Undivided co-ownership has long been a gateway to the residential market. But today, with the sharp decline in the affordability of properties, the issue of down payment has become acute.
In Canada, the accessibility of property has never deteriorated at such an accelerated rate, under the combined action of soaring real estate prices and rising mortgage rates.
According to National Bank data released Wednesday, in the “non-condo”, the monthly mortgage payment as a percentage of the pre-tax income of a representative household reached in the first quarter of 2022 41.4% in Montreal, 42% in Ottawa. /Gatineau and 25.8% in Quebec. The whole being to be put in the perspective of a threshold known as of admissibility being situated around 32%.
In condos, the situation is intended to be less tense, with a mortgage payment weight of 28.7%, 23.8% and 17% respectively.
But only for the financial commitment, in the “non-condo” in Montreal, it now takes 51 months of savings to accumulate the minimum down payment given a representative housing price. In the condo, we are talking about 32 months. It’s much less under pressure in Quebec, with 29 and 19 months respectively.
In Ottawa/Gatineau, it’s 59 and 27 months. And we’re talking here about a savings rate of 10% of pre-tax income and a minimum down payment of 5%.
The undivided revisited
The scenarios of co-ownership or pooling of the required funds are therefore revisited. One of them, the undivided, has enjoyed a certain popularity in Montreal, furnishing many neighborhoods and being able to represent, in the middle of the 2010s, up to 15 to 20% of the resale market in certain places. A popularity, however, evolving in the shadow of the rise of divided co-ownerships (condominiums).
We are talking here about a building belonging to several people without it being divided into separate lots. Each co-owner holds a share of the building according to his down payment and claims an occupancy right on his apartment.
“Each of the co-owners then becomes part owner of the inhabited apartment. The same is true for the apartments occupied by its neighbors, ”we read on the site of clubimmobilier.ca.
No board of directors, no contingency fund, no syndicate of co-ownership, no notarized declaration of co-ownership… Which does not prevent specialists, notaries and lawyers from strongly recommending those we
calls on the co-owners to establish a joint ownership agreement between them. And to publish it in the land register. And even if there is no legal obligation, it is also strongly suggested to set up a joint contingency fund to cover contingencies.
Currently, the Civil Code of Québec provides little guidance on the rights and obligations of co-owners. They are thus exposed to conflicting situations, we warn.
What thus becomes an undivided co-ownership organized in the language of notaries will, moreover, be required by the financial institutions which, in Quebec, offer so-called “limited liability” loans under the amendments to the Civil Code. The latter provides that each undivided co-owner can alone grant a mortgage on his share of the building.
Constraints
Nevertheless, the co-owners are subject to so-called joint and several obligations such as, in particular, claims in the form of municipal and school taxes. They are also not immune or immune to financial problems that can strike either of them.
The National Bank adds that mortgage rules usually prohibit co-owners from renting their homes. There remains the problem mentioned at the start: the minimum down payment required is 20% of the acquisition price of the undivided property, and not 5%.
This is enough to keep many first buyers away under current conditions.