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2 MASSIVE blows to BC property investors are on the way

In the last 2 years. Actually forget the last 2 years. In the last 7 years, the real estate market in the lower mainland of British Columbia and in British Columbia generally has been absolutely booming. Lots of people have been looking for homes and investors in real estate have been no different.

They have been absolutely scooping up properties all across British Columbia in the hopes to make it big financially. When we see big market booms where people's values grow incredibly, just like they did between January of 2020 to January of 2022, where values went up. On average, about 50% people have a ton of equity in their properties and using something called a home equity line of credit, they can use borrowed money to reinvest back into the market to scoop up investment or rental properties. But not so fast. There may be a new policy on the way that slows.

The investors came down from a screech to a halt. The bank of Canada and OSFI is looking at all of this right now, and don't be surprised if we hear all about this very soon. If you're interested in learning about what an investor's future might look like in British Columbia, this is definitely the post for you, so let's get into it. What's good, everybody? It's Darin Germyn from the Germyn Group, where we know you've only got one chance to either buy or sell your next home.So we're here to help you get it right.

Here's the deal. If you're a would be home buyer and you've been completely frustrated with what's happened to the market over the last few years, what's happened with values? These numbers I'm going to throw out you are not going to make you feel any better, but they're important for the scope of today's video, so I think these are going to blow most of you away.

As reported in a recent article by Better Dwelling, nearly 44% of new properties in Vancouver in 2020 were purchased by investors. It's also estimated that investors owned almost a quarter of the supply of the Vancouver housing market in general, which is absurdly crazy. British Columbia is really no different. Nearly about a quarter of homes in BC are investor owned, and this is in major cities, not the kind of backwoods shack type homes. You might be thinking, here's an even more crazy number though.

For homes built after 2016, they think the number is about 43.3% of homes are owned by investors. Unbelievable. Okay, so super quick though. This doesn't necessarily mean it's completely bad. Like we do need investors, we do need rental property.

There's lots of people out there that are going to never own a home because maybe they don't have the discipline to save up for a down payment or unfortunately, they don't make enough money to save up for a down payment or maybe some other factors in their life. So don't hate on all the investors out there. We do need rental properties to be available. But when investors are buying properties because of the fallacy that the real estate market in the lower mainland, and BC only goes up, this can be problematic and the bank of Canada sees it that way. When investors are snapping up properties because they think the market can only go up, this can lead to a huge economic shock, especially if the investors are older and kind of more near the retirement age and also during periods of abrupt economic shock.

They can also have a really negative effect on the market as well, because they can completely flee and just over saturate the market with new properties, which can make it very challenging. This is a lesson that should have been learned from the US economic shock from 2007 to 2008, which if you were around for that or paying attention at the time, it was very bad. So here's what's being tossed around the bank of Canada as well as the Office of the Superintendent of Financial Institutions. That's a mouthful.

We're going to call them OSFI. Okay. There are rumblings that they are cooking up some tough new regulations in terms of helping curb investment or investors from getting a little too greedy in the real estate markets across Canada. What are they upping? The minimum down payment from 20% for an investment property, which only got introduced in 2010, but upping, that as high as 35% down payment to buy an investment property.

And the other one is completely eliminating the use of home equity line of credit or HELOCs, to purchase property with. If you're unfamiliar with what a HELOC is, it's basically taking equity out of your property, which you can do currently up to 80% and using that money to reinvest in investment property. This really means that almost all of the money, in a very roundabout way, when these investment properties are being bought is all borrowed money, which is probably not good. Interestingly enough, the big banks actually tried to Institute policies like this at the start of the pandemic. And even though they tried because it was really risky at the time, obviously, to have all this borrowed money out when nobody knew what was going on and the world was seemingly melting.

Other lenders who were offering mortgage options like mortgage companies, they didn't sign on board. And the problem was that since they didn't, the big banks were losing business and they had to adapt and kind of scrap the idea. So what would this increase to down payments do? Would it have a massive effect? Yeah, it probably would.

And the experts seem to agree on that as well. Many of them think it would significantly move the dial. And if they went up to 35%, that would probably be the biggest. But even an increase to 25% or 30% or again, up to 35% could have a massive impact on the amount of people investing in the real estate market. John Pasalis, President of the Toronto housing data firm Realosophy Realty Inc. Said, if you look at every speculative housing bubble in history, they're driven by investors.

This, of course, would be a way to substantially slow demand, which we all know that we need more supply. There's no doubt in that. But slowing speculative demand could be a very big factor in helping curb escalating home prices. The thing about HELOCs as well, or the home equity line of credit, the banks don't like that either. They don't like people using borrowed funds to borrow for investment property.

It's just not a good idea. So these are the two things that are being looked at at a very micro level, OSFI is monitoring HELOCs and this type of activity very closely. So there is very little doubt that we are going to see some pretty substantial shake up in the mortgage markets related to investing in the very near future. So there you have it. It would be a pretty substantial change to what everybody knows.

We know there has already been some changes on how assignments are going to be dealt with, which is probably going to take a lot of the property flipping people out of the game, or at least provide a little more concern to them when they're trying to flip new construction properties. What do you think of these rumblings of potential changes? I would love for you to leave a comment below. Let me know what you think

In the description below, there is a link to get onto our mailing list where, if you're curious on what is happening with the real estate values all across the Fraser Valley, which is where we primarily serve our home buyers and home sellers, we will put you on that. And it is a very fun, very cool video we release once per month that you definitely don't want to miss. So get on the mailing list, we'll send it out to you. You're going to love it. Thanks again for watching everybody.

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The Germyn Group
Darin Germyn PREC* & Adam Howsam
Macdonald Realty LTD
homes@germyn.ca | 604-542-2444 | germyn.ca


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