Higher interest rates would hurt cottage sales: survey
May 31, 2010
Tony Wong
BUSINESS REPORTER
As the spring cottage market gets underway, the looming spectre of higher interest rates may prick the hopes of some Canadians looking to purchase a recreational property.
One in 10 Canadians say a hike in interest rates would stop them from purchasing a recreational property, according to a poll released Monday by Royal LePage.
“The tightening of lending requirements for second homes, coupled with an increase in taxes and expectations of higher interest rates may have a dampening effect on the recreational property market,” said Phil Soper, CEO of Royal LePage.
The Bank of Canada is widely expected to raise its key overnight interest rate in its scheduled announcement on Tuesday.
The rate is at a historical low of 0.25 per cent. Analysts are divided, but many expect the rate to increase by 25 basis points to 0.5 per cent.
Last week ReMax Ontario Atlantic Canada reported that the recreational property market was showing tentative signs of recovery, with sales up 79 per cent across Canada. However the recovery is lagging behind the primary home market.
“Canadians are concerned about increases in taxation affecting their ability to buy vacation properties,” said the housing services company.
According to Royal LePage, only 43 per cent of Canadians now think recreational properties are considered a “good investment.” This is down substantially from 2009, when 64 per cent considered it a good place to park their dollars.
Higher interest rates mean it is more expensive to keep a second property. It also makes the return on the property less attractive after it is rented out. About a quarter of Canadians say they would rent their property out for a part of the year in order to afford it. That’s up from 13 per cent in 2009.
Another reason may be that the lure of vacation properties in the United States, where prices seemed to have bottomed out may be attracting more Canadians.
“Fewer people are looking to acquire recreational property for its investment value this year, a direct result of rising cottage prices,” said Soper.
Still, while higher interest rates would not be good for a recovering cottage country, it would likely have an even greater impact on the primary home market, said Soper.
“Recreational properties aren’t a necessity, so they tend to be less leveraged. Because it’s a luxury they tend to take more of a second sober look before buying,” said Soper.
Housing analysts are already expecting the second half of the year to be much slower because of the impact of higher rates.
In Ontario, the three most important features to buyers are waterfront and beach access (61 per cent) followed by four season use (47 per cent) and peace and quite at 40 per cent.
There was also a sharp shift in buyer preferences to condominiums.
About 34 per cent of those polled said a cottage by the lake was their No. 1 choice, down from 68 per cent in 2009. Condominiums are the preferred type of property by 24 per cent of buyers, up from just 6 per cent in 2009.
“I think some buyers are wondering why bother going to a second home where you spend 75 per cent of your time fixing it up,” said Soper. “They want a hassle-free experience, and I think you will that even more as you get an aging demographic.”
The poll was conducted by Angus Reid in May, interviewing 1,003 Canadians. It has a margin of error of plus or minus 3.1 percentage points.