In a major boost to the housing sector in Canada, the Government has come out with a landmark decision for millennials and first-time homebuyers in the country. The government housing agency in Canada has proposed expenditure of approximately C$1.25 billion spread out over a period of 3 years. This will be used for obtaining equity in housing units which are purchased by first time buyers. This is also part of the blueprint unveiled by Justin Trudeau, the Prime Minister and his Government, with a view towards making housing more cost effective and easier for first-time homebuyers and millennials.
As per reports, there were several federal budget notifications released in recent times in Ottawa. The CMHC (Canada Mortgage and Housing Corp) will be offering up to 10% in funding for new housing units as per this notification while up to 5% in funding will be given in funding for existing housing units. This will be done to help lower mortgage based costs for buyers in the low and middle income brackets. This financing will be applicable for current insured mortgages which are needed in case less than 20% is given by the buyer as the down payment for the home.
Bill Morneau, the Finance Minister, is also working for easing out concerns linked to affordability post gains in prices and other changes in regulations over the last few years. These measures have led to home ownership becoming tougher for several citizens in the country, particularly first-time home buyers, young families and millennials who may have just embarked on their professional careers. Over the last 5 years, as per reports, price growth has been a whopping 64% in Vancouver alone although recent sales transactions and prices have both come down across major cities last year. Prices in Vancouver have touched the C$1 million mark on an average and Toronto has seen prices going up by a whopping 56% over the last 5 years as well.
The new programme unveiled by the Government is aimed at creating 100,000 new homebuyers over the next 3 years. This will be a massive boost for the Canadian housing market accordingly. Sales volumes will be hugely boosted by this move and developers and realtors will equally benefit. Additionally, with higher sales figures and demand, prices will also keep growing steadily, thereby making residential property more attractive for investors both domestic and global. These housing measures in the federal budget may lead to home sales increasing by anywhere between 2-5% by end 2020 and prices may also increase in a similar manner.
There are various non-profit organizations based in Canada which already have such loans available for people in lower income segments. This equity based plan by the government draws on these for inspiration and is named as the First Time Home Buyer Incentive. This will launch reportedly in September this year and first-time homebuyers will be eligible provided they have household income up to C$120,000. The insured mortgage amount will be limited at four times of the income of the homebuyer or a maximum of C$480,000. Those buying homes worth C$400,000 with a down payment of 5% or roughly C$20,000 can be eligible for a 10% (C$40,000) infusion from the Canada Mortgage and Housing Corp (CMHC). This will help in bringing down their monthly repayments to around C$1,745 which is lower than the expected C$1,973 previously in case of a 3.5% rate for the mortgage and an amortisation period of 25 years.
According to several experts, this is a great move for the housing market in Canada and will spark better affordability along with overall growth for the real estate market in the country. There will be more demand in arguably the market segment with the most competition as per several other experts. CMHC will be gaining from any increases in home prices on account of its ownership of equity in these units and will also be absorbing any losses if they arise similarly. It is still confirmed whether the owners of these housing units will be repaying the loan amount or the equity stake portion on the basis of the value of the home upon sale. These details will be finalized within the next few months as per reports.
The federal government will be spending roughly C$121 million over a period of 5 years on this measure alongside the CMHC amount that has been allocated. This is a major incentive, particularly for real estate developers who have witnessed prices coming down for new housing projects. The bigger shared portion of equity in mortgages for newly built housing units may be encouraging construction and infrastructure development along with spurring developers to finish existing projects and come up with new ones. There were other measures for the housing sector in the budget as well.
The limit has been raised from C$25,000 to C$35,000 on tax free withdrawals made from retirement savings plans that have been registered in case of first-time homebuyers. C$10 billion will also be added by the Government in a period of 9 years for its existing programme in a bid to attract developers to come up with a higher number of rental units. This extra funding will enable more support for 42,500 new housing units. C$300 million will also be deployed for the launch of a new challenge for encouraging major cities to free up spaces for housing projects in a bid to improve overall housing supply levels. Higher supply levels will make it easier for people to find homes and that too at better prices.