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New condo sales are still surging in these Canadian housing markets

A national trend of dampening homes sales has not swept through the new condo segment of every large Canadian housing market.

Activity is markedly down in a number of Canada’s major housing markets, but new condo sales in a handful of cities tracked by real estate consultancy Altus Group are actually surging.

Specifically, new condo sales in 2018 skyrocketed 69 percent on a year-over-year basis in the Kitchener-Waterloo area, 31 percent in Montreal, and 19 percent in Hamilton, according to Altus Group’s joint New Home Outlook 2019 and 2018 year in review report.

Both Kitchener-Waterloo and Hamilton had similar appeal for condo buyers over the past year.

“Markets outside of the GTA have continued to benefit from their relative affordability compared to Toronto, particularly in Kitchener-Waterloo where the new supply of condominium apartment product experienced strong demand in 2018,” reads the Altus Group report. “Both markets benefit from markedly better pricing compared to the GTA.”

Montreal has seen activity pick up steam for the past three years, but this persistent strength is starting to weigh on what has become one of the country’s hottest housing markets. “Given the growth in sales, many of the challenges seen in the other large markets have started to impact Montreal — rising costs, elevated inventories of under construction product and increased investment activity,” notes Altus Group. 

  

New condo sales in the Ontario markets of Kitchener-Waterloo and Hamilton are expected increase this year, while Altus Group anticipates Montreal transactions will trend lower. “Montreal had a tremendous sales year in 2018 and 2019 volumes are expected to decline as the market returns to more normal conditions,” says Altus Group.

Calgary new condo sales increased 1 percent annually as suburban sub markets showed signs of recovery. Real estate transactions in the city have been depressed in recent years as lower oil prices have led to worse employment prospects and, as a result, fewer potential homebuyers.

The suburban markets in Calgary have been picking up the slack for inner-city and downtown neighbourhoods where sales continued to trend lower. “The strongest new home sales in the suburbs have been occurring in regions near employment centres,” says Altus Group in the report. 

Edmonton, the other Albertan city that Altus Group monitors, posted the second-greatest annual decline in new condo sales last year, with activity plunging 48 percent. Only the Greater Toronto Area, were activity fell 49 percent, was hit harder.

“The GTA market came off a record new condominium apartment sales year in 2017; however, the impacts of mortgage rule changes and new development charges contributed to a decline in project launches and lower sales to start the year,” says Altus Group, noting demand picked up in the second half of the year. Of all Canadian markets, the consultancy suggests those in southern Ontario’s Greater Golden Horseshoe, including the GTA, have the brightest prospect for higher new-home sales tallies this year.

New condo sales were down 19 percent in Vancouver last year, but that is a more modest decline than the 31 percent drop in 2017.

“The Vancouver market, which is currently exhibiting the most potential for downside risk, is expected to see a modest decline in sales volumes as consumers react to higher borrowing costs and developers react to escalating construction costs in the face of lower revenue opportunities,” says Altus Group, noting activity should still track around the Vancouver market’s 10-year average for new home sales. 

“No more detached homes for you,” economist tells Canada

In the not so distant past, Canadian contractors were building more single-family homes than multi-family homes, such as condo apartments.

It’s a very different story today — so much so that an economist with one of Canada’s biggest banks recently said “no more detached homes for you” in a note to clients.

In the note, BMO Senior Economist Robert Kavcic charts construction trends since 1990, painting a picture of just how much the new-housing landscape has changed in the past three decades. 

 From the 1990s until the mid-2000s, builders were consistently constructing more single-family homes than multi-family homes. Since the Great Recession, however, there has been parabolic growth in the multi-family segment, and Kavcic doesn’t expect the single-family segment to catch up.

“The difference in new supply between these two segments couldn’t be starker, and various factors such as urban job growth, intensification requirements and greenbelts will likely keep this theme in play,” Kavcic writes.

How wide is the gap between the pace of single- and multi-family home construction?

According to the Canada Mortgage and Housing Corporation (CMHC), homebuilders began work on 54,220 detached houses in 2018, down from the already historically low total of 63,490 in 2017.

Last year’s tally is “the lowest annual total for detached-home construction since the depth of the mid-1990s downturn,” says Kavcic.

Across all other housing types, including purpose-built rental apartments, condos, and townhomes, workers started construction on 142,492 units, down from 138,884 in the previous year.

“Keep in mind that 2017 was the strongest year in a decade so, despite somewhat softer momentum to close out the year, the pace of residential construction activity was still very solid heading into 2019,” Kavcic points out.

The Bank of Canada is wrong. Canadian bankruptcies aren’t on the rise, says Scotiabank

An executive with one of the biggest Canadian banks is questioning the judgement of the Bank of Canada’s governor over his comments about bankruptcies in the country.

When Stephen Poloz announced this week that the central bank was maintaining the overnight rate at 1.75 percent, signalling mortgage rates should remain consistent for the time being, he noted bankruptcies are on the rise.

But that’s not the case, says Derek Holt, vice president of Scotiabank Economics, and it’s one of the things that differentiates our banking system from America’s.

“I don’t see consumer bankruptcies the same way as the Governor and was somewhat surprised by how the Governor is viewing bankruptcies given the importance of tracking how they are responding to higher rates and other developments,” writes Holt in a Scotia Flash report.

“Poloz says consumer bankruptcies have gone up. They have not,” he adds bluntly. 

 

Recently, the Office of the Superintendent of Bankruptcy reported that consumer insolvencies were up 5.2 per cent in November on a year-over-year basis.

However, this measure is based on more than bankruptcies. It also includes proposals for restructuring debt (basically, a proposal for a repayment plan that may include asking a creditor for more time to pay off debt, or offering to pay a certain percentage of the total owed).

“Total insolvencies have risen because proposals have gone up, and they are a very different animal compared to going bankrupt,” Holt explains. “Bankruptcies are still toward record lows.” 

 

In a separate note, Holt suggests the increase in proposals didn’t come out of nowhere. The impacts of rising interest rates and mortgage stress testing introduced a year ago are being felt.

“I would also contend that what we are seeing here is a reflection of one of the great relative strengths of the Canadian banking system versus, say, the US system,” writes Holt.

“Proposals are worked out through a willingness to restructure payments and debt without necessarily forcing the client into bankruptcy and seizing uncertain net asset values minus related costs.” 

Canada 6th in the world at attracting talent

 Switzerland once again clinched the top spot in a global survey on fostering and attracting talent, in a top 10 list that includes Canada but not the U.S., and no Asian nations.

The country retained its title for the fifth consecutive year on the World Talent Ranking report published by IMD Business School, a result of its strong emphasis on skills training and education. Denmark and Norway were ranked second and third respectively in the poll, which was dominated by European countries.

While the U.S. didn’t make it to the top 10, it climbed four places to rank 12th. The U.K. slid two spots to 23. Canada was the only non-European country to feature among the top 10.

"Economies placed in the top 10 of the ranking generally share high levels of investment in public education and a high quality of life, which allow them both to develop local human capital and to attract highly-skilled professionals from abroad," said Arturo Bris, director of the IMD World Competitiveness Center.

Singapore was the highest-ranking Asian economy on the index, coming in at 13th place and outranking Hong Kong, which dropped six places this year to 18th. Both economies continued to excel in attracting professionals from abroad but lagged in terms of investment in education, the report noted.

China was ranked 39th because of its difficulties in attracting foreign skilled workers and because its public spending on education remains below the average of advanced economies, the report said.

Latin American countries were among the least competitive with Mexico in 61st position. Venezuela was last on the list at No. 63. Both countries suffered from a brain drain and relatively low public spending on education, according to the report.

The study surveyed over six thousand executives in 63 economies. Each economy was assessed on various factors including how they invest in developing the local workforce, the extent to which they are able to attract and retain skilled workers and the quality of skills available in their respective talent pools.

GTA condos saw record-breaking rent rises in 2018

 Condo apartment owners in the GTA saw higher returns on their investments in 2018 with rents setting a new record.

Urbanation, which has been tracking rents in the market since 2010, says last year’s 9.3% increase was the largest it has seen, beating the previous year’s 8.3% growth and the 8-year-average of 4.1%.

However, on a year-over-year basis, rent growth moderated in the fourth quarter to 6.7%, representing the slowest annual pace since Q1-2017 with the average monthly cost reaching $2,310.

Although the figures suggest that renters are adapting to higher rents – with total lease activity for studios up 44% and for one-bedroom apartments rising 31% - growth in rents may be limited by new supply and affordability issues.

“Recent housing policy changes, combined with strong demand fundamentals and supply constraints led to record growth for rents in the GTA last year,” said Shaun Hildebrand, President of Urbanation. “These factors should continue to keep upward pressure on rents, but to a lesser degree in 2019 as affordability becomes a bigger issue and more condominium and rental units finish construction.”

Supply set to rise

The total number of purpose-built rental apartments under construction in the GTA reached a more than 30-year high of 11,905 units at the end of 2018, rising by 59% from 7,494 units at the end of 2017 and more than twice the level from two years ago at the end of 2016 (5,429).

This year close to 5,000 purpose-built rentals are expected to reach completion, representing the highest level since the early 1990s. Longer-term future supply represented by the inventory of projects proposed for development reached 40,688 units, up from 34,559 units at the end of 2017 and 27,591 units at the end of 2016.

Toronto can’t build office towers fast enough
A decade ago, an office landlord might have gone into crisis mode upon learning a tenant as big as Canadian Imperial Bank of Commerce was preparing to flee to a new development down the street. But these days, perhaps nothing says more about demand for office space in downtown Toronto than QuadReal Property Group’s response to precisely that scenario.

While the first tower of Ivanhoé Cambridge’s 2.9-million-square-foot CIBC Square rises next to Union Station, QuadReal, rather than fretting over a huge impending vacancy at its venerable Commerce Court complex next year, is working with city planners to add 1.8 million square feet of space to the complex with a new 64-storey tower.

And, as an exclamation point, no one seems to be questioning the sanity of QuadReal or its parent, B.C. Investment Management Corp. (BCI), to create the new tower that would stand as tall as BMO Tower at First Canadian Place, which has long held the place of Toronto’s tallest office building.
There’s 10.1 million square feet of new office space in the pipeline for Toronto’s core, but with none of it slated to open for more than a year, there’s apparent consensus that demand will further outstrip supply in 2019 – and that’s in a market that has already been North America’s tightest for more than four years.

“Americans I’ve talked to are amazed,” says Daniel Holmes. “I can’t believe this hasn’t been making headlines.”

Thomas Forr, research director points out that while there’s lots of new space coming, just 2.3 million square feet is vacant, much of it in small blocks.

“We’re absorbing about a million square feet a year without new product coming online till 2020,” Mr. Forr says. “So you could soon have a 1-per-cent [vacancy] rate, maybe even 0 per cent with the activity we’re seeing.”

The broader Toronto market has about a 3-per-cent vacancy rate, but it’s already between 1 and 1.4 per cent in the core, depending on whose data you use.

Average asking net rents are up 38 per cent since 2013, and Mr. Forr and Mr. Holmes both say tenants with leases due to expire have learned they now have to search aggressively two or more years in advance to ensure they have much choice if they want new digs.

It’s a sharp contrast to a decade ago, when big new office buildings started to rise again for the first time since the early 1990s recession. That wave of development (2008-2011) brought about three million square feet to market and had some expressing fears about a potential space glut. Now, after another five million square feet was added between 2012 and 2017, there’s the coming 10.1 million, which should all be open by 2024.

“Nobody’s getting reckless,” Mr. Forr at JLL says. “If you look at downtown or even across Canada, there’s still a conservative ownership and development community. You have a lot of pension funds and they’re looking long term. One interesting thing we’re seeing in this cycle is lots of net new tenants coming downtown.”

Five big names on that list include:

– Microsoft, which is moving in 2020 from the airport area, taking 132,000 square feet at Ivanhoé’s CIBC Square.

– Shopify will set up in a new 38-storey tower at The Well, which Allied Properties REIT and RioCan REIT are developing at Front Street and Spadina Avenue (Shopify has taken 253,000 square feet with an option on another 181,000).

– Ontario Teachers’ Pension Plan is moving its head office from North York to a new 46-storey tower that its real estate unit, Cadillac Fairview, is building at Front and Simcoe streets.

– Amazon has taken 113,000 square feet in Scotia Plaza (a building that will eventually lose many of its Bank of Nova Scotia employees to Brookfield’s Bay Adelaide North tower, where construction is set to start this spring).

– Tim Hortons is moving its head office from Oakville to 65,000 square feet in the Exchange Building on King Street.

When asked what factors are driving change most, Mr. Holmes of Colliers replies, “technology and millennials.”

While people recently feared Toronto’s core was overly reliant on financial services, Mr. Holmes says it has diversified, becoming a global player – particularly in tech, which relies on young talent.

“Millennials are choosing first where they want to live and then where they want to work,” he says, adding that Toronto’s core is diverse, welcoming, safe and fun. “Companies don’t want to be further out, even for cheaper rent in a better building. They need to attract and retain top talent and talent is choosing the core.”

Colliers projects that when the coming wave of buildings has opened, Toronto’s vacancy rate will climb to a healthy 6 to 7.7 per cent, which would still be North America’s third tightest, behind Manhattan and San Francisco.

City planners say another 31.9 million square feet are needed by 2041, but industry observers say that’s too far in the future to merit comment. What the golden goose definitely needs, they say, is more rapid transit through downtown, even before the core gets the 200,000 to 300,000 new jobs expected in the next 25 years.

“Transit’s key,” says Mr. Forr, adding Union Station proximity is a big part of Ivanhoé’s success in leasing nearby CIBC Square.

With CIBC, Microsoft, Boston Consulting, AGF and others as its tenants, Ivanhoé’s first tower, scheduled for completion in 2020, was fully leased about 2½ years ahead of Ivanhoé’s usual timeframe. The second tower won’t break ground till 2020, but it is 50-per-cent leased already.

“If we had room for a Phase 3, I think we’d be looking at that very seriously,” says Jonathan Pearce, Ivanhoé’s North American executive vice-president for leasing. He sees transit as so important that it has, in effect, shifted the centre of Toronto’s core south toward Union Station, where all modes of transit converge and where the only certain downtown service expansion is in the works.

As for the prospects of Commerce Court, which began as one tower in 1931, once CIBC starts seriously packing to move down Bay Street, count Mr. Pearce among the optimists. “Toronto is such a strong market that the older-generation product in those iconic towers is still going to lease,” he says.

QuadReal, meanwhile, declined an interview request, but industry people say the planned new tower at Commerce Court, which will replace two shorter buildings to be torn down, will be impressive, is probably six or seven years out, and that there will likely be announcements in 2019.
Monthly rent across Canada expected to rise — especially in these 3 cities: report
“There’s no doubt there has been huge growth in rent prices over the last couple of years, but [anecdotally speaking], it seems to have stabilized in Vancouver,” adding that he predicts the city will not see rental increases in 2019, as there is a lot more supply coming to the market.

Andrew Scott, a senior analyst with Canada Mortgage and Housing Corporation (CMHC) who specializes in the Toronto rental market, said there may be an increase next year, such as the prices of houses, high demand for rental units and low vacancy rates.
 

Difficulty getting into homeownership
there are three factors that are making it more difficult to transition into home ownership — meaning people stay in the rental market longer.

These include higher housing prices, interest rate hikes and the tightening of mortgage rules.

Last year, Ottawa changed the national mortgage rules for Canadians getting, renewing or refinancing a mortgage. Many now have to undergo a stress test, proving that they would be financially OK even if interest rates were to rise substantially above their actual mortgage rate.

The Bank of Canada also raised the interest rate three times last year, which currently sits at 1.75 per cent. More hikes are also on the way, but the bank said the timing of its next one will hinge on changes in global trade policies as well as how higher interest rates from past increases affect consumption and housing.

“The new mortgage stress test, higher interest rates and higher home prices have dramatically increased the number of people looking for rental accommodations this year,”.

“Many young couples and families have decided to postpone purchasing a home, which has driven two-bedroom rental rates to nearly $2,600 a month in Toronto and over $2,000 a month in Ottawa,”.

High demand, low supply
The increase in rental demand has not been offset by new supply, according to the report.

For example, in Toronto, although the supply for rental units has been growing, Scott said the demand is so strong it has not outpaced the demand.

“But in the next few years, the number of rental homes that have been under construction will start going up,”  adding that this may help offset the demand.

Low vacancy rates
According to the CMHC, the national vacancy rate fell to 2.4 per cent in 2018 (versus three per cent in 2017). That’s the lowest it’s been since 2009.

As for the year ahead, analysis said predicts vacancy rates to remain historically low but added that he does see it easing in the next couple of years.

“There are quite a bit of rental units still under construction, and the accelerated population growth may cool down, too, so the new few years may get better,”.

Immigration
According to the CMHC, the increase in Canada’s immigration contributed to a growth in demand for renting in 2018.

“Net international migration recorded an increase of 23 per cent in the first half of 2018, compared to the same period in 2017,” a CMHC report stated.

And since a majority of newcomers tend to rent when they arrive in Canada, this increased the demand on the rental market, the report stated.

Low unemployment rate
The slight growth in employment among young people aged 15 to 29 in the last 12 months may also have boosted rental housing demand.

When job markets improve, renter household formation follows, as some young adults are encouraged to leave the family home and start renting, CMHC said.

“Rents are also a function of income,”. “The economy is doing well in Toronto and the unemployment rate is low, meaning there is more income growth and renters have been able to afford the increases.”
Expert answers to 9 common homebuyer questions about closing costs

Buying a home is a major investment and the largest financial transaction most people will make in their lives. In addition to the purchase price, interest rates, and condo fees, homebuyers need to be aware of their closing costs. Expenses such as legal fees, land transfer taxes and insurance can add up, leading many homebuyers to underestimate the amount of cash on hand that they’ll need when it comes time to close on the transaction.

To learn more about closing costs and what you should be prepared for, Livabl turned to Ara Mamourian, and David Duncan, vice president, real estate secured lending, at TD Canada Trust to answer our questions. 

1. How much should homebuyers put aside for closing costs?

“As you save for your home, it’s a good idea to build in a 3 to 5 percent of the purchase price as a buffer for closing costs where possible,” says Duncan. “This way, you’ll have funds available if costs end up being higher than anticipated.”

If your final closing costs end up being less than what you put aside. you can put that money towards your mortgage or keep it as an emergency fund to help cover repairs or future renovation projects.

2. When are closing costs paid in a real estate transaction?

“Closing costs are typically paid at the closing of a real estate transaction,” says Duncan. “The closing is when the title of the property is transferred from the seller to the buyer, and the buyer officially takes possession of their new home.” 

3. What are some common closing costs that people should save for?

“In addition to ongoing costs like mortgage payments, property taxes, maintenance and utilities, it’s important to understand all upfront costs over and above your down payment,” explains Duncan. “It’s a good idea to build in a little extra, just in case anything unexpected arises during closing or when you take possession of your new home.”

Examples of common closing costs include property assessments, property surveys, home inspection fees, legal fees, title insurance and moving fees. However, in most cases the land transfer tax amounts to the lion’s share of costs according to Mamourian. “If you’re a first-time buyer, you are eligible for a rebate of the municipal portion of up to $8,475 then legal fees would come in at around $1,800.”

Homebuyers should also be aware of any pre-payments by the seller that may need to be reimbursed. “Sometimes homeowners pay for all their property taxes up front for the year so if you move in half way through the year you’d have to reimburse the seller for that amount,” says Mamourian. 

4. What are some unexpected costs that homebuyers could face?

Unexpected or hidden costs are always a concern for new homeowners so it’s important to plan ahead and build a buffer into your budget. “As you get closer to buying a home, consider taking your monthly mortgage payments for a test-drive by making an automatic transfer of that amount into a TFSA or other high-interest savings account for a few months,” suggests Duncan. “This two-fold approach allows you to see how comfortably you can pay off the monthly mortgage and save extra money for unexpected costs that could arise, while also helping you save for a larger down payment.”

 

In rare instances a special assessment may be required in a condominium when a major repair is needed that surpasses the condo’s collective reserve fund. “Special assessments only happen if something has either gone wrong or if the reserve fund isn’t able to handle a capital expense that the board and residents approve,” says Mamourian. “If this comes into play at closing, it’s not a surprise and the buyer signs up for it.”

When it comes to homeownership, it’s a good idea to prepare for unexpected repairs or maintenance items. “Don’t ever expect to buy a house and have zero expenses,” says Mamourian. “That’s the thing about houses versus condos — most people have this misconception that condo fees are just wasted money but when in reality it’s just a fixed, predictable maintenance cost whereas in a house that annual cost is variable.”

5. Can homebuyers roll their closing costs into the mortgage loan?

“The only closing cost that can be rolled into a mortgage is your CMHC insurance premium,” says Mamourian. “CMHC premiums are payable only by those who are putting down less than 20 percent of the purchase price in cash as a down payment.”

“Homebuyers can always consider reducing their down payment to help cover closing costs however, they’ll end up with a larger mortgage,” adds Duncan. 

6. Do closing costs differ by location?

As mentioned above, land transfer taxes can take up a large portion of your total closing costs but not all land transfer taxes are the same. They can vary significantly by province and municipality. “The City of Toronto has its own land transfer tax on top of the provincial one so buying in Toronto is more expensive not only with the price of properties but also with closing costs,” says Mamourian.

7. Can homebuyers negotiate with sellers to pay the closing costs?

Homebuyers can always try to negotiate on closing costs, but it depends on the market. “In a seller’s market, you can’t be making demands like this,” says Mamourian. “In a buyer’s market, it’s open season, but rather than asking to pay closing costs like you see on TV, it’s usually just built into the offer price and still paid by the buyer.” 

8. What are some tips for how homebuyers can potentially reduce their closing costs?

“The total cost associated with items you’ll need during closing can range, depending on location and who you work with to do the close,” says Duncan. “For example, someone moving within the same province or city should pay less in associated moving fees compared to someone who is moving across the country. The associated legal costs may also vary depending on who you work with and what they charge for closing the transaction so it’s a good idea to contact different firms and ask for quotes.”

At the end of the day, when it comes to closing costs, the most important step is to plan ahead and build a buffer into your total budget. 

9. Is there anything else that homebuyers should be aware of when purchasing a home?

From closing costs and land transfer fees to property taxes and everyday maintenance costs, the price of homeownership is much more than your down payment and monthly mortgage payments. 

Some Canadian real estate markets held strong in 2018. Can they keep it up in 2019?

With data in for all but one month of 2018, Canadian home prices have posted an average decline of 4.1 percent, as many local markets have weakened against 2017 numbers.

However, a handful of markets have held strong this past year, bucking the national trend downward, one that was driven considerably by a slowdown in the Prairies and west coast markets.

While struggles in markets like Calgary and Edmonton are widely expected to persist amid lower oil prices, can 2018’s stand-out markets keep it up in 2019? Here’s what the experts say.

Montreal

According to BMO, Montreal has surpassed all of Canada’s other major housing markets in terms of price growth. Home prices are up 5.5 percent through 11 months. Montreal is one of the markets BMO Chief Economist Douglas Porter expects “to remain generally healthy in 2019.”

He is not alone. In a forecast published last month, the Canada Mortgage and Housing Corporation (CMHC) predicts surging demand in Montreal’s resale market in 2019 and 2020. CMHC anticipates this will come on the shoulders of increasing full-time employment among a key homebuying demographic, the 25 to 44 age group.

While in recent years annual price growth has been about 2.5 percent, CMHC expects the rate of increases to be “definitely higher” than that over the next two years.

Ottawa

Ottawa is the other market BMO’s Porter says will be generally healthy next year. To date this year, prices in Ottawa are up 3.6 percent, and the president of the local real estate board predicts continued strength in the coming years.

“We believe the market is going to remain strong in Ottawa, we think we’re still going to have an inventory issue over the next couple of years,” Dwight Delahunt, president of the Ottawa Real Estate Board, tells Livabl.

Federal government jobs and a booming tech industry are supporting demand, as well as immigration and a shortage of land that’s ready for development.

Halifax

Halifax trails Ottawa in terms of price growth over 11 months this year at a rate of 2.1 percent.

“Positive net interprovincial migration will continue to boost Halifax’s resale market,” reads CMHC’s Atlantic Canada outlook. “In fact, not only have fewer Nova Scotians been leaving the province for opportunities elsewhere, but Halifax’s more affordable housing market has been attracting buyers from other parts of the country.”

Partly as a result of this — and also an uptick in employment — the national housing agency suggests existing home sales and prices are going to increase in the next couple of years.

Windsor

In a comment that may surprise some, BMO has called Windsor one of the hottest real estate markets in the country.

While sales in the Windsor area were down 7.9 percent annually in November, the most recent month for which data was available, they remain near historic highs. And prices were up a scorching 10.6 percent.

“Our supply is still low — like, super, super low,” Tina Roy, president of the Windsor-Essex County Association of Realtors, tells Livabl of what’s elevating prices still. The area’s relatively affordability (the average price of a home is south of $300,000) has drawn buyers from the GTA, and retirees have been snapping up waterfront properties.

“It doesn’t look like it’s slowing any time soon,” she says, noting the expectation is for another strong year, albeit one that doesn’t match this year’s heat. 

The problem with the Canadian government’s mortgage stress test

 On a recent segment of BNN Bloomberg, Toronto realtor John Pasalis voiced support for extended mortgage stress testing nearly a year to the day after the federal government introduced it.

 

“The stress tests are great,” Pasalis says of the measure which requires mortgage applicants to qualify for their loans at a higher interest rate than they are signing on for.

 

As he sees it, there’s just one problem. “The problem is, it was probably too much, too quick.”

 

The new mortgage rules have come at a time when mortgage rates are on the rise. Pasalis, president of the Realosophy brokerage, notes how the Bank of Canada has hiked the overnight rate five times over the past six quarters. That, together with the stress testing, has added 300 basis points to the qualifying rate for homebuyers.

 

Pasalis highlights how much the lending landscape in Canada has changed for borrowers over the past 10 years.

 

“Policymakers thought extending credit to households was a great idea,” says Pasalis, noting that a decade ago consumers had access to 40-year amortizations.

 

Today, amortizations are capped at 25 years and a stress test has come with higher interest rates.

 

“I think it’s a lot in a relatively short period of time, especially over the past 18 months, to introduce these measures, and I think you can’t sort of shift the underlying philosophy of how you’re lending to consumers significantly without there being consequences,” says Pasalis.

The stress test has been commonly cited as one of the main causes of the Canadian housing market cooldown that played out last year. Experts have estimated that the stress test eats away at a mortgage applicant’s buying power by about 20 percent.

 

In commentary posted to Twitter, Pasalis speculated that policymakers may ease stress testing if the Canadian housing market continues on its downward trajectory this year.

 

Already, he suggests, a significant number of borrowers are turning to private lenders, who typically charge higher interest rates but are not mandated to impose a stress test. “As a result, they are paying much higher rates for their debt, spending less, [and] saving less.”


Thinking of becoming a landlord? Here’s what you need to know

Being a landlord isn’t without its challenges, but covering one’s bases in the following ways is bound to yield quality tenants and rents.

 

Every real estate professional understands the importance of location, and so should every landlord. Steve Arruda, a sales agent with Century 21 Regal Realty, has been a landlord for 18 years and advises taking one’s time performing due diligence on prospective neighbourhoods.

 

“You want to know where you’re investing in and what the demographics are in that neighbourhood, and whether there are universities and families there,” Arruda told CREW. “I’ve rented in depressed neighbourhoods, and it’s challenging. The price may seem really tempting, but then you attract a lot of renters who may not have the best incomes, and they could become problematic because there are issues each month with payment. Location is one of the most important things. Make sure you know where you’re investing and what the demographics in that neighbourhood are.”

 

If investing in a house rather than a condominium, ensure big ticket items like furnaces, wiring, roofs and windows are updated “because those are the things that are quite costly to repair,” added Arruda. “It’s good to have those larger items updated, otherwise if they fail, it’s always at an inopportune time like winter, and you’ll be left with an angry tenant.”

 

Beyond material concerns, Arruda says landlords invariably become arbiters in disputes between tenants, unfairly or not, and that managing personalities is a delicate art.

 

“When you have a house with four units, like a multiplex, it’s hard to get everybody to get along, and you’re their first line of defence,” he said. “So, managing personalities, managing expectations and being able to handle that

stress level are crucial, because for an inexperienced landlord, the first call they get because of an issue with a tenant or an issue with a clogged toilet can make their already stressful life even more stressful. Always be prepared for anything, whether issues with tenants or the property itself.”

 

Additionally, tenants need to be thoroughly screened, and Arruda recommends landlords run their own credit reports and confirm bank statements are real. Even calling an employer to confirm the information provided by potential tenants isn’t beyond the realm of the reasonable. As well, call their previous landlords to find out what kind of people they are.

 

Over 18 years, Arruda also learned that units with dishwashers, washers and dryers are not only highly sought after, they attract good-quality renters.

 

Renu Ashdir, a sales agent with iPro Realty Ltd., says clients for whom she seeks rental accommodations flock to buildings with amenities like gyms, but warns too many amenities—especially swimming pools—result in higher condo fees.

 

“If you’re a person in your 20s and 30s, fitness amenities are the most used,” she said, adding older tenants prefer the security of a concierge. “People care about the kind of neighbours they have in a building and whether or not there’s transit nearby.”

 

Most importantly, says Arruda, “Look after your renters and know rental laws.” 

10 top tips for a successful tenant background check

We’ve all heard the horror stories of tenants who destroy property or fail to pay rent. A bad tenant can be a nightmare for any landlord, as well as both emotionally and financially draining.

 

Fortunately, there are many steps that landlords can take to avoid being put in such situations. With the right tenant screening processes in place, landlords can detect the bad tenants before it’s too late.

 

As a landlord, your job is to verify the legitimacy of the information a tenant has provided to you through their rental application and supporting documents. You’re looking for anything that might be suspicious or doesn’t support the claims made by the tenant through their paperwork. If you find one red flag, it’s probably a good idea to pass on the tenant altogether.

 

These 10 tips will help you conduct a tenant background check with total confidence.

 

1. Ask the right questions

 

Asking the right questions is the first and most essential step to a great tenant background check. Before you meet tenants face-to-face, you will likely talk to them over the phone. This is your opportunity to prequalify them.

 

There is no point in showing your rental property to someone that is not the right candidate. For example, if a tenant is looking to move into a place immediately and your rental unit is not available for another two months, it would be a good idea to uncover that over the phone before you waste more of each other’s time. This is where asking the right questions can help you ensure the best tenant screening possible.

 

It’s also important to not assume anything about a tenant from the way they come across over the phone. Remain objective while asking your questions. It’s always helpful to be genuinely curious about a prospective tenant while simultaneously looking out for any inconsistencies.

 

8 Questions to ask during a tenant background check

 

When do you need a place by?

Have you given notice to your existing landlord?

How is your job?

How is your credit report?

What is your maximum budget?

How many bedrooms do you need?

Do you have pets?

Who else will be living with you?

 

2. Get them talking

 

How one ends a relationship tells you a lot about them. That’s why it’s a good idea for a landlord to get a prospective tenant to talk about his current or previous landlord. If a tenant left the relationship on a bitter note, it is helpful to know what happened. You can bait a tenant into opening up about their current situation by saying the following: “I know a lot of landlords can be difficult to deal with. How has your experience been with your current landlord?”

 

If you happen to uncover a prospective tenant that is suing his current landlord, don’t risk taking that person on as a tenant. You could be the next landlord they go after.

 

As a landlord, you cannot rely on the paperwork alone to carry out a tenant background search. You have to be creative and willing to engage with tenants on a personal level. Conversations can help you better understand the way your tenants relate to others and how they handle conflict, all of which are essential to achieve the best tenant screening.

 

3. Look for troubling signs

 

As part of due diligence, it’s important to look out for any suspicious signs. A lot of landlords mistakenly think that a tenant background screening is just about checking landlord and employment references. Though that is an integral part of the process, a good landlord will also do some extra detective work.

 

Professional tenants are people who make a living from deceiving landlords. They know how to lie about their identities to get their rental application approved. Once they move into rental properties, they don’t pay the rent and disappear before landlords can ever take them to court. These are the worst tenants you can possibly have and it’s important to watch for any telltale signs.

 

Here are two signs you should be watching out for during a tenant background check:

If a tenant acts really excited and wants the property right away, you should be cautious. Good tenants begin searching for a rental property at least four to eight weeks before they need one. That is why it’s important to ask yourself why this tenant is so desperate. Could it be that the tenant’s application has been rejected by everyone else? Or does the tenant suspect you are so desperate to find someone that you will overlook serious problems with their application?

 

Either way, you need to be cautious.There could be legitimate reasons for why a tenant might need the place right away. Perhaps you’re dealing with a new immigrant or someone with an immediate job transfer. Regardless, it’s your job to verify the facts to your satisfaction.

 

There is the old saying: “If it sounds too good to be true, it probably is.” This applies especially for tenant background checks. When a tenant starts telling you a bunch of things that you want to hear, you should be suspicious of them. For example, if they insist on taking care of certain renovations for you or tell you stories about how they helped their landlord fix things around the home for free.

 

Though these may be true stories, you need to verify these facts as best you can. For example, when talking to the landlord ask them about the stories your tenant told you. Be as specific as you can about the details in case the landlord reference is phony as well.

 

4. Confirm their identity online

 

The internet is a helpful tool for carrying out a tenant background search. You can use large search engines, such as Google, Yahoo or Internet Explorer, to verify the identity of a prospective tenant. Simply type in their names and see what comes up.

 

While searching online, it’s important that you cross-reference everything you come across with the rental application and supporting documents provided by the tenant. Is the employer they claim to be working for online the same as the one that appears on their rental application and letter of employment? Does the online photograph match the identity of the tenant you met in person?

 

It is also important to check for any past criminal or fraudulent activity associated with their names. Social media platforms are helpful in getting to know the tenants as well. Check their profiles on Facebook, LinkedIn, Twitter and Google+.

 

5. Never use the employer contact number provided

 

How do you know whether the phone number listed on a rental application is legitimate? It’s easy for any tenant to have a friend pretend to be their employer over the phone. To avoid being duped like this, you need to research the company’s phone number online. This should be a regular practice for any tenant background screening. Never make a call using the phone number provided on the application. Most companies can be found on the Internet. If you can’t find the company listed anywhere, you should be suspicious.

 

If you’re able to find the number online, call the company’s operator and ask to speak to the tenant. If the operator can’t find the tenant’s name listed, this may be an indication that he or she is lying about their employment status.

 

6. Verify the landlord’s name using proper channels

 

How do you know whether the current or previous landlord’s names and phone numbers listed on the rental application are valid? A tenant background check is only as reliable as the information provided. That’s why it’s important to verify the landlord’s identity.

 

A good way to do this is to get your Realtor or lawyer to conduct a land registry check on the addresses belonging to the tenant’s current and previous landlords. If the names provided match with those listed on land registry, the tenant has been honest and forthcoming about this information.

 

7. Confirm the current rental period

 

When tenants lie about their current landlord reference, they also lie about the time period in which they rented their current home. A robust tenant background screening will attempt to detect deception on multiple levels so as to lessen the probability of approving a bad tenant.

 

If a prospective tenant is currently living in a rental home that was leased out through the help of a real estate brokerage, a record of them leasing out this home will exist on a centralized MLS system. As such, you can request that your Realtor check all previous records related to the tenant’s current address. If the property was rented or sold in the past, your job is to cross-reference the dates to see if they match up with the date the tenant claims to have moved in. Any discrepancies with respect to dates will indicate that the tenant is lying to you.

 

8. Ensure affordability

 

Affordability is a critical element in tenant background screening. How do you know whether a tenant can afford to rent from you? You have to consider how much they earn with respect to the rent owing, their current liabilities and their spending habits as reflected by their credit report.

 

If the rental property exists in a city where the cost of living is high, you need to take this into account when assessing affordability. For example, two-bedroom Mississauga condos typically rent for an average of $1,700, plus a hydro bill that can range from $30 to $80 depending on usage. In this region, the cost of living is moderate and landlords can typically feel comfortable if the tenant’s rent is less than 40% of their after-tax income. Every city will have its own rule of thumb with respect to an acceptable rent-vs-income ratio.

 

Since it’s very easy for tenants to submit fake letters of employment, it’s a good practice to ask for their three most recent paystubs. Paystubs are more difficult to duplicate. Making them a requirement helps lessen your chances of being a victim of tenant fraud.

 

9. Pull your own report

 

In my many years of being a Realtor and real estate investor, I have come across my share of fake credit reports. That is why I always advise landlords to pull a second credit report on any tenants they are seriously considering. This should be a standard protocol with respect to any tenant background check.

 

Before you approve a tenant, you should get a third party to pull a credit report for you. Do not rely entirely on a credit report you received from a prospective tenant. It’s okay to use that as an initial reference. However, once you’re about to make decision in favour of a tenant, it’s important to pull their credit report to see if it matches the one provided. If it does, you can rest at peace knowing that the tenant has passed the best tenant screening processes one could possibly implement.

 

10. Verify photo identity

 

Now that you’ve approved the tenant, it’s time to make it all official through the signing of the lease itself. When you meet the tenant in person for this final paperwork, it’s very important that you request photo identification before signing any documents.

 

This is the final step to the tenant background check process, as it helps validate whether the identity you used to approve the application is belonging to the person standing in front of you.

 

It’s impossible to protect yourself entirely from the possibility of assuming a bad tenant. This risk comes with being in the business of renting out residential homes. Nonetheless, the 10 tips provided here will help you administer the best tenant background screening possible. I can guarantee this from my own experience as a successful landlord. 

 

Ontario's best investment hubs this year
 
A new report from independent research think-tank Real Estate Investment Network (REIN) ranked Ontario’s largest metropolitan areas by real estate market performance and suitability for investment over the next 5 years.

In terms of growth, diversity, and fundamental strength, Ottawa came out on top of the wide-ranging survey, which looked at multiple factors including economic health, employment numbers, GDP and population growth, housing prices and overall affordability, rent and vacancy rates, and several others.

REIN ranked the following cities in order of their housing market strength and potential performance over the next half

decade:

- Ottawa
- Kitchener -Waterloo-Cambridge
- Hamilton
- Barrie
- Brampton
- Durham Region
- Toronto
- Kingston
- Orillia
- Grimsby and St. Catharines

 
REIN also cited the following cities as honourable mentions, in no particular order:

- Milton
- Niagara Region
- London
- Thunder Bay
- Vaughan
- Chatham
GTA Retail Overview

GTA Retail Overview Similar to Vancouver, the GTA retail market continues to receive new international retailers who are either looking to enter the GTA market, or are using the GTA as a launching pad to reach the rest of Canada. The GTA retail market vacancy rate has edged down, by 50 bps year-over-year to end 2018 at 2.7%, with the average net asking rent up 5.3% over the same period to $25.40/SF per annum. Construction activity has been relatively slow, with only 1.5 million SF of new supply delivered over the past year, and construction activity is virtually unchanged from year-end 2017, at 4.4 million SF as of the end of 2018, presenting a mere 1.5% of existing inventory. Despite the new vacant space that came to the market as a result of Sears Canada closing in Q1 2018, the limited amount of new supply is not enough to satisfy the demand from tenants who are struggling to find space amid low vacancy and increasing rents. As a result of this demand, vacancy is expected to actually decrease to approximately 2.5% before once again increasing in 2021.

Despite the impressive fundamentals, there are some clouds on the horizon. The latest national GDP data indicates that retail activity has come off the boil. Furthermore, retail sales have been showing weakness for some time, with much of the total increase as a result of inflation and population growth. Although retails sales growth is expected to remain positive, higher interest rates, which are expected to continue increasing in 2019, along with increasing debt service costs will take a bite out of retail sales. As a result, GTA retail sales are only expected to increase by 0.6% in 2018 but then rebound to increase by 1.4% in 2019, compared to 5.0% in 2017.

In order to combat the effects of e-commerce on the retail market, landlords of premier quality properties continue to work on turning them into experiential destinations. Such an endeavor often goes beyond simply adding more restaurants and services in malls. It can also include ventures such as Ivanhoe Cambridge and Cirque du Soleil, who have teamed up to offer family entertainment centres in shopping centres, due to launch in 2019. Landlords are looking at ways to further differentiate themselves from the rest of the pack in order to attract more shoppers as well as new and better retailers. Expect to see intensification of retail properties and repurposing of parking lots in suburban malls (Yorkdale Mall being one example), and redevelopment (like Aoyuan’s plans for Newtonbrook Plaza). 

GTA Industrial Overview

GTA Industrial Overview Despite the bad news on the manufacturing side, the GTA industrial market, which is being driven by the transportation and warehousing sector, has experienced continued strong demand. Overall GTA vacancy has decreased by 120 bps year-over-year to end 2018 at 1.9%. To keep up with demand, construction activity has been equally strong. There has been approximately 5.0 million SF of new supply delivered over the last year, with an additional 9.5 million SF currently under construction.

 

Unfortunately this construction activity has not been enough to keep up with demand, and furthermore, the GTA is now facing land shortages, which will impact the amount of future construction activity. Projections show that the GTA industrial vacancy rate will continue edging down to approximately 1.3% to 1.5% early in 2019, before starting to climb slightly back above the 2.0% range by 2020. There remains strong demand from transportation, warehousing and logistics tenants, as well as non-traditional tenants focused on film and cannabis industries, and as a result of this strong demand and limited supply, the average net asking rental rate continues to increase, up 9.3% year-over-year, to $7.07/SF per annum at year-end 2018. 

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