In 2021, the number of homes available for sale declined, while the average price increased by 18 per cent, according to an RBC Economics report. The report states “millennials will remain the biggest source of first-time home buyers.” Over the last five years, more than 800,000 people between the ages of 25-44 (millennials) entered the prime homebuying stage. The other source of new home buyers is immigration. Canada plans to welcome 411,000 immigrants in 2022 and 421,000 in 2023. While record inflation, a rising interest rate environment, and a cautious post-COVID economic outlook will soften some of the demand; it is still expected to remain strong.
Commercial real estate is the other important part of the Canadian real estate market. According to the 2022 Canada Real Estate Market Outlook by investment firm CBRE, there was a record investment of $57.9 billion in commercial real estate in 2021, with an expected increase of $600 million in 2022. Driven by businesses implementing their return-to-office strategies and ongoing demand for technology workers, the need for office space in urban centres contributes to the demand in commercial real estate. CBRE also expects that the need for space to store and distribute products will stay strong, as more consumers continue to shop online.
With both residential and commercial real estate markets forecasting continued growth, investors need to consider the most economical point of entry to maximize their return. Listed below are several incentive programs for residential and commercial real estate.
According to the Report of the Ontario Affordability Task Force from February 2022, the years 2011 to 2021 saw the average price of a house increase by 180 per cent, while average incomes only increased by 38 per cent. This disparity has partly been created by the deficit between the demand and supply of housing. Based on the projected population growth, Ontario needs to build 1.5 million new homes in the next 10 years to address the shortage. The report recommends the creation of the Ontario Housing Delivery Fund to promote affordable housing. While the creation and details of the fund still need to be outlined, it is reasonable to expect tangible outcomes considering the gap in available housing.
For over 70 years, the Canada Mortgage and Housing Corporation (CMHC) has played a key role in providing affordable housing directly to buyers and developers through a variety of programs. The Seed Funding program is one such program that provides interest-free loans and/or non-repayable contributions. Specifically, it supports the construction or conversion of new housing and maintenance of existing community housing. The Shared Equity Mortgage Providers Fund supports existing shared equity mortgage providers through a $100 million fund. Through this fund, individuals can access home ownership by sharing the costs and ownership (equity) between the owner and the lender.
New Housing Programs
With the influx of millennials and immigrants entering the homebuying market, the GST/HST new housing rebate program provides some relief on the taxes with home purchases. The program offers tax rebates on purchases of newly-built property and shares in a co-operative housing corporation, or substantially renovated property. One notable condition of this program is that eligibility is limited to properties with a maximum purchase price of $450,000. According to the Financial Post, the average cost of a house in Canada is over $700,000 in December 2021. While this limits the opportunity to claim the rebate, excluding higher-priced property in Vancouver, Montréal, and Toronto would lower this average to more eligibly priced property.
Another program geared to encourage property purchase is the Home Buyer’s Plan (HBP). The HBP allows withdrawals from Registered Retirement Savings Plans (RRSPs) to be used to purchase property. The maximum withdrawal amount (currently $35,000) will need to be paid back to the RRSP over a 15-year period, starting two years after the property was purchased. According to the Government of Canada, an individual is classified as a first-time home buyer if, in a four-year period, they “did not occupy a home that they owned, or a home that their common-law partner or spouse owned.” Like the GST/HST New Housing Rebate, the current average housing price in Canada lowers the efficacy of this program.
Climate Change Home Renovation
If the preference is to renovate an existing property, the Canada Greener Homes Grant provides up to $5,600 in federal grants for energy-efficient retrofits: $600 allocated to assess the retrofits and $5,000 towards the implementation. Single, semidetached, and townhouses qualify for this initiative, with eligible retrofits including the upgrade of home insulation, installation of ENERGY STAR® windows and doors, and switching to more energy-efficient heating equipment. The National Bank provides a comprehensive list of other grants at the provincial level that support home renovations.
Commercial Real Estate Incentive Programs
With small businesses continuing to feel the economic impacts from COVID-19, British Colombia introduced a 25 per cent average reduction in commercial property taxes. Ottawa implemented a similar program with a 15 per cent discount to commercial property taxes. Toronto has provided a Commercial Space Rehabilitation Grant Program that matches funding of 50 per cent to improve small retail businesses and assist in re-leasing the space for properties that are vacant or at risk of becoming vacant due to COVID-19.
Aside from pandemic-related programs, Edmonton offers grants to assist in environmental testing, revitalization of commercial districts, and cost sharing in developing industrial infrastructure. Across Canada, Business Development Canada (BDC), a wholly owned corporation of the Government of Canada, provides up to 100 per cent financing for the purchase of commercial property (other financial institutions provide up to 70 per cent). Financing can be used to purchase buildings, pay for construction costs, and renovate existing facilities.
Opportunities Exist to Purchase Residential and Commercial Real Estate
Whether buying or developing residential or commercial real estate, government incentives can reduce the costs of these investments. With both markets projected to continue growing beyond 2022, the question will be on how best to maximize the benefits.
This article originally appeared in the summer 2022 issue.
Nigel Taklalsingh | Contributing Writer