Covid-19 Cures

BY JAY BRIJPAUL

Covid-19 is infectious to our health and wealth. With lockdown, many businesses are laying off employees, creating an added financial stress for an already stressed population. Our Government took swift action to address the problem but with all the roadblocks created by the pandemic, financial relief will be sluggish. Here are some insights on the impact for real estate.

Rent deferral:  Tenants who cannot afford to pay their rent should inform their landlords in advance. Failure to pay rent can cause eviction. Ontario’s Premier commented on this: “That’s why I have directed that all eviction orders be suspended until further notice. We want to make sure you and your family can stay in your home during this difficult time. So, you can put your health and the health of others first.”  When we defer rental payment, it accumulates and can escalate into a large debt owing. Once the virus vanishes, the back rent is due, and the tenant can risk damaging their credit and be faced with eviction.

Mortgage deferral: RBC, CIBC, TD, Scotiabank, BMO, and National Bank of Canada are allowing homeowners to defer their mortgage payments for up to six months. Homeowners in financial difficulties should contact their lender and explore their options. Postponing mortgage payments is similar to kicking the ball down the road. Eventually, the homeowner must pay up the backlog or they can be in default. Another alternative is to refinance and increase the remaining years of payment in order to reduce the monthly payment. With the recent interest rate drop, if your mortgage is coming due in a year or two, it is a great time to renew. To break the mortgage, the lender may charge a penalty. Another option is to extend the number of years and then blend it. Let’s assume that there is a mortgage on the property for an additional two years; you can negotiate three more years at the lower mortgage rate so on average, the rate drops over the five years.

First time buyers: If you are buying a home for the first time and your money is in RRSP or invested in stocks, then, wait until the stock market rebounds before purchasing. With a 40% in the stock market, it is not the best time to cash in. First time buyers who already purchased and are waiting to close their transaction but still have their funds in mutual funds or stocks should consult their financial adviser and their lawyer. There are various options, such as borrowing against your portfolio or asking a family member for temporary assistance. Check with the seller if they are willing to extend the closing or abort the sale.

New home purchase: Check with the builder because the closing date might be pushed back. If that is so, then buyers who have already sold their homes must be proactive. With buyers who sold their existing homes, hopefully their sales contract for their current home has an option to extend the closing date. If that is not possible, then reach out to the buyer. Some buyers are accommodating and would either extend the closing date or arrange to complete the transaction and allow you to rent back on a month to month bases. If that is not possible, then the only option is to search for month to month rental accommodation.

Sellers with a tight timeline: With the current outbreak, many sellers are postponing selling their homes. This will create scarcity and trigger a short-term seller’s market. When a home is on the market, strangers visit, and it is easy for homeowners to be infected. It is best to provide good online photos so that buyers can make an informed decision. Ask your realtor to allow only one showing at a time. Leave the home during showing. It is a good idea to sanitize the entire home, from the doorknobs, stairs rail and even the cupboard doors. Ask the visitors to sanitize their hands before entering and to avoid touching things as much as possible. Ask the realtor to check if the buyers should be in self-quarantine. Restrict the visits to a maximum of four people. Children should not be allowed.

Prospective buyers: Prospective buyers should postpone home shopping. It is best to re-evaluate your financing. If Covid-19 prolongs, then, our economy may suffer a heart attack, meaning that everything stops. Resuscitating the economy may be ambitious and recovery might be slow. This can trigger a recession and home prices may drop.   RBC Economics suggests that things are about to get rocky. Senior economist Robert Hogue said that the “light was on in the housing market in February but that it is about to be turned off. The world has changed in March, and so has the outlook for the Canadian housing market. Fears of the spread and social distancing are set to decimate house viewings and buyers are likely to take a wait-and-see approach.”

My prediction: The economy will contract in the first half of 2020 because of Covid-19, coupled with low oil prices and a depreciating Canadian dollar. In the second half, our children will be back at schools and we will be working harder than before. The economy will rebound, and we will recover. According to Lynn Lewis, CPA, CMA, CIM®, CIMA, FCSI®, Portfolio Manager & Investment Advisor at TD Bank, “the worst thing to do during a panic is to panic. That’s because panic leads to hasty, short-term decisions that jeopardize your long-term best interests.”