A growing phenomenon in the condo development market is highlighting a disadvantage for brokers.
“The one issue is developments not closing in time,” Marc Ffrench of Dominion Lending Centres Metro City Mortgages told MortgageBrokerNews.ca. “These are affecting pre-approvals as clients need to re-qualify again. Once the rate expires, you have to redo the entire file.”
The problem, as Ffrench sees it, is that the broker channel can’t offer the extended rate holds that are necessary when a project drags on longer than originally anticipated.
“As a broker, I think it’s tough because we can’t get the extended rate holds we need to market to that group,” he said. “With the big five banks who do offer extended rate holds it’s a smart play on their side.”
Still, this doesn’t account for the perceived surplus many pundits point to as a cause for concern in Ottawa. Ffrench, however, doesn’t believe there is one.
“The opinion that it is oversaturated is because there are so many new buildings being built at the same time; we’re going from zero to 100 as opposed to a gradual increase,” he said. “I think the condo market rate in Ottawa is at its proportionate level, where it should be: We aren’t at the same level in Toronto where there are cranes in the sky everywhere.”
And builders seem to be covering their assets by taking a conservative approach to building and ensuring the projects are sufficiently financially backed.
“Builders don’t break ground until 60-75 per cent of the units have been sold or committed to; the builders aren’t in this to lose money,” he said. “A lot of the condos are also combining with a commercial component on the ground level; Starbucks, Shoppers, major grocery stores -- so that acts an anchor to the project.”