Real estate update

COVID-19: Real Estate Update – November 18, 2020

The following update is based on our ongoing discussions with borrowers and industry peers, but we are ultimately taking direction from the government, financial regulators, and our stakeholders. Our observations continue to evolve, and we are focused on opportunities in every asset class as follows:


Following nine months of a ‘COVID-era’ real estate market, the residential landscape has shown itself to be extremely volatile and unpredictable. While the overall economy has suffered from high unemployment, a trade deficit and long-term business closures, the real estate story has continued to defy the odds. Forecasts and opinions are simultaneously optimistic and cautious, and while realtors present record sales prices and transaction volumes month-over-month, economists warn that we’re running out of runway.

Here are some patterns we’ve been watching, and the inter-related effects they have had on the different residential sectors:

PatternPossible Causes
Low-rise housing volume and sales prices have shown surprising strength and upward pressure since the late Spring, recovering to pre-pandemic levels.Sales were initially a result of ‘pent-up demand’ from the first months of the pandemic, but any unmet demand from the Spring months has certainly been addressed by now.

Condo dwellers were looking for a less-dense living option than the towers in the urban core.

The remote-work reality for office workers gave many first-time buyers options to live and work further from urban centres — how “sticky” this trend proves to be will depend on the behaviour of employers when the pandemic is behind us.

Many consumers scaled back discretionary spending in 2020 (unless they were already homeowners!), and those savings were applied to down payments for housing.

Condo sales in the GTA have been steadily easing (though there are also reports that condos have not decreased at all!)See above, re: the move by many to low-rise alternatives.

Many investor-owners of rental condos have seen their income and yields disappear, as a result of short-term rental vacancies, and a lack of immigration to fill the long-term rental pool.

Apartment vacancy has been rising, with landlords offering incentives to woo tenants. Rental rates have softened dramatically as a result, with both condo and apartment rents showing double-digit declines from a year ago.Immigration has been on hold for much of 2020. New immigrants are the largest source of new rental demand.

In addition, there has been no foreign student cohort that would normally attend Canadian universities.


Fiscal stimulus, by way of government support programs and BOC monetary policy, has kept many mortgage-holders and condo or apartment tenants afloat over this past year (commercial real estate beneficiaries are discussed below). The government has made statements that they will not ease stimulus until the economy and unemployment have recovered from COVID-19, but the trends we’ve been seeing so far this year will need to adjust (perhaps dramatically) as offices reopen, condominium pricing gets to a tipping point of affordability, and immigration brings a burst of new demand into the rental market.

From a lender’s perspective, we continue to monitor a concern among some analysts that borrowers on a mortgage deferral program, who are either currently unemployed and were receiving the Canada Emergency Response Benefit, or who are employed but are earning less than what they earned pre-COVID, are at a greater risk of mortgage default as the pandemic continues.

This pandemic will likely continue to create volatility and uncertainty in the residential market in and around the GTA for at least the next 12 months. Opinions continue to be mixed, and lenders will need to be cautious but opportunistic when making investment decisions.


The emergence of a second wave of COVID-19 makes a forecast for the commercial sector very tenuous. Canada is currently experiencing higher unemployment than any time in the past 23 years, with particular emphasis on the tourism and service sectors. Based on the upward trend in cases through mid-November, the Ontario government has indicated that further targeted closures could be coming to the economy.

The retail market continues to be challenged as a result of a drop in discretionary spending and economic uncertainty. Unfortunately, with a second wave of COVID-19, the Province of Ontario has again enacted restrictions on the service industry as it relates to indoor activities like dining and fitness. As the winter approaches, these restrictions will be even more acute as outdoor alternatives become more challenging.

The COVID-19 pandemic has already introduced a rethinking of office space usage, and in a recent Cisco systems survey of over 1,500 executives, it was found that more than half of larger organizations plan to reduce the size of their office space and more than three quarters will increase work from home (or remote) flexibility. The survey’s findings also suggest many of this year’s radical changes to work life will remain long after the pandemic subsides.

We continue to see stability in industrial assets, as warehousing and logistics are being utilized to capacity. Despite the fact that there have been fewer transactions for these properties, the asset values remain strong.

Given the above, Hillmount Capital will continue to take a cautious approach to valuing assets in every sector. We are carefully watching residential real estate values as we underwrite new loans, and we remain mindful of the challenges facing the retail and commercial office markets as a result of COVID-19. We continue to actively pursue opportunities in the first and second mortgage space, as well as lending against real estate where owners are facing financial issues.


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