The Liberals’ first budget after their landslide victory in the 2015 federal election won’t be released until next spring, but that hasn’t stopped analysts from looking at Trudeau’s campaign promises to try and tease out what it might mean for the economy and rental markets, and ultimately what it might mean for us investors.
According to an article in Money Sense magazine, one plan that may benefit renters as well as real estate investors is Trudeau’s promise of a “10-year investment in social housing infrastructure, prioritizing affordable housing and seniors facilities (including more building units and refurbishing existing units) and tax breaks – including removal of GST on new capital investments – to encourage construction on new rental housing.”
The article also states that Trudeau’s modest stimulus to boost the economy may cause higher interest rates, cooling the housing markets in places like Vancouver and Toronto. However, since Trudeau also promised to help the middle class, it remains to be seen how higher interest rates will square with his plans to help first time home buyers. One of the promises made was to change the Home Buyer’s Plan (HBP) to give more people access to money for a down payment for a house – i.e., by loosening existing qualifications to allow Canadians affected by sudden life changes (death or divorce of spouse, an employment move) to access RRSP savings for a down payment. Modernizing the HBP will mean that it’s not just limited to first time homebuyers.
So what’s the translation?
If the Liberals are able to go ahead with their plan to spend, the federal debt load will mean interest rates will likely rise in Canada, making mortgages more expensive and home ownership and investment purchases more difficult. But for investors who can still qualify to purchase investment properties, buying new inventory that comes with new home warranty will be desirable if the GST is eliminated.
The upside, at least for investors who have the properties, is that rental demand will increase as home ownership becomes more difficult due to higher home ownership costs.
My recommendation is to do your cashflow projections and purchase with caution. If the numbers work with today’s rates, lock-in your mortgage at today’s low rates, and increase rents annually to protect yourself from the inevitable.
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