After a few fruitful months, satisfaction gave way to concern for this young investor. Because if at the beginning its financial arrangement made it possible to profit from renting apartments, the trend has since reversed due to the rise in interest rates.
To build his housing stock, Simon Choucroun took out seven mortgages, all with variable rates.
After reaping profits ranging from 5% to 10% depending on the building, they now have to deal with
loss in four figures every month. The career computer scientist has since drawn on his salary to plug the holes.
At the beginning we have ambitions, we are not afraid, there is a small increase or two, we keep buyingexplains.
Then we slow down.
Especially since there are more sources of concern. Because on top of mortgage rates, his insurance has gone up by $1,000 a year and he’ll have to deal with a sharp increase in council taxes.
Simon Choucroun feels all the more stuck because he can’t really raise the rents. Its tenants generally have modest incomes, and their increases are limited in any case by the Administrative Court for Housing (TAL).
« The prices have gone up so much it’s starting to scare me. It’s like a roller coaster ride right now, I can’t wait to get off. »
For Simon Choucroun, selling is out of the question at the moment, the strategy is rather to bite the bullet and wait for the storm to pass.
To limit the damage, it is making various adjustments to its business model. For example, he intends to subdivide apartments to increase his income and take care of snow removal to limit his expenses.
But other homeowners decided to throw in the towel. One of them told us that he is currently selling about thirty apartments he owns in Montreal.
The transaction is ongoing and he prefers to remain secret about his identity to give his side a chance.
Rising mortgage rates are a major but not the only cause. He tells himself
stuck between property tax increases and the limits imposed OF raise the rent.
We have received several testimonials from owners demoralized by the increase in fees, who are recording monthly losses and are reluctant to sell their property to stop the bleeding.
In addition, buyers do not crowd at the gate. The market is becoming calmer, far from the atmosphere of fizz seen during the pandemic.
Across the territory, the number of sales recorded in September 2022 decreased by 19.6% compared to September 2021, according to the Quebec Land Registry.
Vulnerable homeowners in Quebec
Rental apartment owners are having a tough time right now, confirms the Corporation of Quebec Property Owners (CORPIQ).
Its director of public affairs and government relations, Marc-André Plante, says more and more owners are being forced to tap into their personal income to balance the management of their housing stock.
He observes that in the last three months this phenomenon is gaining strength and becoming more influential
small investors with less than five rental units, often one or two.
The CORPIQconducted a survey of its members in the summer. The result: 60% of participants said they opted for a variable rate. Also, 80% of participants reported taking out a mortgage that is more than half of the property’s value.
Marc-André Plante analyzes two figures that show the great vulnerability of homeowners in the face of the current rise in mortgage rates.
His organization has never received so many testimonials from discouraged members, he says, and many of them want to reduce their investments in the short and medium term.
Impact on rents
According to CORPIQ, inflation, tax increases and rising mortgage rates will lead to significant rent increases next year. But the phenomenon does not affect everyone equally.
The bill is likely to be particularly high for tenants of new housing. The
Clause F allows the owner to adjust the rent according to his wishes, unlimitedly within five years from the construction of the dwelling.
basic, according to Marc-André Plante, because otherwise many investors would go bankrupt, as various fees have increased since the beginning of the pandemic. This also makes it possible to provide guarantees to investors who want to bet on the creation of new housing.
New tenants should also be encouraged to absorb the fee increase. The law allows landlords to adjust the rent to market realities every time there is a change of user.
Tenants renewing their leases should not be affected by the rise in mortgage rates as these are not included in the criteria allowed OFset rent.
On the other hand, council tax increases should hit everyone hard. Landlords have the option to hand over the entire bill to tenants, which is usually what happens.
For example, in Montreal, the new scale will come into effect on January 1Yippee January for the next three fiscal years, i.e. 2023, 2024 and 2025. It will be based on property values that have increased by an average of 32.4% compared to the value of previous property rolls.
In several municipalities, the addition is probably salty. The CORPIQexpects the largest increase in rent allowed OF for thirty years.
Marc-André Plante predicts an increase of 3 to 4%, while it is generally around 2%.
Many homeowners expect interest rates to rise further. In early 2002, the key Bank of Canada rate was at an all-time low of 0.25%. After six consecutive hikes, it was set at 3.75% in October.