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Real Estate Financing

Panel Discussions

Elsa Hannaford, VP, Real Estate Finance, CIBC: So the housing market and affordability is on the minds of all Canadians. And we have all of you here today to share your insights. Benny, I&#8217;ll get started with you. Can you give us a 30 second overview of where you see the market going in 2025.
Benjamin Tal, Deputy Chief Economist, CIBC: Well, when it comes to the housing market, I think it&#8217;s going to be a tale of two markets. The detached segment of the market. The low rise is okay, not great, but okay. The condo market is basically in a recession. We have a situation in which 81% of investors are in negative cash flow. They are not in the market to actually selling. The pre-sell market is dead. Basically nothing happened. So what it means over the next year or year and a half. It&#8217;s going to be a buyer&#8217;s market. So if you are in the market for a condo, that&#8217;s your time. However, we are building nothing now zip, which means that two years from now the demand will be back. Interest rates are getting lower and lower. Investors will be back. The supply will not be there. Guess what will happen? It will go up significantly. So we have a window of a recessionary condo market and then it will take off.
Elsa Hannaford: And Tim, you speak with clients across the country. Are you sensing more optimism or pessimism in 2025?
Tim Samis, SVP, Real Estate Finance, CIBC: It&#8217;s hard to generalize because it really does matter on location what&#8217;s been developed. But that said, across most segments, we are sensing some cautious optimism. Parking Toronto high rise for the moment. And in talking to clients, a lot of the common tailwinds are structural housing shortage, in the millions. And that impacts everywhere across Canada. And, you know, even with recent immigration changes, effects of which are likely dubious that dynamic is not going to change. Interest rate environments been moving in the right direction. There&#8217;s at least a pathway to perhaps 4%, mortgage rates. And then finally, people&#8217;s lives have changed. People have gotten married, people have had kids, people get divorced, people need to downsize. And those evolved housing needs have yet to be addressed in the market.
Elsa Hannaford: And Brad, when you look at the impact of lowering rates as opposed to the ongoing challenges and getting new units built, do you see the low rise market improving in 2025?
Brad Carr, CEO, Mattamy Homes Canada: I think I take Tim&#8217;s point on the cautious optimism. I think there&#8217;s a little bit too much of a narrative around interest rates will solve all that ails the housing market. Affordability is under pressure because of much more than just interest rates. Government costs are way too high. The input costs have gone up dramatically over the last 4 or 5 years. And so there needs to be a fundamental reset of the cost of delivery. And that&#8217;s going to come from more than just interest rates. Fundamentally, if we have a change in government, I hope that government really focuses on reducing the government inputs into the cost of new housing.
Elsa Hannaford: Got it. And Adrian, in terms of what you&#8217;re seeing on the rental side, what are your main challenges in getting units built?
Adrian Rocca, CEO, Fitzrovia: Yeah, I think the perception is the rental market is the place to be relative to the for sale market. It is just as dead. It&#8217;s a new starts or down, depending on what data you&#8217;re looking at, between 70% and 90% year over year. So that&#8217;s not a great place to be. Rents are definitely softening with the amount of condo inventory that&#8217;s all being delivered, most of which is shadow rental inventory. And so we&#8217;re seeing downward pressure on lease velocity, downward pressure on rents. We see that stabilizing over the course of 2025. And then we essentially have four years and no new supply. So we actually see a significant uptick in rent in 2026 and beyond. We&#8217;re very bullish on that. As it relates to margins. Margins are squeezed, right. Hard costs are not really coming down significantly. They&#8217;re starting to come at the front end of the trades. But I&#8217;d say maybe your overall hard costs are down 5%. Whereas margins are probably overall down, you know, 50%. You went from a 20% profit on cost number down to 10%, which is not economically feasible to build. Unless you&#8217;re vertically integrated, where you can move your fee stream. You know, between property management or asset management or development and construction, we could make sense of going vertical in today&#8217;s market selectively, but most people can&#8217;t. And so we need to find policy, especially government policy that&#8217;s going to encourage as much new supply as possible coming onto the market.
Benjamin Tal: So there is this false sense of confidence that things are fine. They are not fine. No. It will be a year or two years that the market will be soft and then it will take off. We have to take advantage of this window of opportunity to solve some of the problems that you discussed. Because that&#8217;s basically what we&#8217;re talking about.
Elsa Hannaford: For sure, and looking at markets beyond the GTA as well, when I see Montreal and Halifax, which have historically been very rental oriented, maybe the development timeline is a little bit faster with the government there, but they have challenges with labor costs as well as the new changes in CMHC as well.
So in Montreal, for example, you have rising labor costs, you have HST still in the picture. And with the changes in CMHC, the numbers don&#8217;t work anymore and projects are probably going to get shelved. So on that note, Benny, you&#8217;ve done a lot of work in the last year in terms of the construction labor shortage. Have things changed?
Benjamin Tal: Not much, quite frankly. And I think that we have to do something about it, starting with immigration. We have to change the point system. Only 2% of new immigrants, are in construction, we have to get it to 5%-6% in a very quick way. This is something that we have to continue to focus on. And this is something that can be done easily just by changing the point system. I think we can be doing it. We can use robotics, 3D printing, all kinds of other methods to actually elevate the way we do business and build. I think it can be done. What do you think?
Brad Carr: Well, I think what&#8217;s really important is that we don&#8217;t let this short term pause in the construction industry create the sense that there isn&#8217;t a skilled labor shortage. We have a massive problem coming at us in 26 and beyond. And if anybody takes their foot off the gas or those type of immigration changes don&#8217;t occur, we&#8217;re going to have an increasing problem as we move into the out years. One thing that&#8217;s for sure. Demand for housing is as high as it&#8217;s ever been. The problem right now is affordability and the affordability comes from all of these factors. Too much government cost, too little labor. That&#8217;s driving the cost of that labor delivery up. We need to solve those structural issues while we have this moment.
Benjamin Tal: And I think that we have to get into this state of mind that helping developers, providing incentives is not something that you want to avoid. Help those millionaire developers, the opposite is the case. The government needs the private sector to solve this problem. The private sector is not the problem is the solution. That&#8217;s what we have to introduce into their mind.
Elsa Hannaford: No, for sure. And I mean, we&#8217;ve touched on this quite a bit, where development charges have been skyrocketing across the country and governments need to bring them down. What else can governments be doing to help solve the problem?
Brad Carr: I’ll start, but then I&#8217;m sure Adrian has a lot to say. Speed. The number one thing I’d like to talk about and reinforce is speed is supply. The planning environment in Canada, right across the country. It takes far too long. And not only does that add cost to housing, but it just delays our ability to get at the product we so desperately need. And so at every level of government, looking for ways to speed up the planning process and the delivery of the product in Canada, it takes longer in most cases to get the buildings approved. The paper exercise takes more years than the physical construction.
Adrian Rocca: Two things I would add to that is I totally agree with speed. We&#8217;ve got to change the economic profile of these deals. Right? What does that mean? We&#8217;ve got to reduce government, fees, levies, development charges. There needs to be a full waiver tomorrow, right? We can&#8217;t wait a year from now. We can&#8217;t peer around the edges with policy that links to, 20% affordable units will only get the benefit of these DCs. That almost neutralizes that benefit. Right now, if you went to an all market deal, the economics don&#8217;t work as an outline. So you gotta waive DCs, you got to waive property tax, do it for a 20 year period. It was a very effective tool during the Sunbelt, when they actually needed to encourage as much new supply as possible, they did a 20 year property tax abatement and it created a huge amount of new supply. Right. Every dollar that you actually save on your net operating income has a $30 implication on your value. Given what cap rates are it&#8217;s the most effective tool. They&#8217;re not using it for a bunch of reasons. I think they absolutely should have that at the table. And lastly, the CMHC debt program, specifically ACLP. Right. That is a big needle mover around affordable. we would be an active developer around affordable if we have access that ACLP that program. It&#8217;s a national program they increased capacity over a year ago. It&#8217;s at its capacity right now. We need visibility around increasing that further. We&#8217;re told it&#8217;s imminent, but we&#8217;ve been told that for 6 to 12 months and it&#8217;s not happened. We need that tomorrow.
Benjamin Tal: And, you know, just to put it in perspective, if you waive development charges, the cost is actually minimal. Why? Because nobody&#8217;s building so zero times zero is zero. So that&#8217;s what we are telling politicians. Basically you&#8217;re not really costing anything to the system by providing it and you accelerate the process. So something to think about.
Elsa Hannaford: For sure. And Benny, there&#8217;s a lot of mortgages coming up for renewal this year. What are the concerns around payment shock for homeowners?
Benjamin Tal: Actually I don&#8217;t think it&#8217;s a major issue. It&#8217;s not a macro issue. It&#8217;s a micro issue. Okay. Basically if your specific mortgage goes up, you have a problem. But actually 40% of people that are going to renew their mortgages are going to see lower interest payments, not higher, because they took one year mortgage.
Elsa Hannaford: So, Tim, clearly it&#8217;s a rapidly evolving market. Where do you see the biggest area for growth in 2025?
Tim Samis: Well, I&#8217;m hoping we could pencil and double digit growth from Mattamy and Fitzrovia. So maybe we can talk after we&#8217;re done here. But Western Canada was a strong year for us in 2024. We expect it to continue to be a strong year in 2025 as well too. If you look at Alberta and Calgary, Calgary, just name, you know, top five livable cities. According to The Economist. There&#8217;s a real affordability advantage. And while prices have gone up, you know, towns that were selling for 290 a couple years ago are selling for 500 today. Those same townhouses are selling for a million bucks in Toronto and Vancouver. So that affordability advantage is driving a lot of population migration to those markets, which should be good. And Vancouver condo, you know, that&#8217;s a market that is different than the dynamic in Toronto. The difference between price for new price for resales not as wide in Vancouver. And there&#8217;s more affordability in suburbs like Coquitlam and Burnaby. And even the approval process in Vancouver is a little bit different, where it encourages a broader mix of units. So there&#8217;s not just one bedroom units in that market. So it&#8217;s broader appeal to end users. So all those factors we think are going to contribute to a better spring season. And we&#8217;re hearing some some launches in those markets.
Elsa Hannaford: Okay.
Brad Carr: Clearly a lot going in the market.
Elsa Hannaford: Do you have anything to add.
Brad Carr: What you just said Tim is really important. Canada doesn&#8217;t have a national housing market. We have a series of regional housing markets. And the way to solve Canada&#8217;s problem is to look at each region separately, as opposed to try and put a blanket policy right across the country.
Benjamin Tal: Absolutely.
Elsa Hannaford: A lot to think about going into 2025. Thank you so much, everyone. That was a really insightful talk.

What’s ahead for the Real Estate market in 2025

Real Estate Financing

Elsa Hannaford

Vice President, Real Estate Finance

CIBC Commercial Banking

Benjamin Tal

Deputy Chief Economist

CIBC

Tim Samis

Senior Vice-President, Real Estate Finance

CIBC Commercial Banking