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New stress test level makes it harder to qualify for a mortgage in Canada

Mortgage stress test change what’s been the impact?

Fergal McAlinden

OSFI implement stricter requirements for some types of loans to protect homeowners

Canada tightens rules on riskiest mortgages

Ephraim Vecina

OSFI rules are intended to protect Canadians from systemic banking risks
The Office of the Superintendent of Financial Institutions (OSFI) has announced that it will be implementing stricter requirements for some types of loans to protect homeowners who are now wrestling with the added risks from mounting interest rates.
“OSFI is taking action to ensure that federally regulated financial institutions are well prepared to address the risk of persistent, outstanding consumer debt that can make lenders more vulnerable to negative economic shocks,” the agency said.
The changes will affect combined loan plans (CLPs), loans with shared equity features, and reverse mortgages.
“As their structures evolve, so too must our approach and treatment of such exposures,” OSFI explained. “The most significant concern with these products is the re-advanceability of credit above the 65% loan-to-value (LTV) limit. Products structured in this way could lead to greater persistence of outstanding balances and increase risks to lenders and households.”
Read more: RBC: Central banks likely to take more stringent approaches
While the majority of those who are using CLPs will see no changes, those who owe more than 65% LTV will be required to allocate a portion of their principal payments towards reducing their overall mortgage amount until it goes below the 65% threshold.
“This will typically happen the next time borrowers renew their CLP after the end of October or December 2023, depending on the lender’s fiscal year,” OSFI said.
Data from the Bank of Canada indicated that CLPs that are above 65% LTV currently account for $204 billion of the nation’s approximately $1.8 trillion in total outstanding residential mortgages.
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Vancouver’s industrial market is just blistering white hot | Susan Thompson

“White hot” market sends industrial lease rates skyward

Peter Mitham
Western Investor

Rising interest rates could slow new industrial strata projects

PC Urban and Nicola Wealth plan to build strata industrial units at 2660 Barnet Highway in Coquitlam, and Colliers said strong demand could deliver record-breaking prices.
There’s little relief on the horizon for the Vancouver industrial market, but rising interest rates are creating the potential for an inflection point that could see developers hit pause.
“Vancouver’s industrial market is just blistering white hot,” said Susan Thompson, associate director of research with Colliers International in Vancouver.
Metro Vancouver is ending the second quarter with the tightest industrial market in North America, Colliers reported this week. Vacancies average 0.1 per cent across the region, and availability is little better at 0.5 per cent.
This has fuelled a 22 per cent increase in asking rents versus last year, with landlords now asking an average of $19.19 a square foot. Many buildings are leasing for well in excess of $20 a square foot.
“That’s a direct result of the incredibly low vacancy rate, which is now the lowest vacancy rate in North America, at 0.1 per cent. That’s almost unheard of,” Thompson said. “There’s a lot of pressure on availability and there’s a lot of pressure on prices because there’s a shortage of options.”
There’s also a shortage of new supply. While approximately 7.8 million square feet of industrial space was under construction this quarter, almost all of it is spoken for.
“There’s nothing out there for companies to move around in, so they’re having to do their deals further and further in advance,” Thompson explained. “There’s almost 8 million square feet of new industrial under construction right now, and that sounds like a lot, but with vacancy as low as it is, we’re going to need even more.”
Rezoning of approximately 600 acres in the Campbell Heights area is the market’s best hope for relief right now but there’s no set timeline.
“We’re hopeful that it comes as soon as it can,” Thompson said.
Strong rents mean investor demand for industrial properties is likely to remain strong despite rising interest rates.
Colliers forecast in April that cap rates would hold steady through the second quarter at between 3.25 per cent and 4.25 per cent for Class A buildings.
“Many leasing opportunities are seeing multiple offers being put in by well-established companies and are still achieving lease rates of over $20 per square foot,” Colliers reported.
“It seems to be a transition period in the market while we try to figure out what do these changing interest rates mean, and how are they going to impact various decision-makers and real estate deals,” Thompson said.
New developments, particularly strata-titled industrial units, may be the most vulnerable.
“Developers are working to make economic sense of new and upcoming developments, especially strata industrial projects,” Colliers reported.
But a white hot market could keep things on the boil for awhile yet.
Among the deals done in the quarter was the $24 million purchase by PC Urban Properties and Nicola Wealth Real Estate of 2660 Barnet Highway in Coquitlam for a strata-titled small-bay industrial project for owner-users and investors.
“With increasing lease rates and perpetually low availability, this industrial strata project could very well still experience record-breaking pricing, even amidst rising interest rates,” Colliers stated.

© 2022 Western Investor

Downtown office vacancy rate hit 7.4% Q2 in 2022

Tech companies drive downtown office demand in active market

Tyler Orton
Western Investor

Downtown office vacancies were 7.4 per cent in the second quarter of 2022, according to Colliers data
Renting office space in downtown Vancouver is more expensive than in any other city in Canada, according to Colliers.Chung Chow/Business in Vancouver
Big tech companies aren’t giving Vancouver’s downtown office towers much breathing room.
The city’s downtown office vacancy rate hit 7.4 per cent in the second quarter of this year – up slightly from 7.2 per cent in the first quarter of 2022, according to a report released June 22 by Colliers International.
Only Victoria has a lower downtown office vacancy rate at 6.1 per cent.
Venture into the suburbs and office space in even scarcer, with communities outside Vancouver proper facing an office vacancy rate of 4.9 per cent. Overall, Metro Vancouver has an office vacancy rate of 5.9 per cent as of the second quarter.
Big tech companies are driving demand in the city’s office market, a Colliers representative said in an email to BIV.
Large tenants taking up 50,000 square feet or more are the most active tenants. But they face an ever-diminishing number of options even as remote and hybrid working models have taken off in the pandemic at the same time employers are looking for ways to accommodate workers in a tight labour market.
“Low operating costs contribute to Vancouver’s allure as a tech hub. Vancouver had the fourth-lowest operating costs of the 30 top tech markets identified by CBRE [Group Inc.],” stated an April report from the Downtown Vancouver Business Improvement Association (DVBIA), referring to rankings from the real estate services firm.
“The recent increase in investment from U.S.- based venture capital firms is linked to increases in remote work, with VC firms increasing their investments in Canada-based companies now that geographic proximity is less of a limitation.”
So even though the rise of remote working might lead one to believe that office space would be in less demand, big U.S. tech companies appear to be growing more comfortable tapping workers based in Vancouver offices to exploit lower operating costs.
Vancouver-founded PlentyOfFish (now owned by Match Group), fintech Tipalti Inc., medical devices firm Masimo Corp. (Nasdaq:MASI) and Microsoft Corp. (Nasdaq:MSFT) are among the American tech companies that have been expanding downtown over the past year.
And homegrown tech firms that recently reached unicorn status (a valuation of US$1 billion or more) also have a foothold in the city’s downtown core, including Trulioo Information Services Inc., GeoComply Solutions Inc. and Galvanize.
But companies are paying a premium to expand in Metro Vancouver, where the cost of office space per square foot sits at $32.90, according to Colliers’ data.
Only Toronto, at $26.06, even comes close to Vancouver. The net asking rate for office rent in Calgary stands at $14.15.

© 2022 Western Investor

REBGV: Land remain the strongest asset class in the region in Q1

Real estate investment sales surge 60 per cent in first quarter

Peter Mitham
Western Investor

Supply chain issues, geopolitical events create an uncertain outlook
Rising interest rates are among the headwinds commercial real estate faces this year, REBGV chair Daniel John said.REBGV
Strong activity drove a dramatic increase in investment sales across Greater Vancouver in the first quarter, according to Altus Group data.
A total of $4.9 billion worth of transactions took place on a volume of 733 transactions in the first quarter. This was up 60 per cent from more than $3 billion a year ago, when 499 deals were done.
The numbers include share sales, which aren’t registered with the Land Title and Survey Authority.
According to the Real Estate Board of Greater Vancouver, land remained the strongest asset class in the region in the first quarter.
“Raw land was the most popular and expensive commercial category driving activity to begin the year as companies look for space to expand and pursue their commercial ventures in the region,” REBGV chair Daniel John said.
A total of $2 billion worth of commercial land changed hands in 206 transactions in in the first quarter, a 177.5 per cent increase in value from a year ago. The average value of this deals increased to $10.1 million, up from $6 million a year ago (REBGV excludes share sales from its analysis).
Sales of industrial properties also increased, as tight inventories pushed prices higher.
REBGV reported $673 million worth of transactions in the first quarter, up two per cent from $660 million a year ago. The average deal value was $4.8 million, up from $3.3 million last year.
Other asset classes – office, retail, and multifamily – saw declines in both value and volume, with average transaction values falling in each case.
While economic conditions kept momentum moving as the year began, the latter half of the year presents headwinds.
“Strong economic growth and low interest rates helped keep the Lower Mainland’s commercial real estate market moving briskly in 2021, and this momentum carried into the first quarter of 2022,” John said. “Going forward, we’ll need to see how the rising interest rates and inflationary pressure that we’re experiencing today will impact our commercial real estate market for the balance of 2022.”
An index of commercial activity prepared by the BC Real Estate Association increased 3.4 per cent in the first quarter, driven largely by indicates that commercial activity in the first quarter was driven by rising wholesale trade and manufacturing sales.
Various factors, including supply chain disruptions and the war in Ukraine, contribute to a more uncertain outlook.
“The environment for commercial real estate remains highly abnormal and uncertain,” BCREA said in its analysis.

© 2022 Western Investor

Canada needs 3.5 million more homes by 2030 to ensure affordability | CMHC

CMHC: Millions of additional housing units needed to ensure affordability

Ephraim Vecina

Ongoing challenges in the construction industry could get in the way of this target

As many as 3.5 million more homes than the currently outlined rate need to be built nationwide by 2030 to ensure affordability, according to the Canada Mortgage and Housing Corporation (CMHC).
At the current rate of new construction, CMHC said that a total of 2.3 million new homes will be completed across Canada by 2030, bringing the total national inventory to nearly 19 million.
But a previous CMHC report estimated that a total housing stock of more than 22 million units will be needed within eight years to bring down average home prices nationwide.
“Increasing supply will be difficult. Critically, increasing supply takes time because the time to construct is significant, but so is the time to progress through government approval processes,” CMHC said in a new report.
“This delay means that we must act today to achieve affordability by 2030.”
Read more: BoC: Suburban home prices spike faster than downtown property values
However, the Crown corporation warned that construction industry woes could get in the way of this goal.
“There are supply issues, labour shortages at the moment and the cost of financing is going up, so clearly there are short-term challenges,” said Aled ab Iorwerth, deputy chief economist at CMHC.
“The jobless rate in construction is near a record low; vacancies are at a record high, we have a deep shortage of skilled trades, and the cost of building materials is already rising quickly. So, unless the economy really rolls over and is in need of stimulus, effectively doubling the rate of new construction over the next decade will be extremely difficult without significant inflationary pressure,” BMO economist Robert Kavcic elaborated in a separate analysis.

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