC requests increased by 55% annually in 2021, accounting for slightly more than 14% of total requests in Ratehub.

“High home prices and low rates have encouraged more Canadians to leverage the equity in their homes,” Ratehub said.

“Unsurprisingly, given the nature of the housing market, a majority of Canadians across the nation believe that home prices will continue to rise in 2022,” the platform added. “Almost two-thirds of Canadians believe that housing prices will rise in 2022.”

 

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Ontario to impose harsher penalties for “unethical” condo developers

Ephraim Vecina
other

Provincial government sets its sights on price gouging and other unsavoury practices

The Ontario government has announced that it will be implementing stricter measures, such as increased fines and other penalties, for “unethical” condominium developers.

Among the practices targeted by the new regulations are price gouging, often in the form of people making “a commitment to purchase at one price, and then those prices are being extraordinarily increased,” said Ross Romano, Ontario’s Minister of Government and Consumer Services.

“Our goal is to create a system whereby we have greater teeth so that developers will think twice before they take advantage of homebuyers,” Romano said.

The new rules will double the fines for individuals and corporations that cancel pre-construction projects and then inflate their price points. The measures would also pave the way for a two-year revocation of the licenses of offenders, up from the current limit of six months.

On the consumer side, victims of cancelled projects will see their deposits returned at the Bank of Canada interest rate so that they don’t lose money, Romano said.

Read more: Will the Toronto housing market ever slow down?

“We’ve given notice. Developers need to take notice that we are not going to accept this behaviour,” Romano added. “These are all tools that we are giving our regulatory authority to ensure that we are protecting the little guy.”

The proposed regulations, which are currently under consultation, are set to take effect 30 days after the March 24 announcement, and be retroactive to that date.

Condos continue to drive the province’s new home sales activity, particularly in the Greater Toronto Area. In February alone, the new condo apartment segment accounted for the majority of the region’s new home sales, with 3,048 transactions that were 78% higher on an annual basis and 67% above the 10-year average for that month. On the other hand, new single-family homes totalled 582 sales in the GTA last month, 54% below the 10-year average.

 

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