Today the Bank of Canada’s decision to maintain interest rates steady at 4.50% create continued financial pressure for landlords and risk adding headwinds across a rental market already stretched to the limit.

Property owners holding variable rate mortgages on their investment properties, especially outside major urban centers, could find themselves in a position of force selling their units if the increase in rental prices cannot keep up with the rise in maintenance costs along with financing cost. However, supply and demand dynamics remaining independent of interest rate means we are unlikely to see any major price drop across the whole of the market.  

Rate pressure may drive some renters who have been on the sidelines to enter the buyer market pushing residential values higher. While this raises concerns for some commercial real estate investors, we see no indication that any upcoming shift in renter behavior would be significant enough to alter the tide of the market and have an impact on multiresidential assets.

A sustained level of relatively high interest rate will however be enough to burst the remaining area of excess. Over the pandemic period, a boom in property values, largely fuelled by an unsustainable speculative fever, saw the arrival of a lot of retail investors on the market, pushed by a frenzy of amateur syndication. With loan-to-value ratio often close to or higher than 90% before refinancing, those are the type of investors risking trouble.

As mentioned in previous articles, the Quebec real estate market, especially around the island of Montreal remained incredibly strong. Pool of capital, mainly driven by larger private investors and institutional funds, contributed to a strong demand for commercial real estate assets, mainly multiresidential and commercial. So, as some property owners may be faced with the prospect of forced selling, there is still plenty of dry powder available on the sideline ready to be quickly deployed. 

In conclusion, the Bank of Canada’s decision to maintain interest rates steady may lead to financial pressure for some investors and forcing some of them to sell their investment properties, but we are not expecting this to be a wide phenomenon. There are still plenty of opportunities for smart investors ready to act quickly and decisively.