As Ottawa tightens the reins on speculation in the Canadian condo market through newly introduced mortgage changes, some industry professionals have questions about how the government's moves will dampen the practice it wants to prevent.
Finance Minister Jim Flaherty announced a series of mortgage rule changes Tuesday morning, in an effort to proactively limit risks to Canadian homeowners as interest rates begin to rise upward and mortgage costs increase.
Among the changes Flaherty announced was a requirement that real estate speculators provide a 20 per cent down payment for properties they will not be living in, in order to qualify for government-backed mortgages.
"This will discourage the kind of reckless real estate speculation that could drive prices to unsustainable levels which does not serve Canadian homebuyers," Flaherty told reporters gathered at an Ottawa news conference.
BNN's Pat Bolland said the 20 per cent requirement was four times what such speculators were previously required to put down at the time of purchase.
Flaherty also announced that borrowers will have to meet the standards for a five-year, fixed-rate mortgage to qualify for a mortgage insured by the Canadian Home and Mortgage Corp (CMHC). Canadian homeowners will also be limited in the amount of mortgage refinancing they can undertake, to a maximum of 90 per cent of the value of their home. All of the rules changes come are expected to come into effect April 19.
Following Tuesday's announcement, the Canadian Association of Accredited Mortgage Professionals (CAAMP) released a statement of support for the mortgage amendments introduced by the finance minister.
Reached by phone, CAAMP President Jim Murphy said the speculation rule change "is the one area where there is probably further information needed."
Murphy said he has questions about how the speculation rule will specifically be rolled out, but confirmed that would likely be some effect on condominium markets in cities like Toronto and Vancouver -- places Flaherty singled out as prime examples of cities where condominium speculators are highly active.
Overall, Canada's real estate market remains "healthy and stable," as Flaherty said Tuesday, with the Canadian Real Estate Association reporting last week that it expects national home sales activity to reach a record 527,300 units -- an increase of 13.3 per cent over 2009. Market conditions are strong enough to attract investment from both Canadians and foreign investors.
Andrew La Fleur, a condo realtor based in downtown Toronto, says international investors have had "strong interest" in his market for years. As have local buyers.
But he questions how much speculation is really taking place, a practice he estimates is only "a very small percentage of the overall market."
Additionally, La Fleur said that it would be difficult to purchase a pre-construction condo without putting 20 per cent down.
"Very rarely can you put down less than that," he said, matter-of-factly.
At the press conference, Flaherty drew a distinction between rental properties purchased by investors and the strictly unoccupied properties or units that the new rules apparently target.
"We're not aiming at investment properties. So, if a business, or individuals, want to buy an apartment building, or a duplex or something, and they are in the business of renting apartments, that's fine," Flaherty said. "They can insure that business because that's a good thing for Canadians. We need a supply of rental housing."
Flaherty also elaborated on his concerns about the "tendency" of real estate speculators to purchase multiple condominium units they do not intend to live in.
"I don't know how that serves the Canadian people, how it serves the purpose of affordable housing and why the government should insure mortgages like that," said Flaherty. "So that's something that was happening -- is happening -- in the marketplace that we would like to curb."
With files from The Canadian Press
