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Federal budget includes first-time buyer incentives

Feds pick up a portion of first-time buyer?s mortgage

Jordan Press
Canadian Real Estate Wealth

On the eve of a federal election this fall, the Liberal government is looking to help more Canadians buy their first homes by picking up a portion of their mortgage costs and increasing the amount they can borrow from their retirement savings for a down payment.

Helping people enter the housing market has been a growing preoccupation for the Liberals ever since they were elected in 2015, with soaring real-estate prices in some of Canada’s largest cities putting home ownership beyond the reach of many.

An estimated 1.6 million Canadian households are considered in “core housing need,” meaning people who are living in places that are either too expensive or don’t suit their needs.

The means-tested incentive the Liberals unveiled Tuesday would only be available to households with incomes under $120,000 _ roughly $50,000 more than the median household income as calculated by Statistics Canada _ and on mortgages no more than four times the household’s total income.

Eligible buyers would see the government pick up part of the costs of their mortgages to lower their monthly payments, with the amount of help determined by their incomes and whether they’re buying an existing or newly built home.

The government also plans to raise the maximum amount a first-time buyer can withdraw from an RRSP: $35,000, up from $25,000. And while the program has long been restricted to new would-be homeowners, those who are recovering from the breakup of a marriage or common-law relationship would also be allowed to take part.

The measure, expected to cost $1.25 billion over three years beginning this fiscal year, would target Canadians “that face legitimate challenges entering housing markets” after qualifying for a mortgage, the budget document says. An additional $100 million would flow to the Canada Mortgage and Housing Corporation to help organizations that already provide the so-called “shared equity mortgages.”

The government would recoup its costs when the house is sold, although the budget document isn’t clear what would happen if the home is sold for a loss.

The program, some details of which are yet to be finalized, is part of a tranche of spending that includes establishing a national expert panel on housing supply and affordability, better data collection, and $300 million for a contest to encourage cities to come up with new ways of expanding housing stock.

The new measures could increase the annual number of new homebuyers nationally to 140,000 from 100,000 by lowering monthly payments without creating higher household debt loads, said Finance Minister Bill Morneau, who was confident the measures won’t cause a spike in housing prices.

“We’re recognizing that it is challenging for people in the housing market; it’s a real issue, but what we’ve done is we’ve carefully looked at what’s the best way to deal with that issue,” Morneau told a news conference.

“It’s not going to make an impact on the overall market from a pricing standpoint, meaning people are actually going to be better off, more optimism in terms of housing, and it’s the reason we’re very excited about this measure.”

Economists and experts had been concerned that Morneau’s focus on helping millennials, in particular, get footholds in the market could juice home prices after years of trying to cool demand in places like Toronto and Vancouver. Federal efforts, such as a new financial “stress test” to make sure a buyer can afford a mortgage, have slowed prices from where they might have been.

Scotiabank economist Marc Desormeaux said the Liberals opted for a relatively modest measure, considering the options they have.

“This is providing additional support for individuals who have already qualified for homes, helps them relieve some of their monthly payments once they’ve qualified for a mortgage and entered into the contract,” Desormeaux said.

“The concerns about stoking demand from some of these measures aren’t concerns that we would raise at this time.”

What the measures should do is increase supply _ one of the measure’s stated goals. The government plans to cover five per cent of the cost of the purchase of an existing home and 10 per cent of a new build, hoping to “encourage the home construction needed to address some of the housing supply shortages” across the country, the budget document says.

Mathieu Laberge, an expert with Deloitte, said the measures appear to target people who would be willing to rent or buy smaller condominium units, for example, outside a major urban centre.

“It may shift the decision-making of some buyers in larger cities,” said Laberge, a former policy adviser to Social Development Minister Jean-Yves Duclos. “You’re changing the relevant price between rental and home ownership in those areas, like the immediate suburbs of, for example, Vancouver and Toronto, which is a way to provide more options to households that would otherwise be priced out of the market.”

Tuesday’s budget also includes $10 billion more for a program to fund the construction of new rental units _ the third time the Liberals have expanded the program, which aims to create 14,000 units over 10 years and now carries a $50-billion price tag.

Copyright © 2019 Key Media Pty Ltd

RE/MAX, Redfin announce referral relationship

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

B.C. attorney general opens door to background checks for money transfer/exchange businesses

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.

2019 housing starts to decline in Toronto, Vancouver

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

Altus report latest to forecast decline in B.C. housing starts

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.

Regulators propose further changes to syndicated mortgage rules

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