Well, April 19th is here and as most of you already know that means the new CMHC mortgage rules are now in effect and we’re about to see how fragile the Vancouver real estate market is at this price level.
We’ve talked a lot around here about the new rules and how they’ll affect interest rate approvals and how suite income is calculated, but there’s one aspect of the new rules that I haven’t seen anyone here mention until now. Paulb points out this lawyers bulletin that addresses the potential effect these new rules will have on presales. This is well worth the read, and the HST will only magnify these effects.
They point out some basic math in that PDF – a presales buyer of a $500k condo will now have to come up with an extra $30k in cash at closing to bridge the gap between what lenders will now finance. With a 15% market drop (remember a year ago?) that becomes an extra $93,000 in cash the buyer will have to come up with to bridge the gap.
It’s starting to look like the Vancouver presales condo is about to turn from moneymaker to albatross. We got a preview of that during the last minicrash when developers started suing buyers who tried to get out of their contracts. We may see a return to the bad old days sooner rather than later, particularly for those investors who rely on faith as the largest component of their investment strategy.
It also looks like today will coincidentally be the day we get our 16,000th place put up for sale.