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Construction Financing May Give You a Niche When Funding in a City Where Market Conditions are Tough

If you have been feeling the crunch in a saturated or slow-moving Canadian mortgage market, there may be an opportunity to target: construction financing.

The Financial Post recently reported that Canada’s housing industry is “booming” with construction permits.

According to Statistics Canada, building permits rose 6.1% in August 2019 to $9 billion, largely due to increases in multi-family and industrial permits. The gain was up from $8.8 billion in December of 2018, according to BNN Bloomberg.

In PEI, the total value of permits issued at the end of August was up 33% year-over-year. The biggest areas of growth were for apartment buildings and the industrial sector.

While housing starts declined slightly in September, according to the National Bank of Canada’s Economic News they still remained elevated.

In markets where housing supply is slim, such as Toronto and Vancouver, construction financing could present a new target.

Housing supply has been top-of-mind for many. It came up during the October 2019 Teranet Market Insight Forum.

Tim Hudak, CEO of the Ontario Real Estate Association, said there is a lot of catching up to do for housing supply.

“In 2016, for example, we were building half as many homes as we were in 2006,” Hudak said. “It was like a cruel game of musical chairs with more people chasing fewer and fewer chairs.”

Purpose-built rental, single-family detached homes, condominiums, commercial space, and more were all identified as supply needs in more saturated markets.

“We just need more of all kinds of supply,” Paul Taylor, President and CEO of Mortgage Professionals Canada, said at the Market Insight Forum.

Other potential builders are getting creative in cities where space and supply is limited. Take for instance recent tiny home and skinny home trends.

The City of Kitchener also recently approved rules to allow additional dwelling units as part of a new residential bylaw. According to CBC News, “the changes would allow up to three residential units on a property, such as adding basement apartments, granny flats, an apartment over a garage or even place tiny houses on properties.”

If you do choose to target construction financing, use technology to make the process even more efficient. The same Purview tools you use for targeting mortgagors can be utilized for development prospects, too.

Estimate available equity, mitigate risk by running a fraud check, use an automated valuation model (AVM) to find an estimated property value on an empty lot, find comparable sales, and so on. The processes and functions you already have in place can help expand your portfolio.

Additionally, you can use your Purview tools to assess other properties potential developers own. This can reveal how many mortgages a potential borrower already has, whether other properties they own have a lien or other encumbrances, the number of people on title at their other addresses, and more.

These insights can all be used to paint a bigger financial picture and provide more due diligence for your lending operation or brokerage.

Construction financing offers an innovative way to expand your portfolio. Is this a market you plan to tap into? Share with us on social media. Find Purview on FacebookTwitter, and LinkedIn.

Access Purview’s property data solutions today. Call 1-855-787-8439 or visit www.purview.ca.

Our portfolio of solutions for the financial industry is growing. Stay tuned for more information.

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