Lenders shifting from condo construction to rental apartments

by REP09 Dec 2015
Approximately 60 per cent of lenders said that they would loan more toward financing rental apartments in 2016 over fears that estate prices and debt rates – which have recently spiked in prime locations such as Toronto and Vancouver – are preventing more and more Canadians from participating in the housing market, a recent survey showed.
 
The study, which was conducted by CBRE Inc., also uncovered that only 30 per cent of the respondent lenders would allot greater budgets for condo construction, with 7 per cent confirming they would reduce condo development budgets in 2016 and 13 per cent voicing their concerns over the long-term health and strength of the condo market.
 
Major industry players such as First National Financial LP noted that several major Canadian markets are currently experiencing slowdown in the pace condo construction, in contrast with the low vacancy rates that are spurring continuous demand for purpose-built rental spaces.
 
“With high-rise condos there is always the issue of valuations, what people are paying and the amount of debt that people are taking on for residential mortgages,” CBRE head of debt and structured finance Carmin Di Fiore told The Globe and Mail.
 
In response to this shift, several developers have already registered their new apartment buildings as condominiums, which would allow them to earn income from rentals and sell the units as condo units at a later time if the market improves.
 
Industry observers said that these developments have made rental financing a relatively safe bet for investors and lenders who are concerned about the stability of the Canadian economy and property market in the coming years.
 

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