Metro Vancouver Commercial Market Has Positive Residential Effect
“I think we will see another Bank of Canada rate cut in March,” said Kinch, a mortgage consultant with Dominion Lending Centres.
Kinch is not alone in expecting a rate decline.
TD Bank (TSX:TD) is predicting a further 25-basis-point cut in the BoC’s rate in March. HSBC Bank PLC (NYSE:HSBC) has predicted the BoC will lower its overnight target rate to 0.5% next month and again in the second quarter to 0.25%.
Even BoC governor Stephen Poloz has hinted at further rate reductions. Poloz said recently that low oil prices were “unambiguously negative” for the Canadian economy and that the central bank can “take out extra insurance,” which analysts say signals further rate cuts.
The lower rates have “been a game-changer” in the commercial real estate market, particularly in the multi-family rental sector, said commercial mortgage broker Michael Lee of Mortgage Alliance.
“I have a client buying a multi-family property with five-year financing at 1.77%.”
Lee added that landlords can already secure 10-year mortgages at 2.43%.
Based on the potential returns on Vancouver rental apartments – cap rates are in the 3.5% to 4% range and the average appreciation of a city apartment building in the past year is 16% – Lee said, “it’s practically like giving away free money.”
As a comparison, the lowest five-year bank rate for first-time homebuyers – at which they must qualify for a mortgage – is 4.69%, since most major banks trimmed residential loan rates by just 15 basis points following the recent BoC cut.
Multi-family mortgage loans have the lowest commercial rates because landlords can apply for Canada Mortgage and Housing Corp. insurance, which Lee said removes any risk from the lender.
“Generally, lenders have become more aggressive in the commercial real estate market.”
Lee added that investors could even look at medical marijuana facilities for easy financing.
“Believe it or not, if permits are in place and it is all done by the book, financing is available. Lenders know the cash flow will definitely be there.”
Lee said that one of his residential clients, having problems securing a $1.5 million mortgage on a Vancouver house purchase, is considering buying a small apartment building instead because it’s so much easier to achieve favourable financing.
Mortgage broker Kyle Green, of Mortgage Alliance in Vancouver, estimates that for about 10% of residential borrowers, rate cuts are not the issue: it’s trying to get financing at all.
“It is very difficult to get a home mortgage loan [at a major bank] if you don’t have qualifying income.”
Green said this would include such borrowers as self-employed people, new immigrants and those on fixed incomes, such as retirees or those tapping trust funds.
Unlike commercial lending, residential loans are based more on qualifying the borrower than on the property, he said.
In a bid to cool a white-hot housing market, Green said the federal finance ministry has been tightening regulations on residential loan approvals.
“Banks are being audited consistently by the federal government, and if a [residential] borrower doesn't fit into the boxes, they won’t get a loan.”
- November 2017 (2)
- October 2017 (2)
- August 2017 (3)
- June 2017 (3)
- April 2017 (3)
- March 2017 (3)
- February 2017 (1)
- January 2017 (3)
- December 2016 (4)
- November 2016 (2)
- October 2016 (3)
- August 2016 (3)
- July 2016 (1)
- June 2016 (3)
- April 2016 (3)
- March 2016 (3)
- February 2016 (10)
- January 2016 (5)
- December 2015 (1)
- November 2015 (4)
- October 2015 (3)
- September 2015 (1)
- August 2015 (3)
- July 2015 (3)
- June 2015 (10)
- May 2015 (4)
- April 2015 (9)
- March 2015 (3)
- February 2015 (5)
- January 2015 (12)
- December 2014 (7)
- November 2014 (13)
- October 2014 (13)
- September 2014 (9)
- August 2014 (4)
- July 2014 (10)
- June 2014 (12)
- May 2014 (10)
- April 2014 (5)
- March 2014 (23)