The first article, Room for optimism in the COVID-19 real estate market in T.E. Wealth’s two-part series on real estate and COVID explored some uncertainties in the housing market stemming from the pandemic. We’re building on that earlier piece here by looking at a few other factors that investors may want to think about in consultation with their financial planners.
Digital is de rigueur
Showing and viewing homes on the internet is not new, although not every broker or would-be buyer or seller invested time and energy to go digital. That’s all changing. In the pandemic world, digital is de rigueur given that physical distancing rules have more or less wiped out most open houses for the time being.
There are ups and downs to this kind of online window shopping. Sellers and brokers can easily post crisp photos and videos of properties on the market, and potential buyers can get a good look at a home’s interior layout by checking it out online. But it’s hard to get a true sense of that home’s “bones” off a website. It’s equally challenging to develop any emotional attachment to what are, in essence, pixels on a screen.
If you’re really keen to buy or sell in the short term you may not have a choice but to go digital. Prime Minister Justin Trudeau warned Canadians earlier this month that physical distancing rules may be in place for weeks to come. That means a Zoom or FaceTime call with your broker may be the only way to scope out a potential new residence for quite a while. Regardless, consulting your financial planner about any possible real estate transaction – particularly during a pandemic – is always highly recommended.
Will this new digital reality further dampen the real estate sector?
It’s hard to tell precisely. But it’s fair to say that many people who had otherwise thought of downsizing soon may well chose to sit on the sidelines and delay their decisions for a few years as they wait out the current instability. The same may be true for high-net worth individuals looking to buy or sell secondary homes.
Delays like this have several knock-on effects on investors from a wealth management perspective. For example, many Canadians use their downsizing proceeds to buy a few smaller properties (e.g., a condo in Canada and a winter residence elsewhere), to travel, and to help their kids pay for university, college and first homes. These things all can still happen, of course. But any COVID-related delays to major housing decisions could push out those milestones into a somewhat hazy future.
This situation, in turn, puts a premium on having regular conversations with your wealth management professional as we all move through and beyond the pandemic.
“It’s always important to assess each client’s personal situation and finances before they make any decisions,” says Jane Cheong, Senior Vice President and financial planner in T.E. Wealth’s Montreal office. “Ongoing discussions help guide our clients through the current challenges.”
Increased attention on housing for seniors
The seniors’ segment of the real estate market had been growing for years. Canadians are living longer and, on the whole, healthier and wealthier lives, and the pre-pandemic real estate market was responding to their needs.
However, COVID triggered a range of concerns about how and where millions of seniors are living, be it at home alone or in shared retirement and long-term care residences.
As real estate economist Peter Norman recently said in his talk to the Canadian Association for Business Economics, these concerns will influence investment and construction decisions in the seniors’ real estate market for years. That means housing for seniors will receive a lot of attention going forward.
Work from home as a demand-side driver
During the COVID crisis, many people have given up their busy (and often long) road and transit commutes in favour of a 15-second commute to their kitchen tables.
What happens after the pandemic?
Well, returning to the office will be a welcome break for many people, and millions of Canadians aren’t in a position to work from home in any event. But many are. And it’s highly likely that the attractions of a micro commute will lead countless Canadians to give up the GO train, for instance, for a short stroll to their home office, the protestations of house cats accustomed to having the place to themselves notwithstanding.
Point is, “work from home” will almost certainly be a demand-side driver of Canada’s real estate market for years to come. Combined with downward pressure on housing prices,
there are likely some attractive buying options for investors who want to rent homes and apartments to the increased number of Canadians working from home.
Deferred property taxes
Many jurisdictions are now deferring residential and commercial property taxes. The City of Toronto, for example, is providing a grace period for residential and commercial property tax payments and payment penalties for 60 days, starting March 16, 2020. Likewise, the City of Calgary extended its 2020 tax payment deadline from June 30 to September 30 without late penalties.
Ratepayers who can afford to pay property taxes on time are allowed, and implicitly encouraged, to do so. COVID is blowing huge holes in municipal budgets, and property taxes, deferred or otherwise, are vital revenues for local governments grappling with the pandemic.
Limited supply for the time being
As discussed in the previous article, Room for optimism in the COVID-19 real estate market, there are clear links between supply and sales.
Limitations on residential construction building will dampen the number of net-new houses coming on-stream for the time being. In Ontario, for instance, Premier Ford shut down all non-essential construction sites as of 11:59pm on April 4. However, projects that began before that date are allowed to continue, with an increased number of site inspectors ensuring that health and safety protocols are being followed.
All in all, housing stock supply in a pandemic and post-pandemic Canada will be lower than had been forecasted before the outbreak.
Looking to a more positive future
These and other factors illustrate that there are some real concerns about real estate. And those concerns won’t disappear any time soon.
But you could look at this way.
Canada’s real estate market was generally robust going into the pandemic, and some of those underlying strengths will help pull it through. Time, patience and ongoing physical distancing will also help one of Canada’s most important sectors rebound.
Steven Bright, a longtime client of the firm, has worked in and written about financial services for more than 25 years. You can find him on LinkedIn.
These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.