Are Chinese investors moving away from the Canadian housing market? This survey says yes (BuzzBuzzNews)

Chinese investment in Canadian property could be about to take a nosedive. That’s because, according to a recent survey, new regulations are making many would-be buyers think twice about getting into the Canadian housing market.

Last August, the Chinese government implemented new rules aimed at curbing foreign investment. Now, a new survey by commercial realtor Cushman & Wakefield has found that Chinese investors are having a harder time securing foreign property deals in 2018.

Nearly half of the Chinese investors surveyed found it “extremely difficult” to make acquisitions, while 10 per cent said it was “impossible.”

Those findings are backed up by the latest research from the University of Alberta China Institute, which has found that the value of major Chinese investments in Canadian real estate is becoming smaller.

In 2016, major investments were worth $3.05 billion — in 2017 they totaled just $1.47 billion.

In a statement, University of Alberta China Institute director Gordon Houlden writes that there’s been a “clear decrease” in investment, as “regulations do have an effect.”

But the rules are largely centred around large transactions, such as stopping state-owned enterprises from investing more than $1-billion in foreign real estate. It’s unlikely they will stop Chinese investors looking to buy smaller properties from entering the Canadian market.

In fact, according to a survey from Chinese real estate website Juwai.com, Canada is the third most popular investment location for Chinese investors in 2018.

“Over the past few years, we have seen changes in the primary motivations of new Chinese property buyers,” writes Juwai.com CEO Carrie Law, in a statement. “‘Own’ surpassed ‘investment’ in 2016 and hasn’t looked back. Now, buying for one’s own use motivates more than 65 per cent of Chinese buyers.”

Toronto was listed as the number one Canadian city of interest, followed by Montreal, Vancouver, Ottawa and Calgary.

Credit ratings agency singles out uninsured mortgages for putting Canadian banks at risk (BuzzBuzzNews)

By: Kerrisa Wilson, BuzzBuzzNews

Canada’s overall consumer debt continues to rise, spurred in part by an increase of uninsured mortgages.

And this increase in the proportion of uninsured mortgages is leaving Canada’s seven largest banks at risk of higher consumer lending vulnerability, according to a new report by Moody’s Investors Service published today.

Until now, low interest rates and unemployment have kept Canadian borrowers’ debt-servicing requirements manageable.

However, the credit ratings agency says consumers’ debt-servicing requirements will likely rise after recent interest rate hikes by the Bank of Canada.

“High and rising household debt-to-income levels leave both borrowers and lenders vulnerable to an economic downturn, despite strong consumer credit quality metrics to date,” reads the report.

In the third quarter of 2017, the national household debt-to-disposable income ratio reached a record 171 per cent.

Although residential mortgage risk remains low, Moody’s says that the proportion of uninsured mortgages, including home equity lines of credit, has climbed to 60 per cent from 50 per cent five years ago.

The firm attributes this change to a variety of “macro-prudential measures” aimed at slowing house-price appreciation in Canada, such as mortgage stress testing.

“The decline in insured mortgages is a direct result of the Canadian government’s decision to restrict supply and increase premiums,” reads the report.

With interest rates on the rise, Moody’s notes that mortgage-servicing costs are likely to climb because nearly half of outstanding mortgages are due for interest rate renewals within a year, adding further strain on households’ debt-servicing capacity.

Out of Canada’s largest seven banks, CIBC has the largest exposure to Canadian residential mortgages and the greatest proportion of uninsured mortgages.

In addition to a rise in uninsured mortgages, Moody’s says other risks to the banks include credit card losses and longer auto loan terms.

Consumer Debt Binge Draws Moody’s Warning for Canadian Banks (Bloomberg)

By Maciej Onoszko, Bloomberg

Canada’s mountain of consumer debt is triggering multiple alarms about the threat to the country’s banks.

Moody’s Investors Service joined the Bank for International Settlements and S&P Global Ratings which have all warned in the last month that Canada’s banking system, dominated by five giants, is facing a growing threat of souring consumer loans amid rising interest rates. The country’s ratio of household debt to disposable income reached a record 171 percent in the third quarter of last year.

The proportion of uninsured mortgages has increased to 60 percent from 50 percent five years ago, including home equity lines of credit, amid government efforts to reduce taxpayer exposure, according to the report from Moody’s on Tuesday. Canada Mortgage and Housing Corp., a government agency, insurers the bulk of mortgages in Canada.

Almost half of outstanding mortgages, many of them on fixed-rate terms, will have an interest-rate reset within the year, increasing the strain on households’ debt-servicing capacity, Moody’s said.

Further aggravating the situation are auto loans which are getting offered at terms as long as 68 months, authors of the report said. With these long terms, the car’s value often drops below the amount of the loan before it’s paid off.

Yet it’s the unsecured credit-card portfolios that will be the first to feel the pinch as their repayment tends to have lower priority for financially strapped borrowers.

All of these consumer loans have so far performed well in Canada as the country boasts the lowest unemployment rate in four decades. The arrears rate is only 0.24 percent for residential mortgages — seven basis points below the 10-year average, while the auto-loan delinquency rate is only 1.5 percent, Moody’s said. Canadian banks have also earned a reputation of being well-managed, conservative institutions after passing through the global financial crisis relatively unscathed.

Loonie falls after Poloz suggests he’s not ready to take away ‘punch bowl’ (CBC News)

By Rajeshni Naidu-Ghelani, CBC News

The dollar came under renewed selling pressure on Tuesday morning, falling half a cent after Bank of Canada Governor Stephen Poloz’s speech suggested the pace of interest rates hikes may become more gradual as the economy expands without triggering inflation.

The loonie fell from 77.87 cents US to 77.37 cents after Poloz started giving a speech about the labour market at Queen’s University in Kingston, Ont., in the morning.

That’s a loss of half a cent, and comes as the dollar is already the worst performing major currency in the world this year.

It has been hit by a stronger U.S. dollar, lower oil prices and fears of a trade war, and is down almost three per cent against the greenback in 2018.

Poloz’s positive description of the Canadian economy being in a “sweet spot” where investment usually takes over as the lead engine of growth, and in a phase “worth nurturing” had market watchers wondering if the central bank is more inclined now to sit on the sidelines after raising interest rates three times since last year.

“The Canadian economy is carrying untapped potential that could prolong the expansion without causing inflation pressures,” said Poloz.

‘Unambiguous’

Brian DePratto, senior economist at TD Economics said the policy message in the speech was “unambiguous” that accommodative monetary policy is not going away any time soon. In other words, don’t expect rates to go up very quickly, very soon.

“Whether it is the expansionary investment phase ‘worth nurturing’ or the repeated references to the disinflationary effects of rising potential output, Poloz has made it clear that he will not be yanking away the punch bowl anytime soon,” DePratto said in the note.

‘A gradual pace of hikes is likely going forward.’— Brian DePratto, TD Economics 

“We remain of the view that in contrast to the relatively rapid-fire pace of tightening between July of last year and this January, a gradual pace of hikes is likely going forward,” he added.

On Tuesday, the chance of an interest rate hike at the central bank’s next meeting in April fell 14 per cent from Monday to 29 per cent, with chances of rate hikes in the second half of the year now more likely, according to traders who bet on the Canadian dollar.

Don Curren, strategist at Cambridge Global Payments, said Poloz’s speech didn’t suggest any substantial changes to the central bank’s policy of raising rates in a cautious fashion, but his emphasis on “subdued inflation” was enough to push the “already-struggling” loonie even lower.

‘Untapped’ potential

Poloz continued to talk about the “untapped” potential of Canada’s labour market — as more youth, women, Indigenous and disabled people enter it — and why the central bank was paying such close attention to that economic driver.

“It is not much of a stretch to imagine that Canada’s labour force could expand by another half a million workers,” Poloz said.

“To put this thought experiment into perspective, this could increase Canada’s potential output by as much as 1.5 per cent, or about $30 billion per year.”

Poloz said that was equal to a permanent increase in output of almost $1,000 per Canadian every year “even before you factor in the possible investment and productivity gains that would come with such an increase in labour supply.”

Strategists at TD Securities said, while it’s true that there would be economic gains if the participation of women and youth in the labour market increased, they doubted that monetary policy could do much to change that.

Instead, they pointed out that the central bank is more data-driven and Poloz’s speech was a reminder to the markets that the central bank is not in a rush to hike rates anytime soon.

“We have recently noted that the market needs to curb its enthusiasm in the Canadian dollar; economic growth should decelerate while Canada’s largest trading partner is leaning towards more protectionist policies,” foreign exchange strategist Mazen Issa told CBC News.

“NAFTA negotiations remain unresolved and still far apart on the contentious issues. Recall that the Bank has highlighted in its last monetary policy report that protectionism is the greatest risk to its outlook, and that fear appears to be unfolding.”

Until those trade fears start to wane, they expect the Canadian dollar to see more weakness and have a hard time moving much higher in the near term.

Vancouver And Abbotsford-Mission Sweep Top Spots in Economic Growth In 2018 (Newswire)

NEWS PROVIDED BY Conference Board of Canada

OTTAWA, March 13, 2018 /CNW/ – Vancouver and Abbotsford–Mission are forecast to be the fastest growing census metropolitan areas (CMAs) in Canada this year, and Victoria is also expected to rank in the top 10, according to The Conference Board of Canada’s Metropolitan Outlook: Winter 2018.

“The pace of growth in Vancouver and Victoria’s economies are expected to moderate this year, with the slowdown led by housing and consumer spending, but strength in other areas will keep the pace of expansion above 2 per cent in each metro area,” said Alan Arcand, Associate Director, Centre for Municipal Studies, The Conference Board of Canada. “In contrast, Abbotsford–Mission is projected to see real GDP growth accelerate this year, bouncing back from a subpar 2017 when it notched its weakest performance since 2009.”

Highlights

  • Vancouver’s real GDP growth is forecast to ease to 2.7 per cent in 2018, but the CMA will remain Canada’s fastest-growing this year.
  • Abbotsford–Mission’s real GDP growth is forecast to accelerate to 2.5 per cent this year, making it Canada’s second-fastest expanding CMA.
  • Victoria’s real GDP growth will moderate from 2.9 per cent last year to 2.2 per cent in 2018.

Vancouver

Following an increase of 3.7 per cent in 2017, Vancouver’s real GDP growth is expected to moderate to a nation-leading 2.7 per cent this year. A cooling housing market, due to rising interest rates and the expansion of a mortgage stress test, is central to our expectation of the slowdown. This will shave growth in construction and in finance, insurance, and real estate. These were two of the region’s top-performing sectors, but will throttle back along with Vancouver’s housing market. Housing starts are anticipated to decline over the next two years, but will remain comfortably above the average of the last 10 years. Growth is also poised to slow in wholesale and retail trade, as highly indebted consumers feel the pinch of rising interest rates. Employment growth is expected to slow to 0.9 per cent this year too, in step with the more moderate GDP gains.

Abbotsford–Mission

Abbotsford–Mission’s real GDP growth is forecast to improve from 1.9 per cent last year to 2.5 per cent this year. Abbotsford–Mission’s goods-producing sector will lead the way over the next two years, thanks to growing business opportunities, a lower Canadian dollar, and a solid U.S. economy. Manufacturing activity is expected to remain healthy, especially in the key wood products industry. Although the U.S. has levied duties on exports of Canadian softwood lumber, value-added softwood lumber products, such as those produced locally, are not subject to these new duties. The outlook for the construction sector is also bright, with housing starts and non-residential investment both poised to be strong. However, slower services sector output growth is on tap, particularly in wholesale and retail trade, as shoppers tighten their purse strings in the face of rising interest rates.

Victoria

Victoria’s real GDP is forecast to rise a solid 2.2 per cent this year, although this pace will be the slowest in four years. Sustained gains in most industries will underpin this ongoing growth. Robust housing starts drive solid construction output growth over the next two years, while federal shipbuilding contracts issued to Seaspan’s Victoria Shipyards will keep the manufacturing sector expanding. On the services side, slow but steady gains are anticipated in the all-important public administration sector, in line with a healthy provincial government fiscal outlook. At the same time, Victoria’s burgeoning high-tech sector will help drive solid output gains in the professional, scientific and technical services industry.

The local job market has been booming, with employment growth exceeding 3 per cent for two consecutive years. Thus, we think a pull back is inevitable, so our call is for a 0.5 per cent decline this year. The unemployment rate is projected to increase this year too, but only to 4.3 per cent.

This forecast was completed prior to the recent B.C. budget that included additional housing market cooling measures and their impacts are not included in the forecast.

Alan Arcand will present these findings during Western Business Outlook events in Vancouver on April 10 and in Victoriaon April 12.

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SOURCE Conference Board of Canada

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