Canadian Real Estate Associations Predictions effect on CRE
Canadian Real Estate Associations “CREA” predicted the rise in home sales. A five percent increase from the all-time low last year, to 482,000 transactions. This increase was higher than the originally predicted 463,000 in sales. The Toronto region is the biggest contender in this, especially the condo market. Housing value in this region jumped a staggering 13 percent year over year in August, to $802,400 per transaction.
According to CREA estimates, real estate housing prices are recovering all through Canada’s major markets and retail commercial real estate “CRE” lease rates are expected to continue to increase as well. There are business opportunities for investors of retail CRE all throughout Canada’s major markets.
The mortgage stress that was introduced the last year by Canada's bank regulator continues to keep the buyers off the market. However, the impact that it has had on the market has been minimized by a decline in the Bank of Canada's five years benchmark rate.
The Bank Of Canada's five-year benchmark is the estimated rate the borrower/home-buyer is stress-tested against when they apply for a mortgage. This year is the first announced drop since 2016.
The stress test requires the potential housing buyers to qualify for the higher of a loan at a 2 percent higher rate than the bank offers or the Bank Of Canada's five-year benchmark. The stress tests applies to all borrowers, even those with a 20% downpayment. Many are hoping that this stress test rules becomes looser, which will in turn, increase buyer interest even more and will directly impact sales.
Buyer Incentive Program’s role in the increase real estate demand
CREA did not factor in the federal government’s First-time Home Buyer Incentive into its forecast. The home buyer program offers buyers with income of up to $120,000 to apply for up to 10 per cent in federal funding toward a mortgage.
This program was initially offered for homes valued at up to $560,000 — far below the GTA average; however, the Prime Minister Justin Trudeau raised the housing limit to $800,000. This amount of house now opens buyer’s to the country’s most expensive markets; including, Toronto, Vancouver and Victoria.
The retail market is benefiting from the increase buyer activity in major markets like Ontario, Alberta, and Saskatchewan. As the population and popularity continues to grows, there will be greater investment activity as well.
In short, new homeownership programs are making homeownership more appealing and assessible to everyone. As the value of housing continue to climb, so will the value in Retail CRE.
More homes means more people, and those increase of people creates more business opportunities. Those business opportunities is directly correclated to the higher returns being realized on retail investments as well right now. Now is a good time to invest in commercial real estate. Contact ReDev to learn more about retail CRE opportunities.