office of the superintendent of financial institutions - Toronto Real Estate Blog

Tag Archives: office of the superintendent of financial institutions

Toronto housing sales fall in December

Canadian Press

December home sales in Toronto fell 19.5% compared with a year ago, but prices were still up, according to the city’s real estate association.

Comment: It is not news, sales volume fell every month since the new mortgage rules came into effect.

The Toronto Real Estate Board said there were 3,690 sales in the Greater Toronto Area last month through the Multiple Listing Service, down from 4,585 in December 2011.

However, the average price rose to $478,789 from $449,566 — an increase of 6.5% from the year before.

Board president Ann Hannah said the number of sales in 2012 was strong from a historic perspective.

“We saw strong year-over-year growth in sales in the first half of the year, but this growth was more than offset by sales declines in the second half,” Hannah said in a statement.

“Stricter mortgage lending guidelines resulted in some households postponing their purchase of a home. In the City of Toronto, the dip in sales was compounded by the additional land transfer tax.”

Comment: The 85,731 sales in 2012 are not far off the 85,845 in 2010, for example. And really, 2009–2012 saw sales range from 85,731 to 89,347 – a variance of barely 4% across 48 months. We are not exactly on a roller coaster ride here folks. Heck, even the 10-year average is only 84,560, which 2012 beat by 1.4%. So we need to keep 2012′s numbers in perspective.

The results for Toronto followed a report Thursday that sales in Vancouver were down 31.1% compared with a year ago.

Comment: Now that is a serious drop. Toronto sales fell 4% – 8x less that Vancouver.

Home sales in Canada have eased in many markets since changes in the borrowing rules by the federal government, aimed at discouraging homebuyers from borrowing too much, kicked in last summer.

The Office of the Superintendent of Financial Institutions also tightened its lending guidelines.

Last month, the Canadian Real Estate Association said it expected home sales for 2012 to slip 0.5% compared with 2011 to about 456,300, while sales for 2013 are expected to drop 2% to 447,400.

Comment: So the same drop in Toronto means 85,302 sales in 2013. Still above the 10-year average, still a very strong and healthy market in no danger of crashing.

The number of homes sold in the Greater Toronto Area for all of 2012 totalled 85,731, down 4% from 89,096 in 2011.

Comment: Actually it was 89,347 sales in 2011 according to TREB. Not sure why there is a descrepancy of 251…

The average price for all of 2012 in the GTA was $497,298, up 7% from 2011.

Comment: That marks the 16^th straight year of price increases, for those keeping score at home.

—————————————————————————————————–
Contact the Jeffrey Team for more information – 416−388−1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
—————————————————————————————————–

Incoming search terms

simerra tasso

Banks tighten condo lending

April 4, 2012 New Toronto Condos & Lofts

Andrew Mayeda and Greg Quinn – Bloomberg News

Canada’s biggest banks are tightening lending standards for condominium builders at the urging of regulators, requesting higher pre-sales and deposits as policy makers warn the Toronto and Vancouver markets are overheating.

Comment: Except the numbers I am hearing are the same as I have always heard… there is no change as far as I can tell.

Some banks have been asking construction firms to put more equity into new projects in recent weeks, according to developers. Lenders have also been raising the percentage of condo units that must be pre-sold and are demanding higher deposits as conditions for financing, they said.

“Several of the banks have tightened up” after the Office of the Superintendent of Financial Institutions “told the banks to be a little bit more careful on who they are lending to and how they are lending,” said Barry Fenton, chief executive officer of Toronto-based Lanterra Developments, whose condos include WaterParkCity and Ice Condominiums at York Centre.

Comment: This is a good idea though, just to be sure that only the best projects move forward.

Policy makers including Finance Minister Jim Flaherty have warned about the risks of record consumer debt and soaring housing prices that some investors say may be inflating a condo bubble in Toronto and Vancouver. Housing prices may drop 15% as interest rates rise, crimping economic growth and sending Canadian stocks down 10%, said Sadiq Adatia, who manages about $9 billion at Sun Life Global Investments Inc.

Comment: For the 100th time, there is no bubble in Toronto. An average annual price growth in the 6% range is hardly anything to worry about. In 1989-1990, we had 127% price growth in about a year. That is a bubble. And housing prices are not going to drop 1%, never mind 15%, in Toronto. They have already gone down 14% or so in Vancouver. But Toronto is seeing price growth in the 9% range – that is not going to suddenly reverse 24% to a big drop.

While OSFI, Canada’s banking regulator, hasn’t imposed new formal requirements on real-estate lending specific to geography or property type, it increased supervision of residential lending practices more than a year ago, spokeswoman Leonie Roux said.

Risk Drivers

“This includes meeting with market participants to understand the drivers of risks and the decisions that are being made to manage those risks,” she said in an e-mail.

OSFI released new draft guidelines on March 19 for mortgage underwriting by Canadian financial institutions. Banks should take “reasonable steps” to verify a borrower’s income before granting mortgages, the agency said. Financial institutions should also establish internal standards on the ability of borrowers to service their debt.

“What we have seen is a little tightening of the requirements” on loans offered by major Canadian banks to condominium developers, said Dov Meyer, CEO of Terra Firma Capital Corp., a Toronto-based company that finances residential projects.

The condo building surge is being led by developers ranging from Toronto-based Tridel Group and Vancouver-based Concord Pacific to El-Ad Canada Inc. Toronto has more skyscrapers and high-rises under construction than any North American city — almost three times as many as New York.

Record Debt

Rising home sales and prices fostered by the lowest interest rates in decades have pushed household debt to record levels, leaving some families vulnerable to an expected rise in borrowing costs. Flaherty and Bank of Canada Governor Mark Carney have warned Canadians to make sure they can afford their debts at higher interest rates.

Banking regulators have been monitoring the risk to financial institutions of the surging condo markets, especially in Toronto and Vancouver, OSFI documents released to Bloomberg News in January through freedom-of-information law show.

“The Toronto market is dominated by a small number of very powerful developers,” OSFI stated in a June 2011 market update. “Their role in supporting or discouraging pre-sale speculative activities would appear to be very inconsistent, with little transparency.”

‘Shut Door’

Some of the country’s biggest banks have “shut the door” on lending to less established real-estate developers, said Brad Lamb, president of Brad J. Lamb Realty Inc., which specializes in developing condos and loft apartments in Toronto, including the King East project on Parliament and King Streets.

“What I’ve been told, and I’ve had meetings with several banks in the last few weeks, is that OSFI has been in there, they’ve been clear about their concern about potential risks in the high-rise industry in Toronto and Vancouver, and that there needs to be a tightening,” Lamb said in a phone interview.

Less well-established companies may have difficulty getting loans from the top Canadian banks, even if they have pre-sold 70% of the units, collected 20% of the total purchase price in deposits, and can offer 15% of the project’s value in equity, Lamb said.

Comment: Interesting… If they have their financial house in order, they should be able to get the funding.

Efforts by federal regulators to slow the condo market will prove fruitless, since smaller developers should still be able to tap “tier-two” lenders and foreign institutions for capital, he said.

Raise Rates

“It’s not like we’re not going to have funding for our projects,” said Lamb. “If you want to cool the market, raise interest rates.”

Flaherty said Thursday banks can tighten rules for mortgage lending on their own and shouldn’t rely on the government to act for them.

“I’d like the market to correct itself,” Flaherty told reporters. “We’re seeing some evidence of that in the condo market, particularly in Toronto, where there is some softening of the market. And that’s a good thing.”

Comment: Again, we are taking one month and turning it into a trend. A trend that goes against the 59 months that came before. Let’s wait a few more months before we start making predictions.

Canada’s banks have been ranked the soundest in the globe by the World Economic Forum in part because they avoided the subprime loans that crippled many U.S. lenders during the financial crisis. Canada’s 10-member S&P/TSX Banks Index returned 155% over the past three years, compared with a 97% gain for the 24-member U.S. KBW Bank Index.

Aligned With Developers

Bank of Montreal Chief Executive Officer William Downe said he can’t comment on conversations with OSFI. Still, developers are becoming more “conservative with respect to their projects, recognizing what’s going on in the market,” he said.

“I met with one of the largest developers in the last couple of weeks, and I was really impressed with how aligned we are,” Downe said in a March 20 interview in Halifax, Nova Scotia. “It’s not in their best interest to have a market that overheats and then falls rapidly.”

Toronto-Dominion Bank hasn’t made any recent changes to its lending practices to condo developers, said spokesman Stephen Knight. Royal Bank of Canada spokeswoman Ka Yan Ng declined to comment and Canadian Imperial Bank of Commerce spokesman Sean Hamilton didn’t return requests for comment. Bank of Nova Scotia spokeswoman Ann DeRabbie reiterated comments the company made on a March 6 earnings call that its condo loans are performing well.

Mortgages on condos represent less than 8% of Royal Bank’s residential mortgage portfolio, Chief Risk Officer Morten Friis said on a March 1 earnings call. Royal’s exposure on loans to high-rise condominium builders is $800 million, less than 3% of Royal Bank’s commercial-loan book, Friis said.

Vulnerable

“There may, for instance, be some vulnerability in the condo markets of Vancouver and Toronto, but as I have said before, we have very limited exposure to these markets,” Royal Bank CEO Gordon Nixon said on the call.

Toronto-Dominion Bank takes a “conservative” approach to loans to condo developers, which represent one of the “higher risks” in commercial lending, TD Chief Risk Officer Mark Chauvin said on a March 1 earnings call.

“Canadian banks are definitely” tightening standards on condos, said Adatia, chief investment officer at Sun Life Global in Toronto. “Canadians are looking at it and saying ‘we saw what the U.S. went through.’ The financial system in Canada is smarter than in the U.S.”

Flaherty said as recently as March 5 he is concerned some condominium markets are overheated and some families are taking on debts that will become unaffordable as interest rates rise. The central bank said March 8 household debt “remains the biggest domestic risk” and Carney said in a June speech in Vancouver there may be an “overshoot in the condo market in some major cities.”

Household Debt

The ratio of household debt to disposable income declined to 152.9% in the October-to-December period from a revised record 154.2% in the previous three months as income rose faster than borrowing, Statistics Canada said March 15.

Comment: And yet no one talks about the good news here, of debt ratios dropping.

Multiple-unit starts in Toronto more than doubled in January to 2,999 units compared with a year before, while starts rose 4 % in Vancouver to 1,261 units, according to Canada Mortgage & Housing Corp.

“The large number of construction cranes crowding Toronto’s skyline is raising concern of an emerging oversupply of high-rise housing,” Bank of Nova Scotia economist Adrienne Warren said in a March 16 research note. Slowing price appreciation should “dampen investor demand and new product launches,” she said.

Foreign Banks

Several prominent condo projects in the city have recently relied on financing from lenders other than the nation’s five largest banks. The Trump International Hotel & Tower Toronto opened in January with condo prices as high as C$6.3 million. The owner and developer, Talon International Development Inc., arranged $310 million in construction financing from Raiffeisen Zentralbank Oesterreich AG, an Austrian bank.

Tricon Capital Group Inc., a Toronto-based company that finances real-estate developments, is helping to finance a condo high-rise called Massey Tower in the city’s downtown theater district.

Paris-based BNP Paribas SA says it has become one of the biggest providers in Ontario for condominium construction financing insured by CMHC. The bank says it has financed condominium construction loans for some of the country’s biggest developers, including Tridel and Lanterra. BNP helped finance the L Tower, a 57-story condominium designed by Daniel Libeskind under construction near Yonge and Front streets in Toronto.

“The smaller, medium-sized guys, those are the ones being asked for either higher presale targets to be hit and/or for their purchasers to come up with higher deposits,” said Tasso Eracles, CEO of Simerra Property Management in Toronto, which manages about 280 condominiums and is a unit of FirstService Corp.

—————————————————————————————————–
Contact the Jeffrey Team for more information – 416-388-1960

Bank watchdog targets condo speculators

February 11, 2012 Mortgages and Financial Information, New Toronto Condos & Lofts, Other Real Estate Markets, Toronto Condos, Toronto Real Estate

Grant Robertson & Jeremy Torobin – Globe and Mail

Canada’s banking regulator is stepping up its scrutiny of the housing sector, concerned about speculators in Toronto and Vancouver as well as riskier lending practices.

In a series of documents made public on Monday, the Office of the Superintendent of Financial Institutions says existing market analysis does not capture the degree of speculation in the condo markets of the two cities. The regulator is also concerned about the long-term risks home equity lines of credit (HELOCs) could pose to the banking sector in a downturn.

As a result, OSFI has told the banks it will now monitor on a quarterly basis what steps the lenders are taking to avoid problems in the HELOC market. It also wants to spend more time compiling data on speculators in the real estate market, and the impact they are having on prices.

“Pure speculators are very difficult to quantify in the market and [are] not being captured in any typical market data,” OSFI says. “Additional work [is] needed here.”

The statements are contained in roughly 150 pages of documents made public by Bloomberg on Monday, which were obtained through access to information requests. The documents are heavily redacted, but contain details of OSFI’s interaction with the banks.

The concerns about real estate speculation come a few weeks after the heads of three Canadian banks expressed worry over the Vancouver and Toronto condo markets in a potential downturn. Difficulty gauging the risk of an overheated condo market would cause problems for the banking sector if the market were to collapse.

Toronto Condo Investors and Speculators

The OSFI documents also show the regulator is concerned about whether the banks are loosening their lending standards on home equity lines of credit and mortgages in order to attract more business.

OSFI wants to take a closer look at the stress tests banks are doing in relation to credit lines, looking not only at whether consumers can meet their monthly interest payments, but if they could afford to pay the whole loan back over time. On a quarterly basis, the regulator will scrutinize how the banks are responding to the information these stress tests reveal.

“While OSFI recognizes the work already under way at banks to improve stress testing practices, it also notes the need for banks to continue to improve,” said a letter from the regulator in late 2011. “Going forward, OSFI will be reviewing the actions associated with stress test results … as part of its quarterly monitoring process at individual banks.”

Home equity lines of credit, in which consumers borrow against their home, can be more risky to borrowers since the interest rate charged increases as overall rates rise.

Bloomberg reported OSFI is also concerned that Canadian lenders are not employing strict enough standards on lending, including mortgages that may pose an “emerging risk” to the sector due to “increasingly liberal” lending standards. According to the documents, OSFI is concerned about mortgages given to borrowers who haven’t had to prove their income, which bear a resemblance to “non-prime loans in the U.S. retail lending market.”

The Bank of Canada declined to comment on the OSFI documents and on whether banks are loosening their lending standards.

Bank Governor Mark Carney has, however, consistently flagged household debt as the No. 1 domestic risk to Canadian financial institutions. Earlier this month, Mr. Carney reiterated that he is mainly concerned about debtors who would be most exposed to shifting economic conditions or job losses. Central bank policy makers say anyone whose debt-servicing costs amount to 40% or more of their disposable income is “highly vulnerable” to such a shock. The share of Canadian households in this category is higher than the average of the past decade, the bank says.

Mr. Carney also has indicated he sees “a heightened risk of correction” in the condominium market in some cities.

On Monday, the Financial Stability Board – the global body that Mr. Carney now chairs – said Canadian authorities have managed things reasonably well, but warned that the housing market is seeing the highest price-to-income and price-to-rent ratios in more than three decades. Authorities should “continue to strengthen” their surveillance of potential trouble spots that could spread to the wider economy, the FSB said, and “consider expanding the range of tools at their disposal,” without specifying what those would be.

—————————————————————————————————–
Contact the Jeffrey Team for more information – 416-388-1960

Incoming search terms

comment joindre mark chauvin toronto

SEARCH THE SITE

TORONTO REAL ESTATE BLOG

Laurin and Natalie Jeffrey are Toronto real estate agents. We would be happy to help you find your new Toronto home — be it house or condo or loft. We would also be more than pleased to help you sell your current Toronto property.

Century 21 Regal Realty Inc. Brokerage
1332 Queen Street West
Toronto Ontario M6K 1L4
Office Phone: 416−849−5360
Office Fax: 416−849−8987

Laurin Cell: 416−388−1960
Laurin Email: laurin@jeffreyteam.com

Natalie Cell: 416−318−7917
Natalie Email: natalie@jeffreyteam.com

The vast majority of content on this blog is not written by Laurin or Natalie Jeffery. It is written by many different authors, for many different publications and websites.

We re-print these articles here as a collection of Toronto real estate news and information. We aim for this blog to be a one-stop shop for people looking for information on Toronto real estate.

We do not claim any of the information we did not write as our own. We do not work for any publication, nor any builder. We are Registered Real Estate Sales People working for Century 21 Regal Realty Inc. Brokerage.