Major Canadian banks tighten condominium lending rules from the direction of regulators in an effort to cool residential markets

Analyst Commentary, Matthew Bovencamp: The Office of the Superintendent of Financial Institutions (OFSI) recently advised Canada’s major banks to be more careful in their lending practices and who they lend money to. The OFSI is concerned about a possible overheated market in parts of Canada, specifically Vancouver and Toronto Condo markets. Banks have responded in recent weeks through a tightening of their lending requirements, requiring more pre-sales, purchaser deposits and higher equity. 

This is not new; regulators have been worrying about the residential market since the global meltdown in 2008. However, Vancouver and Toronto have performed relatively well in the multi-family residential markets since 2008. The record low interest rates and investor appetite are key factors continuing to fuel these markets. The tighter regulations may make financing development projects more difficult; however, if consumer demand remains, driven by low interest rates, developers will find financing through other channels (investors and other third party lenders). We believe the eventual interest rate hike will be the ultimate driver of demand and performance for the real estate market. If rates continue to be low, investors and prospective home buyers will continue to drive the housing demand and prices higher.

News Summary: The Office of the Superintendent of Financial Institutions (OFSI) has sent a request to major Canadian banks to tighten regulations on their lending practices to cool the housing markets. The OFSI is particularly concerned about the prospect of an overheated market in the Vancouver and Toronto condominium sector.  

Source: Bloomberg (Mar 23)

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