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Budget 2019 comes up short

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Budget 2019 comes up short

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The federal government released the much-anticipated Budget 2019 this week, with homebuyers, builders and others awaiting measures to address housing issues.

And in short, it comes up, well… a little short.

First-time homebuyer help

Much of the housing focus in Budget 2019 was on addressing the needs of first-timers, namely with a new First-Time Home Buyer Incentive.

  • The Incentive would allow eligible first-time homebuyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corp. (CMHC).
  • About 100,000 first-time buyers would benefit from the Incentive over the next three years.
  • Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a five-per-cent down payment and a 10-per-cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month.
  • CMHC to offer qualified first-time homebuyers a 10-per-cent shared equity mortgage for a newly constructed home or a five-per-cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in the largest cities.
  • The First-Time Home Buyer Incentive would include eligibility criteria to ensure that the program helps those with legitimate needs, while ensuring that participants are able to afford the homes they purchase. The Incentive would be available to first-time buyers with household incomes of less than $120,000 per year.
  • Budget 2019 also proposes to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000, providing first-time buyers with greater access to their Registered Retirement Savings Plan savings to buy a home.

Noticeably absent from the housing measures was any adjustment to the stress test, which a number of experts say is necessary.

Industry reaction

“The Building Industry and Land Development Association (BILD) agrees with (Federal Finance Minister Bill Morneau’s) comments that there aren’t enough homes for people to buy or apartments for people to rent,” says Dave Wilkes, president and CEO.

“BILD feels the policies presented in (the) budget are a step in the right direction to help first-time homebuyers. We will continue to advocate for a review of the stress test so that first-time homebuyers can realize the dream of homeownership. Supply challenges still exist and are at the centre of the current unbalanced market, and we call for action on these by the provincial and municipal government.”

Supply challenges in the Greater Golden Horseshoe are serious, and Budget 19 fails to address them.

“This was a re-election budget that didn’t move the dial for new-home buyers in the GTA,” Richard Lyall, president of the Residential Construction Council of Ontario (RESCON) told HOMES Publishing. “While increasing RRSP borrowing for first-time homebuyers is helpful, creating The First-Time Homebuyer Incentive at a maximum of $500,000 doesn’t help many Torontonians or GTA residents.”

The Canadian Home Builders’ Association (CHBA) had been recommending a shared appreciation mortgage approach for some time, as a tool to help those who can’t get into homeownership but have the means to pay rent.

The modification to the RRSP Home Buyers’ Plan will help get Canadians into their first home, but will also act as a burden because the loan has to be repaid within 15 years, including a minimum of 1/15th per year.

“This means that, in the years following their home purchase, a homeowner has the additional financial responsibility of repaying their RRSP,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial.

Important details of the First-Time Home Buyer Incentive program have yet to be released. For example, says Laird, it remains unclear whether the government would take an equity position in homes, or whether the assistance would act as an interest-free loan.

“This is an important distinction because if the government is taking an equity stake in a home, the amount the homeowner would have to pay back would grow as the value of the home increases,” he says.

The very launch of the program is surprising, Laird says, given that the BC Government implemented a similar measure a couple years ago, with unsuccessful results, and it was terminated in 2018. First-time home buyers found it difficult to understand and unappealing to have the government co-own their home.

Let’s do the math

Under existing qualifying criteria, including the stress test, homebuyers can qualify for a house that is 4.5 to 4.7 times their household income.

Under the new First-Time Home Buyer Incentive, however, the government has set a purchase limit of four times household income for the mortgage, plus the amount provided by the government, according to Ratehub.

By participating in this program, first-time homebuyers effectively reduce the amount they can qualify for by about 15 per cent, and their monthly mortgage payment naturally decreases in lockstep.

A household with $100,000 of income, putting a minimum down payment of five per cent, can currently qualify for a home valued at $479,888 with a $2,265.75 monthly mortgage payment.

Affordability calculations

The maximum purchase price for the same household, if they participate in the first-time homebuyer incentive, drops to $404,858.29 with a five-per-cent minimum down payment. The total mortgage amount would then be $400,000 (or four times their household income).

Mortgage payment calculations

If the household took a five-per-cent incentive from the government (for resales), their mortgage amount goes to $378,947.37, and monthly payment is now $1,810.90.

If the household took a 10-per-cent incentive, (for new homes) their mortgage amount goes to $357,894.73, and  monthly payment is now $1,710.29.

Stress test modifications

The CHBA is among the industry groups that is pushing for modifications to the existing mortgage stress test, which has served to lock out too many well-qualified Canadians due to the market and interest rate changes of the past year.

“The First-Time Home Buyer Incentive, if coupled with immediate adjustments to the stress test, has the potential for getting the housing continuum functioning again,” says CHBA CEO Kevin Lee. “It is essential that these changes come quickly, though. Current restrictions on mortgage access mean that many millennials and new Canadians are seeing homeownership slipping away, and in many markets the economic impacts are substantial.”

Looking ahead to the 2019 federal election, CHBA will be encouraging all federal parties to address housing affordability in very meaningful ways in their respective platform documents.

Budget 2019 housing measures

Budget 2019




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The changing Asian market

The changing Asian market

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The changing Asian market

by Joyeeta Ray

The Handover: Homeownership in Canada shifts from Hong Kong Chinese to Mainlanders

The city of Vancouver has another name among the locals, “Hongcouver”, thanks to the strong Cantonese influence. The unmistakable whiff of dim sum and fried rice hits you when you stroll down the streets in many parts of Vancouver and the Greater Toronto Area, such as Markham, to endorse this.

There are pockets that are exclusively Chinese. Richmond Hill once had so many signs in Chinese that a bylaw was passed that stated all signs must be bilingual (English and Chinese). The T&T Chinese Supermarket opened its doors at Metrotown 20 years back. Today, it has 22 locations across Vancouver, Calgary, Edmonton and the GTA.

But there is a difference that is invisible to Canadians outside the Chinese community. The demographics in the community have silently shifted.

No more do you hear much Cantonese on the streets. The dominant language is now Mandarin. Money has changed hands, too. The dollars are more in the pockets of the wealthy Mainland Chinese from Beijing, Shanghai, Guangdong and other parts of China who are pouring it into real estate. In contrast, the Hong Kongers are packing up their bags to head back to their vibrant little island.

Even a decade ago, this story would have been hard to believe.

The Hong Kong Chinese began flocking to Canada in droves starting in 1991 and peaked during the handover in 1997. They represented almost all Chinese immigrants to Canada between 1970 and 1997, according to Hong Kong’s top newspaper, The South China Morning Post. But since 2000, the number of Hong Kong immigrants began to decline significantly. Now more immigrants are migrating from Mainland China. This vast shift is now shaping real estate trends.

In the GTA, the immigrant population has reached its highest in nearly a century. According to the 2016 census, the total number of mainland China immigrants in the GTA was 270,405. Hong Kongers in the GTA was barely 100,795.

In 2017, the difference is even more glaring. There were 30,280 immigrants from Mainland China and only 1,270 are from Hong Kong. The Mainland Chinese immigrants are just about all homeowners or are looking to buy a home.

Steven Sun, president of the Canada-China Realty Professional Association (CCRPA), states that the number of mainland homeowners has now surpassed Hong Kong homeowners.

“Among the GTA Chinese population, 65 per cent are from mainland China and 70 to 80 per cent of Chinese brokerages are owned by the Mainlanders. In real estate sales volume, 70 per cent are mainland homebuyers,” he says.

Jim Mo, a top realtor with Re/Max Realtron, endorses this from his own experience.

“Ten years ago, most Chinese realtors were from Hong Kong. But now, mainland realtors are doing excellent work. The ratio of top Chinese realtors has changed. As a realtor at ReMax Realtron, I see more realtors from Mainland China. Even the Hong Kong realtors prefer to work with Mainland homebuyers because the numbers are huge and they are so wealthy that sometimes they buy more than one home,” he says.

The greater number of Chinese immigrants to the GTA between 2006 to 2016 has been from the People’s Republic of China, not Hong Kong. The same goes for the situation in Vancouver. According to the Vancouver Sun, “by far the greatest proportion of ethnic Chinese arriving in Metro Vancouver now come from The People’s Republic of China.”

The South China Morning Post says that within just 50 years, Cantonese may not be spoken anymore in Canada. The more widely spoken language among the Chinese population will be Mandarin and data from 2016 census confirms this. In British Columbia, Mandarin speakers are catching up fast, even in regions that were predominantly Cantonese speaking.

Most of them have settled in the plush properties in the western end of Vancouver. Richmond, for instance, was once a Cantonese residential area but now the scales are tilting towards Mandarin. If the current trend continues, Cantonese may barely be heard in the streets 50 years from now.

Feng Shan, a successful realtor with Royal Elite, says that in 2017 he sold 550 homes and 50 per cent of them were sold to Chinese homebuyers, out of which 70 per cent were Mainland Chinese.

Xiao Dong Duan, who has been in real estate for 17 years, and is a partner of Want Home Realty, says that the real estate business from Mainland Chinese immigrant buyers is growing for him as well. In 2006, another brokerage he worked for held language classes for Mainland realtors to learn Cantonese. He was one of them. But now the tables have tilted as more and more Hong Kong realtors have started to learn Mandarin.

Tan Shu Guo, a successful realtor with RE/MAX — ranked among the global top 10 — sums up the shifting trends very well. “The biggest similarity between Hong Kong and Mainland Chinese is that they sport the same mentality in terms of real estate: they prefer to buy instead of rent. The numbers are not surprising. Hong Kong is a small island. Mainland China is a pretty big country.” A few words that puts everything into perspective.

Joyeeta Ray,
Multicultural Marketing Specialist


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