How Will Covid-19 Impact Canadian Real Estate Investors

How Will COVID-19 Impact Canadian Real Estate Investors?

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The impact of the recent outbreak of the novel coronavirus disease (COVID-19) has spread into nearly every sector of Canadian life. Vulnerable populations are at-risk, events and vacations have been cancelled or postponed and the economy is rapidly trying to adjust to uncertainty.

Table of Contents - How Will COVID-19 Impact Canadian Real Estate Investors?

The real estate investment sector is no exception to feeling the impact of COVID-19. Here are some of the issues you need to consider when protecting both your investment and your community.

Interest rates are lower

Given the uncertainty surrounding the spread of the virus, health officials are encouraging people to stay away from crowds. Naturally, consumers are spending less. As a result, businesses and governments alike are looking for ways to keep the economy stable while limiting further contamination.

On March 4, the Bank of Canada cut one half of a percentage point from its standard interest rate. The move is designed to stimulate what is quickly becoming an unstable economy.

Your mortgage may be changing

Whenever there’s a change in interest rates, real estate owners and investors are smart to look into how the change will affect them.

If you have a fixed-rate mortgage, the lower interest rate will not affect your mortgage interest rate. Your interest rate is set for the term. You won’t be paying any more – but you also won’t be paying any less.

If you have a variable-interest mortgage, your interest rates fluctuate with the market. The recent changes from the Bank of Canada could help your mortgage, but only if you have an adjustable-rate mortgage. With an adjustable-rate mortgage, your monthly payment changes when the interest rate changes. With a traditional variable-rate mortgage, your interest rate changes but your monthly payments don’t.

Investing principles still apply

If you’re looking to take advantage of lower interest rates and add another home to your portfolio, now could be a good time. Still, you need to follow the same investing principles that would apply even if interest rates weren’t exceptionally low. Namely, you should never take out a mortgage you cannot afford.

The decrease in interest rates makes it so that borrowers can take out a loan for more than they can afford. It is now “cheaper” to borrow money.

While it may be easier to get a loan for your investment property, the root cause of the lower interest rate is concerns about the economy. As the stock market declines and more companies begin slowing operations indefinitely, people need to consider their financial security. If you lose your job and don’t have enough savings, you could end up foreclosing on a property.

Before making any big financial decisions, you want to have plenty of cash on hand. If all of your cash is tied up in real estate investments, you might be in trouble in case of a recession. Both liquid and non-liquid investments are important to your portfolio.

Landlord duties and revenues are in flux

Responses to COVID-19 have disrupted daily life. People are working from home when possible, childcare is less available, and our supply chain is less reliable. Combine that with the fears that families are facing for their at-risk loved ones and “disruption” becomes an understatement.

For commercial landlords, many retail businesses and restaurants will bear the brunt of the calls to avoid public places and crowds. In Singapore, where the outbreak is much more widespread, the Restaurant Association of Singapore asked commercial landlords for rental rebates or waivers of up to 50 percent to accommodate the steep decline in business. If you are a commercial landlord, you may wish to revisit your policies to see what you can do to help ease the pressure for otherwise stable tenants.

If you host a short-term rental property, you will undoubtedly see a decrease in bookings and an increase in cancellations. Depending on the platform you use, where you are and your cancellation policy, you may be able to recoup some of your losses from cancelled reservations. Hosts on Airbnb, VRBO and Booking.com are slashing prices to try to attract more bookings but will have to watch with everyone else as governments update travel advisories.

If the economy were to enter a recession as a result of the COVID-19 pandemic, residential landlords will also feel the pressure. It can be hard to find tenants in a weak economy. Tenants may be unable to pay rent and forced to leave or will be looking to downsize if your property is too expensive. As with commercial land-lording, being an understanding, flexible and prepared landlord can help you to keep stable tenants during rocky economic times.

Historic effects of pandemics on real estate

You may remember the SARS outbreak from 2003 and its impact on the Canadian people and its economy. As with the COVID-19 today, government and health officials discouraged activities that brought people into contact with one another, like travel and shopping. However, in 2003, the economy did not suffer. Canadian GDP crossed the trillion-dollar threshold in the next year.

In Toronto, the epicentre of the SARS outbreak in Canada, the housing market didn’t suffer. Home sales increased from 2002 to 2003. The average sale price increased by $18,000 during that time. The rise in sales and prices was on pace with previous numbers and didn’t seem to be affected by the pandemic.

That said, COVID-19 has already claimed more lives than SARS did. The uncertainty about the nature of the virus will continue to impact the way we live our lives, including the economy. Still, we can hope that as in 2003 the housing market will not be significantly affected by the economic uncertainty.

It’s still unclear how long precautions will remain in place when responding to COVID-19. It could have a negligible impact on the Canadian housing market, or we could be entering the next recession that economists had been discussing long before we heard of corona-virus. Investors should take stock of their portfolio and consult with trusted advisors to ensure they are making the right decision.

Most importantly, now is the time to be a good neighbour.

COVID-19 impacts on the real estate market


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Scott Dillingham

Scott Dillingham

I have been investing and lending to real estate investors for nearly 10 years now. After thousands of successful deals between flips, rent to owns, student properties and commercial assets I have developed a deep knowledge of real estate investments and have a passion of sharing this information with the world! If your looking for a lender who specializes in rental property financing you're going to want to connect with me at team@lendcity.ca.