Cancelled Condo Raises Call for Better Buyer Protections
The cancellation of a pre-construction condo development in Toronto’s Junction neighbourhood has left buyers and investors in the cold – and has prompted calls for increased consumer protections from the province.
The Museum FLTS project was to be a 150-unit, 10-storey mixed-used development at 158 Sterling Road and part of the local neighbourhood revitalization plan. Touted as a “’vibrant mixed-use community’ and a ‘project which will bring new residents, new businesses, new jobs and new services’ to the community”, units had been in hot demand from those looking to dwell in one of the city’s trendiest areas.
However, the developer, Castlepoint Numa, pulled the plug on the project this month, citing the failure to acquire building permits, long approval delays, and rising construction costs. “Recently, the industry has been experiencing the most significant cost increases in a decade,” they state on their website. The project was scheduled for completion in 2019.
While buyers received their deposits back in full plus interest – a consumer protection for pre-construction condo purchases – many have complained to the media that while their cash was tied up in the project, the market rapidly outpaced them and they can no longer afford to live in the neighbourhood. According to Urbanation, the price per square foot for pre-construction condos recently hit $951, and is anticipated to cross the $1,000 mark this year.
While a project not coming to fruition is a known risk in the pre-construction market, it’s relatively rare – only 23 have been cancelled since 2012 in Toronto says Urbanation. However, this quashed project has raised calls to better protect consumers who buy on concept by requiring developers to be transparent about projects’ financial status, and potentially insuring lost appreciation value.
According to the Ministry of Government and Consumer Services, these changes could come as an amendment to the Protecting Condominiums Owners Act and via Bill 166, a pending proposal that would mandate what kind of information must be provided to new home purchasers. “Future regulations could address matters relating to disclosures that condo purchasers must receive from a developer. This could address matters such as the status of the project, planning approvals for the proposal, etc.,” states the Ministry.
Double Ending Now Banned in British Columbia
New rules for real estate agents have been announced by the BC government, to take effect on March 15, 2018. Designed to better protect consumers from unscrupulous agents and unethical real estate prices, they’ll enforce greater transparency around agent compensation, restrict deals with “dual agency”,and cut down on the practice of shadow flipping, aka selling preconstruction condo units on assignment prior to closing.
“These rules will significantly change the way that real estate services are provided in British Columbia,” said Micheal Noseworthy, BC’s superintendent of real estate. “The changes will empower consumers and provide clarity around the role of an agent. Ending dual agency removes the potential for conflict and serious problems. We want to create transparency for both consumers and licensees to ensure everyone understands in whose interest licensees must be working.”
The rules are similar to those proposed in Ontario in August by the Ontario Real Estate Association – they have also moved to ban dual agency (aka. double ending) practices, where one agent represents both the buyer and seller in the same real estate transaction. They are the result of recommendations made by the Independent Advisory Group on Real Estate Regulation in BC in June 2016.
However, some agents aren’t happy about the new BC proposal, saying they don’t effectively address real buyer issues.
“These rules do nothing to change the impact of international money in the market [and they do] nothing to change the impact of people flipping houses [or] consumer protections around pricing,” said Keith Roy, a REMAX Select agent to the CBC.
Seattle: The New Vancouver?
Is the foreign buyer’s tax implemented last summer in Metro Vancouver a catalyst for booming demand in Seattle? The latest numbers suggest Asian-based buyers are shifting their interest south of the border, piqued by a similar climate, close proximity and – most importantly – cheaper prices.
Not only is the Seattle housing market unfettered by a foreign buyer’s tax, its real estate is generally less expensive at an average of US$735,00 ($934,000 CAD), compared to $1,617,000 CAD in Vancouver. However, that’s a year-over-year surge of 17.6 per cent, which, according to a local real estate expert, was fueled by “frenetic” foreign activity.
“A lot of people who were looking in Vancouver are automatically looking further south to Seattle… no question there’s a knock-on effect given your tax situation relative to foreign buyers,” said Matthew Gardner, chief economist at Seattle-based Windermere Real Estate to the CBC, adding roughly 1,000 people move to the city each week. Of those, half from out of country are Asian, he says.
Numbers from Juwai.com, a popular site used by Asian buyers to browse Canadian real estate, show a clear correlation between the tax and shopper activity, with searches increasing 8.7 per cent overall, with an uptick in other North America cities including Los Angeles, Montreal, and Toronto.
“When these uncommitted buyers compare Vancouver prices plus the tax to what they can get somewhere else, sometimes they decide it’s not worth it,” Byron Burley, Juwai’s BC-based VP, stated in a release. “Vancouver’s tax is working by driving a share of buyers to other cities, especially Seattle.”
However, he adds that doesn’t mean demand has drastically dipped in BC’s biggest city, though the tax effectively “took the froth off the top”. The site’s search volume doesn’t show any prominent decline in Vancouver, with sales instead remaining flat like a “deflating soufflé”.
Canada Real Estate Sales Pick Up in October: CREA
The latest set of national housing sales and price data from the Canadian Real Estate Association reveals that after an autumn of sliding sales, activity saw a slight uptick in October, increasing 0.8 per cent month over month. However, sales are still down 4.3 per cent from 2016 numbers (the seventh month in a row sales declined annually), and a steep 11 per cent from the March peak.
The national average home sale price rose 5 per cent year over year to $506,000. Not factoring in Toronto and Vancouver, which greatly skew the national average, strips out $120,000, to an average price of $383,000.
CREA’s analysts believe the increase in sales activity could be due to buyers rushing into the market before tougher mortgage qualification rules take hold in January.
“Newly introduced mortgage regulations mean that starting January 1st, all home buyers applying for a new mortgage will need to pass a stress test to qualify for mortgage financing. This will likely influence some home buyers to purchase before the stress test comes into effect, especially in Canada’s pricier housing markets,” stated CREA President Andrew Peck.
New Rules Will Cool the Market – But It Won’t Last
Various rounds of provincial and federal regulation designed to improve affordability in the Canadian housing market may be temporarily successful – but prices will be higher than ever once the initial impact fades, states a new report.
In a research note titled “The Housing Market: When the Fog Clears”, CIBC’s Deputy Chief Economist Benjamin Tal says the new changes – which include foreign buyer taxes, rental regulations, and new mortgage qualification rules – will “stabilize and perhaps soften in the coming quarters as markets adjust to recent upcoming changes.”
But, he adds, “when the fog clears it will become evident that the long-term trajectory of the market will show even tighter conditions.”
While policy makers are focusing on rampant demand, he argues, they’ve ignored the issue of too-little supply, which he says will only get worse. “Short of a significant change in housing policies and preferences, there is nothing in the pipeline to alleviate the pressure,” he writes.
New mortgage rules that require all buyers applying for new mortgages to pass a stress test may especially miss the mark, he says. While they may effectively knock some borrowers out of the A-lending market, there are sufficient alternatives – such as turning to private lenders and credit units or extending their amortizations – that the number of new mortgages won’t decline drastically.
“On the surface, that change reduces the purchasing power of typical buyers by close to 20 per cent and we estimate that no less than 10 – 15 per cent of mortgage originations will be impacted by that move. However, the actual reduction in demand is likely to be much less significant,” he writes.
And, while the Vancouver and Toronto markets both experienced slowdowns following the implementation of their respective foreign buyer’s taxes, Tal chalks this up to a psychological barrier that has rapidly been overcome. Rather, demand fundamentals remain strong in the face of factors that continue to limit supply.
“Zooming in on the GTA market, as we have indicated in the past, the main issue facing this market is a significant and worsening lack of land supply. And the numbers don’t lie,” Tal states, referencing development limitations as a result of the Ontario Places to Grow Act, and the overhaul of the Ontario Municipal Board.
Ontario to Fast Track Housing Development Approval
Speaking of improving supply, the Ontario provincial government unveiled this week a new plan for streamlining the housing development approval process, in efforts to speed up the creation of badly-needed inventory.
Part of the previously-announced Fair Housing Plan, this set of 14 recommendations was compiled by a roundtable of reps from the development, construction and real estate sectors. The plan lays out how to best align infrastructure with land use planning, improve zoning, and offer guidance for implementing new land-use policies. They’ve also called for the approval process to join the 21st century, with a new task force to facilitate the introduction of e-approvals.
“Affordable home ownership is one of the most important issues facing young people and families today. Ontario Realtors have been saying that creating the conditions for more housing supply is the best solution to ensure the Canadian Dream of home ownership doesn’t slip out of the hands of the next generation,” stated Ontario Real Estate Association CEO Tim Hudak in response to the recommendations.
“That is why Ontario Realtors are encouraged with today’s release of the provincial government’s Development Approval Roundtable Action Plan. Ontario Realtors brought forward a number of housing supply recommendations earlier this year including: tying infrastructure investment to better zoning by municipalities for more housing, cutting red tape for a more streamlined development approvals process, and a commitment for home development intensification along transportation corridors. We are very pleased to see all three ideas now incorporated into the Provincial Government Plan. We thank the Government for listening and we encourage them to put these sensible ideas into action.”
Some Airbnbs Now Banned in Vancouver
A new bylaw recently passed by Vancouver’s city council has slapped new restrictions on some short-term rentals. While homeowners can now legally list their homes on Airbnb, they will be required to pay an annual $49 licence feel, as well as a one-time fee of $54.
The biggest change, however, is that only principal residences can be listed on the short-term rental service, effectively hamstringing those who own several properties and solely rent them out on the online platform for profit.
Secondary suites (such as basement units) and laneway houses aren’t eligible for Airbnb either, even if they’re on the same premises as a principal residence. This has been a point of contention, with some city councilors arguing it could hurt the affordability of existing homeowners.
Said Non-Partisan Association Councillor George Affleck, who opposed the bylaw, to Business in Vancouver, “As a single-family homeowner, you should be able to make your decision about how you want to use your home. And, coupled with that, there were people who [spoke to council who] were clearly upset and concerned about the affordability of Vancouver. We have to take these people seriously and respect their concerns in this city.”
However, Mayor Gregor Robertson argues that with the city’s vacancy rate at 0.7 per cent – a historical low – such units should instead be reserved for long-term tenants, and that the bylaw could be revisited with an amendment should the rate improve to 4 per cent. He estimates there are currently 6,000 illegal Airbnb units operating in Vancouver – currently, rental terms must be a minimum of 30 days in the city.
Toronto City Council is currently mulling over similar Airbnb regulations, and could vote them in as early as December 6. Requiring that homes be principal residences, along with new licencing fees, are among the potential changes.